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Eastman: Earnings growth has returned

Hank Hayes • Feb 1, 2018 at 8:00 PM

KINGSPORT — Earnings growth is back.

And a coal gasification explosion and two hurricanes couldn’t stop it.

Eastman Chemical Co. on Thursday reported higher earnings and revenues for 2017 after its earnings growth streak ended in 2016.

“Looking at full year 2017, we delivered a compelling 13 percent increase in adjusted EPS (earnings per share) and $1 billion of free cash flow,” Mark Costa, Eastman board chair and CEO, said in a news release. “Additionally, we ended the year with both solid fourth-quarter results and the safe and efficient repair of our coal gasification facility with minimal disruption to our customers. This performance demonstrates the strength of our portfolio and the benefits of our innovation-driven growth model. Our results also reflect the tremendous capability and determination of the Eastman team that is exemplified in our response to the coal gasification incident and two U.S. hurricanes while driving top line growth at the same time. We remain confident that execution of our strategy will continue to deliver outstanding results going forward.”

Costa projected adjusted EPS growth in 2018 to be between 8-12 percent.

Eastman’s Oct. 4, 2017 explosion in the Kingsport site’s coal gasification area disrupted manufacturing operations. However, there were no serious injuries and no impact to the environment, according to Eastman.

“Due to the unique advantages of our scale and integration, as well as the dedication of our teams of Eastman employees and contractors, the company was able to safely and efficiently repair the facility,” Eastman reported. “The repairs to the coal gasification facility were mechanically complete in late December 2017, and last week the facility resumed normal operations. Net costs of the disruption, repairs and reconstruction of the coal gasification facility, and restart of operations reduced fourth-quarter 2017 pretax earnings by $112 million. In addition, lost sales revenue attributed to the coal gasification disruption was limited to approximately $40 million, primarily in the Chemical Intermediates segment. The cash impact of the incident in fourth quarter 2017 was minimal, with working capital benefits and insurance reimbursement largely offsetting cash expenditures for disruption and repairs.”

Eastman noted that as a result of Congress passing tax reform, the company recognized a net increase to earnings of $421 million in fourth quarter 2017. This increase, said Eastman, primarily resulted from a one-time revaluation of deferred tax liabilities partially offset by a one-time transition tax on deferred foreign income and adjustments to valuation allowances on foreign tax credit carryforwards.

“These earnings impacts of recent tax law changes in fourth quarter 2017 are provisional and are subject to adjustment during the measurement period of up to one year following the December 2017 enactment of the Tax Cuts and Jobs Act,” said the Eastman release.

Sales revenue was $9.5 billion in 2017, compared to about $9 billion in 2016. Sales revenue for 2017 increased in three of four of the company’s operating segments.

In 2017, cash from operating activities was $1.66 billion and free cash flow (cash from operating activities minus capital expenditures) was $1 billion.

Eastman said priorities for uses of available cash include payment of the quarterly dividend, repayment of debt, funding targeted growth initiatives and repurchasing shares. In 2017, the company returned $646 million to stockholders, with $296 million of dividends and $350 million of share repurchases. In addition, the company repaid $350 million of debt, with total borrowings reduced by $163 million including the negative impact of currency translation on the carrying value of euro-denominated borrowings.

Eastman’s stock closed at about $98 per share on Thursday, down slightly from Wednesday.

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