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How did Eastman pull it off?

Hank Hayes • Feb 5, 2018 at 8:30 AM

KINGSPORT – Call it a perfect storm.

Kingsport-based Eastman Chemical’s return to earnings growth in 2017 featured a number of moving parts: Volume growth in specialty products through innovation and market development; aggressive cost management; $1 billion in free cash flow; increasing its dividend for the eighth consecutive year; and returning nearly $650 million to stockholders.

And, yes, rebounding from an Oct. 4, 2017 coal gasification explosion that was repaired by the end of the year and has since restarted production.

“I’m pleased to report that we met or exceeded the financial targets we set last January,” Eastman Board Chair and CEO Mark Costa told Wall Street analysts in a conference call on Friday. “On the EPS (earnings per share) front, we exceeded our goals through the strength of our performance in our innovative specialty businesses. A key driver to its success was our continued strong growth, improving product mix and cost structure leverage.”

The company reported making more than a half billion dollars in 2017 than in 2016 – with revenue moving to more than $9.5 billion. Eastman delivered a 13 percent increase in adjusted earnings per share.

Costa said strong contributors to Eastman’s year were its specialty chemicals, including Tritan used in molded products, Saflex interlayers and Crystex tire additives.

“As I’ve said before, we are creating our own growth through innovation and leadership in specialty markets,” Costa insisted.

Eastman is projecting earnings growth to be 8-12 percent this year compared with 2017, and free cash flow to be about $1.1 billion. The company expects to benefit from tax reform and increase share repurchases.

As for the coal gasification incident, Costa again pointed to Eastman’s “rapid recovery” through a safety-first focus of employees and contractors. The site is key to producing Eastman’s acetyl stream of products.

“This was a significant event, and we are exceptionally proud of the actions of our team,” Costa noted. “ … The team demonstrated that Eastman is exceptional rising to the challenge … we had an absolutely flawless startup which is a testament to our talented engineering and manufacturing teams … for example, we rebuilt a five-story pipe bridge with 117 pipes and there were no leaks on startup. We replaced hundreds of valves, some of which were over 2,000 pounds.”

Lost sales revenue due to the incident, according to Eastman, was about $40 million.

“The cash impact of the incident in fourth quarter 2017 was minimal, with working capital benefits and insurance reimbursement largely offsetting cash expenditures for the disruption and repairs,” Eastman reported.

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