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Why is Eastman's bottom line growing?

Hank Hayes • Aug 6, 2018 at 8:30 AM

KINGSPORT – Eastman Board Chair and CEO Mark Costa seems to think the Kingsport-based global specialty chemicals producer can work around President Trump’s trade war.

Still, “trade uncertainty” was listed as a near-term headwind as Costa recently talked with Wall Street analysts about Eastman’s positive second quarter that included earnings growth and higher revenues in all four operating segments.

“One sensitivity is trade and the tariffs that could be implemented by the U.S. and China in the coming months,” Costa noted. “At this point, we see no exposure to any of the U.S. tariffs that have been implemented or proposed, which highlights another benefit of vertical integration for most of our raw materials. Regarding the proposed tariffs, we see some modest but manageable exposure with our mitigating actions.”

But Eastman Executive Vice President and Chief Financial Officer Curt Espeland pointed out trade conditions have halted the company’s effort to either sell or monetize its Texas-based ethylene operations.

“However, current market conditions combined with current geo-political environment on trade has made it very difficult to move forward at this time,” Espeland told analysts.

Eastman announced last April the company was evaluating China’s intention to impose tariffs on more than 100 U.S. product categories.

Costa said that Eastman, meanwhile, remains on track to generate $1.1 billion of free cash flow and expects adjusted earnings per share growth to be between 10-14 percent in 2018.

“We continue to make great progress executing our strategy with strong second quarter operating results consistent with our expectations,” Costa insisted. “Our results demonstrate the strength of our specialty portfolio with eight percent volume growth in Advanced Materials and Additives and Functional Products combined during the quarter. As I’ve said many times before, we’re creating our own growth through innovation and leadership in specialty markets.”

During the first half of the year, Eastman returned $410 million to stockholders in dividends and share repurchases.

The company says it’s on track to deliver more than $350 million in new revenue during the year, and Costa said two reasons are its window and paint protection film products and crop protection product.

LLumar, the paint protection film product, can help a car “virtually repair itself when scratched,” and has increased Eastman’s reach with car dealerships by 30 percent, Costa said.

“We are on track to grow that business at more than three times the market rate,” Costa told analysts.

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