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Chairman and CEO Brian Ferguson says Eastman ready to weather recession

Sharon Caskey Hayes • Oct 24, 2008 at 12:00 AM

KINGSPORT — Eastman Chemical Co. is prepared to weather the economic storm and impending recession, Chairman and Chief Executive Officer Brian Ferguson said Friday.

“We’ve seen recession before. We’ve seen bad ones, we’ve seen mild ones. We see a bad one coming,” Ferguson told industry analysts a day after the company released its third quarter sales and earnings.

“The bottom line is — we are well-positioned to weather an economic downturn and deliver very solid results next year.”

Eastman posted net earnings of $100 million or $1.33 per diluted share in the third quarter, up from $20 million or 24 cents per share in the same period of 2007. Sales revenue increased 8 percent in the quarter to $1.8 billion.

Ferguson told analysts that higher selling prices helped fuel the company’s bottom line despite price increases in raw materials.

“We remain profitable even in a difficult business climate,” he said.

And, he said, “given that everyone believes that we are in a recession or soon will be, I’m going to take a minute to describe why we are better positioned today to withstand challenging economic conditions compared with earlier this decade.”

First, he said, Eastman has improved its product portfolio since the nation’s last major downturn. The company has sold under-performing businesses such as polyethylene, fine chemicals and several PET plants.

Plus, Ferguson said, Eastman employs about 10,000 people worldwide today vs. more than 15,000 people during the last downturn.

“And today we are closely managing all discretionary costs across the country,” Ferguson said.

Kurt Espeland, Eastman’s new chief financial officer, said Eastman has a strong balance sheet supported by solid business and financial strategies.

“I have been in this seat coming on two months now, and given the continued turmoil in the marketplace it is truly an interesting time. But I feel good about the prospects for Eastman Chemical. And as CFO, I still sleep very well at night,” Espeland said.

Some industry analysts asked about the status of Eastman’s planned industrial gasification project in Beaumont, Texas. The $1.6 billion plant was initially expected to come online in late 2011 or early 2012.

On Friday, Ferguson said the project has been slowed. Midway through the engineering and design, the company determined that capital costs would be too high, so it started searching for alternatives to make the project more efficient and cost effective.

“We chose to slow down our activities and do some more homework on process simplification and optimization. As a result, we have a better design, and we firmly believe that capital costs will come down and improve the financial outlook for this project further,” Ferguson said.

“This also provides some time for the banks to get settled down again before we seek financing for the project,” he said.

Ferguson said he still believes Eastman has a unique opportunity to create value in the Beaumont project.

“There is economic chaos all around us. We’re going to take our time, pace this well, and when the time is right we think we’re going to have a very good project,” he said.

As for the rest of this year, Ferguson said he expects fourth quarter earnings per share from continuing operations to be near the low end of analyst expectations, which is 90 cents per share.

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