“The world has changed. Times are tough. But we will get through and emerge a stronger company,” Ferguson said. “I am sure of this because I am sure of Eastman. We know who we are and where we’re going.”
Ferguson addressed the region’s leaders during an annual breakfast hosted by the company at the MeadowView Marriott Conference Resort and Convention Center.
He said 2008 was a “Tale of Two Years” for Eastman. During the first nine months, sales revenue, operating earnings and earnings per share were all higher than the previous year despite a weakening economy, volatile raw material and energy costs, and hurricanes that disrupted the supply chain.
“Even in this difficult environment, we were solidly on track to exceed the strong results we had posted in 2007,” Ferguson said.
But product demand plunged in October, a trend that only intensified in November and December.
“Almost overnight, buyers stopped placing orders, volumes dropped, and our plants dramatically reduced production causing costs to skyrocket,” Ferguson said.
Fourth-quarter results plunged and pulled down the company’s full-year performance.
“So far, 2009 is starting where 2008 left off. Demand continues to be weak across all businesses. Customers remain cautious in placing orders, and our plants continue to run at decreased levels,” Ferguson said, adding business is picking up, “though so far it’s slow and incremental.”
He said Eastman has survived recessions before — lastly in 2001 following the 9/11 terrorist attacks. Ferguson said Eastman faced a unique set of challenges during that downturn.
“We had businesses that were creating a drag on profits, we had too much debt, and we were larger in some places where we needed to be smaller,” he said.
Ferguson said today’s recession is different from 2001, but so is Eastman.
“Simply put, we are a stronger company. And that didn’t happen by accident,” he said.
Ferguson said that since 2002, Eastman has shed 30 manufacturing facilities, reduced its work force and streamlined its businesses, and cut net debt in half.
“I am proud to say that today we are a leaner, more stable and profitable operation than we were eight years ago,” Ferguson said. “This difference has allowed us to head into the current economic storm from a position of strength.
“Now don’t get me wrong, we are being hit hard by this recession. But we’re hitting back just as hard.”
In December, Eastman announced it would reduce costs by $100 million in 2009, including $80 million in labor-related costs. Cuts include overtime, contract and part-time labor, and a reduction in management staff.
Meanwhile, the company is focused on strong cash generation and plans to reduce capital spending this year — from more than $600 million last year to $350 million to $450 million in 2009.
Ferguson said Eastman’s Project Reinvest, a five-year plan to pump $1.3 billion into the Kingsport manufacturing site, is still on track. The company spent just over $250 million in 2008 and plans to spend about the same amount this year.
“That’s money being spent here in Kingsport, with the money going into the local economy,” Ferguson said.
Eastman is also investing in the expansion of its Tritan copolyester manufacturing operation in Kingsport and expects to have additional capacity online in 2010.
The company recently completed the transformation of its South Carolina plant, which produces PET based on Eastman’s new IntegRex technology.
Eastman is expanding its capacity to make acetate tow, which is used in cigarette filters, to meet growing demand in Europe and Asia.
And later this year the company is expected to complete front-end engineering and design work for its industrial gasification project in Beaumont, Texas.
“The bottom line is Eastman’s businesses are solid. This recession has not fundamentally changed how we — or our customers — view them,” Ferguson said.
He said the company is making decisions based on the belief that the recovery will start within a year.
Ferguson thanked the local communities for their support during his tenure as CEO of Eastman. He’s headed the company since 2002 and plans to retire in May, although he’ll remain executive chairman through 2010.
James “Jim” Rogers, now president and head of Eastman’s Chemicals and Fibers Business Group, will replace Ferguson in the CEO role.
Rogers said he’s up to the challenge.
“I want to lead a team of people who are the best in the world at what they do. I know I have that opportunity,” Rogers said.
Eastman is headquartered in Kingsport and employs about 10,500 employees worldwide, including 7,000 in Kingsport.