Tags: Eastman | Chemical | solid | EMN

Eastman Chemical Solid, Despite Material Costs

By    |   Thursday, 17 Nov 2011 12:54 AM

The share price of Eastman Chemical (EMN) took a mid-summer dive when the company softened its guidance for the remainder of the year. The lower share price may have been a buying opportunity for a stock with a record of solid performance during a year of volatile raw material costs.

Eastman Chemical produces plastics and fibers as well as chemicals. The company divides its business into the segments of coatings, adhesives, specialty polymers and inks (CASPI), fibers and performance chemicals and intermediates (PCI), and specialty plastics. PCI generates the highest amount of revenue and fibers posts the highest levels of operating earnings.

That said, the first three segments produce earnings at similar levels and specialty plastics is a smaller division in regard to financial performance.

For the third quarter of 2011, revenues of $1.81 billion were up 20 percent from $1.51 billion a year earlier. Revenue growth was primarily due to an average of 16 percent higher prices. Net income for the quarter was $1.18 per share, up from $1.11.

For the full year, Eastman Chemical is forecast to earn $4.65 per share, compared to $3.54 earned in 2010.

Raw material prices

The third quarter earnings release from Eastman Chemical noted the company was able to raise prices faster than the raw material cost increases. Major energy and material costs were 10 percent to 50 percent higher compared to a year earlier.

Management noted that sales in the fourth quarter might stagnate as customers work off lower-cost stocks of inventory before buying more of the company's products.

For 2012, the company projects unit sales growth from capacity additions and the acquisition of two smaller chemical companies during the current year. Company management is forecasting higher earnings for 2012, but the Wall Street consensus earnings estimate is just $4.56.

After the third quarter earnings report, the analysts at JP Morgan downgraded EMN to neutral from overweight. However, a few weeks later the same analysts increased their target price for the stock by $3.

The company next reports on Jan. 26.

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The share price of Eastman Chemical (EMN) took a mid-summer dive when the company softened its guidance for the remainder of the year. The lower share price may have been a buying opportunity for a stock with a record of solid performance during a year of volatile raw...
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Thursday, 17 Nov 2011 12:54 AM
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