Earnings Scorecard: Eastman Chemical - Analyst Blog

Shares of Eastman Chemical Company (EMN) have been shooting up since the company reported solid second quarter 2010 results on July 30, 2010. The company outperformed the Zacks Consensus Estimate by 39 cents and its own guidance by 45 cents. Analysts and investors have maintained a positive outlook on the stock after an impressive second quarter.

 

 

Eastman Chemical Company earned $2.05 per share (excluding one-time charges) in the second quarter of 2010, outperforming the Zacks Consensus Estimate of $1.66. Results substantially surpassed Eastman’s own guidance of $1.60 per share. Earnings nearly doubled from 86 cents in the year-ago quarter. The robust growth in bottom line came from a healthy top line.

 

 

With sales improving across all product lines, quarterly revenues climbed 38% to $1.7 billion, outshining the Zacks Consensus Estimate of $1.6 billion. Eastman recorded higher volumes with improving demand while pricing gains brushed off the negative impact of higher raw material and energy costs.

 

 

Ramping up capacities based on this demand uptake lowered costs per unit. Operating earnings of $260 million reflected a twofold increase over $128 million in the second quarter of 2009. Operating margins came in at 15% versus last year’s 10%.

 

Detailed discussion of the earnings release can be found at Eastman Beats on Volume Gain

 

 

The following table reflects a strong agreement among the analysts regarding Eastman’s outlook. In particular, we see a notable number of estimate revisions over the past 30 days. Analysts have remained bullish on the stock since the company announced its robust second quarter earnings guidance last month. The second quarter results further added to the positive sentiments.

 

For the upcoming quarter, out of 10 analysts covering the stock, 9 have revised their estimates upward with no downward revisions. For the full year 2010, 8 of the 10 analysts covering the stock have upped their estimates, with none moving in the opposite direction. Looking forward to 2011, the trend is more or less similar. Out of 11 analysts, 8 raised their estimates with no one coming up with a negative revision.

 

 

  

 

Positive analysts’ revisions over the last 30 days pushed the Zacks Consensus Estimate for the immediate quarter up by 29 cents to $1.61 per share from $1.32. For the full year, earnings estimates shot up by a sharp 69 cents to $6.09 per share from $5.04.

 

Over the last week, the Zacks Consensus Estimate has gone up by 10 cents and 28 cents for the third quarter and full year 2010, respectively.

 

 

 Our Take: Eastman Upgraded

 

Eastman Chemical’s diversified chemical portfolio, along with its integrated and diverse downstream businesses, is driving earnings. Kingsport, Tennessee based Eastman benefits from business restructuring and cost-cutting measures. The company’s Performance Chemicals business continues to outperform with an enhanced product mix achieved from the Genovique Specialty acquisition. Strong Specialty margins look increasingly credible. We believe the business should see higher copolyester sales post Tennessee facility expansion in 2011.

 

Eastman is expected to benefit from the production ramp-ups at the Texas facilities in the CASPI business, the second largest contributor to revenues. In the Performance Polymer business, Eastman has reversed losses. We are positive on the company’s plans of divesting its PET business under the segment. Analysts and investors are bullish on the stock, as reflected by the sharp rise in estimates for the upcoming quarter and full year 2010, which have led to the recent surge in Eastman’s share prices. We have upgraded Eastman to Outperform from the previous Neutral recommendation.

 

Currently, Eastman is a short-term (1 to 3 months) Zacks #1 Rank (“Strong Buy”) stock.