Net earnings of $1.38 per share of Eastman Chemical Company (EMN) in the third quarter of 2009 bettered the Zacks Consensus Estimate of $1.13 per share. Year over year, earnings inched up 2% on lower costs. However, lower selling prices and volumes across all major segments drove a 21% year over year fall in Eastman’s top line of $1.3 billion in the quarter. The 2008 period had also included some sales from now-divested businesses.

Coatings, Adhesives, Specialty Polymers and Inks: An 18% year over year drop in sales in the segment led to lower sales volume due to reduced demand from the automotive, building and construction, and packaging markets. However, cost reduction increased operating earnings by 53% year over year.

Fibers: Revenues declined 5% on lower sales volume primarily for acetyl chemical products. Operating earnings, however, increased 21% on higher selling prices and cost reduction actions partially.

Performance Chemicals and Intermediates: Sales revenue declined 30% due to lower selling prices. Operating earnings also halved to $33 million in the quarter.

Performance Polymers: Sales declined 27% due to lower selling prices, particularly for paraxylene, while sales volume remained flat year over year. Operating losses amounted to $10 million in the quarter, compared with earnings of $1 million in third quarter 2008.

Specialty Plastics: Sales revenue declined 21% due to weak demand for plastic resins, including copolyester products sold to the consumer and durable goods markets. Operating earnings increased modestly to $13 million in the quarter from $6 million year over year on lower costs.

Outlook

Eastman Chemical, which makes chemicals, plastics and fibers used in everything from paints to furniture, expects to benefit from a better product mix and cost reduction measures in the fourth quarter of 2009. However, the company expects volatility in raw material and energy costs and a decline in sales volume due to normal seasonality having a negative affect on the upcoming quarter.

Eastman expects fourth-quarter 2009 earnings per share to decline sequentially but to be slightly above market expectations of 85 cents per share.

Zacks Investment Research
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