(EMN) Eastman Chemical on Expansion Spree

Eastman Chemical Company (EMN) expanded its Benzoflex plasticizer production line at the Estonia location for the second time. The move will boost the Benzoflex production capacity by 11,000 metric tons and is expected to be completed by the end of second-quarter 2012.

Eastman also plans to expand its Admex polymeric plasticizers and Benzoflex plasticizers lines located at Kingsport, Tennessee and Chestertown, Maryland. The expansions will increase the overall production capacity in North America by about 9,000 metric tons and is also expected to be completed by the end of second-quarter 2012.

Benzoflex is a benzoic acid derivative that is used in caulks, sealants, adhesives and coatings. The material is also utilized to offer flexibility to PVC in various applications such as vinyl flooring.

Admex plasticizers support flexible vinyl compounds in several applications, including hoses, gaskets, conveyor belts and PVC-based adhesive tapes. Admex and Benzoflex are non-phthalate plasticizers that are ideal for manufacturers, who look for sustainable substitutes to traditional phthalate plasticizers.

The expansion initiatives represent the growing demand for alternative solutions to traditional phthalate products. The establishment of the additional capacity will support Eastman Chemical’s Performance Chemicals and Intermediates division to meet the rising demand for non-phthalate plasticizers from customers.

Recently, the company declared its results for the second quarter of 2011. The company reported second-quarter earnings of $2.76 per share compared with $1.95 per share a year earlier, beating the Zacks Consensus Estimate of $2.60 per share.

Sales improved across all product lines and revenues climbed 26% year over year to $1.9 billion, driven by higher sales volume and increased selling prices, outpacing the Zacks Consensus Estimate of $1.8 billion.

The higher sales volume was primarily attributed to growth in plasticizer product lines, increased demand for acetyl chemicals, the fourth quarter 2010 restart of a previously idled olefins cracking unit at the Texas facility, and stronger end-market demand, especially in the packaging, transportation, and durable goods markets. The increase in selling prices resulted from higher raw material and energy costs.

Based on the strong first half 2011 results, the company expects to continue to deliver earnings growth in the second half of 2011.

The results for the second quarter were driven by strong sales volumes and higher prices and Eastman expects the trend to continue into the third quarter as well. It expects to incur costs related to planned and unplanned shutdowns that are expected to be approximately $25 million higher in the second half of 2011 compared with the first half.

Even with these higher costs, Eastman anticipates third-quarter 2011 earnings per share to be slightly higher than third-quarter 2010 earnings per share of $2.22 and expects full-year 2011 earnings per share to be slightly higher than $9.25.

Eastman Chemical’s diversified chemical portfolio, along with its integrated and diverse downstream businesses, is driving earnings. Eastman benefits from business restructuring and cost-cutting measures. The company has sold unprofitable units and closed down poorly performing ones.

The company, however, faces volatility in raw material and energy costs, higher pension expenses and other growth-related costs.

Eastman competes with large multinational companies, such as Celanese Corp. (CE) and The Dow Chemical Co. (DOW) and EI DuPont de Nemours & Co. (DD).

Currently, Eastman has a short-term (1 to 3 months) Zacks #3 Rank (Hold) and a long-term (6 months and higher) Outperform recommendation.

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