A month has gone by since the last earnings report for Eastman Chemical (EMN). Shares have added about 7.8% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Eastman Chemical due for a pullback? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Eastman Chemical’s Q2 Earnings Lag, Sales Top Estimates
Eastman Chemical logged profit of $27 million or 20 cents per share for the second quarter of 2020, down from the year-ago profit of $258 million or $1.85 per share.
Barring one-time items, earnings were 85 cents per share for the quarter, down from $1.99 in the year ago-quarter. Earnings also missed the Zacks Consensus Estimate of $1.03.
Revenues dropped around 19% year over year to $1,924 million in the quarter, hurt by lower sales volumes resulting from the impacts of the coronavirus pandemic and lower selling prices due to reduced raw material prices. The top line, however, surpassed the Zacks Consensus Estimate of $1,774.8 million.
The company saw lower volumes in transportation, building & construction, consumer durables and textiles end markets, partly offset by gains in consumables, personal care & wellness, medical and agriculture.
Segment Review
Revenues from the Additives and Functional Products division fell 17% year over year to $685 million for the reported quarter, hurt by lower volumes and selling prices as well as less favorable product mix. Volumes fell in coatings additives, tire additives and aviation fluids products sold in transportation end markets.
Revenues from the Advanced Materials unit slipped 19% year over year to $567 million. The decline can be attributed to lower volumes and less favorable product mix.
Chemical Intermediates sales dropped 27% year over year to $461 million, hurt by lower selling prices and sales volumes. Lower raw material prices impacted selling prices. Volumes fell partly due to the unfavorable impacts of coronavirus on demand.
Fibers segment sales edged down 1% year over year to $211 million. Acetate tow sales volumes rose modestly in the quarter. Demand for textiles products was affected by the pandemic.
Financials
Eastman Chemical ended the quarter with cash and cash equivalents of $704 million, a nearly four fold year-over-year increase. Net debt at the end of the quarter was $5,429 million, down around 12% year over year.
Eastman Chemical generated cash from operating activities of $436 million and free cash flow of $339 million during the reported quarter.
The company also returned $119 million to its shareholders through share repurchases and dividends during the quarter.
Outlook
Eastman Chemical did not provide earnings guidance for full-year 2020 due to higher level of uncertainties related to the impacts of coronavirus. The company noted that it is on track to deliver roughly $150 million of cost savings for 2020 in response to the pandemic. It also expects to generate more than $1 billion of free cash flow this year.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -9.52% due to these changes.
VGM Scores
Currently, Eastman Chemical has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren’t focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Eastman Chemical has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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