Eastman Chemical Company (NYSE:EMN) announced its fourth-quarter and full-year 2022 financial results.

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• Strengthened our leadership in the circular economy by achieving several key milestones for all three planned polyester recycling facilities.
• Demonstrated commercial excellence by raising price to more than offset ~$1.3 billion inflation from higher raw material, energy, and distribution costs.
• Returned approximately $1.4 billion to shareholders in 2022.
• In fourth quarter:
  • primary demand slowed, destocking accelerated across all end markets, and the rapid spread of COVID-19 in China weakened demand at the end of the fourth quarter,
  • adjusted EPS included a negative impact of approximately $0.20 from foreign currency exchange rates, and
  • adjusted EPS included a negative impact of approximately $0.15 resulting from Winter Storm Elliott,
• Controllable actions give confidence we can deliver a strong 2023, including cost reductions of more than $200 million net of inflation.

“We ended the year with a challenging fourth quarter primarily due to lower demand in key end markets and geographies, customer inventory destocking beyond normal seasonality, and limited benefit from lower raw material and energy costs in this reduced demand environment,” said Mark Costa, Board Chair and CEO. “Despite the significant challenges in the fourth quarter and throughout the year, we demonstrated commercial excellence in our pricing, made progress on new business revenue growth, and returned significant cash to shareholders. We also made significant progress on our circular platform during the year, and this remains an exciting opportunity for Eastman to create considerable value as a leader in providing a solution for the global plastic waste crisis. We remain confident in the resiliency of our portfolio and the sustainability of our strong cash flow going forward.”

Corporate Results 4Q 2022 versus 4Q 2021

Sales revenue decreased 12 percent as 12 percent lower sales volume/mix, a 7 percent unfavorable impact from divested businesses, and a 3 percent unfavorable impact from foreign currency exchange rates were partially offset by 10 percent higher selling prices.

Sales volume/mix decreased due to reduced demand, particularly in consumer durables and building and construction end markets, as well as broad-based customer inventory destocking beyond normal seasonal levels in North America, Europe, and China. In December, destocking accelerated and a significant drop in demand in China was due to the rapid spread of COVID-19. Selling prices increased across all segments in response to significantly higher raw material, energy, and distribution prices.

EBIT decreased due to lower sales volume/mix and unfavorable foreign currency exchange rates, partially offset by favorable spreads as higher selling prices more than offset higher raw material, energy, and distribution costs and lower selling, general, and administrative (SG&A) expenses due to variable compensation. Severely cold temperatures across the U.S. in late December resulting from Winter Storm Elliott had an estimated negative impact on EBIT of approximately $20 million.

Segment Results 4Q 2022 versus 4Q 2021

Advanced Materials – Sales revenue decreased 5 percent as 12 percent lower sales volume/mix and a 4 percent unfavorable impact from foreign currency exchange rates were partially offset by 11 percent higher selling prices.

Sales volume/mix decreased primarily due to reduced demand and aggressive customer inventory destocking for specialty plastics product lines, particularly in consumer durables end markets. Weakness in the automotive market, especially in China towards the end of the quarter, also had an unfavorable impact on sales volume. Selling prices were higher across all product lines due to higher raw materials and energy prices.

EBIT decreased primarily due to lower sales volume/mix and unfavorable foreign currency exchange rates. Despite raw material prices moving lower during the fourth quarter, slow demand reduced the benefit of these lower costs.

Additives & Functional Products – Sales revenue decreased one percent as 12 percent higher selling prices were more than offset by 9 percent lower sales volume/mix and a 4 percent unfavorable impact from foreign currency exchange rates.

Higher selling prices across the segment were led by care additives due to higher raw material, energy, and distribution prices. Sales volume/mix was lower in all product lines and was attributed to reduced demand and customer inventory destocking, particularly for building and construction and personal care end markets.

EBIT decreased due to lower sales volume/mix and an unfavorable impact from foreign currency exchange rates.

Chemical Intermediates – Sales revenue decreased 21 percent primarily due to 25 percent lower sales volume/mix, partially offset by 5 percent higher selling prices.

Sales volume/mix was lower across all product lines attributed to reduced end market demand and customer inventory destocking across all key end markets and planned manufacturing maintenance. Higher selling prices were due to higher raw material, energy, and distribution prices.

EBIT decreased due to lower sales volume/mix.

Fibers – Sales revenue increased 33 percent primarily due to 26 percent higher selling prices and 8 percent higher sales volume/mix.

Higher selling prices for acetate tow and textiles were due to higher raw material, energy, and distribution prices. Sales volume/mix was higher mostly due to fulfillment of constrained demand associated with limited capacity availability resulting from planned and unplanned manufacturing maintenance.

EBIT increased due to recovery of margins as higher selling prices made progress returning adjusted EBIT margins to acceptable performance levels, partially offset by higher raw material, energy, and manufacturing costs.

Corporate Results 2022 versus 2021

Sales revenue increased one percent due to 14 percent higher selling prices, partially offset by an 8 percent unfavorable impact from divested businesses, 3 percent lower sales volume/mix, and a 2 percent unfavorable impact from foreign currency exchange rates.

Higher selling prices for all operating segments were due to approximately $1.3 billion of higher raw material, energy, and distribution costs. Sales volume/mix was lower due to significantly lower end-market demand and aggressive customer inventory destocking, mostly in the fourth quarter, and limited product availability in the first nine months of the year resulting from planned and unplanned manufacturing maintenance.

EBIT decreased due to lower sales volume/mix in the fourth quarter, an unfavorable impact from divested businesses, higher costs resulting from planned and unplanned manufacturing maintenance, an unfavorable impact from foreign currency exchange rates, and continued investment in growth. These factors were partially offset by higher spreads and lower SG&A expense due to variable compensation.

Segment Results 2022 versus 2021

Advanced Materials – Sales revenue increased 6 percent due to 13 percent higher selling prices, partially offset by 4 percent lower sales volume/mix and a 3 percent unfavorable impact from foreign currency exchange rates.

Higher selling prices across all product lines were due to significantly higher raw material, energy, and distribution prices. Lower sales volume resulted from reduced demand and aggressive destocking in consumer durables and building and construction end markets, primarily in the fourth quarter, as well as planned and unplanned manufacturing maintenance. The lower volume was partially offset by more favorable product mix due to increased sales of premium products including head-up display interlayers and specialty plastics into high-value applications like medical.

EBIT decreased due to lower sales volume, an unfavorable impact from foreign currency exchange rates, higher manufacturing costs, and increased growth spending, partially offset by more favorable product mix. Spreads were flat as higher selling prices offset higher raw material, energy, and distribution costs.

Additives & Functional Products – Sales revenue increased 17 percent due to 18 percent higher selling prices and 3 percent higher sales volume/mix, partially offset by a 4 percent unfavorable impact from foreign currency exchange rates.

Higher selling prices across all product lines were due to significantly higher raw material, energy, and distribution prices. Sales volume/mix growth in care additives and animal nutrition was partially offset by a decline in building and construction and industrial end markets due to a deceleration of demand and customer inventory destocking that occurred in the fourth quarter.

EBIT increased due to higher spreads as selling prices more than offset higher raw material, energy, and distribution costs and lower SG&A expense, partially offset by an unfavorable impact from foreign currency exchange rates.

Chemical Intermediates – Sales revenue increased 6 percent due to 16 percent higher selling prices partially offset by 8 percent lower sales volume/mix and a 2 percent unfavorable impact from foreign currency exchange rates.

Higher selling prices across all product lines were due to significantly higher raw material, energy, and distribution prices and tight market conditions. Lower sales volume/mix was primarily driven by a deceleration of demand and customer inventory destocking that occurred in the fourth quarter, particularly for the building and construction and industrial end markets.

EBIT decreased due to lower sales volume/mix, partially offset by increased spreads as higher selling prices more than offset higher raw material, energy, and distribution costs and lower SG&A expense.

Fibers – Sales revenue increased 14 percent primarily due to 15 percent higher selling prices.

Higher selling prices were due to significantly higher raw material, energy, and distribution prices and higher manufacturing costs.

EBIT was relatively unchanged as increased spreads due to higher selling prices more than offsetting higher raw material, energy, and distribution costs, were offset by higher manufacturing costs resulting from planned and unplanned manufacturing maintenance.

Cash Flow

In 2022, cash from operating activities was approximately $1 billion, compared to $1.6 billion in 2021. The decline was primarily due to lower adjusted EBITDA, higher variable compensation payouts, and an increased use of cash in working capital driven by continued inflationary pressures. In 2022, the company returned approximately $1.4 billion to stockholders through share repurchases and dividends. See Table 5. Priorities for uses of available cash for 2023 include organic growth investments, payment of the quarterly dividend, bolt-on acquisitions, and share repurchases.

2023 Outlook

Commenting on the outlook for full-year 2023, Costa said: “We enter 2023 during a challenging period for the global economy characterized by significant inventory destocking, soft end-market demand, and uncertainty about the full year. As we developed our outlook, we included volume/mix expectations that reflect a manufacturing recession scenario that began in the fourth quarter. We expect aggressive inventory destocking to predominantly conclude in the first quarter with modest volume recovery in the back half of the year. In this context, we are taking actions to reduce manufacturing, supply chain and non-manufacturing costs by a total of more than $200 million in 2023, net of inflation. We intend to maintain our demonstrated price discipline in our specialty product lines in order to recover spreads. Our raw material, energy and distribution costs increased by approximately $1.3 billion in 2022 and we expect these costs to moderate in 2023. We also expect significant improvement in our Fibers earnings to more sustainable levels. And our innovation wins will create growth above end markets through the year. Pension and other post-employment benefits costs are expected to increase by approximately $110 million and the annualized impact of a strong U.S. dollar is also expected to be a headwind. Based on this economic scenario and the actions that we are taking, we expect to grow adjusted 2023 EPS by between 5 and 15 percent, excluding the approximately $0.75 pension headwind. We are also taking a range of actions to improve our operating cash flow to be approximately $1.4 billion.”

The full-year 2023 projected adjusted diluted EPS excludes any non-core, unusual, or nonrecurring items. Our financial results forecasts do not include non-core items (such as mark-to-market pension and other postretirement benefit gain or loss, and asset impairments and restructuring charges) or any unusual or non-recurring items because we are unable to predict with reasonable certainty the financial impact of such items. These items are uncertain and depend on various factors, and we are unable to reconcile projected adjusted diluted EPS excluding non-core and any unusual or non-recurring items to reported GAAP diluted EPS without unreasonable efforts.

Forward-Looking Statements

This news release includes forward-looking statements concerning current expectations and assumptions for future global economic conditions; logistics challenges, supply chain issues for customers and suppliers, and raw material and energy costs; competitive position and acceptance of specialty products in key markets; mix of products sold; cost reductions; and revenue, earnings, adjusted diluted EPS, cash flow, share repurchases, and cash and cash equivalents for full-year 2023. Such expectations and assumptions are based upon certain preliminary information, internal estimates, and management assumptions, expectations, and plans, and are subject to a number of risks and uncertainties inherent in projecting future conditions, events, and results. Actual results could differ materially from expectations and assumptions expressed in the forward-looking statements if one or more of the underlying assumptions or expectations prove to be inaccurate or are unrealized. Important factors that could cause actual results to differ materially from such expectations are and will be detailed in the company’s filings with the Securities and Exchange Commission, including the Form 10-K filed for 2021, and the Form 10-K to be filed for 2022, both of which are or will be available, on the Eastman web site at www.eastman.com in the Investors, SEC filings section. These statements are based on our current beliefs and expectations and speak only as of the date of this release. We do not undertake any obligation to publicly update any forward-looking statements.

Conference Call and Webcast Information

Eastman will host a conference call with industry analysts on January 27, 2023, at 8:00 a.m. ET. To listen to the live webcast of the conference call and view the accompanying slides and prepared remarks, go to investors.eastman.com, Events & Presentations. The slides and prepared remarks to be discussed during the call and webcast will be available at investors.eastman.com at approximately 5:00 p.m. ET on January 26, 2023. To listen via telephone, the dial-in number is +1 (844) 200-6205, passcode number 488131. A web replay, a replay in downloadable MP3 format, and the accompanying slides and prepared remarks will be available at investors.eastman.com, Events & Presentations. A telephone replay will be available continuously from approximately 1:00 p.m. ET, January 27, 2023, to 11:59 p.m. ET, February 6, 2023, at +1 (866) 813-9403 passcode 627518.

Founded in 1920, Eastman is a global specialty materials company that produces a broad range of products found in items people use every day. With the purpose of enhancing the quality of life in a material way, Eastman works with customers to deliver innovative products and solutions while maintaining a commitment to safety and sustainability. The company’s innovation-driven growth model takes advantage of world-class technology platforms, deep customer engagement, and differentiated application development to grow its leading positions in attractive end markets such as transportation, building and construction, and consumables. As a globally inclusive and diverse company, Eastman employs approximately 14,500 people around the world and serves customers in more than 100 countries. The company had 2022 revenue of approximately $10.6 billion and is headquartered in Kingsport, Tennessee, USA. For more information, visit www.eastman.com.

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