Eastman Chemical Company
Summary
Brief Company Overview
Eastman Chemical Company (NYSE:EMN) is a global specialty materials company started its business from 1920 and took its current for of a public company on December 31, 1993. Initially, the company produced chemical for Eastman Kodak Company's photographic business but now it produces a range of products found in items people use every day. Eastman has 35 manufacturing facilities and has equity interests in two manufacturing joint ventures in 12 countries that supply products to customers throughout the world. The Company's headquarters and largest manufacturing facility are located in Kingsport, Tennessee. Eastman's businesses are managed and reported in four operating segments: Advanced Materials ("AM"), Additives & Functional Products ("AFP"), Chemical Intermediates ("CI"), and Fibers.
Due to WWI, there was a scarcity in raw materials such as photographic paper, gelatin, optical glass and many related chemicals. George Eastman established the Eastman Kodak Company as he wanted an independent supply of chemicals for his photographic processes. After the war, he turned his attention to the forests of the southern U.S. In 1920, Tennessee Eastman was born in Kingsport.
As of December 31, 2022, the company employs 14,500 full-time employees. Mark J. Costa serves as the Chairman & CEO of the company. As of March 31, 2023, the company had 222,703,492 shares of common stock issued and outstanding. Diluted earnings per share for the quarter was $1.12, and for the previous financial year 2022 was $6.35 and it was $6.25 a year earlier. As of May, 2023, 52-week range of the share price of the company was $112.78 to $69.91; trailing P/E was 14.86 times; price to sales was 1.00 times; return on equity (ttm) is 12.49%; return on assets (ttm) is 4.51%.
Recent Developments
Recent Financial Activities
Financial Highlights
Q1'23 Highlights
Sales revenue decreased in first quarter 2023 to $2,412 million compared to first quarter 2022 of $2,714 million as a result of the impact from divested business and decreases in the CI and AFP segments, partially offset by increases in the Fibers and AM segments. Gross profit during the quarters has been $529 and $550, respectively. Gross profit in first quarter 2023 and 2022 included incremental costs and insurance proceeds, from the steam line incident, and first quarter 2023 included
accelerated depreciation resulting from the previously reported closure of an acetate yarn manufacturing facility in Europe in the Fibers segment. Excluding these non-core and unusual items, gross profit decreased in first quarter 2023 compared to first quarter 2022 as a result of decreases in the CI and AFP segments, partially offset by increases in the Fibers and AM segments. Net earnings attributable to Eastman shareholders in the first quarter of 2023 is $134 million, and $235 million a year earlier. Earnings per share (EPS) during the quarters has been $1.12 and $1.80, respectively.
Annual Performance Highlights
The Company generated sales revenue of $10.6 billion and $10.5 billion for 2022 and 2021, respectively.
Business Overview
Eastman Chemical Company is a global specialty materials company whose products and operations are managed and reported in four operating segments: Advanced Materials ("AM"), Additives & Functional Products ("AFP"), Chemical Intermediates ("CI"), and Fibers. The organizational structure is based on the management of the strategies, operating models, and sales channels of the company.
Advanced Materials (AM) Segment
In the AM segment, the Company produces and markets polymers, films, and plastics with differentiated performance properties for value-added end-uses in transportation; durables and electronics; building and construction; medical and pharma; and consumables end-markets. Key technology platforms for this segment include cellulosic biopolymers, copolyesters, and PVB and polyester films.
Eastman's technical, application development, and market development capabilities enable the AM segment to modify its polymers, films, and plastics to control and customize their final properties for development of new applications with enhanced functionality. TritanTM copolyesters are a solution for food contact applications due to their performance and processing attributes and bisphenol A free ("BPA free") properties. The SaflexTM Q Series product line is a acoustic solution for architectural and automotive applications. The Company also maintains a leading solar control technology position in the window films market as well as advanced urethane film and coatings technologies in the paint protection film market. The segment principally competes on differentiated technology and application development capabilities. The products under this segment are divided into three categories - Advanced Interlayers, Performance Films, and Specialty Plastics. Under Advanced Interlayers (29% of total segment's sale in 2022), the company has SaflexTM, SaflexTM Q Series, SaflexTM ST, and SaflexTM E Series; under Performance Films (20% of total segment's sale in 2022) LLumarTM, FlexvueTM, SunTekTM, V-KOOLTM, and GilaTM; and under Specialty Plastics (51% of total segment's sale in 2022) TritanTM copolyester, EastarTM copolyesters, SpectarTM copolyester, EmbraceTM copolyester, VisualizeTM, Eastman AspiraTM, and TrevaTM.
Additives & Functional Products (AFP) Segment
In the AFP segment, the Company manufactures materials for products in the transportation; personal care and wellness; food, feed, and agriculture; building and construction; water treatment and energy; consumables; and durables and electronics end-markets. Key technology platforms are cellulosic biopolymers, polyester polymers, alkylamine derivatives, and propylene derivatives. The AFP segment is focused on producing high-value additives that provide critical functionality but which comprise a small percentage of total customer product cost. The segment principally competes on the differentiated performance characteristics of its products and through leveraging its strong customer base and long-standing customer relationships to promote substantial recurring business and product development.
The products of this segment are divided into four categories - Animal Nutrition, Care Additives, Coatings Additives, and Specialty Fluids & Energy. In the animal nutrition category (14% of total segment's sale in 2022), the company has Organic acids and derivatives, and Choline chloride. Under Care Additives (34% of total segment's sale in 2022), the company has Alkylamine derivatives, Organic acids and derivatives, Cellulosic bioplymers, and AdjustTM. In the Coatings Additives group (34% of total segment's sale in 2022), the company has polymers like TetrashieldTM, additives and solvents like TexanolTM, OptifilmTM, and EastaPureTM, electronic chemicals. Under the Specialty Fluids & Energy category (18% of total segment's sale in 2022), it has TherminolTM, Turbo oils, SkydrolTM, SkykleenTM, and MarlothermTM.
In response to market and business conditions, the Company divested its adhesives resins assets and business in 2022. The sale consisted of hydrocarbon resins (including Eastman Impera tire resins), pure monomer resins, polyolefin polymers, rosins and dispersions, and oleochemical and fatty-acid based resins product lines.
Chemical Intermediates (CI) Segment
Eastman leverages large scale and vertical integration from the cellulosic biopolymers and acetyl, olefins, and alkylamines streams to support the Company's specialty operating segments with advantaged cost positions. The CI segment sells excess intermediates beyond the Company's internal specialty needs into end-markets such as industrial chemicals and processing, building and construction, health and wellness, and agrochemicals. Key technology platforms include acetyls, oxos, plasticizers, polyesters, and alkylamines. The CI segment product lines benefit from competitive cost positions primarily resulting from the use of and access to lower cost raw materials, and the Company's scale, technology, and operational excellence. The CI segment also provides superior reliability to customers through its backward integration into readily available raw materials, such as propane, ethane, coal, and propylene. Several CI segment product lines are affected by cyclicality, most notably olefin and acetyl-based products. This cyclicality is caused by periods of supply and demand imbalance, when either incremental capacity additions are not offset by corresponding increases in demand, or when demand exceeds existing supply.
The products of this segment are divided into three categories - Functional Amines, Intermediates, and Plasticizers. The Functional Amines (represents 24% of total segment's sales in 2022) include Alkylamines; Intermediates (represents 56% of total segment's sales in 2022) include Oxo alcohols and derivatives, Acetic acid and derivatives, Acetic anhydride, Ethylene, Glycol ethers, and Esters; Plasticizers (represents 24% of total segment's sales in 2022) include Eastman 168TM, Dioctylphthalate ("DOP"), BenzoflexTM, TXIBTM, and EffusionTM.
Fibers Segment
In the Fibers segment, Eastman manufactures and sells acetate tow and triacetin plasticizers for use in filtration media, primarily cigarette filters; cellulosic staple fibers and
filament yarn for use in apparel, home furnishings, and industrial fabrics; nonwoven media for use in filtration and friction applications, used primarily in transportation, industrial, and agricultural end-markets; and cellulose acetate flake and acetyl raw materials for other acetate fiber producers. The Company is the world's largest producer of acetate yarn and has been in this business for over 85 years. The 10 largest Fibers segment customers accounted for approximately 60 percent of the segment's 2022 sales revenue, and include multinational as well as regional cigarette producers, fabric manufacturers, and other acetate fiber producers.
The products of the segment are divided into four categories - Acetate Tow, Acetate Yarn and Fiber, Acetyl Chemical Products, and Nonwovens. Amonng the categories, Acetate Tow (represents 64% of total segment's sales in 2022) includes EstronTM; Acetate Yarn and Fiber (represents 14% of total segment's sales in 2022) includes NaiaTM, and EstronTM; Acetyl Chemical Products (represents 16% of total segment's sales in 2022) include EstrobondTM; and Nonwovens (represents 6% of total segment's sales in 2022) include Nonwovens.
Company History
Earlier George Eastman founded the Eastman Kodak and after the World War I when it was hard to get raw materials Eastman wanted an independent supply of chemicals for his photographic processes in Kodak. Tennessee Eastman was incorporated in 1920 to serve that purpose. Over its first decade of operation, the Kingsport site expands its production to include products like non-flammable X-ray film and charcoal briquettes. During the second decade of the company from 1930 to 1939, Eastman sees expansion into materials like acetate yarn and cellulosic plastics. Eastman TENITE plastic is used for a wide range of products including steering wheels, radio knobs, and poker chips. Under the leadership of Perley Wilcox, the Kingsport site begins producing hydroquinone and acetic acid, chemicals it continues to manufacture today.
During the World War II, Eastman supported the U.S. by manufacturing the powerful explosive RDX at Holston Ordnance Works in Kingsport. Hydroquinone becomes a critical ingredient for rubber in jeep and aircraft tires. Because of its reputation as a “gets things done” company, Eastman is operations lead for the Y-12 plant of Clinton Engineer Works, helping develop the atomic bomb.
From the year 1950 through 1959, Eastman operations expand to Longview, Texas, to produce ethylene and propylene for ethyl alcohol and aldehydes for the Kingsport site, and polyethylene for use in products like packaging and cameras. The production of acetate tow filter begins. New research labs yield a range of products acrylic, textile and polyester fibers, adhesives, and wax coatings.
The 1960s are period of growth for Eastman. Revenues doubled over the decade. The first manufacturing plant outside the United States opens in Workington, England, producing fibers. The company expands operations to Columbia, South Carolina, to keep up with growing demand for polyester textiles. The company experienced strong growth as revenues grew to $2 billion by the end of the 70s. Eastman introduces cellulose acetate butyrate (CAB) for high quality automotive coatings. A manufacturing site in Batesville, Arkansas, opens to produce photographic and organic chemicals. The oil embargo pressures the company to become less dependent on oil as a feedstock. In the 80s, the company began operations of the first commercial plant designed to make industrial chemicals from coal.
In 1994, Eastman spins off from Kodak as the 10th largest chemical company in the U.S. and the 34th largest in the world. Earnie Deavenport is the first CEO of the new publicly traded company, guiding Eastman through rapid global expansion. Throughout the decade 2000-2009, global growth of the company continues including the opening of a regional headquarters in The Netherlands. The company’s portfolio begins to shift with acquisitions (Hercules in 2011) and divestitures of some businesses and sites. Top leadership changes twice with Brian Ferguson becoming CEO in 2002 and James P. Rogers succeeding him in 2009. Eastman’s rich legacy of innovation continues with the launch of Eastman Tritan copolyester in 2007.
After 2010, Eastman continues its global portfolio evolution. Two of the largest acquisitions in its history (Solutia in 2012 and Taminco in 2014) propel the company forward in its transformation toward being a specialty materials company. The company begins to earn international accolades including ENERGY STAR Partner of the Year, Responsible Care Company of the Year, World’s Most Ethical Companies, Best Place to Work by Glassdoor, and America’s Most JUST companies. Mark Costa becomes CEO in 2014.
On the morning of October 4, 2017, an explosion occurred at Eastman's Kingsport Plant around the coal gasification building. In April 2018, the Tennessee Department of Environment and Conservation determined the cause to be a valve blockage due to slurry or debris intrusion.
In 2019, Eastman began commercial-scale chemical recycling (circular recycling) for a broad set of waste plastics that would otherwise be placed in a landfill or incinerated. Carbon renewal technologies and polyester renewal technology of Eastman provide a true circular solution of infinite recycling for materials including polyesters, polypropylene, polyethylene, and polystyrene. In January 2021, Eastman announced plans to build a methanolysis plant that will convert polyester waste into durable products.1 The Company divested its rubber additives product line in 2021 and its adhesives resins assets and business in 2022, due to earnings volatility that was not in line with Eastman's expectations for the performance of a specialty business.
