Eastman Chemical Company — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Eastman operates through Advanced Materials (AM), Additives & Functional Products (AFP), Chemical Intermediates (CI), and Fibers. Figures are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Financial performance
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Sales | $2,310 | $2,412 |
| Gross profit | $532 | $529 |
| EBIT | $263 | $246 |
| EBIT excluding non-core and unusual items | $274 | $283 |
| Net earnings attributable to Eastman | $165 | $134 |
| Diluted EPS | $1.39 | $1.12 |
| Adjusted net earnings / diluted EPS | $190 / $1.61 | $195 / $1.63 |
| Net interest expense | $49 | $52 |
| Operating cash flow | $(16) | $(2) |
| Capital expenditures | $185 | $174 |
Sales fell 4%: lower prices reduced revenue by $164 million, partly offset by a $63 million benefit from volume and mix. Management attributed lower prices mainly to lower raw-material, energy, and distribution costs; volume improved as customer destocking eased. Reported EBIT increased 7%, but EBIT excluding non-core and unusual items decreased 3%. The reported tax rate was 23%, versus 31%; the adjusted rate was 16% in both periods.
Segments and period-over-period changes
- AM: Sales were $748 million, up 1%; EBIT was $104 million, up 21%. Improved volumes, particularly in durables and electronics, supported results; lower prices partly offset the benefit.
- AFP: Sales were $704 million, down 9%; EBIT was $109 million, down 12%. Lower prices, lower volume in some products, and higher manufacturing costs, including planned maintenance, weighed on results.
- CI: Sales were $523 million, down 11%; EBIT was $16 million, down 62%. Weak market conditions and lower selling prices drove the decline, partly offset by higher volume.
- Fibers: Sales were $331 million, up 9%; EBIT was $117 million versus $65 million. Excluding prior-year restructuring and accelerated-depreciation charges, EBIT rose 24%, supported by higher prices and volumes.
Cash, debt, and liquidity
Cash and cash equivalents were $499 million at March 31, 2024, down from $548 million at year-end. Operating activities used $16 million; investing activities used $179 million; financing activities provided $148 million. Management attributed the higher operating cash use mainly to variable-compensation payments and hedging settlements, partly offset by lower working capital.
Total borrowings were $5.080 billion, compared with $4.846 billion at year-end; net debt, as defined by Eastman, was $4.581 billion versus $4.298 billion. Eastman issued $750 million of 5.625% notes due 2034, receiving $742 million net, and repaid $198 million of 7.25% debentures and a $300 million term loan. It had $740 million of borrowings due within one year. The $1.50 billion revolving credit facility was undrawn, and the company reported compliance with its debt covenants. The facility maturity was extended to February 2029.
Eastman expects to repay $43 million of debentures due June 2024 and $700 million of notes due March 2025 using available cash and debt proceeds. It reported approximately $10.5 billion of debt and other commitments over about 30 years. Purchase obligations for 2029 and beyond declined by approximately $1.5 billion after Eastman exited a supplier agreement.
Outlook, commentary, and risks
- Management expects 2024 capital expenditures of $700–$750 million, primarily for molecular-recycling facilities, growth initiatives, and site modernization. The filing provides no specific earnings or revenue guidance.
- Management said cash flows and other liquidity sources are expected to be sufficient for known short- and long-term requirements, while noting that cash generation depends on factors including demand, pricing, raw-material availability and cost, and capacity utilization.
- Q1 2023 comparisons included $23 million of accelerated depreciation related to a European acetate-yarn facility closure, $8 million of net insurance proceeds related to a 2022 Kingsport steam-line incident, and a $23 million state tax adjustment. These items affect comparability; adjusted measures exclude specified non-core and unusual items.
- Eastman sold $698 million of receivables through factoring programs during Q1; the programs are uncommitted and capacity depends on eligible receivables and financial institutions’ willingness to purchase. Supplier-finance obligations were $79 million at quarter-end.
- Environmental contingency reserves totaled $282 million. Estimated future undiscounted remediation expenditures ranged from a best estimate/minimum of $250 million to a maximum of $493 million. Management does not expect environmental matters to materially affect overall financial position, results, or cash flows, but notes that resolving uncertainties could materially affect results in the period recognized.
- Other risks include currency, commodity and interest-rate movements; operational or supply disruptions; economic and market conditions; cybersecurity; and litigation. Management said ordinary-course legal matters were not expected, based on currently available facts, to materially adversely affect overall financial position, results, or cash flows.
Important facts for investors to verify
- Whether easing customer destocking and volume improvement persist, and whether pricing pressure continues, particularly in AFP and CI.
- Progress, spending, and expected returns for the methanolysis and other growth projects; compare actual capital spending with the $700–$750 million outlook.
- Cash conversion and working-capital trends, including reliance on receivables factoring and the supplier-finance program.
- Debt repayment and refinancing plans for 2024–2025 maturities, interest-rate exposure, and continued covenant compliance.
- Developments in environmental remediation estimates, tax contingencies, and other legal or regulatory matters.