Sales revenue for second quarter 2011 was $1.9 billion, a 26 percent increase compared with second quarter 2010 due to higher selling prices and higher sales volume. The higher selling prices were in response to higher raw material and energy costs and were also attributed to strengthened demand, particularly in the U.S., and tight industry supply. The higher sales volume was primarily due 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 strengthened end-market demand primarily in the packaging, transportation, and durable goods markets.
Operating earnings in second quarter 2011 increased to $303 million compared with operating earnings of $249 million in second quarter 2010, excluding asset impairments and restructuring charges and gains in both periods. Operating earnings increased due to higher selling prices and higher sales volume, which more than offset higher raw material and energy costs.
Segment Results 2Q 2011 versus 2Q 2010
Coatings, Adhesives, Specialty Polymers and Inks – Sales revenue increased by 18 percent due to higher selling prices and higher sales volume. The higher selling prices were in response to higher raw material and energy costs and were also attributed to strengthened demand, particularly in the U.S., and tight industry supply. The higher sales volume was attributed primarily to strengthened end-use demand in the packaging, transportation, and durable goods markets, particularly in the U.S. Operating earnings in second quarter 2011 increased to $99 million compared with operating earnings of $92 million in second quarter 2010. The increase was due to higher selling prices, higher sales volume, and the increased benefits from cracking propane to produce propylene at low cost, which more than offset higher raw material and energy costs.
Fibers – Sales revenue increased by 21 percent due to a favorable shift in product mix, higher sales volume, and higher selling prices. The favorable shift in product mix was mainly due to higher acetate tow sales volume resulting from increased utilization of the recently completed acetate tow manufacturing facility in Korea. The higher selling prices were in response to higher raw material and energy costs, particularly for wood pulp. Operating earnings in second quarter 2011 increased to $93 million compared with $81 million in second quarter 2010 due to higher acetate tow sales volume in Asia Pacific and higher selling prices, partially offset by higher raw material and energy costs.
Performance Chemicals and Intermediates – Sales revenue increased by 35 percent due to higher selling prices and higher sales volume. The higher selling prices were in response to higher raw material and energy costs and were also attributed to strengthened demand in the U.S. and tight industry supply. The higher sales volume was due to growth in plasticizer product lines and was also attributed to customer buying patterns for acetyl chemicals. In addition, sales volume increased due to the fourth quarter 2010 restart of a previously idled olefins cracking unit at the Texas facility. Operating earnings in second quarter 2011 increased to $88 million compared to $71 million in second quarter 2010 excluding restructuring charges. The increase was due primarily to higher selling prices, higher sales volume, and the increased benefits from cracking propane to produce propylene at low cost, which more than offset higher raw material and energy costs.
Specialty Plastics – Sales revenue increased by 23 percent due primarily to higher selling prices, which more than offset higher raw material and energy costs, particularly for paraxylene. Operating earnings in second quarter 2011 increased to $37 million compared with operating earnings of $21 million in second quarter 2010. Operating earnings increased in the Asia Pacific region due to higher selling prices and in the Europe, Middle East and Africa region due to both higher sales volume and higher selling prices.
Cash Flow
Eastman generated $207 million in cash from operating activities during second quarter 2011, primarily due to strong net earnings. Second-quarter 2011 cash flows included $55 million of a total anticipated $110 million tax payment for the gain on the sale of the PET business completed in first quarter 2011. During second quarter 2011, share repurchases totaled $103 million.
Outlook
Commenting on the outlook for third quarter and full year 2011, Rogers said: "Our strong portfolio of businesses delivered significant earnings growth in the first half of 2011, and we expect they will continue to deliver earnings growth in the second half of the year. We also expect normal seasonal declines in our sales volume, and continued volatility in raw material and energy costs. In addition, we will have 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, we expect third quarter 2011 earnings per share to be slightly higher than third quarter 2010 earnings per share of $2.22. In addition, we expect full-year 2011 earnings per share to be slightly higher than $9.25." Costs and charges related to acquisitions that could be completed in the second half of the year are excluded from earnings projections.
Eastman will host a conference call with industry analysts on July 29 at 8:00 a.m. EDT. To listen to the live webcast of the conference call and view the accompanying slides, go to www.investors.eastman.com, Events & Presentations. To listen via telephone, the dial-in number is 913-312-1498, passcode number 3084013. A web replay, a replay in downloadable MP3 format, and the accompanying slides will be available at www.investors.eastman.com, Events & Presentations. A telephone replay will be available continuously from 11:00 a.m. EDT, July 29, to 11:00 a.m. EDT, August 8, at (888) 203-1112 or (719) 457-0820, passcode 3084013.
Forward-Looking Statements: This news release includes forward-looking statements concerning current expectations for sales volumes, raw material and energy costs, capacity shutdown costs, and earnings for third quarter, second half, and full-year 2011, and for annual earnings for the next several years. Such expectations 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 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-Q filed for first quarter 2011 available, and the Form 10-Q to be filed for second quarter 2011 and to be available, on the Eastman web site at www.eastman.com in the Investors, SEC information section.
Eastman’s chemicals, fibers and plastics are used as key ingredients in products that people use every day. Approximately 10,000 Eastman employees around the world blend technical expertise and innovation to deliver practical solutions. The company is committed to finding sustainable business opportunities within the diverse markets it serves. A global company headquartered in Kingsport, Tenn., USA, Eastman had 2010 sales of $6 billion. For more information, visit www.eastman.com.
