The chemical industry has performed well during the past year, showing an increase of around 8% – but even in that context, the fact that Eastman Chemical Company’s shares have increased by over 35% over the same period is still impressive. With a market cap of approximately $15.2 billion and an increased volume of shares traded the last quarter (1,363), the US-based chemical company has exceeded expectations to deliver a growth rate of long-term earnings per share of 8,9%.
While revenue may have only grown at 2.7% since 2012, free cash flow has grown at around 7.7% meaning that Eastman Chemical is able to transform sales into significant profits. There are several factors that have influenced this growth, including several acquisitions, stringent cost-cutting at all facilities and increased productivity and product pricing.
Following a rigourous cost-reduction program – including debt reduction – has been the focus of the company since 2012. The program is expected to deliver around $100 million worth of cost savings in the coming year, and will help offset the increase in the cost of raw materials that has been anticipated for the last 3 quarters. Cost-cutting alone is expected to increase earning-per-share by a significant amount in 2018. Debt reduction in 2017 topped $350 million to ensure that free cash flow was able to deliver increased quarterly dividends to shareholders for the eighth consecutive year.
Recent acquisitions have ensured that Eastman Chemical is on a profitable trajectory. The buyout of Taminco Corporation only increased market share in the high margin sector of food, agriculture and feed, where Eastman is already strongly positioned. High margin products within specialty markets have also played a large role in the share price increase, as well as increasing the prices of selected products. Specifically, the price of Eastman NPG and Benzoic Acid will be increased by 3 cents per lb starting from April 2018. The price hike is in response to, and in anticipation of, an increase in the cost of raw materials in nearly every sector, including energy prices and raw materials, but especially in the volatile olefins market.
In February 2018, Eastman Chemical announced a $2 billion stock buyback program implemented by purchases either on the open market or select private transactions. Mark Costa, Chief Executive Officer and Board Chair, released a statement that noted, “Our model consists of the combination of world-class technology platforms, relentless market engagement, and differentiated application development.” The stock buyback program also ensured that Eastman would only repurchase shares under pre-set terms, to ensure compliance of insider trading laws and regulations.
With headquarters in Kingsport, Tennessee, USA, Eastman Chemical has clients in over 100 countries and employs over 14,500 people globally. Officially founded by George Eastman in 1920, Eastman Chemical was originally known as Eastman Kodak and focused on the supply of methanol and acetone for the photographic process. After WWI, Eastman Chemical moved into the production of organic chemicals and acetyls and in the decades since then has expanded into several other products and sectors including plastics for the automotive industry, home furnishings and petroleum products.