Third-Quarter 2015 Financial Results. Mark Costa, Chairman & CEO Curt Espeland, Exec VP & CFO October 30, 2015

Transcription

1 Third-Quarter 2015 Financial Results Mark Costa, Chairman & CEO Curt Espeland, Exec VP & CFO October 30, 2015

2 Forward-looking statements During this presentation, we make certain forward-looking statements concerning plans and expectations for Eastman Chemical Company. We caution you that actual events or results may differ materially from our plans and expectations. See our Form 10-Q for second quarter 2015 filed with the Securities and Exchange Commission and our Form 10-Q to be filed for third quarter 2015 for risks and uncertainties which could cause actual results to differ materially from current expectations. Non-GAAP financial measures Earnings referenced in this presentation are earnings per share, operating earnings, and EBITDA that exclude certain non-core costs, charges and gains. Adjusted EBITDA is net earnings before interest, taxes, depreciation, and amortization, adjusted to exclude the same non-core items as are excluded from other non-gaap earnings measures; Adjusted EBITDA Margin is Adjusted EBITDA divided by the GAAP measure sales revenue. Free Cash Flow is cash provided by operating activities less cash used for additions to properties and equipment, and Free Cash Flow Yield is free cash flow per outstanding share of common stock divided by per share stock price. Reconciliations to the most directly comparable GAAP financial measures and other associated disclosures, including a description of the excluded items, are available in our third quarter 2015 financial results news release. A calculation of Adjusted EBITDA and Adjusted EBITDA Margin is presented in the Appendix to these slides. Projections of future earnings also exclude any non-core or non-recurring items. The earnings for 2014, 2013, 2012, 2011, 2010 and 2009 to which 2015 earnings projections are compared are also non-gaap, and exclude the non-core items described and referenced in the Outlook section of our third-quarter 2015 financial results news release. 2 2

3 Strategic highlights Solid 3Q15 results demonstrate strength of portfolio despite challenging business conditions Specialty businesses driving growth: Advanced Materials, Adhesives & Plasticizers and Additives & Functional Products earnings all up 3Q15 vs. 3Q14 Specialty acquisitions on track to deliver expected ~$0.50 FY15 accretion Continued disciplined cost management with strong productivity gains On track for FY15 free cash flow of $900 million 3

4 3Q 2015 financial results Corporate 3Q15 ($ in millions, except EPS) $2,447 $2,413 3Q15 3Q14 $459 $427 1% change 14% acquired businesses effect (1%) volume / product mix effect (9%) price effect (3%) FX effect $1.84 $1.89 Sales revenue Operating earnings EPS Operating earnings increased primarily due to overall lower raw material and energy costs exceeding lower selling prices, earnings from acquired businesses, and increased volume and improved product mix in Advanced Materials, partially offset by propane hedges and an unfavorable shift in foreign currency exchange rates 4

5 3Q 2015 financial results Additives & Functional Products 3Q15 ($ in millions) $602 3Q15 3Q14 $458 31% change 42% acquired businesses effect 2% volume / product mix effect (10%) price effect (3%) FX effect $126 $102 Sales revenue Operating earnings Sales revenue increased primarily due to sales of products of the acquired Taminco specialty amines and crop protection businesses. These revenues were partially offset by lower coatings and other formulated products selling prices, primarily due to lower raw material and energy costs, and an unfavorable shift in foreign currency exchange rates Operating earnings increased primarily due to lower raw material and energy costs and earnings from the acquired businesses, partially offset by lower selling prices and propane hedges 5

6 3Q 2015 financial results Adhesives & Plasticizers 3Q15 ($ in millions) 3Q15 3Q14 $305 $347 $74 (12%) change (1%) volume / product mix effect (8%) price effect (3%) FX effect $52 Sales revenue Operating earnings Sales revenue decreased primarily due to lower plasticizers selling prices and an unfavorable shift in foreign currency exchange rates Operating earnings increased primarily due to lower raw material and energy costs for both adhesives resins and plasticizers, partially offset by lower selling prices, an unfavorable shift in foreign currency exchange rates and propane hedges 6

7 3Q 2015 financial results Advanced Materials 3Q15 ($ in millions) $624 $604 3Q15 3Q14 $116 3% change 5% acquired businesses effect 5% volume / product mix effect (3%) price effect (4%) FX effect $80 Sales revenue Operating earnings Sales revenue increased primarily due to sales of products of the acquired Commonwealth performance films business and increased sales volume and improved product mix, partially offset by an unfavorable shift in foreign currency exchange rates and lower selling prices, primarily for copolyesters, due to lower raw material and energy costs Operating earnings increased primarily due to lower raw material and energy costs, increased volume and improved product mix, and earnings from the acquired business, partially offset by lower selling prices and an unfavorable shift in foreign currency exchange rates 7

8 3Q 2015 financial results Fibers 3Q15 ($ in millions) 3Q15 3Q14 $320 $346 $102 $112 (8%) change (6%) volume / product mix effect (1%) price effect (1%) FX effect Sales revenue Operating earnings Sales revenue decreased primarily due to lower acetyl chemicals sales volume while acetate tow and acetate yarn sales volume increased sequentially to slightly below the previous year. Lower acetyl chemicals sales volume was due to decreased sales to the cellulose acetate flake joint venture in Kingsport Operating earnings decreased primarily due to lower sales volume 8

9 3Q 2015 financial results Specialty Fluids & Intermediates 3Q15 ($ in millions) $584 $650 3Q15 $96 3Q14 (10) % change 15% acquired businesses effect (6%) volume / product mix effect (18%) price effect (1%) FX effect $48 Sales revenue Operating earnings Sales revenue decreased primarily due to lower olefin-based intermediates selling prices and lower chemical and other intermediates sales volume more than offsetting sales of products of the acquired Taminco functional amines business. The lower selling prices were primarily in response to lower raw material and energy costs Operating earnings decreased primarily due to propane hedges and lower chemical and other intermediates sales volume more than offsetting earnings from the acquired business 9

10 3Q 2015 cash flow and other financial highlights $368 million cash provided by operating activities Solid net earnings Capital expenditures of $160 million $208 million free cash flow Dividends $60 million Net debt* ~$7 billion Tax rate 26-27% 10 * Net debt is defined as total borrowings less cash and cash equivalents

11 Portfolio transformation delivering dramatic earnings growth $2,000 Adjusted operating earnings ($ million) $1,500 $1,000 $500 11% 20% 18% 34% 22% 26% 13% 23% AM AFP A&P Fibers SFI $0 17% 16% 2010 TTM Note: TTM is the 12 month period ending 9/30/2015. Adjusted operating earnings are non-gaap and exclude the non-core items detailed, with reconciliation to GAAP earnings, in Table 3A of the company s third quarter 2015 Form 8-K furnished to the SEC on October 29, 2015, Table 3 of the company s fourth quarter 2014 Form 8-K furnished to the SEC on January 29, 2015, and the Management s Discussion and Analysis of Financial Condition and Results of Operations section of the company s 2012 Form 10-K for 2010 filed with the SEC. 11

12 Full-year 2015 outlook Strong first nine months 2015 earnings High growth, innovative products improving mix Disciplined cost management Accretion from attractive 2014 acquisitions Challenges: global economic slowdown, olefin-related prices, and strengthening U.S. dollar Confident we will deliver sixth consecutive year of EPS growth in

13 Key themes for 2015 Delivering on focus and execution in 2015 Great progress on key initiatives Growth of specialty products driving mix improvement Recent acquisitions delivering expected accretion Continued focus on cost management Disciplined and balanced capital allocation continues Strong performance in dynamic business environment On track for 6 th consecutive year of earnings growth On track for $900 million free cash flow 13

14 Appendix

15 Adjusted EBITDA to Net Earnings reconciliation (Dollars in millions, unaudited) Third quarter 2015 Net Earnings $ 256 Plus: Depreciation and amortization 142 Net interest expense 66 Provision for income taxes 95 EBITDA $ 559 Add back: Asset impairments and restructuring charges, net (1)(2) 21 Acquisition integration and transaction costs (3) 6 Adjusted EBITDA $ 586 Adjusted EBITDA Margin $586 / $2,447 = 24% (1) Included in third quarter 2015 earnings are indefinite-lived intangible asset impairments of $18 million in the Advanced Materials segment to reduce the carrying value of trade names in the window films market to their estimated current fair values. (2) Included in third quarter 2015 earnings are asset impairments and restructuring charges of $3 million, primarily for severance costs associated with the integration of Taminco. (3) Included in third quarter 2015 earnings are integration and transaction costs primarily for the completed acquisitions of Taminco Corporation and Commonwealth Laminating & Coating, Inc. 15