Second-Quarter 2015 Financial Results. Mark Costa, Chairman & CEO Curt Espeland, Exec VP & CFO July 28, 2015

Transcription

1 Second-Quarter 2015 Financial Results Mark Costa, Chairman & CEO Curt Espeland, Exec VP & CFO July 28, 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 first quarter 2015 filed with the Securities and Exchange Commission and our Form 10-Q to be filed for second 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 second 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 second-quarter 2015 financial results news release. 2 2

3 Strategic highlights Outstanding 2Q15 results Record adjusted EPS in second quarter Strong growth in innovative specialty products driving mix improvement Taminco performance, integration on track Continued disciplined cost management with strong productivity gains Second-quarter free cash flow of $450 million 3

4 2Q 2015 financial results Corporate 2Q15 ($ in millions, except EPS) $2,533 $2,460 2Q15 2Q14 $480 $441 3% change 15% acquired businesses effect (2%) volume / product mix effect (7%) price effect (3%) FX effect $2.01 $1.92 Sales revenue Operating earnings EPS Operating earnings increased primarily due to Advanced Materials segment earnings growth, earnings from acquired businesses, and improved spread as lower raw material and energy costs exceeded lower selling prices These items were partially offset by propane hedges, lower Fibers segment sales volume, and an unfavorable shift in foreign currency exchange rates 4

5 2Q 2015 financial results Additives & Functional Products 2Q15 ($ in millions) $616 2Q15 2Q14 $452 36% change 42% acquired businesses effect 5% volume / product mix effect (7%) price effect (4%) FX effect $119 $103 Sales revenue Operating earnings Sales revenue increased primarily due to sales of products of the acquired Taminco specialty amines and crop protection businesses, and higher coatings products sales volume attributed to demand in key end-markets, partially offset by lower coatings and other formulated products selling prices due to lower raw material and energy costs and an unfavorable shift in foreign currency exchange rates Operating earnings increased primarily due to earnings from the acquired businesses 5

6 2Q 2015 financial results Adhesives & Plasticizers 2Q15 ($ in millions) 2Q15 2Q14 $317 $358 (11%) change (2%) volume / product mix effect (5%) price effect (4%) FX effect $63 $56 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 and slightly higher adhesives resins selling prices partially offset by lower plasticizers selling prices, an unfavorable shift in foreign currency exchange rates, and the negative impact of propane hedges 6

7 2Q 2015 financial results Advanced Materials 2Q15 ($ in millions) $647 $631 2Q15 2Q14 $135 3% change 6% acquired businesses effect 6% volume / product mix effect (4%) price effect (5%) FX effect $80 Sales revenue Operating earnings Sales revenue increased due to higher sales volume across the segment and sales of products of the acquired Commonwealth performance films business, 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 due to higher sales volume and improved product mix especially of Eastman Tritan copolyester and interlayers with acoustic properties. Operating earnings also benefited from earnings from the acquired business 7

8 2Q 2015 financial results Fibers 2Q15 ($ in millions) $299 $386 2Q15 $123 2Q14 $91 (23%) change (22%) volume / product mix effect (1%) FX effect Sales revenue Operating earnings Sales revenue decreased primarily due to lower acetate tow and acetyl chemicals sales volume attributed to customer inventory destocking Operating earnings decreased due to lower acetate tow sales volume 8

9 2Q 2015 financial results Specialty Fluids & Intermediates 2Q15 ($ in millions) $642 $633 2Q15 2Q14 1% change 20% acquired businesses effect (2%) volume / product mix effect (15%) price effect (2%) FX effect $83 $96 Sales revenue Operating earnings Sales revenue increased primarily due to sales of products of the acquired Taminco functional amines and aviation turbine oil businesses, mostly offset by lower selling prices for olefin-based intermediates Operating earnings decreased primarily due to earnings from acquired businesses being more than offset by the negative impact of propane hedges 9

10 2Q 2015 cash flow and other financial highlights $591 million cash provided by operating activities Solid net earnings $450 million free cash flow Capital expenditures of $141 million Dividends $60 million Net debt* ~$7 billion Tax rate ~27% 10 * Net debt is defined as total borrowings less cash and cash equivalents

11 A track record of delivering strong financial results 24% Adjusted EBITDA Margins 20% EPS CAGR ( ) 22% 20% 18% 16% 14% 12% Eastman Specialty Peers Diversified Peers 15% 10% 5% 10% % Eastman Specialty Peers Diversified Peers 8% 7% 6% 5% 4% 3% 2% 1% 0% Free Cash Flow Yield (2014) Eastman Specialty Peers Diversified Peers 30% 25% 20% 15% 10% 5% 0% Total Shareholder Return CAGR ( ) Eastman Specialty Peers Diversified Peers 11 Source for other than Eastman: Bloomberg and THOMSON REUTERS Specialty Peers: ALB, APD, ASH, DD, ECL, FMC, IFF Diversified Peers: CE, DOW, HUN

12 Full-year 2015 outlook Outstanding 1H15 earnings Record adjusted EPS in second quarter High growth, innovative products improving mix Disciplined cost management Accretion from attractive 2014 acquisitions Challenges: global economic slowdown, volatility in raw material and energy prices, strengthening U.S. dollar Confident we will deliver sixth consecutive year of solid EPS growth in

13 Capital allocation will remain disciplined and balanced Projected Free Cash Flow 2015F 2016F 2017F On track to generate >$3 billion of free cash flow Expect to repay $1 billion of debt by 2H16 Expect to fully utilize balance sheet Includes increased dividend as earnings increase, potential bolt-on acquisitions, and share repurchases 13

14 Key themes for 2015 Delivering on focus and execution in 2015 Outstanding performance in dynamic business environment On track for 6 th consecutive year of solid earnings growth On track for FY15 >$900 million free cash flow Great progress on key initiatives Growth of specialty products driving mix improvement Integration of recent acquisitions on track Disciplined and balanced capital allocation continues 14

15 Appendix

16 Adjusted EBITDA to Net Earnings reconciliation (Dollars in millions, unaudited) Net Earnings from Continuing Operations Attributable to Eastman $ 749 $ 1,165 $ 436 $ 606 $ 416 Plus: Depreciation and amortization Net interest expense Provision for income taxes EBITDA $ 1,621 $ 2,285 $ 1,145 $ 1,229 $ 997 Add back: (1) Mark-to-market pension and other postretirement benefit plans loss (gain), net 304 (383) Asset impairments and restructuring charges (gains), net (8) 29 Acquisition integration and transaction costs Additional costs of acquired inventories Acquisition financing costs Debt extinguishment Adjusted EBITDA $ 2,082 $ 2,014 $ 1,687 $ 1,365 $ 1,194 Sales $ 9,527 $ 9,350 $ 8,102 $ 7,178 $ 5,842 Adjusted EBITDA Margin 22% 22% 21% 19% 20% (1) See "Management's Discussion and Analysis of Financial Condition and Results of Operations" of the Company's 2014 Annual Report on Form 10-K for years and the 2012 Annual Report on Form 10-K for years