Fourth-Quarter and Full-Year 2016 Financial Results. Mark Costa, Board Chair & CEO Curt Espeland, EVP & CFO January 27, 2017

Transcription

1 Fourth-Quarter and Full-Year 2016 Financial Results Mark Costa, Board Chair & CEO Curt Espeland, EVP & CFO January 27, 2017

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 third quarter 2016 filed with the Securities and Exchange Commission and our Form 10-K to be filed for 2016 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 and operating earnings that exclude certain noncore costs, charges and gains. Adjusted Cash From Operations is cash provided by operating activities excluding an accelerated fourth quarter 2016 pension contribution. Adjusted Free Cash Flow is Adjusted Cash From Operations minus cash used for additions to properties and equipment. Net Debt is total borrowings less cash and cash equivalents. 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. Reconciliations to the most directly comparable GAAP financial measures and other associated disclosures, including a description of the excluded items, are available in our fourth-quarter and full year 2016 financial results news release available in the Investors section of our website, in the Management s Discussion and Analysis of Financial Condition and Results of Operations sections of the Forms 10-K and 10-Q filed with the SEC for the periods for which non-gaap financial measures are presented, and in the Appendix to these slides. Projections of future earnings also exclude any non-core, unusual, or non-recurring items. 2

3 2016 Highlights Specialty products volume growth in Advanced Materials and Additives & Functional Products Disciplined cost management with strong productivity gains Strong free cash flow generation Improved debt profile Increased dividend for 7 th consecutive year Returned >$400 million to stockholders 3

4 Significant progress on organic growth initiatives Tritan TM in medical applications Saflex acoustic interlayers Eastman Aerafin TM low odor adhesives Next-generation Crystex Eastman Visualize material for displays Tetrashield TM polyester coatings 4

5 4Q 2016 financial results Corporate ($ in millions, except EPS) $2,188 $2,225 $336 $343 4Q16 4Q15 Revenue decreased primarily due to lower selling prices and lower Fibers sales volume more than offsetting higher sales volume in the other segments. (2%) change 2% volume/mix effect (3%) price effect (1%) FX effect $1.51 Sales revenue Operating earnings EPS $1.59 Operating earnings declined as an increase in Chemical Intermediates and Advanced Materials was more than offset by declines in Fibers and Additives & Functional Products. Operating earnings were positively impacted by cost reduction actions taken throughout the year. 5

6 FY 2016 financial results Corporate ($ in millions, except EPS) $9,008 $9,648 (7%) change 1% volume/mix effect (7%) price effect (1%) FX effect $1,534 $1,717 FY16 $6.76 FY15 $7.28 Revenue decreased primarily due to lower selling prices and lower Fibers sales volume more than offsetting higher sales volume in the other segments. Operating earnings declined as an increase in Advanced Materials was more than offset by declines in the other segments. Operating earnings were positively impacted by cost reduction actions taken throughout the year. Sales revenue Operating earnings EPS 6

7 FY 2016 financial results Advanced Materials ($ in millions) $2,457 $2,414 2% change 5% volume/mix effect (3%) price effect $471 FY16 $409 FY15 Sales revenue increased due to higher sales volume of premium products including Eastman Tritan TM copolyester, Saflex acoustic interlayers, and performance films. This was partially offset by lower selling prices, primarily for other copolyesters, attributed to lower raw material and energy costs. Operating earnings increased primarily due to higher sales volume, improved product mix of premium products, and lower unit costs due to higher capacity utilization. Sales revenue Operating earnings 7

8 Advanced Materials: Sectoral leverage combined with diversity of end markets and geographies enable sustainable growth 2017 growth drivers Strong GDP+ volume growth Strong growth of innovative products, driving product mix improvement Fixed cost leverage Offset partially by selling prices catching up to higher raw material costs and a stronger dollar 2016 revenue by end-use market Other 3 % 6 % 9 % Electronics Transportation Personal Care / Health & Wellness 33 % 15 % Consumer Durables Consumables 18 % 16 % Building & Construction revenue operating earnings and operating margin 1,2 $2,378 $2,414 $2,457 Operating earnings Operating earnings margin $409 $471 Specialty Plastics 2016 revenue by product line 16% Performance Films 2016 revenue by region 26 % 37 % 32 % $293 12% 17% 19% 50% 34% 5 % Interlayers (1) Dollars in millions (2) Operating margin is operating earnings divided by sales revenue

9 FY 2016 financial results Additives & Functional Products ($ in millions) $2,979 $3,159 $611 FY16 $660 FY15 Sales revenue decreased due to lower selling prices, primarily attributed to lower raw material and energy costs. The impact of the lower selling prices was partially offset by higher sales volume across the segment. (6%) change 1% volume/mix effect (7%) price effect Operating earnings declined primarily due to lower selling prices more than offsetting lower raw material and energy costs and higher sales volume. Sales revenue Operating earnings 9

10 Additives & Functional Products Well positioned for GDP+ growth with attractive market footprint and diverse geographic profile 2017 growth drivers 2016 revenue by end-use market Solid GDP+ volume growth Diversified application portfolio, well aligned with macro trends Growth platforms that accelerate product mix improvement Advantaged cost position that supports profitable growth Offset partially by selling prices catching up to higher raw material costs and a stronger dollar $2, revenue Operating earnings and operating margin 1,2 $3,159 $2, $539 Operating earnings Operating earnings margin $660 $611 20% 20% 21% Building & Construction Food, Feed, & Agriculture Industrial Chemicals 8 % & Processing 6 % Energy, Fuels, & Water 4 % 4 Personal Care / Health & Wellness % 2 % Consumer Durables Other Coatings & Inks Additives 24% Adhesives Resins 21% 17% 10 % 2016 revenue by product line 38% Tire Additives 13 % 23 % Other 30 % Consumables Transportation 2016 revenue by region % % 21 % 7 % 10 (1) Dollars in millions (2) Operating margin is operating earnings divided by sales revenue

11 FY 2016 financial results Chemical Intermediates ($ in millions) $2,534 $2,811 (10%) change 2% volume/mix effect (11%) price effect (1%) FX effect Sales revenue FY16 FY15 $294 $171 Operating earnings Sales revenue decreased due to lower selling prices, partially offset by higher sales volume of olefin-based and functional amines products. The lower selling prices were primarily attributed lower raw material and energy costs, as well as competitive pressures due to lower oil prices for most of the year. Operating earnings decreased due to lower selling prices, which more than offset lower raw material and energy costs, higher sales volume, and the reduced impact of commodity hedge losses on raw material costs. 11

12 Chemical Intermediates Diverse end-markets, with focus in North America Solid end-market demand $3,034 $2, growth drivers Assume olefin spreads stable Net benefit from reduction in commodity hedges Operational excellence revenue adj. operating earnings and operating margin 1,2 $2,534 $360 Operating earnings Operating earnings margin $294 Personal Care / Health & Wellness Food, Feed, & Agriculture Consumables Energy, Fuels, & Water Intermediates 9 % Consumer Durables Transportation 2016 revenue by product line 2016 revenue by end-use market 15% 10% 18% 10 % 8 % Functional Amines 5 % 5 % 2 % Electronics 7% Other Building & Construction 26 % Industrial Chemicals & Processing 2016 revenue by region 13 % 69 % 12 % 12% 10% $171 7% 65% 20% Plasticizers 6 % (1) Dollars in millions (2) Operating margin is operating earnings divided by sales revenue

13 FY 2016 financial results Fibers ($ in millions) $992 $1,219 (19%) change (13%) volume/mix effect (6%) price effect $310 FY16 $390 FY15 Sales revenue decreased primarily due to lower sales volume and lower selling prices, particularly for acetate tow. Lower acetate tow sales volume was primarily due to reduced sales in China. Operating earnings declined due to lower sales volume and lower selling prices, partially offset by lower operating costs resulting from recent actions and lower raw material and energy costs. Sales revenue Operating earnings 13

14 2016 cash flow and other financial highlights $909 million adjusted free cash flow Total debt reduced by $414 million Returned $417 million to stockholders: Tax rate ~21% $272 million dividend, $145 million share repurchases 14

15 $ - millions Refinanced public debt at attractive interest rates 1,200 US Dollar Denominated Debt US Dollar Denominated Debt Repaid Early Euro Denominated Debt Term Loan 1, Million Addition to 2023 Notes 1.5% interest rate Million Ten Year Notes 1.875% interest rate Refinanced notes due 2017 and 2018, and retired higher interest rate debt, all while retaining pre-payment flexibility to achieve deleveraging goals Reduced weighted average cost of fixed-rate debt from 4% to 3.7% and increased weighted average maturity from 10 to 11 years Results in net savings of ~$20 million in 2017 with further savings in following years 15

16 Disciplined cost reduction initiatives in challenging business environment ENTERPRISE Labor cost management Site optimization 2017 projected gross productivity gains ~$200 million Supply Chain 20% MANUFACTURING Labor cost management Energy efficiency Yield improvements Manufacturing 40% Enterprise 40% SUPPLY CHAIN Indirect and other procurement savings Sales & Operation Planning optimization Expect cost reduction actions will contribute ~$0.50 to 2017 EPS 16 16

17 Full-year 2017 outlook Growth drivers Robust portfolio of specialty businesses well positioned for growth Strong growth in high margin, innovative products expected to accelerate earnings growth Growth in attractive niche end-markets within transportation, building & construction, consumables, and consumer durables Leveraged to attractive disruptive macro trends Aggressive cost reductions Net benefit from reduction in hedges Near-term headwinds Uncertain global economic growth Stronger dollar Volatile raw material and energy prices Challenges in Fibers Expect adjusted 2017 EPS to be 8 to 12 percent greater than adjusted 2016 EPS Expect 2017 free cash flow to be ~ $1 billion 17

18 Summary Strong portfolio of specialty businesses Continue to drive organic growth, innovation and product mix improvement Use all available levers in current environment Deploy free cash flow to pay an increasing dividend, continue delevering, and accelerate share repurchases Well positioned for long-term earnings growth and strong free cash flow generation 18

19 Appendix

20 Corporate: Diversity of end markets, geographies, and customer base enable more consistent and sustainable earnings and cash flow growth 2017 Growth Drivers Solid portfolio of specialty businesses well positioned for growth Strong growth in high margin, specialty products expected to accelerate earnings growth Attractive key end-markets growing: transportation, building & construction, consumables Aggressive cost reductions Net benefit from reduction in hedges Revenue Operating earnings and operating margin 1,2 $9,527 $9,648 $9, Adjusted operating earnings Adjusted operating earnings margin $1,717 $1,613 $1,534 17% 18% 17% Additives & Functional Products Advanced Materials Consumables 33% 27% 2016 Revenue by End-use Market Transportation 11% 16 % Building & Construction 2016 Revenue by product line Fibers 28% Other: 2% 20 % Chemical Intermediates Electronics Energy, Fuels, & Water 3 % 4 % 14 % 11 % Tobacco Food, Feed & Agriculture 6 % 7 % 10 % 7 % Consumer Durables Personal Care / Health & Wellness Industrial Chemicals & Processing 2016 Revenue by Region 25 % 45 % 24 % 6 % 20 (1) Dollars in millions (2) Operating margin is operating earnings divided by sales revenue

21 Adjusted EBITDA to Net Earnings reconciliation (Dollars in millions, unaudited) 2016 Net Earnings from Continuing Operations Attributable to Eastman $ 866 Plus: Depreciation 412 Amortization 168 Net interest expense 255 Provision for income taxes 199 EBITDA $ 1,900 Add back: Mark-to-market pension and other postretirement benefit plans loss (gain), ne 76 Asset impairments and restructuring charges (gains), net 45 Acquisition integration and transaction costs 9 Cost of disposition of claims 5 Gain from sale of Primester (17) Debt extinguishment 85 Adjusted EBITDA $ 2,103 Sales $ 9,008 Adjusted EBITDA Margin 23% See Form 8-K filed January 26, 2017 for