Eastman Chemical Company EMN is benefiting from cost-cutting and productivity actions as well as its innovation-driven growth model amid certain headwinds, including consumer de-stocking.
The company’s shares are down 27.2% over the past year compared with the 11% decline of its industry.
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Eastman is gaining from its actions to manage costs. The company is expected to benefit from lower operating costs from its operational transformation program. EMN was able to offset $1.3 billion in inflation from higher raw material, energy and distribution costs through price increases in 2022. It is on track to reduce manufacturing, supply chain and non-manufacturing costs by a total of $200 million for 2023, net of inflation.
EMN should gain from its strategic acquisitions. The growth initiatives have been greatly expedited by the acquisition of Solutia, which has provided excellent growth potential in the Asia-Pacific region. Additionally, the buyout of BP Plc’s aviation turbine engine oil business has enabled Eastman to better serve the needs of the global aviation industry. The acquisition of PremiumShield has strengthened company’s automotive base in North America, Europe and the Middle East and boosted its paint protection film pattern development capabilities. The recent acquisition of AiRed Technology (Dalian) Co., Ltd. will also boost growth in the paint protection films market.
Moreover, Eastman's goal is to increase new business revenues by utilizing its innovation-driven growth strategy. Due to the company's competence in specialty products, it generated around $550 million in new business revenues from innovation in 2022. Sales volume is anticipated to increase in 2023 as a result of the innovation and market development initiatives. The company expects more than $600 million in new business revenues from innovation in 2023.
However, lingering effects from customer inventory de-stocking are expected to adversely impact Eastman Chemical’s performance in the second quarter of 2023. The company saw consumer de-stocking for its consumer durables and building & construction, water treatment and personal care end markets in the first quarter of 2023. The impacts of de-stocking are likely to be felt on the company’s top line in the second quarter. The company expects continued destocking in building & construction, consumer durables and consumables in the second quarter.
Higher pension costs are also expected to hurt company’s bottom line in 2023. EMN estimates pension and other post-employment benefits headwind of around $110 million for 2023. It also sees a 75 cents per share headwind on its adjusted earnings per share in 2023. The company also expects roughly $50 million headwind from lower asset utilization to reduce inventory in 2023.
The company is expected to face headwinds from unfavorable currency translations. It saw $25 million negative impact from foreign currency translation in the first quarter of 2023. A stronger U.S. dollar is anticipated to have a $50 million annualized headwind in 2023, per the company.
Eastman Chemical Company Price and Consensus
Eastman Chemical Company price-consensus-chart | Eastman Chemical Company Quote
Stocks to Consider
Better-ranked stocks worth considering in the basic materials space include L.B. Foster Company FSTR, AngloGold Ashanti Limited AU and Linde plc LIN.
L.B. Foster currently carries a Zacks Rank #1 (Strong Buy). The Zacks Consensus Estimate for FSTR's current-year earnings has been stable over the past 60 days. You can see the complete list of today’s Zacks #1 Rank stocks here.
L.B. Foster’s earnings beat the Zacks Consensus Estimate in each of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 140.5%, on average. FSTR has gained around 2% in a year.
AngloGold Ashanti currently carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for AU’s current-year earnings has been revised 22% upward in the past 60 days.
The consensus estimate for current-year earnings for AU is currently pegged at $1.94, reflecting an expected year-over-year growth of 50.4%. AngloGold Ashanti’s shares have popped roughly 36% in the past year.
Linde currently carries a Zacks Rank #2. The Zacks Consensus Estimate for LIN’s current-year earnings has been revised 3.8% upward in the past 60 days.
Linde beat Zacks Consensus Estimate in each of the last four quarters. It delivered a trailing four-quarter earnings surprise of 6.9% on average. LIN’s shares have gained roughly 11% in the past year.
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