Why Is Eastman Chemical (EMN) Down 14.8% Since Last Earnings Report?

Zacks Equity Research

It has been about a month since the last earnings report for Eastman Chemical (EMN). Shares have lost about 14.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Eastman Chemical due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Eastman Chemical's Q1 Earnings, Revenues Lag Estimates

Eastman Chemical saw lower profits in the first quarter of 2019, hurt by lower demand for its specialty products in China and Europe due to trade tensions. The company recorded profit of $209 million or $1.49 per share for the quarter, down roughly 28% from the year-ago profit of $290 million or $2.00.

Barring one-time items, earnings were $1.77 per share for the quarter, down from $2.23 in the year ago-quarter. Earnings also trailed the Zacks Consensus Estimate of $1.91.

Revenues dropped around 9% year over year to $2,380 million in the quarter. The company saw lower sales across its segments. The top line missed the Zacks Consensus Estimate of $2,602.6 million.

Segment Review

Revenues from the Additives and Functional Products division fell 9% year over year at $855 million for the reported quarter. The decline was due to lower sales for adhesives resins and tire additives products, unfavorable foreign currency impact and reduced selling prices.

Revenues from the Advanced Materials unit declined 5% year over year to $657 million. The decline is attributable to reduced sales volume for specialty plastics due to customer inventory destocking associated with the U.S.-China trade conflict as well as unfavorable foreign currency impact.

Chemical Intermediates sales went down 10% to $655 million, hurt by lower bulk ethylene sales volumes and reduced selling prices.

Fibers segment sales dropped 13% to $213 million, impacted by reduced acetate tow sales volumes and prices.

Financials
 
Eastman Chemical ended the quarter with cash and cash equivalents of $195 million, flat year over year. Net debt at the end of the quarter was $6,269 million, down around 7% year over year.

The company returned $212 million to shareholders through share repurchases and dividends during the quarter.

Outlook

Moving ahead, Eastman Chemical expects strong earnings growth in the second quarter on a sequential comparison basis. However, the company expects the difficult global business environment to continue through first-half 2019. The company is taking additional cost reduction actions in the wake of the challenging business environment. It expects global economy to strengthen in the second half of 2019. The company continues to expects adjusted earnings per share growth of 6-10% in 2019.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -9.17% due to these changes.

VGM Scores

Currently, Eastman Chemical has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Eastman Chemical has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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