Eastman(EMN) - 2024 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements The unaudited consolidated financial statements for the period ended September 30, 2024, show an increase in sales and net earnings for both the third quarter and the first nine months compared to the prior year, with total assets growing to $15.06 billion from $14.63 billion at year-end 2023, while net cash provided by operating activities decreased to $747 million for the first nine months of 2024 from $922 million in the same period of 2023 Unaudited Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings Consolidated Earnings Summary (Q3 & First Nine Months) | Indicator (in millions, except per share) | Q3 2024 | Q3 2023 | YTD 2024 | YTD 2023 | | :--- | :--- | :--- | :--- | :--- | | Sales | $2,464 | $2,267 | $7,137 | $7,003 | | Gross Profit | $605 | $484 | $1,736 | $1,597 | | EBIT | $329 | $256 | $929 | $825 | | Net Earnings Attributable to Eastman | $180 | $178 | $575 | $584 | | Diluted EPS | $1.53 | $1.49 | $4.86 | $4.89 | - Comprehensive income attributable to Eastman increased to $204 million in Q3 2024 from $155 million in Q3 2023, and to $616 million for the first nine months of 2024 from $495 million in the prior-year period[12] Unaudited Consolidated Statements of Financial Position Consolidated Financial Position Summary | Account (in millions) | Sep 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total Current Assets | $3,937 | $3,481 | | Total Assets | $15,060 | $14,633 | | Total Current Liabilities | $2,590 | $2,576 | | Long-Term Borrowings | $4,606 | $4,305 | | Total Liabilities | $9,332 | $9,103 | | Total Eastman Stockholders' Equity | $5,654 | $5,458 | Unaudited Consolidated Statements of Cash Flows Consolidated Cash Flow Summary (First Nine Months) | Activity (in millions) | YTD 2024 | YTD 2023 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $747 | $922 | | Net Cash used in Investing Activities | ($402) | ($680) | | Net Cash used in Financing Activities | ($273) | ($295) | | Net Change in Cash | $74 | ($54) | | Cash at End of Period | $622 | $439 | Notes to the Unaudited Consolidated Financial Statements The notes detail significant accounting policies, including the adoption of new standards and the status of those not yet adopted, covering inventory valuation, income tax provisions, changes in borrowings, extensive use of derivative instruments for hedging, retirement plan costs, environmental liabilities, stockholders' equity movements, EPS calculations, restructuring charges, and segment performance, notably recording $41 million in asset impairments and restructuring charges in the first nine months of 2024 and actively managing its debt portfolio through new issuances and repayments - The company is currently evaluating the impact of ASU 2023-07, which will require enhanced disclosures for reportable segments, and ASU 2023-09, which modifies income tax disclosure requirements, both effective for fiscal years beginning after December 15, 2024[28][31] - Eastman utilizes off-balance sheet accounts receivable factoring programs, selling $2.0 billion in receivables in the first nine months of 2024, compared to $2.1 billion in the same period of 2023[32] Asset Impairments, Restructuring, and Other Charges (in millions) | Charge Type | Q3 2024 | YTD 2024 | YTD 2023 | | :--- | :--- | :--- | :--- | | Asset impairments | $5 | $5 | $0 | | Severance charges | $10 | $21 | $16 | | Site closure and other charges | $15 | $15 | $6 | | Total | $30 | $41 | $22 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the increase in sales revenue for Q3 and the first nine months of 2024 primarily to higher sales volume as customer inventory destocking ended, with EBIT (excluding non-core and unusual items) rising due to higher volumes and favorable price-cost spreads, while cash from operations decreased due to higher working capital, and the company actively managed its debt and continued its share repurchase program Overview - The company's strategy is an innovation-driven growth model focused on scalable technology platforms, differentiated application development, and direct market engagement, with investment in molecular recycling technologies as a key focus[145] Key Financial Metrics (in millions) | Metric (in millions) | Q3 2024 | Q3 2023 | YTD 2024 | YTD 2023 | | :--- | :--- | :--- | :--- | :--- | | Sales | $2,464 | $2,267 | $7,137 | $7,003 | | EBIT | $329 | $256 | $929 | $825 | | Adjusted EBIT | $366 | $256 | $993 | $875 | - Sales revenue increased in Q3 and YTD 2024 primarily due to higher sales volume, attributed to the end of customer inventory destocking, though lower selling prices partially offset this in the YTD period[146] Results of Operations Sales Revenue Change Analysis | Period | Total Change | Volume/Mix Effect | Price Effect | Exchange Rate Effect | | :--- | :--- | :--- | :--- | :--- | | Q3 2024 vs Q3 2023 | +9% | +8% | +1% | 0% | | YTD 2024 vs YTD 2023 | +2% | +6% | -4% | 0% | - Gross profit, excluding non-core and unusual items, increased 26% in Q3 2024 and 8% in the first nine months of 2024 compared to the prior-year periods[154] - SG&A expenses rose 14% in Q3 and 3% YTD, primarily due to higher variable compensation costs, which were partially offset by cost reduction initiatives[155] Adjusted Net Earnings and EPS Reconciliation (YTD 2024) | Item (in millions, except EPS) | Amount | Per Share | | :--- | :--- | :--- | | Net Earnings (GAAP) | $575 | $4.86 | | Non-core & unusual items, net of tax | $48 | $0.41 | | Interim adjustment to tax provision | $89 | $0.75 | | Adjusted Net Earnings (Non-GAAP) | $712 | $6.02 | Summary by Operating Segment All four operating segments reported higher sales in Q3 2024 versus Q3 2023, with Advanced Materials and Fibers showing sales growth YTD, while Additives & Functional Products declined slightly and Chemical Intermediates was flat, and EBIT performance was mixed, with Advanced Materials and Fibers showing strong growth YTD, while Additives & Functional Products and Chemical Intermediates saw EBIT declines Advanced Materials (AM) Segment Performance (in millions) | Metric (in millions) | Q3 2024 | Q3 2023 | YTD 2024 | YTD 2023 | | :--- | :--- | :--- | :--- | :--- | | Sales | $787 | $746 | $2,330 | $2,227 | | Adjusted EBIT | $122 | $93 | $357 | $278 | Additives & Functional Products (AFP) Segment Performance (in millions) | Metric (in millions) | Q3 2024 | Q3 2023 | YTD 2024 | YTD 2023 | | :--- | :--- | :--- | :--- | :--- | | Sales | $744 | $670 | $2,166 | $2,194 | | Adjusted EBIT | $130 | $105 | $362 | $369 | Chemical Intermediates (CI) Segment Performance (in millions) | Metric (in millions) | Q3 2024 | Q3 2023 | YTD 2024 | YTD 2023 | | :--- | :--- | :--- | :--- | :--- | | Sales | $593 | $527 | $1,631 | $1,630 | | EBIT | $43 | $6 | $81 | $87 | Fibers Segment Performance (in millions) | Metric (in millions) | Q3 2024 | Q3 2023 | YTD 2024 | YTD 2023 | | :--- | :--- | :--- | :--- | :--- | | Sales | $336 | $323 | $997 | $949 | | Adjusted EBIT | $112 | $109 | $351 | $309 | Liquidity and Other Financial Information - Cash from operating activities decreased by $175 million in the first nine months of 2024 compared to the prior year, primarily due to higher working capital[198] - The company issued $500 million in 5.0% notes due 2029 and $750 million in 5.625% notes due 2034 during 2024, while also repaying or redeeming several debentures, notes, and term loans[206][208][212] - Capital expenditures for the first nine months of 2024 were $420 million, down from $649 million in the same period of 2023, with a full-year 2024 forecast of approximately $625 million[217] - The company repurchased $200 million of its common stock in the first nine months of 2024 under its $2.5 billion authorization from December 2021[218] Quantitative and Qualitative Disclosures About Market Risk Eastman is exposed to market risks from changes in foreign currency exchange rates, commodity prices, and interest rates, which it manages through various hedging strategies, with a hypothetical 10% fluctuation in the euro exchange rate impacting designated net investment values by $228 million, largely offset by hedges on euro-denominated borrowings and cross-currency swaps, and no other material changes to market risks since the 2023 Annual Report - The company's primary market risks stem from foreign currency exchange rates, commodity pricing, and interest rates[222] - A 10% fluctuation in the euro currency rate would have a $228 million impact on net investment values, but this is generally offset by designated hedges on euro-denominated debt and cross-currency swaps[224] Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of September 30, 2024, with no material changes in internal control over financial reporting during the third quarter of 2024 - The CEO and CFO concluded that as of September 30, 2024, the company's disclosure controls and procedures were effective at a reasonable assurance level[226] - No material changes to the company's internal control over financial reporting occurred during the third quarter of 2024[227] PART II. OTHER INFORMATION Legal Proceedings Eastman is involved in various legal proceedings in the ordinary course of business, which management does not believe will have a material adverse effect on the company's financial condition, and also notes its connection to legacy tort claims from Solutia, primarily the responsibility of Monsanto (now part of Bayer AG) under a settlement agreement - The company is party to various lawsuits and claims but does not expect their resolution to have a material adverse effect on its financial position[229] - Through its acquisition of Solutia, Eastman is indemnified by Monsanto (Bayer AG) for legacy tort claims under a 2008 settlement agreement[230] Risk Factors There have been no material changes to the company's risk factors from those disclosed in its 2023 Annual Report on Form 10-K - The company refers to the Risk Factors section of its 2023 Annual Report on Form 10-K, indicating no material changes[231] Unregistered Sales of Equity Securities and Use of Proceeds Under its $2.5 billion share repurchase authorization from December 2021, Eastman repurchased 1,018,269 shares for $100 million in the third quarter of 2024, with total repurchases amounting to 2,018,274 shares for $200 million for the first nine months of 2024, leaving approximately $1.515 billion available under the program as of September 30, 2024 - In Q3 2024, the company repurchased 1,018,269 shares for $100 million[234] Share Repurchases in Q3 2024 | Period | Total Shares Purchased | Average Price Paid | Approx. Value Remaining Under Plan | | :--- | :--- | :--- | :--- | | July 1-31, 2024 | 30,000 | $102.71 | $1.612 billion | | Aug 1-31, 2024 | 485,455 | $96.65 | $1.565 billion | | Sep 1-30, 2024 | 502,814 | $99.44 | $1.515 billion | | Total | 1,018,269 | $98.21 | $1.515 billion | Other Information The company discloses that its directors and officers may use Rule 10b5-1 trading plans for transactions in company securities, with two officers, Adrian Holt (SVP & CHRO) and Christopher M. Killian (SVP & Chief Technology Officer), adopting such plans for the potential sale of company stock during the third quarter of 2024 - The company's Insider Trading Policy permits directors and executive officers to enter into Rule 10b5-1 trading plans[237] - During Q3 2024, two senior vice presidents, Adrian Holt and Christopher M. Killian, adopted Rule 10b5-1 trading plans for the sale of up to 4,869 and 5,310 shares, respectively[239] Exhibits This section lists the exhibits filed with the Form 10-Q, including the company's certificate of incorporation, bylaws, the form of its 5.000% Notes due 2029, CEO and CFO certifications, and XBRL data files - The report includes standard corporate governance documents, debt instrument forms, required officer certifications (Rule 13a-14(a) and Section 1350), and interactive data files (XBRL) as exhibits[242]