Eastman(EMN) - 2024 Q1 - Quarterly Report

FORWARD-LOOKING STATEMENTS This section provides a standard disclaimer regarding forward-looking statements, outlining their nature, the underlying assumptions, and the inherent risks and uncertainties - Forward-looking statements are defined as all statements, other than statements of historical fact, that may be made by Eastman Chemical Company from time to time, identifiable by terms such as 'anticipates', 'believes', 'estimates', 'expects', 'intends', 'may', 'plans', 'projects', 'forecasts', 'will', 'would', 'could', and similar expressions[10] - These statements are based on underlying assumptions as of the date made, including internal estimates, market conditions, management expectations, and economic conditions, and are subject to risks and uncertainties that could cause actual results to differ materially[11] - Investors are cautioned not to place undue reliance on forward-looking statements, which speak only as of the report date, and the Company undertakes no obligation to update them, except as legally required[12] PART I. FINANCIAL INFORMATION This part presents Eastman Chemical Company's unaudited consolidated financial statements and management's discussion and analysis for the first quarter of 2024 ITEM 1. FINANCIAL STATEMENTS This section presents Eastman Chemical Company's unaudited consolidated financial statements for the first quarter ended March 31, 2024, including statements of earnings, financial position, cash flows, and comprehensive notes detailing accounting policies, financial instruments, segment information, and other relevant disclosures UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS, COMPREHENSIVE INCOME AND RETAINED EARNINGS The unaudited consolidated statements of earnings show an increase in net earnings attributable to Eastman for Q1 2024 to $165 million, up from $134 million in Q1 2023, with diluted EPS rising to $1.39 from $1.12 | Metric | Q1 2024 (Millions USD) | Q1 2023 (Millions USD) | | :----------------------------------- | :--------------------- | :--------------------- | | Sales | $2,310 | $2,412 | | Cost of sales | $1,778 | $1,883 | | Gross profit | $532 | $529 | | Selling, general and administrative expenses | $191 | $191 | | Research and development expenses | $59 | $62 | | Asset impairments and restructuring charges, net | $11 | $22 | | Earnings before interest and taxes | $263 | $246 | | Net earnings attributable to Eastman | $165 | $134 | | Basic earnings per share attributable to Eastman | $1.40 | $1.13 | | Diluted earnings per share attributable to Eastman | $1.39 | $1.12 | | Comprehensive income attributable to Eastman | $156 | $119 | | Retained earnings at end of period | $9,559 | $9,013 | UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION The unaudited consolidated statements of financial position indicate a slight increase in total assets to $14,748 million as of March 31, 2024, from $14,633 million at December 31, 2023 | Metric | March 31, 2024 (Millions USD) | December 31, 2023 (Millions USD) | | :----------------------------------- | :------------------------------ | :------------------------------- | | Cash and cash equivalents | $499 | $548 | | Total current assets | $3,638 | $3,481 | | Net properties | $5,535 | $5,548 | | Goodwill | $3,644 | $3,646 | | Total assets | $14,748 | $14,633 | | Total current liabilities | $2,618 | $2,576 | | Long-term borrowings | $4,340 | $4,305 | | Total liabilities | $9,140 | $9,103 | | Total Eastman stockholders' equity | $5,538 | $5,458 | | Total equity | $5,608 | $5,530 | UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS The unaudited consolidated statements of cash flows show a shift from net cash provided by operating activities in Q1 2023 to net cash used in Q1 2024, with a decrease in cash provided by financing activities | Metric | First Three Months 2024 (Millions USD) | First Three Months 2023 (Millions USD) | | :----------------------------------- | :----------------------------------- | :----------------------------------- | | Net cash used in operating activities | $(16) | $(2) | | Net cash used in investing activities | $(179) | $(252) | | Net cash provided by financing activities | $148 | $357 | | Net change in cash and cash equivalents | $(49) | $106 | | Cash and cash equivalents at end of period | $499 | $599 | NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS These notes provide detailed disclosures on Eastman's accounting policies, financial instruments, debt, equity, and segment performance - Eastman adopted ASU 2022-03 (Fair Value Measurement) on January 1, 2024, which did not have a significant impact on the Company's financial statements[25] - The Company is currently evaluating the impact of recently issued ASUs, including ASU 2023-07 (Segment Reporting), ASU 2023-05 (Joint Venture Formations), and ASU 2023-09 (Income Taxes), which are effective for fiscal years beginning after December 15, 2023, 2024, and 2025 respectively[26][27][28] Inventories (Millions USD) | Category | March 31, 2024 | December 31, 2023 | | :---------------------- | :------------- | :---------------- | | Finished goods | $1,247 | $1,193 | | Work in process | $307 | $293 | | Raw materials and supplies | $636 | $618 | | Total inventories at FIFO or average cost | $2,190 | $2,104 | | Less: LIFO reserve | $421 | $421 | | Total inventories | $1,769 | $1,683 | Provision for Income Taxes and Tax Rate (Millions USD) | Metric | Q1 2024 | Q1 2023 | | :-------------------------- | :------ | :------ | | Provision for income taxes | $49 | $60 | | Tax rate | 23% | 31% | - In Q1 2024, Eastman issued $750 million aggregate principal amount of 5.625% notes due February 2034, with net proceeds of $742 million, and repaid $198 million of 7.25% debentures due January 2024[34] - The Company's $1.50 billion revolving credit agreement was amended in February 2024 to extend its maturity to February 2029. The $300 million 2024 Term Loan was repaid in Q1 2024[35][36] Sales by Segment (Millions USD) | Segment | Q1 2024 | Q1 2023 | | :-------------------------- | :------ | :------ | | Advanced Materials | $748 | $742 | | Additives & Functional Products | $704 | $777 | | Chemical Intermediates | $523 | $589 | | Fibers | $331 | $303 | | Total Sales by Operating Segment | $2,306 | $2,411 | | Total Sales | $2,310 | $2,412 | Earnings (Loss) Before Interest and Taxes by Segment (Millions USD) | Segment | Q1 2024 | Q1 2023 | | :----------------------------------- | :------ | :------ | | Advanced Materials | $104 | $86 | | Additives & Functional Products | $109 | $124 | | Chemical Intermediates | $16 | $42 | | Fibers | $117 | $65 | | Total Earnings Before Interest and Taxes by Operating Segment | $346 | $317 | | Total Earnings Before Interest and Taxes | $263 | $246 | ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Eastman's financial performance, condition, and liquidity for the first quarter of 2024 Non-GAAP Financial Measures Eastman utilizes non-GAAP financial measures to provide investors with a clearer understanding of period-over-period performance by excluding non-core, unusual, or non-recurring items - Management uses non-GAAP measures to evaluate performance by excluding transactions, costs, and losses or gains that do not directly result from core business operations or are unusual/non-recurring[101] - Non-core items include asset impairments, restructuring charges, acquisition/disposition costs, environmental costs for divested businesses, and mark-to-market adjustments for pension plans. Unusual items in Q1 2023 included an increase in state income taxes due to new guidance and insurance proceeds from a steam line incident[102] Non-Core and Unusual Items Excluded from Earnings (Millions USD) | Item | Q1 2024 | Q1 2023 | | :---------------------------------------------------- | :------ | :------ | | Asset impairments and restructuring charges, net | $11 | $22 | | Accelerated depreciation | — | $23 | | Steam line incident costs (insurance proceeds), net | — | $(8) | | Total non-core and unusual items impacting EBIT | $11 | $37 | | Total items impacting net earnings attributable to Eastman | $25 | $61 | Overview Eastman's innovation-driven growth model leverages technology platforms, application development, and market engagement for sustainable earnings growth and strong cash flow - Eastman's innovation-driven growth model focuses on world-class scalable technology platforms, differentiated application development capabilities, and market engagement to drive sustainable growth[111] Sales and EBIT (Millions USD) | Metric | Q1 2024 | Q1 2023 | | :------------------------------------------ | :------ | :------ | | Sales | $2,310 | $2,412 | | Earnings before interest and taxes | $263 | $246 | | Earnings before interest and taxes excluding non-core and unusual items | $274 | $283 | - Sales revenue decreased in Q1 2024 primarily due to lower selling prices, partially offset by higher sales volume attributed to reduced customer destocking[112] Net Earnings and EPS (Millions USD, except EPS) | Metric | Q1 2024 ($) | Q1 2024 (EPS) | Q1 2023 ($) | Q1 2023 (EPS) | | :------------------------------------------ | :---------- | :------------ | :---------- | :------------ | | Net earnings attributable to Eastman | $165 | $1.39 | $134 | $1.12 | | Adjusted net earnings | $190 | $1.61 | $195 | $1.63 | - Cash used in operating activities increased to $16 million in Q1 2024 from $2 million in Q1 2023[114] Results of Operations Eastman's Q1 2024 results show a 4% decrease in sales, primarily driven by a 7% decline in selling prices, partially offset by a 3% increase in volume Sales Change Analysis (Millions USD) | Metric | Q1 2024 | Q1 2023 | Change ($) | Change (%) | | :-------------------- | :------ | :------ | :--------- | :--------- | | Sales | $2,310 | $2,412 | $(102) | (4)% | | Volume / product mix effect | | | $63 | 3% | | Price effect | | | $(164) | (7)% | | Exchange rate effect | | | $(1) | —% | Gross Profit (Millions USD) | Metric | Q1 2024 | Q1 2023 | Change (%) | | :---------------------------------- | :------ | :------ | :--------- | | Gross profit | $532 | $529 | 1% | | Gross profit excluding non-core and unusual items | $532 | $544 | (2)% | - Selling, general and administrative expenses remained unchanged at $191 million in Q1 2024 compared to Q1 2023, as higher variable compensation costs were offset by cost reduction initiatives[118] - Research and development expenses decreased by 5% to $59 million in Q1 2024, primarily due to targeted cost reduction initiatives[119] Earnings Before Interest and Taxes (EBIT) (Millions USD) | Metric | Q1 2024 | Q1 2023 | Change (%) | | :------------------------------------------ | :------ | :------ | :--------- | | Earnings before interest and taxes | $263 | $246 | 7% | | EBIT excluding non-core and unusual items | $274 | $283 | (3)% | Net Earnings and Diluted EPS Attributable to Eastman (Millions USD, except EPS) | Metric | Q1 2024 ($) | Q1 2024 (EPS) | Q1 2023 ($) | Q1 2023 (EPS) | | :------------------------------------------ | :---------- | :------------ | :---------- | :------------ | | Net earnings and diluted EPS attributable to Eastman | $165 | $1.39 | $134 | $1.12 | | Adjusted net earnings and diluted EPS attributable to Eastman | $190 | $1.61 | $195 | $1.63 | Summary by Operating Segment This section details the performance of Eastman's four operating segments: Advanced Materials, Additives & Functional Products, Chemical Intermediates, and Fibers Advanced Materials Segment The Advanced Materials segment reported a 1% increase in sales for Q1 2024, driven by higher sales volume from reduced customer destocking in durables and electronics, despite lower selling prices Advanced Materials Segment Performance (Millions USD) | Metric | Q1 2024 | Q1 2023 | Change ($) | Change (%) | | :-------------------- | :------ | :------ | :--------- | :--------- | | Sales | $748 | $742 | $6 | 1% | | Volume / product mix effect | | | $32 | 4% | | Price effect | | | $(23) | (3)% | | EBIT | $104 | $86 | $18 | 21% | Additives & Functional Products Segment The Additives & Functional Products segment experienced a 9% decrease in sales in Q1 2024, primarily due to lower selling prices from cost pass-through contracts Additives & Functional Products Segment Performance (Millions USD) | Metric | Q1 2024 | Q1 2023 | Change ($) | Change (%) | | :-------------------- | :------ | :------ | :--------- | :--------- | | Sales | $704 | $777 | $(73) | (9)% | | Volume / product mix effect | | | $(8) | (1)% | | Price effect | | | $(67) | (8)% | | EBIT | $109 | $124 | $(15) | (12)% | Chemical Intermediates Segment The Chemical Intermediates segment saw an 11% decrease in sales for Q1 2024, mainly due to lower selling prices driven by weak market conditions and reduced raw material costs Chemical Intermediates Segment Performance (Millions USD) | Metric | Q1 2024 | Q1 2023 | Change ($) | Change (%) | | :-------------------- | :------ | :------ | :--------- | :--------- | | Sales | $523 | $589 | $(66) | (11)% | | Volume / product mix effect | | | $13 | 2% | | Price effect | | | $(80) | (13)% | | EBIT | $16 | $42 | $(26) | (62)% | Fibers Segment The Fibers segment reported a 9% increase in sales for Q1 2024, driven by higher sales volume in textiles and increased selling prices in acetate tow Fibers Segment Performance (Millions USD) | Metric | Q1 2024 | Q1 2023 | Change ($) | Change (%) | | :------------------------------------------ | :------ | :------ | :--------- | :--------- | | Sales | $331 | $303 | $28 | 9% | | Volume / product mix effect | | | $23 | 7% | | Price effect | | | $6 | 2% | | EBIT | $117 | $65 | $52 | 80% | | EBIT excluding non-core items | $117 | $94 | $23 | 24% | Sales by Customer Location Eastman's total sales revenue decreased by 4% in Q1 2024 compared to Q1 2023 Sales Revenue by Customer Location (Millions USD) | Region | Q1 2024 | Q1 2023 | Change ($) | Change (%) | | :-------------------------- | :------ | :------ | :--------- | :--------- | | United States and Canada | $969 | $1,065 | $(96) | (9)% | | Europe, Middle East, and Africa | $659 | $709 | $(50) | (7)% | | Asia Pacific | $564 | $521 | $43 | 8% | | Latin America | $118 | $117 | $1 | 1% | | Total Eastman | $2,310 | $2,412 | $(102) | (4)% | - The overall sales decrease was primarily due to lower selling prices (down 7%), particularly in the Europe, Middle East, and Africa region[146] - Higher sales volume (up 3%), particularly in the Asia Pacific region, partially offset the decline in sales revenue[146] Liquidity and Other Financial Information Eastman maintains a strong liquidity position, expecting sufficient cash flows to meet short and long-term requirements, supported by an investment-grade credit rating - Management believes maintaining a financial profile that supports an investment grade credit rating is important to its long-term strategy and financial flexibility[149] Net Cash Provided by (Used in) Activities (Millions USD) | Activity | First Three Months 2024 | First Three Months 2023 | | :-------------------------- | :---------------------- | :---------------------- | | Operating activities | $(16) | $(2) | | Investing activities | $(179) | $(252) | | Financing activities | $148 | $357 | | Net change in cash and cash equivalents | $(49) | $106 | - Cash used in operating activities increased by $14 million in Q1 2024 primarily due to higher variable compensation payout and hedging settlement losses, partially offset by lower working capital[150] - The Company utilizes off-balance sheet accounts receivable factoring programs, selling $698 million and $677 million in invoices in Q1 2024 and Q1 2023, respectively, as a routine source of working capital funding[154] - Eastman's total borrowings were $5.1 billion at March 31, 2024. The company repaid $198 million of debentures and issued $750 million of new notes in Q1 2024[157][158] - The $1.50 billion revolving credit agreement was extended to February 2029, and the $300 million 2024 Term Loan was repaid in Q1 2024[161][162] Net Debt (Millions USD) | Metric | March 31, 2024 | December 31, 2023 | | :-------------------------- | :------------- | :---------------- | | Total borrowings | $5,080 | $4,846 | | Less: Cash and cash equivalents | $499 | $548 | | Net debt | $4,581 | $4,298 | - Capital expenditures were $185 million in Q1 2024, primarily for Advanced Materials segment methanolysis facilities and other growth initiatives. Expected 2024 capital expenditures are between $700 million and $750 million[167] - No shares were repurchased in Q1 2024 or Q1 2023 under the $2.5 billion 2021 authorization. As of March 31, 2024, $785 million has been used to repurchase 8,601,749 shares[168][182] Critical Accounting Estimates Eastman's critical accounting estimates, including those for asset impairment, environmental costs, pension benefits, litigation, and income taxes, remain consistent with those disclosed in the 2023 Annual Report on Form 10-K - Critical accounting estimates, including those related to impairment of long-lived assets, environmental costs, pension and other postretirement benefits, litigation and contingent liabilities, and income taxes, are consistent with the 2023 Annual Report on Form 10-K[169] - These estimates require management's most significant judgments, and actual results could differ from current estimates under different assumptions or conditions[169] Recently Issued Accounting Standards This section refers to Note 1, 'Significant Accounting Policies,' for information regarding the impact of recently issued accounting standards, indicating that management is currently evaluating their potential effects on the company's financial statements and disclosures - For information regarding the impact of recently issued accounting standards, refer to Note 1, 'Significant Accounting Policies,' in Part I, Item 1 of this Quarterly Report[170] ITEM 3. Quantitative and Qualitative Disclosures About Market Risk Eastman is exposed to market risks from foreign currency exchange rates, commodity prices, and interest rates, which it manages through various strategies including hedging - Eastman is exposed to market risks from changes in foreign currency exchange rates, commodity prices, and interest rates, which are managed through pricing, inventory management, and hedging strategies[171] - A 10% fluctuation in the euro currency rate would result in a $232 million impact on designated net investment values in foreign subsidiaries, generally offset by foreign currency changes in euro-denominated borrowings or cross-currency interest rate swaps[173] ITEM 4. Controls and Procedures Eastman's management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2024, ensuring timely and accurate reporting - As of March 31, 2024, the Company's disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed was accumulated and communicated to management[175] - There has been no change in the Company's internal control over financial reporting during Q1 2024 that has materially affected, or is reasonably likely to materially affect, the internal control over financial reporting[176] PART II. OTHER INFORMATION This part covers legal proceedings, risk factors, equity security sales, and other disclosures relevant to Eastman Chemical Company's operations ITEM 1. LEGAL PROCEEDINGS Eastman is routinely involved in various legal proceedings, including product liability, environmental, and intellectual property matters - Eastman is a party to various lawsuits, claims, investigations, and proceedings, including product liability, environmental, and intellectual property matters, handled in the ordinary course of business[178] - Management does not believe that the ultimate resolution of any pending legal matters will have a material adverse effect on the Company's overall financial position, results of operations, or cash flows[178] - The company's threshold for disclosing environmental legal proceedings involving a governmental authority is potential monetary sanctions of $1 million or more[178] ITEM 1A. RISK FACTORS This section refers readers to the 'Risk Factors' section in Eastman's 2023 Annual Report on Form 10-K for a comprehensive discussion of material known risk factors that could adversely affect the company's business, financial condition, or results of operations - For information regarding the Company's material known risk factors, refer to 'Risk Factors' in Part I, Item 1A of the Company's 2023 Annual Report on Form 10-K[180] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS Eastman's Board of Directors authorized a $2.5 billion common stock repurchase program in December 2021 - The Company's Board of Directors authorized the repurchase of up to $2.5 billion of common stock in December 2021[182] - No shares were repurchased during the first quarter of 2024[182] Stock Repurchase Program Status | Metric | As of March 31, 2024 | | :----------------------------------- | :------------------- | | Total shares repurchased under 2021 authorization | 8,601,749 | | Total value repurchased under 2021 authorization | $785 million | | Remaining authorization | $1,715 million | | Total authorization | $2.5 billion | ITEM 5. OTHER INFORMATION This section confirms that none of Eastman's directors or officers adopted, modified, or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the first quarter of 2024 - No directors or officers adopted, modified, or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the first quarter of 2024[183] ITEM 6. EXHIBITS This section provides an index of all exhibits filed as part of the Form 10-Q report, including corporate governance documents, debt instrument forms, certifications from the CEO and CFO, and Inline XBRL data files - The Exhibit Index lists all exhibits filed as part of this report, including Amended and Restated Certificate of Incorporation, Bylaws, Form of 5.625% Notes due 2034, Rule 13a-14(a) Certifications, Section 1350 Certifications, and Inline XBRL documents[186] SIGNATURES This section contains the formal certification of the Quarterly Report on Form 10-Q, duly signed on behalf of Eastman Chemical Company by William T. McLain, Jr., Executive Vice President and Chief Financial Officer, on April 26, 2024 - The report is signed by William T. McLain, Jr., Executive Vice President and Chief Financial Officer, on behalf of Eastman Chemical Company[189] - The signing date for the report is April 26, 2024[189]