Eastman results hit by costs and disruptions

By Simon Pitman

- Last updated on GMT

Related tags Income statement Revenue

Eastman Chemical has reported a big dip in its first quarter
profits on the back of rising costs, production disruption and a
sluggish performance from its polymers division.

Although sales rose from $1.76bn in the first quarter of 2005 to $1.80bn in the corresponding quarter this year, the company said that its net earnings had slipped from $162m to $105m.

"We reported a very good first quarter,"​ Brian Ferguson, Eastman's chairman and chief executive officer, said during a conference call on Friday. "In the parade of Eastman first quarters, this was the second best in a decade and was only overshadowed by the best quarter in our history, which was a year ago."

But despite Ferguson's upbeat comments, there was no denying the fact that the company had been hard hit by costs, and nowhere more so than in its polymers division.

Eastman is a major supplier of packaging materials for the cosmetic industries and is also building a reputation as a major supplier of ingredients for the industry.

Indeed its polymers are a key ingredient for both packaging materials as well as ingredients used in personal care formulations, which points to the fact that the impact of the company's polymers division will have had a significant bearing on the personal care sector.

Operating earnings were $184m compared with operating earnings of $244m in first quarter 2005, which included restructuring charges of $7m this year and $9m in 2005.

Increased costs hit all sections of the business though. The company said first-quarter 2006 raw material and energy costs increased by approximately $100 million compared with first quarter 2005, relating largely to major hikes in the worldwide price of oil and general energy costs.

The results were also impacted by approximately $19 million of costs associated with operational disruptions at the company's Longview, Texas, manufacturing facility. An Eastman spokesperson said that the cause of the disruption was an equipment failure in one of the local plant's hydrocarbon cracking plants back in November.

Although revenues in its other four divisions rose by between 5 and 15 per cent, the company's polymer division reported that sales had fallen by 5 per cent. The company said that this was 'primarily due to lower selling prices and decreased sales volume for PET polymers globally partially offset by higher selling prices for polyethylene product lines', indicating that packaging materials were hard hit.

Commenting on the outlook for second quarter 2006, Ferguson said, "We expect our normal seasonal improvement in sales volume and continued solid performance from our strong base of earnings, which consists of the fibers, CASPI and specialty plastics segments.

"We also anticipate continued challenging market conditions for the global PET business in our polymers segment and high and volatile raw material and energy costs. As a result, we expect second-quarter 2006 earnings per share to be similar to first-quarter 2006 earnings per share excluding certain items."

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