“The COVID-19 global pandemic is unlike anything we’ve seen in our lifetimes and in our company’s 100-year history,“ Eastman Board Chair and CEO Mark Costa said in a conference call with those analysts. “And we’ve been through a lot – the Great Depression, a world war, regional conflicts, 9/11, the 2009 financial crisis, trade wars and much more in between. It’s been said that character is revealed through adversity – and this is yet another opportunity to reveal who we are as individuals, as a company, as neighbors and as a society. What it’s revealed to me is that we’re all up to the task.”
In that fight against COVID-19, the Kingsport-based global special products maker pointed out it produces personal care, home care and water treatment products; medical products that go into producing face shields and medical devices; and consumables that go into making food packaging.
“And as stay-at-home orders remain in effect in many parts of the world, we are hard at work continuing to make essential products that enhance the quality of life for our customers and communities,” Costa noted. “We serve end markets such as personal care and agriculture – markets that provide life-critical products to people all over the world. Whether soaps and sanitizers, or adhesives resins in your food packaging, we are proud to make a difference in the fight against this virus.”
In its first quarter report released on Thursday, revenue was $2.2 billion for the quarter compared to $2.3 billion in the first quarter of last year. Adjusted earnings per diluted share were $2.03 compared to $1.77 in last year’s first quarter. The performance beat Wall Street expectations for earnings, but not for revenue.
“Eastman has industry-leading cash flow, which we have taken aggressive actions to sustain in the current environment; a strong balance sheet with no maturities this year and manageable maturities in 2021 and significant sources of liquidity with $850 million of cash on hand and greater than $1 billion remaining available from a revolving credit facility,” Costa pointed out. “At the top line, we have a proven track record in our specialty businesses of driving growth above end markets with our innovation-driven growth model. We also serve a diverse set of markets, which provides resiliency. And we’ve been disciplined on costs for many years, holding them flat in 2018 and accelerating cost reduction efforts into 2019 and 2020. Over this same time, we’ve made significant investments in future R&D application development by doubling our application development resources and substantially increasing our customer engagement, while achieving efficiency in other functions to fund accelerated growth.”
Willie McLain, Eastman’s senior vice president and chief financial officer, said the company has reduced its operations substantially in its transportation-related businesses, temporarily idling several plants and running manufacturing campaigns at other plants.
“While it is very difficult to project demand levels in the coming quarters, we do expect that reduced operating rates and inventory management will create a significant capacity utilization headwind this year, and particularly in the second quarter and most pronounced in Advanced Materials (segment),” McLain said.
McLain also noted the company has stopped travel and reduced its dependence on contractors and consultants.
Given all of the uncertainty related to COVID-19, Costa said is extremely challenging to project financial results in 2020.
“Our most impacted markets are transportation, textiles, and energy,” Costa said. “Please remember that transportation consists of autos, tires and aviation fluids. We are seeing the impact that started in March continue in the second quarter with sales to the transportation market down in April about 40% below March. That said, we expect to be somewhat better than the market because of innovation, our advantaged market positions, and some regional and specific end-market product mix. In addition, we are expecting significant demand headwinds in aviation and tires, which will be more challenging than autos.
“All together, we now expect to reduce costs by approximately $150 million net of inflation this year. While a good portion of these cost reductions are demand-related, you’ll recall we said back in January that we expected to structurally reduce costs by between $20 million and $40 million this year, and by greater than $100 million over the next three years. We’ve pulled some of this forward and expect to retain it going forward.”