Why Is Eastman Chemical (EMN) Up 12.5% Since Last Earnings Report?

It has been about a month since the last earnings report for Eastman Chemical (EMN). Shares have added about 12.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Eastman Chemical due for a pullback? 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 catalysts.

Eastman Chemical Tops Q1 Earnings and Sales Estimates

Eastman Chemical logged profit of $258 million or $1.89 per share for the first quarter of 2020, up roughly 23% from the year-ago profit of $209 million or $1.49.

Barring one-time items, earnings were $2.03 per share for the quarter, up from $1.77 in the year ago-quarter. Earnings also topped the Zacks Consensus Estimate of $1.72.

Revenues dropped around 6% year over year to $2,241 million in the quarter, hurt by lower selling prices due to reduced raw material and energy prices and higher competitive activity. The top line, however, surpassed the Zacks Consensus Estimate of $2,214.2 million.

Higher sales volumes across personal care and wellness, water treatment, architectural coatings, agriculture and consumables markets were offset by lower volumes in transportation and textile markets due to the coronavirus pandemic.

Segment Review

Revenues from the Additives and Functional Products division fell 4% year over year to $822 million for the reported quarter. The decline was due to lower selling prices and unfavorable currency swings. Volumes rose in care chemicals, water treatment, architectural coatings and adhesives resins product lines.

Revenues from the Advanced Materials unit slipped 7% year over year to $615 million. The decline can be attributed to lower selling prices, unfavorable currency translation and less favorable product mix.

Chemical Intermediates sales went down 9% year over year to $592 million, hurt by lower selling prices. Lower raw material prices impacted selling prices.

Fibers segment sales were flat year over year at $212 million. Acetate tow sales volumes were stable in the quarter.
 
Financials

Eastman Chemical ended the quarter with cash and cash equivalents of $680 million, a more than three fold year-over-year increase. Net debt at the end of the quarter was $5,614 million, down around 10% year over year.

Eastman Chemical generated cash from operating activities of $171 million and free cash flow of $72 million during the reported quarter.

The company also returned $120 million to its shareholders through share repurchases and dividends during the quarter.

Outlook

Eastman Chemical has withdrawn its earnings and cash flow guidance for full-year 2020 due to higher level of uncertainties related to the impact of coronavirus.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -20.11% due to these changes.

VGM Scores

Currently, Eastman Chemical has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Following the exact same course, 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 B. 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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