Eastman Chemical Says Earnings May Climb 50% Through 2015

Eastman Chemical Co. (EMN), which acquired Solutia Inc. this year for $3.38 billion, said profit may increase 50 percent over the next three years on sales of ingredients used in tires, coatings and windows.

Earnings in 2015 will rise to about $8 a share, from about $6.25 next year and $5.30 to $5.40 this year, Chairman and Chief Executive Officer Jim Rogers said today by phone. Profit was estimated to be $5.37 this year and $6.27 next year, according to the average of 13 analysts’ estimates compiled by Bloomberg.

Free cash flow through 2015 will exceed $2 billion, Chief Financial Officer Curt Espeland said in the phone interview. Eastman defines free cash flow as operating cash flow less capital spending and dividend payments.

“Depending on how successful we are at putting that cash flow to work, we could even be above 8 bucks in 2015,” Rogers said.

Eastman, which doubled its sales in the Asia-Pacific region with the July addition of Solutia, expects 13 percent sales growth through 2015 in Brazil, Russia, India, China, Indonesia, Turkey and Mexico, Rogers said. Global annual sales may climb 4 percent to 6 percent in that time as economic growth improves to about 3 percent a year, he said.

Operating earnings in the advanced materials unit, which makes interlayer films used to strengthen windows for high rises and autos, should more than double to $380 million by 2015, Eastman said in a slide presentation. Earnings in the additives and functional products unit may climb 48 percent to $475 million by 2015 on sales of tire ingredients and coatings.

Tire Demand

Solutia makes Crystex insoluble sulfur used to make tires, and Eastman expects global tire demand to rise 4 percent to 5 percent next year after “a difficult” 2012, Mark Costa, an executive vice president, said in the interview. Growth may be slower in the commercial tire market, which is the primary market for Crystex, he said.

Using free cash to pay down debt will be a “top priority,” the CEO said. Still, the Kingsport, Tennessee-based company will consider making “bolt-on” acquisitions that have a good strategic fit, Rogers said.

“We are not just going to sit there and let a good opportunity pass us by,” Rogers said. “The hurdles are higher” because of the recent Solutia transaction, he said.

Eastman rose 2.4 percent to $63.65 at the close in New York. The shares have gained 63 percent this year.

Cheap Gas

Eastman is beginning to make the case to investors that the company’s shares merit a higher earnings multiple because Solutia has accelerated the move away from commodity products and toward a “specialty chemical company” with higher profit margins, Rogers said.

Cheap natural gas in the U.S. adds about 10 percent to earnings before interest and taxes, primarily because it reduces costs for making ethylene and propylene, Rogers said. The company is considering whether to power some of its manufacturing site in Kingsport with gas rather than coal, he said. Raw materials at the site will still be coal derivatives.

To contact the reporter on this story: Jack Kaskey in Houston at jkaskey@bloomberg.net

To contact the editor responsible for this story: Simon Casey at scasey4@bloomberg.net

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