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Eastman Chemical (EMN) Updates Earnings Guidance for 2017


Eastman Chemical Company EMN provided an update on its earnings expectations for full-year 2017, including preliminary expectations of the impact of an operational incident at the company’s Kingsport manufacturing plant.

The fundamental state of business in the third quarter was strong across the company, which is also expected to continue into the fourth quarter. Additionally, the company expects the financial impact of recent hurricanes in the United States to be neutral, with impacts varying by segment. Due to aforementioned factors, Eastman Chemical expects adjusted earnings per share growth in 2017 to be toward the top end of the earlier projected range of 10-12% year over year, excluding the financial impact of the Kingsport operational incident.

On Oct 4, the company’s Kingsport coal gasification area suffered an operational incident. However, there were no reports of any adverse impact on the environment or on human health. The company noted that all areas of the manufacturing facility are reinstating normalcy with the exception of coal gasification operations.

Eastman Chemical is using alternative processes to continue operations of all downstream derivative facilities of coal gasification with repairing works being on track. Though the company is still assessing the financial impact of the incident, it is expected to affect operating earnings in the range of $50-100 million, mostly in fourth-quarter 2017.

Eastman Chemical’s shares have moved up 5.5% in the last three months, underperforming the industry’s 10.6% growth.

Eastman Chemical expects to drive growth on the back of innovation and high-margin products amid an uncertain global business environment. Eastman Chemical believes that disciplined capital allocation and aggressive cost-management policies might contribute to earnings and offset challenges faced by the company in Fibers and ethylene pricing. The company also expects to deliver an additional $100 million of cost savings in 2017. Its cost reduction actions are expected to contribute around 50 cents to earnings per share in 2017.

However, Eastman Chemical continues to witness pricing pressure in some businesses. Lower prices of acetate tow are hurting its Fibers unit. Moreover, the company expects ethylene prices to be lower in second-half 2017 vis-à-vis the first half. The company is also exposed to a volatile raw material pricing environment.

Zacks Rank& Stocks to Consider

Eastman Chemicalcurrently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the basic materials space are Sociedad Quimica y Minera de Chile S.A. SQM, The Chemours Company CC and FMC Corporation FMC. All three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.

Sociedad Quimica has an expected long-term earnings growth rate of 32.5%.

Chemours has an expected long-term earnings growth rate of 15.5%.

FMC has an expected long-term earnings growth rate of 11.3%.

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