Eastman warns of sharp drop in plant utilisation

02 December 2008 17:30  [Source: ICIS news]

TORONTO (ICIS news)--Eastman Chemical is taking down capacity utilisation sharply and has temporarilly shut down production at facilities in Singapore and Malaysia as it responds to the tough economic environment, chief financial officer Curt Espeland said on Tuesday.

 

The US-based chemicals major now expected a 20% decline in fourth-quarter revenues, both sequentially and year over year, and earnings per share well below its earlier guidance of 90 cents, Espeland told analysts at a webcast investor event in New York.

 

The company’s overall fourth-quarter capacity utilisation was projected down 20 percentage points from the third quarter to less than 70%, the lowest level in over seven years, he said.

 

The majority of those declines were occurring in November and December, he said.

 

“The change from October to November has been dramatic.”

 

The declines affected all of Eastman’s major chemical lines: acetyls, olefins and polyesters, Espeland said.

 

Eastman had also temporarily shut down production at its oxochemicals complex in Singapore and a copolyester facility in Malaysia, and it was trying to bring forward plant maintenance work at other sites, he said.

 

Reduced capacity utilisation was driving up unit fixed costs, with negative short-term impacts on earnings, Espeland said.

 

On the other hand, prices for Eastman’s key raw materials propane and paraxylene had essentially collapsed in the last few months.

 

But the declines in raw material costs would not be reflected fully in Eastman’s fourth-quarter cost of goods sold as they needed to work through inventories, a process that could take up to 180 days, depending on product line, Espeland said.

 

Eastman expected a 20% drop in fourth-quarter sales revenues, both sequentially and year over year, due to the combination of lower sales volumes and product prices, he said.

 

Fourth quarter earnings per shares (EPS) would come in significantly below the 90 cents in Eastman's earlier guidance in October, Espeland said.

 

There was significant uncertainty about when economies and markets in general were going to pick up, or if the deterioration would continue, he added.

 

Eastman was “managing for cash” in the fourth quarter by reducing working capital and deferring capital expenditures in so far that made sense.

 

Meanwhile, Eastman’s balance sheet and finances were exceptionally strong, Espeland said.

 

“One particular bright spot for Eastman as we come into this crisis is our great shape that we are in financially, probably the strongest in our history,” he said.

 

Eastman had no debt coming due before 2012 and it had a committed, un-drawn $700m (€553m) revolver credit line available until 2013, he added.

 

For more on Eastman Chemical visit ICIS company intelligence

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By: Stefan Baumgarten
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