Eastman Chemical Company reported a decline in earnings during second quarter whereby its sales dropped to $1,924 versus $2,363 in the same period last year.
Sales revenue decreased primarily due to lower sales volume and, to a lesser extent, lower selling prices. The sales volume decline was most pronounced for products used in end markets negatively impacted by COVID-19, including transportation, building and construction, consumer durables, and textiles. This decrease was partially offset by higher sales volume for products used in resilient end markets including consumables, personal care and wellness, medical, and agriculture. Some of these end markets had higher demand due to COVID-19. Lower selling prices were mostly attributed to lower raw material prices.
EBIT decreased due to the lower sales volume, reduced capacity utilization and less favorable product mix, partially offset by the impact of cost reduction actions. COVID-19 was the primary driver of the lower sales volume and less favorable product mix. Capacity utilization was substantially lower due to lower sales volume and the focus on maximizing cash generation by reducing inventories, reducing EBIT by approximately $140 million, with roughly half of the impact in Advanced Materials. Cost reduction actions in response to COVID-19 included reduced discretionary spending, deferred asset maintenance turnarounds, and adjusted operations to protect the health and safety of employees and contractors. Overall, spreads were relatively unchanged with lower selling prices offset by lower raw material and energy costs.
"As we continue to navigate the impact of the COVID-19 global pandemic, our focus remains on the health and safety of our employees and the operational integrity of our global facilities in order to serve our customers," said Mark Costa, Board Chair and CEO. "In this challenging environment, I deeply appreciate the resiliency and determination of our employees, which enabled us to deliver nearly the best free cash flow result for the first half of a year in our history. In addition, our sales revenue in the first half of the year was relatively solid, demonstrating the value of a diverse set of end markets and the benefit of our innovation-driven growth model. And, we moved swiftly to aggressively manage costs to offset meaningfully lower capacity utilization. We are on track to deliver free cash flow of greater than $1 billion for 2020, and cash flow generation remains our priority given the persistent uncertainty resulting from COVID-19."
Commenting on the outlook for full year 2020, Costa said: "We have done an outstanding job of navigating a challenging global business environment during the first half of the year, delivering nearly the best free cash flow result for the first half of a year in our history. Looking to the second half of the year, visibility remains limited. However, we are seeing demand for products serving the auto, tires, building and construction, and consumer durables end markets begin to recover sequentially from the low levels of the second quarter leading to increased capacity utilization, particularly in Advanced Materials. We are also on track to deliver approximately $150 million of cost savings for full year 2020 in response to the impact of COVID-19. And, with our emphasis on cash generation in the current environment, we expect to generate greater than $1 billion of free cash flow for the year. We are confident that the actions we are taking in 2020 will position us to significantly benefit from a return to global economic growth as we recover from the impact of COVID-19."
Due to the heightened level of uncertainty related to the impact of COVID-19, including on overall business and market conditions and demand for Eastman products, the company is not providing a 2020 full-year earnings forecast.
