Eastman;s raw material, energy and distribution costs increased by approximately $1.3 billion in 2022
Eastman Chemical registered 12% drop in revenue in 4Q 2022 as compared to corresponding quarter last year.
“Sales volume/mix decreased due to reduced demand, particularly in consumer durables and building and construction end markets, as well as broad-based customer inventory destocking beyond normal seasonal levels in North America, Europe, and China. In December, destocking accelerated and a significant drop in demand in China was due to the rapid spread of COVID-19. Selling prices increased across all segments in response to significantly higher raw material, energy, and distribution prices,” the company said in a release.
EBIT decreased due to lower sales volume/mix and unfavorable foreign currency exchange rates, partially offset by favorable spreads as higher selling prices more than offset higher raw material, energy, and distribution costs and lower selling, general, and administrative (SG&A) expenses due to variable compensation. Severely cold temperatures across the U.S. in late December resulting from Winter Storm Elliott had an estimated negative impact on EBIT of approximately $20 million.
“We ended the year with a challenging fourth quarter primarily due to lower demand in key end markets and geographies, customer inventory destocking beyond normal seasonality, and limited benefit from lower raw material and energy costs in this reduced demand environment,” said Mark Costa, Board Chair and CEO.
“Despite the significant challenges in the fourth quarter and throughout the year, we demonstrated commercial excellence in our pricing, made progress on new business revenue growth, and returned significant cash to shareholders. We also made significant progress on our circular platform during the year, and this remains an exciting opportunity for Eastman to create considerable value as a leader in providing a solution for the global plastic waste crisis. We remain confident in the resiliency of our portfolio and the sustainability of our strong cash flow going forward.”
In 2022, cash from operating activities was approximately $1 billion, compared to $1.6 billion in 2021. The decline was primarily due to lower adjusted EBITDA, higher variable compensation payouts, and an increased use of cash in working capital driven by continued inflationary pressures. In 2022, the company returned approximately $1.4 billion to stockholders through share repurchases and dividends. See Table 5. Priorities for uses of available cash for 2023 include organic growth investments, payment of the quarterly dividend, bolt-on acquisitions, and share repurchases.
Commenting on the outlook for full-year 2023, Costa said: “We enter 2023 during a challenging period for the global economy characterized by significant inventory destocking, soft end-market demand, and uncertainty about the full year. As we developed our outlook, we included volume/mix expectations that reflect a manufacturing recession scenario that began in the fourth quarter. We expect aggressive inventory destocking to predominantly conclude in the first quarter with modest volume recovery in the back half of the year. In this context, we are taking actions to reduce manufacturing, supply chain and non-manufacturing costs by a total of more than $200 million in 2023, net of inflation. We intend to maintain our demonstrated price discipline in our specialty product lines in order to recover spreads. Our raw material, energy and distribution costs increased by approximately $1.3 billion in 2022 and we expect these costs to moderate in 2023. We also expect significant improvement in our Fibers earnings to more sustainable levels. And our innovation wins will create growth above end markets through the year. Pension and other post-employment benefits costs are expected to increase by approximately $110 million and the annualized impact of a strong U.S. dollar is also expected to be a headwind. Based on this economic scenario and the actions that we are taking, we expect to grow adjusted 2023 EPS by between 5 and 15 percent, excluding the approximately $0.75 pension headwind. We are also taking a range of actions to improve our operating cash flow to be approximately $1.4 billion.”
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