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Eastman Chemical (EMN) Q3 Earnings: Stock Poised to Beat?

Zacks Equity Research
Updated

Eastman Chemical EMN is set to release third-quarter 2016 results after the bell on Oct 27.

Eastman Chemical’s revenues and profit slipped year over year in second-quarter 2016, hurt by lower selling prices. Adjusted earnings and sales missed the respective Zacks Consensus Estimate. The company saw lower prices across all businesses in the quarter.

Eastman Chemical has beaten the Zacks Consensus Estimate in three of the trailing four quarters with an average beat of 3.42%. Let's see how things are shaping up for this announcement.  

Factors to Consider

Eastman Chemical, in its second-quarter call, said that it is benefiting from strong growth of its specialty products and its cost-cutting actions. However, the company is seeing increased competitive pressure and compressing olefin spreads. As such, the company sees a decline in adjusted earnings per share for 2016 that approaches 10% below adjusted earnings per share for 2015 compared with its earlier expectation of a decline of roughly 5%.

Eastman Chemical is gaining from synergies of acquisitions (especially Taminco Corporation), capacity additions and cost-cutting & productivity measures. The company is looking to reduce at least $100 million of costs by the end of 2016. Some benefits of its productivity and cost actions are expected in the third quarter.

Moreover, the purchase of Taminco has reinforced the company’s foothold in attractive niche end-markets including food, feed and agriculture where Taminco has a strong presence. The acquisition has also provided attractive cost and revenue synergy opportunities.

However, the company faces pricing pressure across its business segments as witnessed in the second quarter. Lower selling prices, especially in the Chemical Intermediates unit, hurt its revenues in the second quarter. Soft pricing, in part, due to competitive pressure is affecting the company’s Chemical Intermediates segment. Margins in its olefin business also remain under pressure due to weak pricing.

Eastman Chemical also faces currency translation risks given a stronger U.S. dollar vis-à-vis a basket of currencies. Its revenues remain exposed to unfavorable currency swings.

EASTMAN CHEM CO Price and EPS Surprise

 

EASTMAN CHEM CO Price and EPS Surprise | EASTMAN CHEM CO Quote

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Earnings Whispers

Our proven model shows that Eastman Chemical is likely to beat earnings because it has the right combination of the two key ingredients.

Zacks ESP: The Earnings ESP for Eastman Chemical is +1.81% as the Most Accurate Estimate stands at $1.69 while the Zacks Consensus Estimate is pegged at $1.66. A favorable Zacks ESP serves as a meaningful and leading indicator of a likely positive earnings surprise. Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.

Zacks Rank: Eastman Chemical currently carries a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank of #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating earnings.

Conversely, sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement.

The combination of Eastman Chemical’s Zacks Rank #3 and positive ESP makes us reasonably confident of an earnings beat.

Stocks That Warrant a Look

Here are some stocks in the basic materials space that you may want to consider, as our model shows they have the right combination of elements to post an earnings beat this quarter:

The Chemours Company CC has an Earnings ESP of +25.71% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Teck Resources Limited TCK has Earnings ESP of +4.55% and carries a Zacks Rank #1.

Dow Chemical DOW holds a Zacks Rank #2 and has Earnings ESP of +1.25%.

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DOW CHEMICAL (DOW): Free Stock Analysis Report
 
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