Eastman Chemical Company today announced earnings, excluding Solutia acquisition-related costs and charges in both periods, of $1.62 per diluted share for first quarter 2013 versus $1.22 per diluted share for first quarter 2012. Reported earnings were $1.57 per diluted share in first quarter 2013 versus $1.13 per diluted share in first quarter 2012. .

"Our portfolio of specialty businesses continued to deliver strong earnings in the first quarter despite uncertain global economic conditions," said Jim Rogers, Chairman and CEO. "For full year 2013, we remain on track to achieve a fourth consecutive year of double-digit earnings growth while also generating strong cash flow."

Corporate Q1 2013 versus Q1 2012

Sales revenue for first quarter 2013 was $2.3 billion, a 27% increase compared with first quarter 2012. First quarter 2013 included sales revenue from the acquired Solutia businesses. Pro forma combined sales revenue declined 1%.

Operating earnings in first quarter 2013 were $393 million compared with $264 million in first quarter 2012. Excluding Solutia acquisition-related costs and charges in both periods, operating earnings were $403 million in first quarter 2013 and $273 million in first quarter 2012. First quarter 2013 included operating earnings from the acquired Solutia businesses. Pro forma combined operating earnings, excluding Solutia acquisition-related costs and charges, were $403 million in first quarter 2013 compared with $363 million in first quarter 2012. Pro forma combined operating earnings increased primarily due to lower raw material and energy costs partially offset by lower selling prices. Operating earnings and pro forma combined operating earnings included the "Other" operating losses detailed in Table 3.

Segment Results Q1 2013 versus Q1 2012

Additives & Functional Products - First quarter 2013 included sales revenue and operating earnings from the acquired Solutia rubber additives product lines. Pro forma combined sales revenue increased primarily due to higher sales volume of solvents product lines attributed to strengthened coatings demand in the U.S. building and construction market. First-quarter 2013 sales revenue included revenue from sales of certain products primarily sold into the tires market which were formerly reported in the Adhesives & Plasticizers segment. Pro forma combined operating earnings increased to $98 million in first quarter 2013 compared with $94 million in first quarter 2012. The increase was primarily due to lower raw material and energy costs, particularly for propane, and higher sales volume more than offsetting lower selling prices. Also impacting first quarter 2013 operating earnings was lower capacity utilization of rubber additives manufacturing facilities compared to higher capacity utilization in first quarter 2012 to build inventory.

Adhesives & Plasticizers - Sales revenue declined primarily due to lower sales volume attributed to weakened demand for adhesives resins sold into consumables markets, particularly packaging. Substitution of phthalate plasticizers with non-phthalate plasticizers continued during the quarter. First-quarter 2012 sales revenue included revenue from sales of certain products primarily sold into the tires market which now are reported in the Additives & Functional Products segment. Operating earnings declined to $49 million in first quarter 2013 compared with $66 million in first quarter 2012 primarily due to lower sales volume in adhesives resins product lines and resulting lower capacity utilization.

Advanced Materials - First quarter 2013 included sales revenue and operating earnings from the acquired Solutia interlayers and performance films product lines. Pro forma combined sales revenue increased primarily due to higher sales volume of interlayers products, particularly in Asia, attributed to strengthened demand in the transportation market, and higher sales volume for Eastman Tritan copolyester. Excluding first-quarter 2012 restructuring charges, pro forma combined operating earnings increased to $65 million in first quarter 2013 compared with $61 million in first quarter 2012 primarily due to slightly higher sales volume and increased sales of higher-margin products, including interlayers with acoustic properties, Eastman Tritam copolyester, and V-Kool brand window films.

Fibers - Sales revenue increased due to higher selling prices in response to higher raw material and energy costs, particularly for wood pulp, and higher sales volume due to customer buying patterns for acetate tow products. Operating earnings increased to $114 million in first quarter 2013 compared with $101 million in first quarter 2012 due to higher selling prices more than offsetting higher raw material and energy costs.

Specialty Fluids & Intermediates - First quarter 2013 included sales revenue and operating earnings from the acquired Solutia specialty fluids product lines. Pro forma combined sales revenue declined primarily due to lower sales volume resulting from increased internal use of olefins in the manufacture of higher-value downstream derivatives. The decline was also due to lower selling prices primarily for ethylene products due to lower raw material and energy costs, particularly for propane. Pro forma combined operating earnings increased to $95 million in first quarter 2013 compared with $73 million in first quarter 2012. The increase was primarily due to lower raw material and energy costs more than offsetting lower selling prices.

Cash Flow

Eastman generated $5 million in cash from operating activities during first quarter 2013. Working capital increased by $235 million during first quarter 2013 primarily due to increased receivables resulting from higher sales revenue. The company contributed $11 million to the U.S. defined benefit pension plans during the quarter, and expects to contribute approximately $120 million in full year 2013. The fourth-quarter 2012 dividend of $45 million ($.30 per share) was paid in December 2012 rather than January 2013. Share repurchases totaled $32 million during first quarter 2013.

Outlook

Commenting on the outlook for full year 2013, Rogers said: "We expect our leadership positions in key end-markets, the diversity of the end-markets we serve, and our broad geographic footprint to continue to position us well for strong earnings growth. However, global economic uncertainty continues with particular weakness in Europe, and raw material and energy costs remain volatile. Taking all of these factors into consideration, we continue to expect 2013 earnings per share to be between $6.30 and $6.40." Solutia integration costs, any asset impairments and restructuring charges, and mark-to-market pension and OPEB gains or losses are excluded from the earnings per share projection.