eastman chemical (emn) earnings report: q4 2014 conference...

CompanyName:EastmanChemicalCoCompanyTicker:EMNSector:BasicMaterials

Industry:ChemicalsEventDescription:Q4 2014 EarningsCall

©2014TheStreet,Inc.AllRightsReserved Page1of 21

EastmanChemical(EMN)EarningsReport:Q42014ConferenceCallTranscriptThefollowingEastmanChemicalconferencecalltookplaceonJanuary30,2015,08:00AMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

GregRiddle;EastmanChemical;VP-IRMarkCosta;EastmanChemical;Chairman,CEOCurtEspeland;EastmanChemical;EVP,CFO

OtherPart icipants

KevinMcCarthy;BofAMerrillLynch;AnalystDavidBegleiter;DeutscheBank;AnalystFrankMitsch;WellsFargoSecurities;AnalystJohnRoberts;UBS;AnalystVincentAndrews;MorganStanley;AnalystJamesSheehan;SunTrustRobinsonHumphrey;AnalystJeffZekauskas;JPMorgan;AnalystP.J.Juvekar;Citigroup;AnalystLaurenceAlexander;JefferiesandCo.;AnalystBobKoort;GoldmanSachs;AnalystMikeSison;KeyBancCapitalMarkets;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator:

GooddayandwelcometotheEastmanChemicalCompanyfourth-quarterfull-year2014earningsconferencecall.Thisconferenceisbeingrecorded.ThiscallisbeingbroadcastliveonEastman'sWebsiteatwww.eastman.com.WewillnowturnthecallovertoMr.GregRiddleofEastmanChemicalCompanyInvestorRelations.Pleasegoahead,sir.

GregRiddle (VP-IR):

Thankyou,Jake,andgoodmorning,everyone,andthanksforjoiningus.OnthecallwithmetodayareMarkCosta,CEO;CurtEspeland,ExecutiveVicePresidentandCFO;andJoshMorgan,ManagerInvestorRelations.BeforewebeginI' llcoverthreeitems.

First,duringthispresentationyouwillhearcertainforward-lookingstatementsconcerningourplansandexpectations.Actualresultscoulddiffermaterially.CertainfactorsrelatedtofutureexpectationsareorwillbedetailedintheCompany'sfourth-quarterandfull-year2014financialresultsnewsreleaseandinourfilingswiththeSecuritiesandExchangeCommission,includingtheForm10-Qfiledforthirdquarter2014andtheForm10-Ktobefiledfor2014.

Second,earningspershareandoperatingearningsreferencedinthispresentationexcludecertainnon-coreornonrecurringcosts,chargesandgains.AreconciliationtothemostdirectlycomparableGAAPfinancialmeasuresandotherassociateddisclosures,includingadescriptionoftheexcludeditems,areavailablein




ourfourth-quarterandfull-yearfinancialresultsnewsreleasewhichcanbefoundateastman.comintheInvestorssection.Projectionsoffutureearningsinthefinancialpresentationalsoexcludesuchitemsasdescribedinthefourth-quarterfinancialresultsnewsrelease.

Lastly,we'vepostedslidesthataccompanyourremarksforthismorning'scallonourWebsiteinthePresentations&Eventssection.WiththatIwillturnthecallovertoMark.

MarkCosta (Chairman,CEO):

Goodmorningandthankyouforjoiningus.Iwillbeginonslide3.2014wasastrongyearforEastmanaswecontinuetomakeprogressonourgoalbecomingaleadingspecialtychemicalcompany.WedeliveredourfifthconsecutiveyearofstrongEPSgrowthdespiteachallengingglobalenvironmentandavolatilerawmaterialenvironment.Weareveryproudofthattrackrecordgiventhatonly25%ofthecompaniesintheS&P500haveeveraccomplishedthisperformance.

In2014wealsogeneratedfreecashflowof$810million,consistentwithourexpectations.Thislevelofearningsgrowthandstrongcashflowgenerationreflectshowourworld-classtechnologyplatformshaveenabledustoachievesuccessinexpandingourleadershippositionsindiverseandattractiveendmarketsandgeographies,acceleratingourearningsgrowthwithinnovationdrivenSpecialtyProductsandleveragingouradvantagedcostpositionthroughverticalintegrationandadvantagedrawmaterialpositions.

Wealsocompletedfouracquisitionsduringtheyear.Eachoftheseacquiredbusinessesalignswellwithourstrategyofdeliveringconsistentandsuperiorvalue.InDecemberwecompletedthelargestoftheseacquisitions,Taminco,ahighlysuccessfulglobalspecialtychemicalproducerwithmarket-leadingpositions.AndIwilltalkmoreaboutTamincoonthenextslide.

Duringtheyearwealsoaddedseveralsmallerbolt-onacquisitionstoourportfolio:CommonwealthLaminating&Coating;KnowltonTechnologies;andtheAviationTurbineOilbusinessfromBP.BothCommonwealthandtheAviationTurbineOilbusinessaregreatadditionstoourexistingproductportfolioinPerformanceFilmsandSpecialtyFluidsrespectively.TheKnowltonacquisitionwasveryattractiveasitwillenableustoacceleratetheinnovationcycleforourmicrofibersplatform.

Eachoftheseacquisitionsrepresentsasolidadditiontoourportfolio,reflectingourcommitmenttouseM&Aasameansofcreatingvalueinbothearningsandcashflow.

WealsomadesignificantprogressonourorganicinitiativesacrosstheCompany.Wecontinuetohavedouble-digitgrowthinourTritancopolyesterduetomarketadoption,whichwillbesupportedbyourfourth-quarterexpansionatourKingsportsite.

Inaddition,wehavebegunworkonanadditional60,000metrictonexpansionforTritanwhichwewillexpecttobeoperationalin2017.Weexpectcontinueddouble-digitgrowthinourpremiumacousticandheadsupdisplaysSaflexinterlayerproductsandproudofoursuccessfullaunchofanewopticalfilmproductforthehighgrowthmobiledevicemarketwherewearealreadyrealizingstronggrowth.

OurrubberadditivesteamhasachievedrapidsuccessindevelopingandvalidatingabreakthroughtechnologyforsignificantlyreducingourCrystexmanufacturingcosts.AsaresultwearecurrentlyretrofittingoneofourassetsinEuropewiththistechnologyandweintendtoproceedwithplanstodoubleourCrystexinsolublesulfurcapacityinKuantan,Malaysiawiththistechnologyaswell,whichweexpecttobeoperationalinthefirsthalfof2017.

InAFPwelaunchedOmnia,anewsustainablesolventforHouseholdCleanersandweexpecttoseegreatgrowthfromthatbusinessaswell.Iwasparticularlyimpressedwiththespeedofourteamwhentheywentfromconcepttosuccessfulproductlaunchin18monthswhichisoutstandingforthisindustry.




Wecontinuetoseestrongmarketsswitchingtonon-phthalateplasticizersandhavecompletedanexpansionofour168capacitytosupportourgrowthinthismarketwhereweareleveragingthistrend.

Finallyduringtheyear,weremaincommittedtoreturningcashtoourstockholdersbyincreasingourdividendforthefifthconsecutiveyearandrepurchasingmorethan$400millionofstock.ThisstrongperformanceonsomanyfrontsisagreattestamenttothestrengthoftheEastmanportfolio.Moreimportantly,Iamveryfortunatetohavesuchagreatmanagementteamandagreatgroupofemployeeswhoconsistentlyovercomechallengesandfindwaystodeliverresultsforourstakeholders.

I' llmovetothenextpage.AsImentioned,wecompletedtheacquisitionofTamincoinDecemberandaverypleasedtowelcomeTamincoemployeestotheEastmanteam.WeareconfidentthatTamincowillbeagreatstrategicfitinthedeploymentofourbalancesheet.

Wehavediversifiedandattractiveendmarketswithsolidmacrotrends.Wewillaccelerategrowthopportunitiesinpersonalcare,coatingsandoilandgasmarketsacrosstheportfolio.Andweseesubstantialopportunitiestoleverageourstrengthincreatingvaluefromtheirsimilarbusinessmodelthatleveragesaworld-classintegratedstream.

AswelookatprojectedearningsfromTaminco'sbusinessfor2015,weexpectthemtocontinuetodeliversolidtop-linegrowthandoperatingearningsbemodestlyhigherthan2014,whichisconsistentwithourpreviousexpectations.Wearealsoontrackwithoursynergytargets.

WiththeintegrationofTaminco'sbusinessesandvariouspurchaseaccountingadjustments,weexpectapproximately75%ofTaminco'stotaloperatingearningswillbeinAdditives&FunctionalProductswherewearelocatingthespecialaminesandcropprotectionbusinessesandapproximately25%willbeanSpecialtyFluids&Intermediateswherethefunctionalaminesbusinesswillbelocated.

WeremainontrackforEPSaccretionfromTamincotobegreaterthan$0.35in2015andgreaterthan$0.60in2016excludingacquisitionintegrationcosts.NowIwillturnitovertoCurttodiscussthecorporateandsegmentresults.

Curt Espeland(EVP,CFO):

Thanks,Mark,andgoodmorning,everyone.Iwillstartwithourfourth-quarterandfull-yearcorporateresultsonslide5.ForthefourthquartersalesrevenueincreasedlargelyduetocontinuedhighsalesvolumeforpremiumproductsintheAdvancedMaterialssegmentandsalesofproductsoftheacquiredTamincobusinesses.

Operatingearningsinthefourthquarteralsoincreaseddrivenbylowerrawmaterialenergycosts,thehigherpremiumproductsalesinAdvancedMaterials,andearningsfromtheacquiredbusinessespartiallyoffsetbyhigherplannedmaintenancecosts.

Forfull-year2014wedeliveredanotherstrongyearof$7.07ofearningspershare,whichisa10%growthover2013and,asMarkmentioned,ourfifthconsecutiveyearofearningsgrowth.

Salesrevenueincreased2%duetogrowthinAdvancedMaterialsandAdhesives&Plasticizerssegmentsandsalesrevenuefromacquiredbusinesses.Operatingearningswereslightlyhigheryearoveryearashighervolumeandimprovedproductmix,particularlyinAdvancedMaterials,andearningsofacquiredbusinessesmorethanoffsethigherrawmaterialandenergycostsandhighercostsrelatedtomanufacturingshutdownsduringtheyear.Ouroperatingmarginremainsstrongat17%,consistentwithfull-year2013.

MovingnexttothesegmentresultsandstartingwithAdditives&FunctionalProductsonslide6.Forfourthquarterbothsalesrevenueandoperatingearningsincreasedduetotheadditionofsalesfromthe




acquiredTamincospecialtyaminesandcropprotectionbusinesses.

Forthefullyearsalesrevenueincreasedduetobothhighersalesvolumeandprice--pricesforcoatingsproductlinesandsalesoftheacquiredTamincoproductlinespartiallyoffsetbylowerrubberadditivesalesvolumes.

BoththehighersalesvolumeandpricingforcoatingswasattributedtostrongendmarketdemandthroughouttheyearprimarilyintheBuilding&ConstructionandTransportationmarkets.ThelowerrubberadditivessalesvolumewasprimarilyattributedtodecreasedtireproductioninAsia.

Full-yearoperatingearningsdeclinedashigherrawmaterialandenergycosts,primarilypropaneinthefirsthalfoftheyear,morethanoffsethigherpricesandearningsfromacquiredTamincobusinesses.

Aswelookat2015weexpectthatAdditives&FunctionalProductswillbepositivelyimpactedbythefull-yearbenefitofacquiredTamincobusinessesandsolidperformancefromtheheritageEastmanbusinessesduetovolumegrowthincoatingsandtosomeextenttireadditives.

Thesebenefitswillbepartiallyoffsetbythenegativeimpactofadeclineinolefinderivativepricingoutpacingthedeclineinrawmaterialcostsduetotheimpactofpropanehedges,andastrengtheningUSdollar,particularlyagainsttheeuro.Bothofthesechallengeswillimpactalloversegmentstosomedegree,soIwillcovertheminmoredetailinafewminutes.

TakentogetherweexpectstrongearningsgrowthforthissegmentwiththeadditionofTaminco,somewhatoffsetbyamodestdeclineintheheritageEastmanbusinessesasthebenefitofunderlyinggrowthisoffsetbytheoilandcurrencychallenges.

MovingnexttoAdhesives&Plasticizersonslide7.Forthefourthquartersalesrevenuedeclinedprimarilyduetoloweradhesiveresinsalesvolumeresultingfromlimitedrawmaterialavailability.Fourth-quarterearningsincreasedduetohigheradhesiveresinprices,lowerrawmaterialandenergycostsandloweroperatingcostswhichincludedtargetedreductions--costreductions.

TheselowercostswerepartiallyoffsetbycostofaplannedshutdownofanolefinscrackingunitatourLongview,Texassiteandlowerplasticizersellingprices.

Forthefullyearsalesrevenueincreasedduetohigherplasticizerandadhesiveresinsvolume,partiallyoffsetbylowersellingpricesprimarilyforplasticizers.Full-yearoperatingearningsincreasedsignificantlyprimarilyduetohighersalesvolumeandcorrespondinghighercapacityutilizationandloweroperatingcosts,partiallyoffsetbythelowersellingprices.

Lookingforwardto2015weexpectcontinuedgrowthforourEastman168non-phthalateplasticizersbutanotherwisechallengingglobalplasticizersmarketwillcontinuetopressuremarginsprimarilyduetocompetitionfromAsianproducers.Wealsoexpecttheadhesiveresinsmarkettoremaintightduetosoliddemandgrowth,particularlyinthehygieneandpackagingmarketsandlimitedavailabilityfortheindustryofkeyrawmaterials.

Puttingthisalltogether,weexpectadhesivesandplasticizerswilldeliverstrongearningsgrowthbutthisgrowthtobemostlyoffsetbytheimpactofoilandcurrency.

NowtoAdvancedMaterialsonslide8,whichdeliveredanotherexcellentyear.Fourth-quarterandfull-yearsalesrevenueincreasedslightlyasstrongvolumegrowthforpremiumproducts,includingEastmanTritancopolyesters,interlayerswithacousticpropertiesandwindowfilmswasoffsetbylowercopolyesterproduct[selling]pricesprimarilyduetolowerrawmaterialandenergycostsandanunfavorableshiftinforeigncurrencyrates.




Full-yearsalesrevenuealsoincreasedslightlyashigherpremiumproductsalesvolume,includingTritanandtheinterlayerswithacousticproperties,waslargelyoffsetbycorecopolyestersellingprices.

Earningsincreasedbothinthefourthquarterandforthefullyearduetohighersalesvolumeandimprovedproductmixaswecontinuetohavegrowthinourmorepremiumproducts,includingTritancopolyesterandacousticinterlayers.Thefull-year2014operatingmarginimprovednicelytoover12%movingthissegmentintotherangeweexpectforthisbusinessof12%to15%.

Lookingto2015,wecontinuetomakeprogressonourstrategyforthisbusiness,volumegrowth,mixedimprovementandfixedcostleverage.AdvancedMaterialswillalsobenefitfromlowerrawmaterialsandtheCommonwealthacquisition,whichweexpecttobeastrongcontributortoearningsgrowthin2015.Asaresultweexpectcontinuedstrongearningsgrowthinthesegmentsomewhatoffsetbycurrencyheadwinds.

Movingtofibersonslide9.Fourth-quartersalesrevenuewasrelativelyunchangedashighersellingpricesforacetatetowandincreasedflakesalestoaChinajointventurewerelargelyoffsetbylowersalesvolumeforacetylchemicals.Fourthquarteroperatingearningsroseslightlywithhighertowsellingprices,morethanoffsettinglowersalesvolumeandhigherunitcostsduetoloweracetatetowcapacityutilization.

ForthefullyearsalesrevenuewasslightlyhigherdrivenbyhigheracetatetowsellingpricesandhigheracetateflakesalesvolumetoourChinatowjointventure,morethanoffsettingloweracetatetowsalesvolume.Theloweracetatetowsalesvolumewasattributedtoadditionalindustrycapacityincludingourjointventure.

Full-yearearningsincreasedduetohighersellingpricesandlowerrawmaterialandenergycosts,partiallyoffsetbylowertowsalesvolumeandlowercapacityutilization.

Lookingforwardto2015,weexpectcontinuedacetatetowinventorydestocking,whichislargerandbroadertomorecustomersthanweoriginallyanticipated.Weexpectthiswillbemostpronouncedinthefirsthalfof2015.Wealsoexpectlowerrawmaterialandenergycostsparticularlyforwoodpulpandweareactivelyreviewingoptionstoreducecostsforthissegmenttohelpimproveoverallresults.

Takingthistogetherweexpectfull-year2015earningstobedownbetween$40millionand$60millioncomparedto2014.Withthatsaid,weexpectglobalacetatetowdemandtostabilizeoncetheinventorydestockingisbehindusandwecontinuetopursueactionstoimprovetheoverallcostpositionofthisbusiness.Asaresultlonger-termweareoptimisticthisbusinesswillrecovertoanearningsprofileconsistentwithourInvestorDayexpectation.

IwillfinishthesegmentreviewwithSpecialtyFluids&Intermediatesonslide10.Fourth-quartersalesrevenueincreasedduetothesaleofproductsofacquiredbusinesses,morethanoffsettinglowerpricesforolefin-basedintermediateandheattransferfluids.

Fourth-quarteroperatingearningsdeclinedprimarilyduetotheimpactoftheplannedshutdownsofanolefinscrackingunitandthelowersellingprices,partiallyoffsetbylowerrawmaterialandenergycostsandearningsofacquiredAviationTurbineOilbusinesses.

Forthefullyearsalesrevenuewasflatassalesofproductsofacquiredbusinessesandhighersellingpriceswereoffsetbylowersalesvolume.Thelowersalesvolumewasduetomanufacturingcapacityshutdowns,theincreaseduse--downstreamuseofintermediatesinotherpartsoftheCompanyandweaknessintheheattransferfluidsmarket.

Full-yearoperatingearningswerelowerprimarilyduetothehigherrawmaterialandenergycosts,primarilypropaneinthefirsthalfoftheyear.Andcostsofmanufacturingcapacityshutdownspartiallyoffsetbyhigherintermediatesellingpricesandearningsfromacquiredbusinesses.

Lookingforwardto2015,SpecialtyFluids&Intermediateswillbepositivelyimpactedbytheadditionof




theTamincofunctionalaminesbusiness,theywillalsobenefitfromthefull-yearimpactoftheAviationTurbineOilbusiness.

Challengesincludethenegativeimpactofoil,lowerexpecteddemandinheattransferfluidsandexpectedlowervolumeinintermediatesinpartduetocontinueddownstreamuseofintermediatesinotherpartsoftheCompany.Asaresultweexpect2015earningstobesomewhatlowerthan2014.

Onslide11Iwilltransitiontoanoverviewofourcashandotherfinancialhighlightsfor2014.Wedidanexcellentjobofgeneratingcashin2014withoperatingcashflowof$1.4billion.Thisisarecordforcashfromoperations.

Ourfreecashflowwas$810millionfortheyear,consistentwithourexpectations.Capitalexpenditurestotaled$593millionincludingtheimpactofacquiredbusinesseswhichwasalsoconsistentwiththeguidanceweprovided.

Lookingatthebalancesheet,netdebtstandsatapproximately$7billionattheendoftheyearreflectingtheadditionoftheTamincofinancing.

Duringfourthquarterwesuccessfullyissued$2billionofbondswithmaturitiesof5,10,and30years.Thiswasaverysuccessfulissuereflectingourstrongbalancesheetandcashflowprofile.Thesenewbondsfitnicelyintoourmaturityprofile,actuallyincreasingtheaveragedurationofourbondportfoliowhileloweringtheaverageinterestrates.

OuroverallcostoffinancingforTamincoacquisitionswasapproximately2.8%includingthepreviouslydisclosed$1billiontermloan.Overthenexttwoyearswe'llfocusonpayingdowndebtaspartofourcommitmenttoreturnourcreditmetricsconsistentwithourinvestmentgradecreditrating.

ThisisalsoagoodopportunitytoremindeveryonethatEastmanhasaccesstosufficientliquidityinadditiontoourstrongcashflowinaformofa$1.25billionrevolveranda$250millionaccountsreceivablesecuritizationprogram.Thecombinationofcashflow,astrongbalancesheetandliquiditycontinuestoprovideflexibilitytopursuegrowtheveninanuncertaineconomy.

Movingbacktofourthquarterresults,afewitemstohighlight.Oureffectivetaxrateforthefourthquarterproformaearningswas22%reflectingtheone-yearextensionoffavorableUSfederaltaxprovisions,whichresultedinanetbenefitof$15million.ThisbenefitwasprimarilyrelatedtoresearchanddevelopmentcreditsanddeferralofcertainearningsofforeignsubsidiariesfromUSincometaxes.

Thefull-year2014effectivetaxrateonproformaearningswas26%comparedto28%forfullyear2013.ThislowerratereflectsthecontinuedbenefitsoftheintegrationofEastmanandSolutiabusinessoperationsandlegalentitystructures.

Inaddition,GAAPearningswereimpactedbyamark-to-marketlossof$304millionrelatedtoourpensionandotherpost-retirementbenefitplans.Thislosswasprimarilydrivenbythechangeindiscountrates,increasingourestimatedpensionliabilities.Wealsohadacquisition-relatedcostsof$31millionrelatedprimarilytoTamincoandCommonwealth.

Onslide12Iwilldiscusssomekeyassumptionsforourprojectionsin2015--inretrospectascomparedtothosewesharedbackatNovemberatourInvestorDay.

Ourprojectionforglobalgrowthremainsatapproximately3%.Ofcoursethereisuncertaintyinthisprojectionbutwe'recurrentlyseeingsoliddemandinourorderbooks.

Movingnexttorawmaterials,weareexpectingourkeyrawmaterials,propane,ethane,propylene,etcetera,tobeconsistentwiththerecentforwardcurvesthroughtheendoftheyear--throughouttheendofthisyear.




Andasyou'veseen,mostoftheseforwardcurvesdonotanticipateanydramaticchangeduringthecourseoftheyear.Sowewillseehowthatplaysout.

Butregardless,thisisobviouslyabigchangecomparedwithourInvestorDayprojectionswhenBrentcrudewasprojectedtobe$100perbarrel.Weexpectthedollartoeuroexchangeratetoremainnearcurrentlevelsatapproximately$1.15pereuro.

AndthisisanotherbigchangefromourInvestorDaywherewehadprojectedbetween$1.25and$1.30pereuroandisactuallyhigherthanthe2014averageofjustover$1.13pereuro.Thisresultsandayear-over-yearearningspershareheadwindof$0.25to$0.30pershareincludingmitigationfromourcurrencyhedgingprogram.

Ourtaxrateisexpectedtobebetween26%and27%,reflectingthecontinuedbenefitsofourimprovementinbusinessoperationsandlegalentitystructuresresultingfromacquisitions.TherangeoftheeffectivetaxratereflectsuncertaintyastowhethertherewillbefurtherextensionoftheR&Dtaxcreditsandpotentiallychangestoourgeographicearningsmix.

Finally,wecontinuetoexpecttooffsetdilutionwithsharerepurchases.

Lastly,Ithoughtitwouldbehelpfultoprovidesomecoloronhowweprojectthelowerimpactofcrudeoilonourolefins-relatedbusinesseshereshownonslide13.UnlikeInvestorDaymycommentswillfocusonlyonolefinsandnotincludeactionswearetakingacrosstheCompanyportfolio.

First,propyleneandethylenepricesareexpectedtodeclinetosomeextentwithoil.Second,onanunhedgedbasisweexpectcrackingspreadstoexpandasethaneandpropanecostshavedropped.InparticularEastman'scrackingconfigurationtowardsaheavy--heavierpropanemixisadvantagedatthistime.

However,ourhedgingstrategythatwehadtakentoreducevolatilityinourpropaneandotherinputcostshavebecomeasignificantheadwindgiventheunprecedentedrecentdropinthepriceofpropane.Obviously,weandtherestoftheworlddidnotforeseethisdramaticdropinoilorpropanepricesandIalsodon'tthinkanyonereallyknowsexactlywherethesepricesaregoingtosettleoutfromhere.

Asaresult,althoughpropanedroppingmorethanethaneisgenerallypositiveforus,thisbenefitwillbemorethanoffsetbytheimpactofourpropanehedgesresultinginanexpectedearningsheadwindof$0.40to$0.60persharefor2015.

Havingsaidthat,Iwanttobeclearthatthisanalysisisbroad,adirectionalexerciseasthevastmajorityofourolefin-relatedearningscomefromderivativeswiththeexceptionofbulkolefinsales.Ourolefinderivativepricingdoesnotdirectlytrackolefinpricesacrosstheportfolioonamonthlybasis.

WhiletheCommoditieswilltrackfairlytightly,themajorityofourderivativesarespecialtiesorspecialpositionproductlineswherewehaveadditionaldynamicsthatimpactvaluecapturerelativetoolefins.Ourestimateof$0.40to$0.60persharedoesnotincludeoureffortstomitigatethisheadwindbyholdingontovalueinourspecialtyandspecialpositionproductlinesasolefinpricesdecline.

Mylastpointontheside,youcanseethatthebenefitofproducingolefinsremainsasmallpartofouroverallearningsprofileinpartreflectingactionswe'vetakentostrengthenourportfolioincludingtheadditionsofSolutiaandTamincowhicharenotmeaningfullyexposedtothesespreads.

SowiththatIthankyouforyourtimeandyourinterestinEastmanChemicalandIwillturnitbackovertoMark.




©2014TheStreet,Inc.AllRightsReserved Page8 of 21

Thanks,Curt.Aswelookatourearningsgrowthpotentialfor2015andbeyondwefeelgreataboutourstrategywhichwediscussedindetailatInvestorDay.WehavestronggrowthdriversinplaceacrosstheCompany.

Wehaveasolidportfolioofspecialtybusinessesthatarewell-positionedtogrow,solidendmarketgrowthespeciallyintransportationandB&Cendmarkets.StrongpremiumproductsthatweexpectwillaccelerateearningsgrowthespeciallyinAdvancedMaterials.

WeareworkinghardtoholdontotherawmaterialtailwindsinourSpecialtyProducts.Wealsoexpecttobenefitin2015fromsignificantaccretionfromtheattractiveacquisitionswecompletedin2014.Iwouldalsonotethatouracquisitionsaremostlyneutraltovolatileoilandmanufactureintheregionswheretheysell.Theseadditionsaregreatimprovementstotherobustnessofourportfolio.

Obviouslywefacesomeshort-termheadwindslikemanyUScompanies,butwedon'tseeanyofthemunderminingourlong-termstrategy.Theunprecedentedchangeinoilpriceshascreatedachallengewithourcurrentpropanehedgeandsomeuncertaintyabouthowcompetitivetradeflowsmightchange.

Thedollarhasstrengthenedconsiderablyagainstabasketofcurrencies,mostnotablyforusagainsttheeuro.Andwhileweanticipatedthatariskofinventoryrestockingexistedinfibers,wenowhaveabetterunderstandingthatthelevelofdestockingislargerandmore--broaderthanweexpectedacrossthecustomerbase.

Givenallthat,weexpectourfull-year2015EPStobesimilarto2014EPSwiththesplitbetweenthefirsthalfandthesecondhalfoftheyearbeingconsistentwithourhistory.

Asweconsiderthesensitivitiesofthisoutlookwecanseeapathwaytoearningsgrowth.Ifthedropinoilpricesarepredominantlydrivenbysupply,thenitshouldbeastimulustoeconomicdemand.Andthisbenefitcanshowupinseveraldifferentways.

First,manyofourcustomersaremaintainingverylowinventorylevelsandifoilpricesstabilizeandgoupwecouldseesomerestocking.

Second,webelievethatoilpriceswillultimatelybealong-termstimulustoglobalGDPandgreatforEastman'sSpecialtystrategywherewearesellinghighvaluedifferentiatedproductsthatareleveragedtoaneconomicrecovery.

Third,improvingdemandwilltightensupplytodemandbalancesinsomeoftheindustriesaswell.Ofcourse,ifwewereheadedintoaglobaleconomicslowdownwithdecliningdemandandfurtherreductionofoilprices,wewillfaceachallenge.

AsIthinkaboutourcashflowonthenextpage,IbelieveourcashflowisoneofEastman'sgreateststrengthsandwecontinuetogenerateverystrongfreecashflowin2014andweexpecttodoitagainin2015.Withourcurrentoutlookweexpectapproximately$1.6billionofoperatingcashflow.Thisoutlookreflectscurrentearningsexpectationsaswellassomeimprovementinworkingcapitalresultingfromlowercommoditycosts.

Capitalexpendituresareexpectedtobeapproximately$700millionto$725million.Thisreflectsnormalmaintenancecapitalaswellassomeadditionalinfrastructurespending.ThisalsoreflectsgrowthcapitalthisyearfortheexpansionofourTritancopolyestercapacityandournewCrystexcapacityinMalaysia.

Freecashflowisexpectedtobeapproximately$850millionto$900millionandthisisaniceimprovementover2014.Asareminder,ourpriorityforfreecashflowoverthenext24monthsisdeleveragingourdebt.Whiledoingsoitisreasonableforinvestorstoexpectthatwewillcontinuetoincreaseourdividendandweexpecttooffsetdilutionwithstockrepurchases.




Andaswecontinuetogenerateverystrongfreecashflowoverthecomingyearswewillcontinuetodeploycapitalinabalancedanddisciplinedway.

WhenwereflectonwhatwesaidatInvestorDay,Ifirmlybelievethatourstrategyisintactandwewilldeliverstrong,consistentearningsgrowthandcompellingfreecashflowovertime.Wehaveobviouslyhitsomeshort-termheadwindsthatweandmostoftheworlddidnotexpect,butourportfolioofbusinessesarerobustandcapableofoffsettingthesechallengesandfindingpathwaystogrow.

Thesechallengesareaheadwindasweheadinto2015butarenotlikelytobeanadditionalheadwindin2016.Thegrowthdriversofourportfolioarestrongovertimeandwillcontinuetodeliverstrongearningsgrowthandcompellingfreecashflow.Iremainconfidentthatwewillcontinuetocreatevalueforourstockholdersandallofourstakeholders.WiththatIwillturnitbackovertoGreg.

GregRiddle (VP-IR):

Thanks,Mark.We'vegotalotofpeopleonthelinethismorningandwe'dliketogettoasmanyquestionsaspossible.Sopleaselimityourselftoonequestionandonefollow-up.Withthat,Jake,wearereadyforquestions.

QUESTIONS&ANSWERS

Operator:

(OperatorInstructions).

KevinMcCarthy,BankofAmerica-MerrillLynch.

KevinMcCarthy(Analyst-BofAMerrillLynch):

Mark,withregardtothefibersbusiness,ifwethinkbacktoyourInvestorDay,itsoundedlikeyouwerecontemplatingsomeoptionalitytotakerestructuringactioninthatbusiness.InlisteningtothelanguageonthecalltodayIheardalotaboutdestockingthere.SoIguessatwo-partquestion.

First,whatisyourdegreeofconfidencethattheweaknessyouareseeingisinfactdestockingversusperhapsamorestructuralordurableweaknessinthebusiness?Andthensecondly,howareyouthinkingaboutpotentialtoreducecostsinthatcontextandwhatmightbethetimelineforyourdecisionthere.


Goodmorning,Kevin,thankyouforthequestion.SoIwillstartwiththedemandsideofthatquestionandIwanttostartfirstwithourviewaboutprimarydemandasyou'regettingatandthentowdemand.

Soifyouthinkaboutprimaryconsumerdemand,wedon'thaveanychangeinourviewabouttheoutlookofdemandinthemedium-term.Wecontinuetoexpectthedevelopedworldtoslowlydecline,thedevelopingworldincludingChinatoshowsomegrowth.AndthentherealquestionthensettlesonwhatishappeninginChina.

Aswelookbackat2014,demandwasrelativelyflatattheconsumptionlevelinChina.Andeverythingwearebeingtoldaboutthatcontinuestosuggestthattheprimarydriverforthatflatnesswasausteritymeasureschangingtheuseenvironmentofcigarettes.

Andifwebelievethattobetrue,andwearenothearinganythingotherwise,thatislikeadestockingeventwhereyoutakeachunkofdemandout,butwhenyoulookatpopulationmodelingandgrowthyouwouldthenexpectdemandgrowthtoreturnatamodestlevelinChina.Sothatisholdingtogetherandwearenotseeingchangeinthatfromallofoursources,whichisprimarilytalkingtoourcustomers.




Whenyougettotowdemand,aswediscussedlastyear,therearetwodifferentdynamicsgoingonwhenyougofromdemandin2014to2015.ThefirstisCNTCinChinahasaddedadditionalcapacity,liketheyaddedcapacitywithusin2014,theyhaveaddedsomeadditionalcapacitytoDaicel.

Andso,ofcoursetheyaregoingtorunthoseassetsfullastheyownthemandthattakesacertainchunkofdemandoutofimportswhichwasfactoredintoourguidancebackatInvestorDay--thatisnotreallyasurpriseforus.

Thesecondpartisweexpectedsomemodestdestocking,butallthecustomerswhohavecometoushavebeenveryclearthattheyaregoingtodosomeamountofdestockinginparticularinChina.Andwhatisbehindthatandwhereitmakessensetous,Kevin,isfrom2011to2013yousawtremendoustightnessincapacityutilizationinthisindustry,closeto100%.

Soalotofcustomerswerecarryingsafetystocktomakesurethattheydidn'trunoutanditmakesalotofsensewhenyoulookathowsmallofapercenttowisofthefinalpriceofacigarette;itisnotaplacewhereyouwanttorunoutandshortyourproductionsales.

AndthenwiththeslowdownindemandandthiscapacityaddinChina,obviouslythecapacityutilizationloosenedupalittlebitandcustomershavefeltthatitismoreappropriatetodestocksomeofthatsafetystockandre-adjusttheirinventory.

Soeverythingweknowsuggeststhatitisdestocking.Ifwebelievethattobetruethenthereisreasontobelievethatdemandin2016couldactuallybehigherthan2015.Andthatisthebestthatweknowwiththatpart.

Sowhenwegettosortofwhatdowedoaboutthat,well,wewantedtomakesureweunderstoodexactlyhowdemandwasgoingtoplayoutacrossallofourcustomersandfinishthecontractingwhichhappenedthisweek.Sowefeelprettygoodaboutknowingwherewestand.

AndnowofcourseyoutakeanassessmentofallofwhatI'vejustsaidanddecidewhatistheappropriateactionstotakeonthecoststructureside.We'reactivelyinthemiddleofmakingthosedecisionsanditisinappropriateforustodiscussthemfurtheruntilwefinalizedthosedecisions.


Fairenough.Iappreciatethecolor.Asafollow-upperhapsforCurt.Dohaveanypropanehedgesthatextendinto2016?AndifsowouldyoucommentonthelevelandratioIsuppose?


Kevin,whenweimplementedourpropanechangelastyearwedidtalkaboutamulti-yearprogram,soitdoesextendbeyondacoupleyears.Butthefocusofthattypicallyisthefirstcoupleyearsandthatiswherewearetakingmostofthefocus.Butwewillhavesometailgoingbeyondthat.Butitisnotassignificantaswhatwetalkedaboutthenexttwoyears.


Okay,thankyou.

Operator:

DavidBegleiter,DeutscheBank.

DavidBegleiter(Analyst-DeutscheBank):




Thankyou.Mark,justagainonpropane,arethereanyotheractionsyouarelookingatorcouldtakein2015tocomeinatthelowerendorbelowthe$0.40to$0.60propanehit?


So,David,onthehedge,itiswhatitis.Whatwearedoingmostimportantlyonthepricesideiswearefightinghardtoholdontovaluethatwecreateforourcustomerswithourproductsandholdontosomeofthatrawmaterialtailwindsinalltheplacesthatwecan.Andthatwillhavevaryingdegreesofsuccesstooffsetsomeofthatheadwind.Sothatisgoingonrightnow.

Inaddition,weexpecttoandplantorunourcrackerswell.Wedidabigturnaroundlastfallandthebigcrackerthathascomeupisrunningincrediblywell.Asthatcrackerandothereffortstoleveragetowardspropanemix,asmuchaswecan,willadvantageusbecausethatwillbeallspotpropanepurchasesatveryadvantagedprices.

Sotherearethingsthatwearedoingbothonthevolumesideandthepricingsidetogetthemaximumvalueoutofthatadvantagedpositionwehavewithourpropanecrackers.


And,Curt,justagainonthe2016impactversus2015.Woulditbefairtosaythatthebenefitin2016versus2015fromthelackofpropanehedgescouldbe$0.20to$0.30ashare?


Iwouldsay,Kevin,asImentionedatourInvestorDay,theprogramthatweputinplace[hedged]substantiallyamountofourpurchasesofpropanein2015and2016andIwouldnotexpectamaterialchangebetweenthosetwo.Soitwillbeatailwind,butI'mnotgoingtotrytoquantifythatatthispoint.


Thankyou.

Operator:

FrankMitsch,WellsFargoSecurities.

FrankMitsch(Analyst-WellsFargoSecurities):

Iwaslookingatslide13andIseethattheoperatingearningsareindicatedupfor2015.NowIknowyourinterestcostsaregoingup,butasIdothemathonsomeoftheputsandtakesintermsofnegatives,obviouslyyouhavegotthehedge$0.50,foreign-exchange$0.25,fibersdestockanother$0.20orso.

Soyou'reabout$0.95,$1.00negative.OffsettingthatTamincopositive$0.35;theturnaround,assumingyoudon'thaveitin2015versus2014,isanothertime.Sothatisapositive$0.45.Soyou'vegotabout$0.50,$0.55ofawhole.

Sotokeepitflatyouwouldneedtogrowearningsabout7%to8%.ObviouslyEastman'stargetedgoalistododouble-digits.CouldthereberoomofacoupleofpercentorsointermsofearningsgrowthifEastmanhitskindofitsdouble-digitEPSgrowthgoals?


Frank,thanksforthequestionIknewIcouldcountonyouforthegrowthmathquestion.Yourmateisdirectionallycorrect.You'reactuallymissingoutonsomeadditionalaccretion.SoTamincowasn'ttheonlyacquisitionwedid;we'vegotsomeniceaccretioncominginfromBPTurbineOil,Commonwealth,alittlebit




moresharecountadvantagerollingintotheyear.

SoIthinkofacquisitionsbeing50--oralittlebitabove$0.50ofaccretion.SothenyouaretalkingabouthowdoIholdontovalue.Well,wecertainlyintendtorunourplantsbetter,asyoumentioned.Westillhavesomedecentamountofshutdownscominginthisyear,sothereisnotahugeplantshutdowndifferentialfromyear-to-year,butwecertainlyplantorunbetter.

Sowe'retalkingaboutcanwedobetterthan$0.50to$0.40ashareorganicinourportfolio;thatcertainlyisourgoal.Andwearedrivingreallyhardonallfrontstodothat.Ithinkweseeverysoliddemandtrends,especiallyinB&Candtransportation,durables,especiallyintheUS.Anditisniceactuallyhaving50%of--alittlebitlessthan50%ofourrevenueintheUSthesedays.

AndweareprettyhappythatourexposuretoEuropeisoneoftheloweronesrelativetoourpeers,frombothacurrencyandaweakdemandpointofview.SoIthinkourportfolioisverywellpositionedforprimarydemand.

Moreimportantly,wegetalotofacceleratedearningsgrowthoutofourearningsinourpremierproducts,especiallyinAdvancedMaterials,wherewearesellingdouble-digitgrowthratesinthingslikeTritan,acoustics,heads-updisplays,windowfilms,resinsandtiresandAFP,allofwhichareacceleratingearningsgrowthwithinthattop-linegrowth,asthosemarginsarequiteattractive.

Soitalladdsupwherewefeelverygoodaboutthat,drivingtothat$.50.Togetbeyond$0.50,youneedtobelievethatdemandisgoingtobealittlebitbetterthisyearthantheoveralldemandgrowthratewesawlastyear.AndIthinkthereiseveryreasontobelievethatthatispossible.

Iaminthecampthatoilissupplydrivenprimarily.Therefore,itisaglobalstimulustodemand.Andthereispotentiallysomerestockingthatwecouldgetifoilpricesstabilize.Andallofthatcanshowupassomestrongerdemandthanwhatwehaveinourcurrentoutlookandputusonapath.

Butitisthebeginningofayearandaveryvolatileyearrightnow,Frank.Nooneknowswhereoilpricesaregoingortradeflowsaregoingtochange.SoIthinkitisprudenceatthispointtojustseehowitplaysout.Wewillgetalotmoreinsightoverthefirstquarterandbeinamuchbetterpositiontodiscussthiswhenwegetthroughthefirstquarter.


Thatisveryhelpful,muchappreciated.Andmaybeifyoucouldprovideanupdate.IknowthatinpreviousdiscussionsofEastmanactions,technologylicensingwassomethingthatperhapswouldshowupinlate2015orearly2016.Canyoutalkaboutwhatyourexpectationsarethere?


Sure.Wehavesomesmallamountoflicensingthatwedoexpecttogetin2015andthatisincludedinourcommentsaroundSFI,whichiswherethatlicensingvalueshowsup.Therearesomebiggerlicensesthatwehavebeenworkingon,butgiventheuncertaintyofthemwearenotincludingthatintheforecast.Andthatwouldbeupsideiftheyhappeneitherthisyearornextyear.


Thankssomuch.

Operator:

JohnRoberts,UBS.

JohnRoberts (Analyst-UBS):




Backonslide13,isthereahittoyourcoal-basedoperationsaswellfromloweroil?Thatis,dothingslikeaceticanhydride,acidaldehydecomedownwithoilpricesand,again,yourcoalcostsarerelativelyfixed?


Notsomuch.ThevastmajorityofourcoalderivedproductsarecelluloseesterswhetheritisgoingintofibersorgreatSpecialtyProductsthatgointoourDisplaysbusinessandSpecialtyPlasticsorveryhighvalueadditivesthatgointoautomotivecoatingsandotherapplicationsinAFP.

Andallofthoseareverywellpositioned.Andtherealcomparatorisnaturalgasactually,notoil,fromthecompetitivecostbasethatweareupagainst.Andwearenotseeinganysignificantchangesinnaturalgasandrawmaterialsarearelativelysmallpartofthosecoststructures.Soitisnotamainfactorlikeitisintheolefinsdiscussion.


Thenasafollow-up,Ithinkyousaidthe$0.25to$0.30currencyhitwasafterhedging.Couldyoucommentonyourforeign-exchangehedgingpractices?


Sure.SimilartowhatItalkedaboutolefins,wedohaveamulti-yearhedgingprogramoncurrenciestoremovevolatilitythatcouldresultfromthat.Youhaveseenthatbenefitoverthelastcoupleofyearswhereyouhaven'treallyseencurrencyhasbeenafactor.BecauseofthedramaticdeclineyouseetheimpactwequantifiedandI'dsayroughlyourhedgepositionin2015isabout50%hedged.


Great,thankyou.

Operator:

VincentAndrews,MorganStanley.

Vincent Andrews (Analyst-MorganStanley):

Arethereanypartsofyourportfoliowheregiventhemoveinoilandeverythingelsewhereyouthinksomeofyourcompetitorsmightnowhaveabettercostpositionandmaybemorelikelytoeitherincreaseproductionorbeabletoexporttoothermarketsorhowareyouthinkingaboutthat?


So,certainlyaswedothesortofolefinanalysisandinparticularwhereyouareseeingthebiggestimpactfromanoilpointofview,thatisallfactoredintoourthinkingwhenyousaythat$0.40to$0.60headwind.BecausethatisachangeintheirnaphthaoilderivedcoststructuresacrosstheglobeandhowthatimpactsourUScostposition.Sothat'sIthinkincludedinthatdiscussion.

Ithinkthattheotherplaceswearegettingnicetailwinds,likeallofourcompetitorsonanequalbasis.Soinparaxyleneandbenzenederivedproductsweareallinthesameboattogether.AndI'mnotseeinganysignificantsortofchangesinarelativecostpositioninthoseplaces.

IhavenodoubtthatasEuropeansandAsiansgetanimprovementinthecoststructuretheyaregoingtobemoreaggressiveandwefactorthatintoourthinking.Butwestillthinkthatwecreatealotmorevaluethanjustpriceinourrelationshipswithourcustomers.WehavealotofgreatSpecialtyProductsanddifferentiatedpositionsandthosewillenduresomeofthosethreats.





Okay.AndifIcouldjustaskonyouraminesbusinessnow,anumberofthelargeherbicidemanufacturershavespokenaboutsortofsomeexcessinventoryinthechainandthattheirvolumesaregoingtobedown.HowdoesthatworkwithTaminco?


SoTaminco--firstofall,Tamincoisagreatportfolioofbusinessesinaverydiversesetofendmarketsandnicheapplications.AndyouhavetokeepthatinmindwhereAg,specificallyrowcropswherethecurrentconcernseemstositspecificallyevenmoresooncorn,thatisaprettysmallpercentageofTaminco'soverallrevenue.Soonlyabout10%ofTaminco'stotalrevenueisassociatedwithrowcrops.

Allofcropprotection,whichisthehigh-valuehigh-marginspecialties,gointoperishablevegetables,fruits,flourtypemarketsthatareexpectedtohaveveryconsistentdemandyearoveryear.

Butwithinthatareaalotofourproductsgointobothsoybean/corn.Soasthemixisshiftingfromcorntosoybeanthatdoesn'tactuallyaffectus.Andofcoursewedoexpectsomemodestamountofheadwindonthecornside,butnetitwillstillbegrowthin--forusbecausetherewasalotofdestockingandthebigwinterhitlastyear.

Soevenintheherbicideareaforus,givenwherewesitinthesupplychain,westillforeseesomegrowthinthat10%yearoveryearbasedonwhatourcustomersaretellingus.


Okay,thanksverymuch.

Operator:

JamesSheehan,SunTrust.

JamesSheehan(Analyst-SunTrustRobinsonHumphrey):

CouldyoucommentonthetireadditivesandCrystexoutlookfor2015?


Sure.Greatbusiness.Reallyexcitedaboutourtechnologybreakthroughandtheinvestmentswearemakingtogrowthisbusinesstoimproveourcostposition.Inadditiontomypreparedremarks,thegreatthingaboutthistechnologyisit'salsogoingtoallowustohavedifferentiatedproducts,notjustcheaperones,fromacostpointofviewandthereforealotofopportunitiestogrow.

Fromaprimarymarketdemandpointofviewweexpecttiredemandgrowthin2015versus2014.Thisindustryhashadatoughcoupleyears.2014wasatoughyearespeciallyforCrystexwhichishighlyleveredtocommercialtiresinconstructionandminingtires.Soobviously2014wasn'tagoodyearespeciallyinAsia-Pacific.

Buteverythingwecanseerightnowfromourcustomerssuggeststhatwearegoingtohavesolidgrowththisyearonthedemandside.Weareverycommittedtomaintainingourmarketsharewithournewtechnologyandproductadvantagesandgrowingwiththatmarketaswegoforward.Andsowefeelgoodaboutit.


Thankyou.Andwhatisthelateststatusofthepipelinedispute?





ThisisCurt.Asitrelatestothepipeline,asyouhaveseenthevariousrulingsthathavecomeoutfromtheTexasRailroadCommissioncontinuetobealwaysinourfavor,includingtheunlawfuldiscriminatoryactionbyWestlaketoremovethebidirectionalflowaswellasthepipelineforexchanges.

Itisunfortunatethesedisputeshavekindofdelayedourabilitytogetsomethingdoneandpursueactionswithourexcessethyleneinthelastyearandahalf.Soyoutakethatnowcombinedwiththecurrentoilenvironment,itmakesakindofunlikelywewillgetanythingdonesoonwiththatexcessethyleneposition.Sowewillstilllookatoptions,butrightnowitisnotlikelytohappenanytimesoon.


Thankyou.

Operator:

JeffZekauskas,JPMorgan.

Jef f Zekauskas (Analyst-JPMorgan):

YourvolumegrowthandadditivesIthinkwas14%inthequarterandfluidsIthinkwasplus4%.Ifyoutakeouttheacquisitionbenefitswhatwouldthosenumbershavebeen?


Youwouldhavesawsomeslightgrowthinthosesegments.WithinAdditives&FunctionalProductsIthinkwetalkedabouttherewasbenefitofimprovementinvolumeinour[nice]coatingandproductlinesoffsetbysomemaybelowertireadditivesproductlines.


Okay.Andnormallyinthefourthquarteryouroperatingcashflowrisesversusthirdquarter.Andthisyearthesequentialcomparisonwasweaker.AndIthinkyouhadausethisyearofworkingcapitalofaround$250million.Canyouspeaktowhathappenedtothefourth-quartercashflowsorwhythisyearwasdifferentthanyourhistoricalpattern?


Sure.Soifyoulookatjustthetrendsofcashflowsin2014versus2013,firstofallourcashconversioncyclemetricshaveactuallyimprovedyearoveryear.Andsowearestillseeinggoodworkingcapitalmanagement.Themaindriverstothirdandfourthquarter,Jeff,quitehonestlyjustatimingdifferenceofwhenwemadeourpensioncontributionaswelljusthowtaxpaymentsflowed.Soitisreallythosetwoitemsonaquarterlybasis.Butthenwerenotthatdramaticallyyearoveryear.


Okay,great.Thankyousomuch.

Operator:

P.J.Juvekar,Citi.

P.J.Juvekar(Analyst-Citigroup):

Mark,regardingthepropanehedge,IrememberEastmanalwaysusedtohedgeagainstpropaneduring




winters,butnowyouareputtingonhedgesforgoingoutacoupleofyearsforpropane,alsoforFX.Whatisbehindthechangeinstrategy?


So,asyouknow,Eastmanhashadanactivehedgingprogramforanumberofyears,P.J.,consistentwithsomeofthechangesindiscussionsyouhad,whetheritiscommodities,currencies,interestrates,etceteraWetalkedlastyear,andwewereprettytransparentonthischange,thatconsistentwithourstrategytodeliverconsistentyear-over-yearearningsgrowth,werevisedourpropanehedgingprogramfromthatwinterspikeprotectionyoumentionedtoamulti-yearprogramin2014.

Suchchangeintheprogramwasnottakenlightly,itwasdiscussedbroadlyamongstourexecutiveteam.Itwasbasedongoodfundamentalanalysisandinputsfromindustryexperts,whichwereallindicatingpropanewasgoingtoremainvolatile,muchlikeitdidthelastfewyears,andthat'swhereyousawpropanevaryfrom$0.80agallonto$1.50agallon.

Further,allthoseindicationsatthetimepointedtohigherpropanecostsastheimpactofPDHunitsandexpertterminalsweresupposedtoresultinUSpropanepricesincreasingtobemoreinlinewithglobalprices.

Sowhenweassessedthatcaseandweassessedwhatotherdifferentscenarioscouldplayout,welookedatthelikelihoodthatpropanewoulddropbelow$0.80agallonandthatwouldevenmeanitwouldhavetohavebeenmorethanitdidbackin2009andthatrecessionaryperiod.

Sowelookedatthatasaveryextremelyremotescenario.Butnonetheless,weknowwhereweareattoday.Theoilshockhasinfactoccurredandwerecognizewewillneedtoworkthroughthesehedgepositionsoverthenextfewyears.


Yes,justtoaddtothat,ImeanclearlyweareabitofablackswanwhenitcomestooilandevenlastOctoberthepropaneforwardmarketwasjustabove$1agallon.Sonoonereallysawthiscominganditisanextremecase.

Ithinkitisimportanttokeepinmindthatwhatourgoalwastotrytoneutralizeandfranklygetolefinsoffthetableobviously.Thatobjectivedidn'tsortofworkout.

ButwhenyouthinkaboutcapitaldeploymentandhowwearegrowingourCompanyyouneedtostepbackandrealizethatwhilethisisanimportantshort-termissueandwearemanagingitasaggressivelyaswepossiblycan,ourstrategyistogrowourCompanyinSpecialtyProducts.

Ourcapitaldeploymentiscenteredonorganicinvestments,capitaldeploymentinSpecialtyProductslikeTritan,likeCrystexandmicrofibers.Ouracquisitionsarecenteredonaddinggreatportfoliosofbusinessesthataredurableunderthesekindofvolatilescenariosandhavegreatwaystogrowwithnicemacrotrends.

Sothethingsthatwearecontrollingthatweareinvestinginthatgivelong-termgrowthareallsortofmovinginthatdirectionandreducingtheamountofolefinsaspartofourportfolio.Weintentionallychosethestrategynottobeinvestingagainstthespreadofoilversusshalegasinlargeinvestments.Obviouslywearenothappyaboutthishedge,butthehedgealsorollsoffoverthenextcoupleyears.

Andevenifyoulookatitonashort-termbasismorelike2015to2016,Idon'texpectittobeaheadwindin2016unlesswethinkoilisgoingtofurtherdropfromhereandIthinkmostpeopleareoftheviewthatitisstabletoup.Andthenwearebacktogrowingearnings8%to12%in2016over2015perourstrategywhenyousortofthinkaboutthiswholeoilscenarioisreallyjusta2015typeissueforus.





Thankyou.Andsecondly[resin]volumesweredown.Onthelastquarteryoutalkedaboutlowerrosinsupplyfromthisyear'scropandhowdoyouseethatimpactingyourresinpricing?AndintermsofvolumeswhatdoyouthinkisgoingonintheChineseadhesivemarket?Thankyou.


Adhesiveshadanicerecoveryin2014to2013andweexpectittocontinueinto2015.Sowe'veseenverystrongsoliddemandgrowthinhygiene,high-valuepackagingapplicationsthatuseourmoreadvantagedhydrogenatedresins.Soit'sbeenanicedemandstoryin2014andthatwillcontinueinto2015.

Whatwealsosawistheavailabilityofhydrocarbonrawmaterialstomakeresinsbecametighteragainrelativetodemandgrowthandwegotsomepricingpowerbackandwereabletostartimprovingourmargins.

Andaspartofthatquestion,rosinpriceshavebeenrelativelystableatamorenormalizedlevel.Soitisnotasattractivetosubstitutefromhydrocarbonstorosinsasitwasbackin2013.Andthatisexpectedtostayprettystableandconsistentin2015.

Andwejustcontinuetothinkofthisbusinessashavingcontinuedrecovery,whichwillbeabalanceofcreatingvalueforourshareholderswithpriceandvolumeasthatrawmaterialmarketisalsoalittlebittighttothewholeindustryonmakinghydrocarbonresins.Sowearegoingtocreatevaluewithbothlevers.


Thankyou.

Operator:

LaurenceAlexander,Jefferies.

LaurenceAlexander(Analyst-JefferiesandCo.):

Inyourfreecashflowbridgefor2015whatisyourworkingcapitalassumption?Andthenhowdoyouseeworkingcapitaldaysevolvingin20162017?


SogenerallyspeakingIexpectourcashconversioncycletoberoughlythesame,particularlywhatwefocusonmostlyisthequantitywhenwelookatitemslikeinventory.Soasweworkthroughthatbusinessbybusiness,lookatwheresomeofthegrowthisgoingtobeandunderstandingworkingcapitalrequirements,etcetera,Igenerallythinkitwillbeflat.

Nowwe'llalsotrytoestimatetheimpactoftheflow-throughoflowerrawsthatwehavebeentalkingabouttodayonanetbasis.Sowehavefactoredinthataswell.SowhenIthinkaboutworkingcapital2015over2014onanet-netIthinkit'sgoingtobeaslightheadwindforusonacashbasisgoinginto2015.


Okay,andthenonTaminco,youaddressedsortoftheAgimpactforaminesonthevolumeside.Areyouseeinganypressureonmarginsforthatindustry--forthatbusinesseitherin2015orgoinginto2016?


No,wearenotseeinganypressuresonthemarginside.I' llremindyouthatmostofTaminco'sbusinessesislong-termcontracted,pricingstructuresaretypicallycostpass-throughs.Soifolefinsgodowntheyaregoing



©2014TheStreet,Inc.AllRightsReserved Page18 of 21

topassthrough,ifitgoesupitpassesthrough.

SoingeneralIdon'tthinkthereisanythingmeaningfulfromapricepointofview.TheyofcoursehavesomemodestcurrencyheadwindsintheirEuropeanoperations,butit'snotsignificantrelativetosomeoftheotherpartsofourportfolio.Sothatisnotreallyaconcern.


Thankyou.

Operator:

BobKoort,GoldmanSachs.

BobKoort (Analyst-GoldmanSachs):

IwaswonderingifatleastinTaminco,Iknowtheyhadsomecholinechlorideandotherproductsthatservedthedrillingindustry.Haveyouguysstartedtoseesomeerosionindemandtrendsforanyofyourenergyapplication?


Hey,Bob,goodquestion.Wearelookingatthat.Rightnowthecholinechlorideisaprettysmallpercentageofthetotalportfolioforfracking.Someofthatgoesintocleaningupsourgaswhichisn'tasvulnerabletosomeofthisdynamicwithoilrightnow.Butwearen'tseeinganydramatictrendsyetinthedemandanditseemsprettysolidstartingouttheyear.

Butourforecastincludesanexpectationofsofteningdemandgrowthinthatbusinesstowardsthebackhalfoftheyear.Just--youcan'tavoidthenewsofhowpeoplearecuttingbackondrillingrightnow.Andso,weexpectthattobealittlebitmoremodest.Butitisaverysmallpercentageofthetotalrevenuetoday.Sonotabigexposure.


Letmeaskyou--maybeit'smoreofatheoreticalquestion,butitseemstomeetEastmanispositionedlikemanycompaniesbetweensortofcrackeroutputsandultimateconsumerproducts.Andwe'veseenalotoftheoutputsfromtheserefineriesorcrackershavemelteddownandwealsohearfromalotofconsumerandendmarketcompaniessayingtheyhaven'treallyseenanygreatwindfallyet.

Soitwouldseemthatthereisawholeslugofprofitabilityouttherethatsomebodyshouldbegrabbingatthemoment.AndmaybeEastman,givenwhereyouareacrossthatsupplychain.Soistherepotentialforthattohappen?Arethecustomersjusttooaggressiveinseekingouttheirshareofthatrawmaterial[lead]?

Istheresomethingaboutyourparticularportfoliothatdoesn'texposeyoutothatreliefbeyondthepropanehedge?Whyaren'tcompanieslikeyoursreallysittinginasweetspotforthenextcoupleofquartersuntilthecustomerscanbangdownpricing?


Well,Bob,firstofallIcanassureyouthatwearedoingeverythingwecantoaggressivelyholdontovalueeverywhereinthisrawmaterialenvironment.ThestoryisproductbyproductIcangiveyouadifferentstorywherewehaveverystrong--alotofourportfoliofranklyjustisn'tsubjecttothisrawmaterialtailwind,itisjustverysteady,verynicesolidmarginbusinesses.

Ourwholecelluloseesterstreamjustisn'tpartofthisdynamicrightnow.Soyouputthatasideandjustsay




thatisfocusedonvolumegrowthanddeliveringvalue.

Intheplaceswhereyouhavegotbenzene,paraxylene,partsofAdvancedMaterials,heattransferfluidsandPPD,thingslikethatwherewe'vegotsomerawmaterialtailwinds,someofthatissomewhatcommodityorientedandyouaregoingtopassthepriceonprettyfastandyouhavegotformulacontractsinplace.Atotherplaceswearegoingtoholdontoasmuchofthatvalueaswecanandthedynamicsaredifferent.

Andintheolefinsitisthesamestory,someofitiscommoditywhereitisgoingtopassonquickly,youcanseewherepricesaregoinginsomeoftheSFIproductsintheIsisdailyreport.Butotherplaceswe'reholdingontoit.

Soourguidanceincludesholdingontoamodestamountofthatvaluethroughtheyeartooffsetthecurrencyandpropanehedgeheadwindstogetustowhereweareguidingrightnow.Ifwedobetterinholdingontothatvalue,whichiscertainlyourgoal,thatwouldbeupside.Butwedon'twanttogetaheadofourselvesuntilweseehowsuccessfulwearethroughthefirstquarter.


Andwouldyoueverconsidersettlingthosehedgesjusttoremovethestigmagoingforwardin[peopledon't]capitalizethat?


Well,theyarecashflowhedgedandwedon'tgetinthehabitoftryingtorepositionthemconstantly.Butwedoevaluatethat.Butifyoulookattheopportunityright,nowitlookslikeoilismorelikelytogoupthandown.Ithinkquitehonestlyevenifwesettlethemfromacashbasistheearningsimplicationwillstillflow-throughasacashflowhedgeoverthenextcoupleofyears.


Great,thanks.

GregRiddle (VP-IR):

Let'smakethenextquestionthelastoneplease.

Operator:

MikeSison,KeyBanc.

MikeSison(Analyst-KeyBancCapitalMarkets):

Mark,youtalkedaboutSaflex,theacousticbusinessdoingprettywellin2014.Canyoutalkaboutthegrowthpotentialin2015?Andisthatabusinessthatcouldreallybenefitfromthelowerrawmaterialsasyouholdpricing?


Greatquestion,Mike.Theinterlayersbusinessisagreatbusiness,inparticularthepremiumproductsacousticsandheads-updisplays,bothhighmarginveryhigh-growthdouble-digitsandexpectedtocontinuefromavolumepointofviewinto2015andbeyond.OEMautobuildersareswitchingnotjustwindshieldtoacousticsbutside[lams],etcetera,forbothacousticandlightweightingpurposes.Soitisjustagreatgrowthtrend.

Andwehavegotsomegreatnext-generationproductscomingoutdownthepiketomakethatvaluepropositionevenbetteroverthenextcoupleyears.Onthepricingside,youareabsolutelyright.Inthe




premiumproductyoudon'thavetogivealotofthe[aluminummaterial]benefitback,sothatwillalsobesometailwindforthatbusinessacrossthewholeportfolio.

Thosealsohave--alotofourbusinesstherehasannualcontractslikefiberswhereyousortofgetlockedin.Andso,ifyouhaveheadwindslikewedidlastyearandVAMpricesgoingup,thathurtsandthisyearweexpecttohavesometailwinds.


Okay,great.AndyoumaintainedyourEPSaccretionforTamincothatyouhadpreviously.Istheintegrationsynergypotentialaboutthesameinthatnumber,isitbetter?Howisthatcomingalong?


Well,Mike,thankyou.FirstofallIwouldsaytheintegrationeffortshavegoneofftoagreatstartacrossmanyfriends,greatfeedbackfromcustomers,suppliersandwearereallythankfultohavethetalentthathascomeoverfromTamincotohelpusmanagethesebusinesses.

Asyoulookatthesynergiesthemselves,westillfeelweareontargettoa5%synergy.Ifyourecall,those5%synergiesaremostlycostsynergiesintheformofoperationalsynergies,supplychainoptimizations,etcetera.ThosewilltakealittlelongerthansomeofthesynergiesthatwehavecapturedfromotheracquisitionssuchasSolutia.

SoIstillfeelgoodaboutgettingthemajorityofthese5%soverthenexttwoyears.Wewillgetjustaportionofthatin2015,maybealittlelessthanIwasthinkingalittlewhileago.Butwewillgetthemajorityofthosecostsynergiesin2016,andthenwewillgetalittlebitbeyondthatplusthebusinessandrevenuesynergieswillkickinafterthat.


Great,thankyou.

GregRiddle (VP-IR):

Thanksagain,everyone,forjoiningusthismorning.AwebreplayandareplayindownloadableMP3formatwillbeavailableonourWebsitelaterthismorning.Thanksagainandhaveagoodday.

Operator:

Onceagain,ladiesandgentlemen,thisdoesconcludeyourconferencefortoday.

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