伊士曼化學 (EMN) 2014 Q4 法說會逐字稿

Good day and welcome to the Eastman Chemical Company fourth-quarter full-year 2014 earnings conference call. This conference is being recorded. This call is being broadcast live on Eastman's website at www.eastman.com. We will now turn the call over to Mr. Greg Riddle of Eastman Chemical Company Investor Relations. Please go ahead, sir.

Thank you, Jake, and good morning, everyone, and thanks for joining us. On the call with me today are Mark Costa, CEO; Curt Espeland, Executive Vice President and CFO; and Josh Morgan, Manager Investor Relations. Before we begin I'll cover three items.

First, during this presentation you will hear certain forward-looking statements concerning our plans and expectations. Actual results could differ materially. Certain factors related to future expectations are or will be detailed in the Company's fourth-quarter and full-year 2014 financial results news release and in our filings with the Securities and Exchange Commission, including the Form 10-Q filed for third quarter 2014 and the Form 10-K to be filed for 2014.

Second, earnings per share and operating earnings referenced in this presentation exclude certain non-core or nonrecurring costs, charges and gains. A reconciliation to the most directly comparable GAAP financial measures and other associated disclosures, including a description of the excluded items, are available in our fourth-quarter and full-year financial results news release which can be found at eastman.com in the Investors section. Projections of future earnings in the financial presentation also exclude such items as described in the fourth-quarter financial results news release.

Lastly, we've posted slides that accompany our remarks for this morning's call on our website in the Presentations & Events section. With that I will turn the call over to Mark.

Good morning and thank you for joining us. I will begin on slide 3. 2014 was a strong year for Eastman as we continue to make progress on our goal becoming a leading specialty chemical company. We delivered our fifth consecutive year of strong EPS growth despite a challenging global environment and a volatile raw material environment. We are very proud of that track record given that only 25% of the companies in the S&P 500 have ever accomplished this performance.

In 2014 we also generated free cash flow of $810 million, consistent with our expectations. This level of earnings growth and strong cash flow generation reflects how our world-class technology platforms have enabled us to achieve success in expanding our leadership positions in diverse and attractive end markets and geographies, accelerating our earnings growth with innovation driven Specialty Products and leveraging our advantaged cost position through vertical integration and advantaged raw material positions.

We also completed four acquisitions during the year. Each of these acquired businesses aligns well with our strategy of delivering consistent and superior value. In December we completed the largest of these acquisitions, Taminco, a highly successful global specialty chemical producer with market-leading positions. And I will talk more about Taminco on the next slide.

During the year we also added several smaller bolt-on acquisitions to our portfolio: Commonwealth Laminating & Coating; Knowlton Technologies; and the Aviation Turbine Oil business from BP. Both Commonwealth and the Aviation Turbine Oil business are great additions to our existing product portfolio in Performance Films and Specialty Fluids respectively. The Knowlton acquisition was very attractive as it will enable us to accelerate the innovation cycle for our microfibers platform.

Each of these acquisitions represents a solid addition to our portfolio, reflecting our commitment to use M&A as a means of creating value in both earnings and cash flow.

We also made significant progress on our organic initiatives across the Company. We continue to have double-digit growth in our Tritan copolyester due to market adoption, which will be supported by our fourth-quarter expansion at our Kingsport site.

In addition, we have begun work on an additional 60,000 metric ton expansion for Tritan which we will expect to be operational in 2017. We expect continued double-digit growth in our premium acoustic and heads up displays Saflex interlayer products and proud of our successful launch of a new optical film product for the high growth mobile device market where we are already realizing strong growth.

Our rubber additives team has achieved rapid success in developing and validating a breakthrough technology for significantly reducing our Crystex manufacturing costs. As a result we are currently retrofitting one of our assets in Europe with this technology and we intend to proceed with plans to double our Crystex insoluble sulfur capacity in Kuantan, Malaysia with this technology as well, which we expect to be operational in the first half of 2017.

In AFP we launched Omnia, a new sustainable solvent for Household Cleaners and we expect to see great growth from that business as well. I was particularly impressed with the speed of our team when they went from concept to successful product launch in 18 months which is outstanding for this industry.

We continue to see strong markets switching to non-phthalate plasticizers and have completed an expansion of our 168 capacity to support our growth in this market where we are leveraging this trend.

Finally during the year, we remain committed to returning cash to our stockholders by increasing our dividend for the fifth consecutive year and repurchasing more than $400 million of stock. This strong performance on so many fronts is a great testament to the strength of the Eastman portfolio. More importantly, I am very fortunate to have such a great management team and a great group of employees who consistently overcome challenges and find ways to deliver results for our stakeholders.

I'll move to the next page. As I mentioned, we completed the acquisition of Taminco in December and a very pleased to welcome Taminco employees to the Eastman team. We are confident that Taminco will be a great strategic fit in the deployment of our balance sheet.

We have diversified and attractive end markets with solid macro trends. We will accelerate growth opportunities in personal care, coatings and oil and gas markets across the portfolio. And we see substantial opportunities to leverage our strength in creating value from their similar business model that leverages a world-class integrated stream.

As we look at projected earnings from Taminco's business for 2015, we expect them to continue to deliver solid top-line growth and operating earnings be modestly higher than 2014, which is consistent with our previous expectations. We are also on track with our synergy targets.

With the integration of Taminco's businesses and various purchase accounting adjustments, we expect approximately 75% of Taminco's total operating earnings will be in Additives & Functional Products where we are locating the special amines and crop protection businesses and approximately 25% will be an Specialty Fluids & Intermediates where the functional amines business will be located.

We remain on track for EPS accretion from Taminco to be greater than $0.35 in 2015 and greater than $0.60 in 2016 excluding acquisition integration costs. Now I will turn it over to Curt to discuss the corporate and segment results.

Thanks, Mark, and good morning, everyone. I will start with our fourth-quarter and full-year corporate results on slide 5. For the fourth quarter sales revenue increased largely due to continued high sales volume for premium products in the Advanced Materials segment and sales of products of the acquired Taminco businesses.

Operating earnings in the fourth quarter also increased driven by lower raw material energy costs, the higher premium product sales in Advanced Materials, and earnings from the acquired businesses partially offset by higher planned maintenance costs.

For full-year 2014 we delivered another strong year of $7.07 of earnings per share, which is a 10% growth over 2013 and, as Mark mentioned, our fifth consecutive year of earnings growth.

Sales revenue increased 2% due to growth in Advanced Materials and Adhesives & Plasticizers segments and sales revenue from acquired businesses. Operating earnings were slightly higher year over year as higher volume and improved product mix, particularly in Advanced Materials, and earnings of acquired businesses more than offset higher raw material and energy costs and higher costs related to manufacturing shutdowns during the year. Our operating margin remains strong at 17%, consistent with full-year 2013.

Moving next to the segment results and starting with Additives & Functional Products on slide 6. For fourth quarter both sales revenue and operating earnings increased due to the addition of sales from the acquired Taminco specialty amines and crop protection businesses.

For the full year sales revenue increased due to both higher sales volume and price -- prices for coatings product lines and sales of the acquired Taminco product lines partially offset by lower rubber additive sales volumes.

Both the higher sales volume and pricing for coatings was attributed to strong end market demand throughout the year primarily in the Building & Construction and Transportation markets. The lower rubber additives sales volume was primarily attributed to decreased tire production in Asia.

Full-year operating earnings declined as higher raw material and energy costs, primarily propane in the first half of the year, more than offset higher prices and earnings from acquired Taminco businesses.

As we look at 2015 we expect that Additives & Functional Products will be positively impacted by the full-year benefit of acquired Taminco businesses and solid performance from the heritage Eastman businesses due to volume growth in coatings and to some extent tire additives.

These benefits will be partially offset by the negative impact of a decline in olefin derivative pricing outpacing the decline in raw material costs due to the impact of propane hedges, and a strengthening US dollar, particularly against the euro. Both of these challenges will impact all over segments to some degree, so I will cover them in more detail in a few minutes.

Taken together we expect strong earnings growth for this segment with the addition of Taminco, somewhat offset by a modest decline in the heritage Eastman businesses as the benefit of underlying growth is offset by the oil and currency challenges.

Moving next to Adhesives & Plasticizers on slide 7. For the fourth quarter sales revenue declined primarily due to lower adhesive resin sales volume resulting from limited raw material availability. Fourth-quarter earnings increased due to higher adhesive resin prices, lower raw material and energy costs and lower operating costs which included targeted reductions -- cost reductions.

These lower costs were partially offset by cost of a planned shutdown of an olefins cracking unit at our Longview, Texas site and lower plasticizer selling prices.

For the full year sales revenue increased due to higher plasticizer and adhesive resins volume, partially offset by lower selling prices primarily for plasticizers. Full-year operating earnings increased significantly primarily due to higher sales volume and corresponding higher capacity utilization and lower operating costs, partially offset by the lower selling prices.

Looking forward to 2015 we expect continued growth for our Eastman 168 non-phthalate plasticizers but an otherwise challenging global plasticizers market will continue to pressure margins primarily due to competition from Asian producers. We also expect the adhesive resins market to remain tight due to solid demand growth, particularly in the hygiene and packaging markets and limited availability for the industry of key raw materials.

Putting this all together, we expect adhesives and plasticizers will deliver strong earnings growth but this growth to be mostly offset by the impact of oil and currency.

Now to Advanced Materials on slide 8, which delivered another excellent year. Fourth-quarter and full-year sales revenue increased slightly as strong volume growth for premium products, including Eastman Tritan copolyesters, interlayers with acoustic properties and window films was offset by lower copolyester product [selling] prices primarily due to lower raw material and energy costs and an unfavorable shift in foreign currency rates.

Full-year sales revenue also increased slightly as higher premium product sales volume, including Tritan and the interlayers with acoustic properties, was largely offset by core copolyester selling prices.

Earnings increased both in the fourth quarter and for the full year due to higher sales volume and improved product mix as we continue to have growth in our more premium products, including Tritan copolyester and acoustic interlayers. The full-year 2014 operating margin improved nicely to over 12% moving this segment into the range we expect for this business of 12% to 15%.

Looking to 2015, we continue to make progress on our strategy for this business, volume growth, mixed improvement and fixed cost leverage. Advanced Materials will also benefit from lower raw materials and the Commonwealth acquisition, which we expect to be a strong contributor to earnings growth in 2015. As a result we expect continued strong earnings growth in the segment somewhat offset by currency headwinds.

Moving to fibers on slide 9. Fourth-quarter sales revenue was relatively unchanged as higher selling prices for acetate tow and increased flake sales to a China joint venture were largely offset by lower sales volume for acetyl chemicals. Fourth quarter operating earnings rose slightly with higher tow selling prices, more than offsetting lower sales volume and higher unit costs due to lower acetate tow capacity utilization.

For the full year sales revenue was slightly higher driven by higher acetate tow selling prices and higher acetate flake sales volume to our China tow joint venture, more than offsetting lower acetate tow sales volume. The lower acetate tow sales volume was attributed to additional industry capacity including our joint venture.

Full-year earnings increased due to higher selling prices and lower raw material and energy costs, partially offset by lower tow sales volume and lower capacity utilization.

Looking forward to 2015, we expect continued acetate tow inventory destocking, which is larger and broader to more customers than we originally anticipated. We expect this will be most pronounced in the first half of 2015. We also expect lower raw material and energy costs particularly for wood pulp and we are actively reviewing options to reduce costs for this segment to help improve overall results.

Taking this together we expect full-year 2015 earnings to be down between $40 million and $60 million compared to 2014. With that said, we expect global acetate tow demand to stabilize once the inventory destocking is behind us and we continue to pursue actions to improve the overall cost position of this business. As a result longer-term we are optimistic this business will recover to an earnings profile consistent with our Investor Day expectation.

I will finish the segment review with Specialty Fluids & Intermediates on slide 10. Fourth-quarter sales revenue increased due to the sale of products of acquired businesses, more than offsetting lower prices for olefin-based intermediate and heat transfer fluids.

Fourth-quarter operating earnings declined primarily due to the impact of the planned shutdowns of an olefins cracking unit and the lower selling prices, partially offset by lower raw material and energy costs and earnings of acquired Aviation Turbine Oil businesses.

For the full year sales revenue was flat as sales of products of acquired businesses and higher selling prices were offset by lower sales volume. The lower sales volume was due to manufacturing capacity shutdowns, the increased use -- downstream use of intermediates in other parts of the Company and weakness in the heat transfer fluids market.

Full-year operating earnings were lower primarily due to the higher raw material and energy costs, primarily propane in the first half of the year. And costs of manufacturing capacity shutdowns partially offset by higher intermediate selling prices and earnings from acquired businesses.

Looking forward to 2015, Specialty Fluids & Intermediates will be positively impacted by the addition of the Taminco functional amines business, they will also benefit from the full-year impact of the Aviation Turbine Oil business.

Challenges include the negative impact of oil, lower expected demand in heat transfer fluids and expected lower volume in intermediates in part due to continued downstream use of intermediates in other parts of the Company. As a result we expect 2015 earnings to be somewhat lower than 2014.

On slide 11 I will transition to an overview of our cash and other financial highlights for 2014. We did an excellent job of generating cash in 2014 with operating cash flow of $1.4 billion. This is a record for cash from operations.

Our free cash flow was $810 million for the year, consistent with our expectations. Capital expenditures totaled $593 million including the impact of acquired businesses which was also consistent with the guidance we provided.

Looking at the balance sheet, net debt stands at approximately $7 billion at the end of the year reflecting the addition of the Taminco financing.

During fourth quarter we successfully issued $2 billion of bonds with maturities of 5, 10, and 30 years. This was a very successful issue reflecting our strong balance sheet and cash flow profile. These new bonds fit nicely into our maturity profile, actually increasing the average duration of our bond portfolio while lowering the average interest rates.

Our overall cost of financing for Taminco acquisitions was approximately 2.8% including the previously disclosed $1 billion term loan. Over the next two years we'll focus on paying down debt as part of our commitment to return our credit metrics consistent with our investment grade credit rating.

This is also a good opportunity to remind everyone that Eastman has access to sufficient liquidity in addition to our strong cash flow in a form of a $1.25 billion revolver and a $250 million accounts receivable securitization program. The combination of cash flow, a strong balance sheet and liquidity continues to provide flexibility to pursue growth even in an uncertain economy.

Moving back to fourth quarter results, a few items to highlight. Our effective tax rate for the fourth quarter pro forma earnings was 22% reflecting the one-year extension of favorable US federal tax provisions, which resulted in a net benefit of $15 million. This benefit was primarily related to research and development credits and deferral of certain earnings of foreign subsidiaries from US income taxes.

The full-year 2014 effective tax rate on pro forma earnings was 26% compared to 28% for full year 2013. This lower rate reflects the continued benefits of the integration of Eastman and Solutia business operations and legal entity structures.

In addition, GAAP earnings were impacted by a mark-to-market loss of $304 million related to our pension and other postretirement benefit plans. This loss was primarily driven by the change in discount rates, increasing our estimated pension liabilities. We also had acquisition-related costs of $31 million related primarily to Taminco and Commonwealth.

On slide 12 I will discuss some key assumptions for our projections in 2015 -- in retrospect as compared to those we shared back at November at our Investor Day.

Our projection for global growth remains at approximately 3%. Of course there is uncertainty in this projection but we're currently seeing solid demand in our order books.

Moving next to raw materials, we are expecting our key raw materials, propane, ethane, propylene, etc., to be consistent with the recent forward curves through the end of the year -- throughout the end of this year. And as you've seen, most of these forward curves do not anticipate any dramatic change during the course of the year. So we will see how that plays out.

But regardless, this is obviously a big change compared with our Investor Day projections when Brent crude was projected to be $100 per barrel. We expect the dollar to euro exchange rate to remain near current levels at approximately $1.15 per euro.

And this is another big change from our Investor Day where we had projected between $1.25 and $1.30 per euro and is actually higher than the 2014 average of just over $1.13 per euro. This results and a year-over-year earnings per share headwind of $0.25 to $0.30 per share including mitigation from our currency hedging program.

Our tax rate is expected to be between 26% and 27%, reflecting the continued benefits of our improvement in business operations and legal entity structures resulting from acquisitions. The range of the effective tax rate reflects uncertainty as to whether there will be further extension of the R&D tax credits and potentially changes to our geographic earnings mix.

Finally, we continue to expect to offset dilution with share repurchases.

Lastly, I thought it would be helpful to provide some color on how we project the lower impact of crude oil on our olefins-related businesses here shown on slide 13. Unlike Investor Day my comments will focus only on olefins and not include actions we are taking across the Company portfolio.

First, propylene and ethylene prices are expected to decline to some extent with oil. Second, on an unhedged basis we expect cracking spreads to expand as ethane and propane costs have dropped. In particular Eastman's cracking configuration towards a heavy -- heavier propane mix is advantaged at this time.

However, our hedging strategy that we had taken to reduce volatility in our propane and other input costs have become a significant headwind given the unprecedented recent drop in the price of propane. Obviously, we and the rest of the world did not foresee this dramatic drop in oil or propane prices and I also don't think anyone really knows exactly where these prices are going to settle out from here.

As a result, although propane dropping more than ethane is generally positive for us, this benefit will be more than offset by the impact of our propane hedges resulting in an expected earnings headwind of $0.40 to $0.60 per share for 2015.

Having said that, I want to be clear that this analysis is broad, a directional exercise as the vast majority of our olefin-related earnings come from derivatives with the exception of bulk olefin sales. Our olefin derivative pricing does not directly track olefin prices across the portfolio on a monthly basis.

While the Commodities will track fairly tightly, the majority of our derivatives are specialties or special position product lines where we have additional dynamics that impact value capture relative to olefins. Our estimate of $0.40 to $0.60 per share does not include our efforts to mitigate this headwind by holding on to value in our specialty and special position product lines as olefin prices decline.

My last point on the side, you can see that the benefit of producing olefins remains a small part of our overall earnings profile in part reflecting actions we've taken to strengthen our portfolio including the additions of Solutia and Taminco which are not meaningfully exposed to these spreads.

So with that I thank you for your time and your interest in Eastman Chemical and I will turn it back over to Mark.

Thanks, Curt. As we look at our earnings growth potential for 2015 and beyond we feel great about our strategy which we discussed in detail at Investor Day. We have strong growth drivers in place across the Company.

We have a solid portfolio of specialty businesses that are well-positioned to grow, solid end market growth especially in transportation and B&C end markets. Strong premium products that we expect will accelerate earnings growth especially in Advanced Materials.

We are working hard to hold onto the raw material tailwinds in our Specialty Products. We also expect to benefit in 2015 from significant accretion from the attractive acquisitions we completed in 2014. I would also note that our acquisitions are mostly neutral to volatile oil and manufacture in the regions where they sell. These additions are great improvements to the robustness of our portfolio.

Obviously we face some short-term headwinds like many US companies, but we don't see any of them undermining our long-term strategy. The unprecedented change in oil prices has created a challenge with our current propane hedge and some uncertainty about how competitive trade flows might change.

The dollar has strengthened considerably against a basket of currencies, most notably for us against the euro. And while we anticipated that a risk of inventory restocking existed in fibers, we now have a better understanding that the level of destocking is larger and more -- broader than we expected across the customer base.

Given all that, we expect our full-year 2015 EPS to be similar to 2014 EPS with the split between the first half and the second half of the year being consistent with our history.

As we consider the sensitivities of this outlook we can see a pathway to earnings growth. If the drop in oil prices are predominantly driven by supply, then it should be a stimulus to economic demand. And this benefit can show up in several different ways.

First, many of our customers are maintaining very low inventory levels and if oil prices stabilize and go up we could see some restocking.

Second, we believe that oil prices will ultimately be a long-term stimulus to global GDP and great for Eastman's Specialty strategy where we are selling high value differentiated products that are leveraged to an economic recovery.

Third, improving demand will tighten supply to demand balances in some of the industries as well. Of course, if we were headed into a global economic slowdown with declining demand and further reduction of oil prices, we will face a challenge.

As I think about our cash flow on the next page, I believe our cash flow is one of Eastman's greatest strengths and we continue to generate very strong free cash flow in 2014 and we expect to do it again in 2015. With our current outlook we expect approximately $1.6 billion of operating cash flow. This outlook reflects current earnings expectations as well as some improvement in working capital resulting from lower commodity costs.

Capital expenditures are expected to be approximately $700 million to $725 million. This reflects normal maintenance capital as well as some additional infrastructure spending. This also reflects growth capital this year for the expansion of our Tritan copolyester capacity and our new Crystex capacity in Malaysia.

Free cash flow is expected to be approximately $850 million to $900 million and this is a nice improvement over 2014. As a reminder, our priority for free cash flow over the next 24 months is deleveraging our debt. While doing so it is reasonable for investors to expect that we will continue to increase our dividend and we expect to offset dilution with stock repurchases.

And as we continue to generate very strong free cash flow over the coming years we will continue to deploy capital in a balanced and disciplined way.

When we reflect on what we said at Investor Day, I firmly believe that our strategy is intact and we will deliver strong, consistent earnings growth and compelling free cash flow over time. We have obviously hit some short-term headwinds that we and most of the world did not expect, but our portfolio of businesses are robust and capable of offsetting these challenges and finding pathways to grow.

These challenges are a headwind as we head into 2015 but are not likely to be an additional headwind in 2016. The growth drivers of our portfolio are strong over time and will continue to deliver strong earnings growth and compelling free cash flow. I remain confident that we will continue to create value for our stockholders and all of our stakeholders. With that I will turn it back over to Greg.

Thanks, Mark. We've got a lot of people on the line this morning and we'd like to get to as many questions as possible. So please limit yourself to one question and one follow-up. With that, Jake, we are ready for questions.

(Operator Instructions). Kevin McCarthy, Bank of America-Merrill Lynch

Mark, with regard to the fibers business, if we think back to your Investor Day, it sounded like you were contemplating some optionality to take restructuring action in that business. In listening to the language on the call today I heard a lot about destocking there. So I guess a two-part question.

First, what is your degree of confidence that the weakness you are seeing is in fact destocking versus perhaps a more structural or durable weakness in the business? And then secondly, how are you thinking about potential to reduce costs in that context and what might be the timeline for your decision there.

Good morning, Kevin, thank you for the question. So I will start with the demand side of that question and I want to start first with our view about primary demand as you're getting at and then tow demand.

So if you think about primary consumer demand, we don't have any change in our view about the outlook of demand in the medium-term. We continue to expect the developed world to slowly decline, the developing world including China to show some growth. And then the real question then settles on what is happening in China.

As we look back at 2014, demand was relatively flat at the consumption level in China. And everything we are being told about that continues to suggest that the primary driver for that flatness was austerity measures changing the use environment of cigarettes.

And if we believe that to be true, and we are not hearing anything otherwise, that is like a destocking event where you take a chunk of demand out, but when you look at population modeling and growth you would then expect demand growth to return at a modest level in China. So that is holding together and we are not seeing change in that from all of our sources, which is primarily talking to our customers.

When you get to tow demand, as we discussed last year, there are two different dynamics going on when you go from demand in 2014 to 2015. The first is CNTC in China has added additional capacity, like they added capacity with us in 2014, they have added some additional capacity to Daicel.

And so, of course they are going to run those assets full as they own them and that takes a certain chunk of demand out of imports which was factored into our guidance back at Investor Day -- that is not really a surprise for us.

The second part is we expected some modest destocking, but all the customers who have come to us have been very clear that they are going to do some amount of destocking in particular in China. And what is behind that and where it makes sense to us, Kevin, is from 2011 to 2013 you saw tremendous tightness in capacity utilization in this industry, close to 100%.

So a lot of customers were carrying safety stock to make sure that they didn't run out and it makes a lot of sense when you look at how small of a percent tow is of the final price of a cigarette; it is not a place where you want to run out and short your production sales.

And then with the slowdown in demand and this capacity add in China, obviously the capacity utilization loosened up a little bit and customers have felt that it is more appropriate to destock some of that safety stock and re-adjust their inventory.

So everything we know suggests that it is destocking. If we believe that to be true then there is reason to believe that demand in 2016 could actually be higher than 2015. And that is the best that we know with that part.

So when we get to sort of what do we do about that, well, we wanted to make sure we understood exactly how demand was going to play out across all of our customers and finish the contracting which happened this week. So we feel pretty good about knowing where we stand.

And now of course you take an assessment of all of what I've just said and decide what is the appropriate actions to take on the cost structure side. We're actively in the middle of making those decisions and it is inappropriate for us to discuss them further until we finalized those decisions.

Fair enough. I appreciate the color. As a follow-up perhaps for Curt. Do have any propane hedges that extend into 2016? And if so would you comment on the level and ratio I suppose?

Kevin, when we implemented our propane change last year we did talk about a multi-year program, so it does extend beyond a couple years. But the focus of that typically is the first couple years and that is where we are taking most of the focus. But we will have some tail going beyond that. But it is not as significant as what we talked about the next two years.

Okay, thank you.

David Begleiter, Deutsche Bank.

Thank you. Mark, just again on propane, are there any other actions you are looking at or could take in 2015 to come in at the lower end or below the $0.40 to $0.60 propane hit?

So, David, on the hedge, it is what it is. What we are doing most importantly on the price side is we are fighting hard to hold onto value that we create for our customers with our products and hold onto some of that raw material tailwinds in all the places that we can. And that will have varying degrees of success to offset some of that headwind. So that is going on right now.

In addition, we expect to and plan to run our crackers well. We did a big turnaround last fall and the big cracker that has come up is running incredibly well. As that cracker and other efforts to leverage towards propane mix, as much as we can, will advantage us because that will be all spot propane purchases at very advantaged prices.

So there are things that we are doing both on the volume side and the pricing side to get the maximum value out of that advantaged position we have with our propane crackers.

And, Curt, just again on the 2016 impact versus 2015. Would it be fair to say that the benefit in 2016 versus 2015 from the lack of propane hedges could be $0.20 to $0.30 a share?

I would say, Kevin, as I mentioned at our Investor Day, the program that we put in place [hedged] substantially amount of our purchases of propane in 2015 and 2016 and I would not expect a material change between those two. So it will be a tailwind, but I'm not going to try to quantify that at this point.

Thank you.

Frank Mitsch, Wells Fargo Securities.

I was looking at slide 13 and I see that the operating earnings are indicated up for 2015. Now I know your interest costs are going up, but as I do the math on some of the puts and takes in terms of negatives, obviously you have got the hedge $0.50, foreign-exchange $0.25, fibers destock another $0.20 or so.

So you're about $0.95, $1.00 negative. Offsetting that Taminco positive $0.35; the turnaround, assuming you don't have it in 2015 versus 2014, is another time. So that is a positive $0.45. So you've got about $0.50, $0.55 of a whole.

So to keep it flat you would need to grow earnings about 7% to 8%. Obviously Eastman's targeted goal is to do double-digits. Could there be room of a couple of percent or so in terms of earnings growth if Eastman hits kind of its double-digit EPS growth goals?

Frank, thanks for the question I knew I could count on you for the growth math question. Your mate is directionally correct. You're actually missing out on some additional accretion. So Taminco wasn't the only acquisition we did; we've got some nice accretion coming in from BP Turbine Oil, Commonwealth, a little bit more share count advantage rolling into the year.

So I think of acquisitions being 50 -- or a little bit above $0.50 of accretion. So then you are talking about how do I hold onto value. Well, we certainly intend to run our plants better, as you mentioned. We still have some decent amount of shutdowns coming in this year, so there is not a huge plant shutdown differential from year-to-year, but we certainly plan to run better.

So we're talking about can we do better than $0.50 to $0.40 a share organic in our portfolio; that certainly is our goal. And we are driving really hard on all fronts to do that. I think we see very solid demand trends, especially in B&C and transportation, durables, especially in the US. And it is nice actually having 50% of -- a little bit less than 50% of our revenue in the US these days.

And we are pretty happy that our exposure to Europe is one of the lower ones relative to our peers, from both a currency and a weak demand point of view. So I think our portfolio is very well positioned for primary demand. More importantly, we get a lot of accelerated earnings growth out of our earnings in our premier products, especially in Advanced Materials, where we are selling double-digit growth rates in things like Tritan, acoustics, heads-up displays, window films, resins and tires and AFP, all of which are accelerating earnings growth within that top-line growth, as those margins are quite attractive.

So it all adds up where we feel very good about that, driving to that $.50. To get beyond $0.50, you need to believe that demand is going to be a little bit better this year than the overall demand growth rate we saw last year. And I think there is every reason to believe that that is possible.

I am in the camp that oil is supply driven primarily. Therefore, it is a global stimulus to demand. And there is potentially some restocking that we could get if oil prices stabilize. And all of that can show up as some stronger demand than what we have in our current outlook and put us on a path.

But it is the beginning of a year and a very volatile year right now, Frank. No one knows where oil prices are going or trade flows are going to change. So I think it is prudence at this point to just see how it plays out. We will get a lot more insight over the first quarter and be in a much better position to discuss this when we get through the first quarter.

That is very helpful, much appreciated. And maybe if you could provide an update. I know that in previous discussions of Eastman actions, technology licensing was something that perhaps would show up in late 2015 or early 2016. Can you talk about what your expectations are there?

Sure. We have some small amount of licensing that we do expect to get in 2015 and that is included in our comments around SFI, which is where that licensing value shows up. There are some bigger licenses that we have been working on, but given the uncertainty of them we are not including that in the forecast. And that would be upside if they happen either this year or next year.

Thanks so much.

John Roberts, UBS.

Back on slide 13, is there a hit to your coal-based operations as well from lower oil? That is, do things like acetic anhydride, acid aldehyde come down with oil prices and, again, your coal costs are relatively fixed?

Not so much. The vast majority of our coal derived products are cellulose esters whether it is going into fibers or great Specialty Products that go into our Displays business and Specialty Plastics or very high value additives that go into automotive coatings and other applications in AFP.

And all of those are very well positioned. And the real comparator is natural gas actually, not oil, from the competitive cost base that we are up against. And we are not seeing any significant changes in natural gas and raw materials are a relatively small part of those cost structures. So it is not a main factor like it is in the olefins discussion.

Then as a follow-up, I think you said the $0.25 to $0.30 currency hit was after hedging. Could you comment on your foreign-exchange hedging practices?

Sure. Similar to what I talked about olefins, we do have a multi-year hedging program on currencies to remove volatility that could result from that. You have seen that benefit over the last couple of years where you haven't really seen currency has been a factor. Because of the dramatic decline you see the impact we quantified and I'd say roughly our hedge position in 2015 is about 50% hedged.

Great, thank you.

Vincent Andrews, Morgan Stanley.

Are there any parts of your portfolio where given the move in oil and everything else where you think some of your competitors might now have a better cost position and may be more likely to either increase production or be able to export to other markets or how are you thinking about that?

So, certainly as we do the sort of olefin analysis and in particular where you are seeing the biggest impact from an oil point of view, that is all factored into our thinking when you say that $0.40 to $0.60 headwind. Because that is a change in their naphtha oil derived cost structures across the globe and how that impacts our US cost position. So that's I think included in that discussion.

I think that the other places we are getting nice tailwinds, like all of our competitors on an equal basis. So in paraxylene and benzene derived products we are all in the same boat together. And I'm not seeing any significant sort of changes in a relative cost position in those places.

I have no doubt that as Europeans and Asians get an improvement in the cost structure they are going to be more aggressive and we factor that into our thinking. But we still think that we create a lot more value than just price in our relationships with our customers. We have a lot of great Specialty Products and differentiated positions and those will endure some of those threats.

Okay. And if I could just ask on your amines business now, a number of the large herbicide manufacturers have spoken about sort of some excess inventory in the chain and that their volumes are going to be down. How does that work with Taminco?

So Taminco -- first of all, Taminco is a great portfolio of businesses in a very diverse set of end markets and niche applications. And you have to keep that in mind where Ag, specifically row crops where the current concern seems to sit specifically even more so on corn, that is a pretty small percentage of Taminco's overall revenue. So only about 10% of Taminco's total revenue is associated with row crops.

All of crop protection, which is the high-value high-margin specialties, go into perishable vegetables, fruits, flour type markets that are expected to have very consistent demand year over year.

But within that area a lot of our products go into both soybean/corn. So as the mix is shifting from corn to soybean that doesn't actually affect us. And of course we do expect some modest amount of headwind on the corn side, but net it will still be growth in -- for us because there was a lot of destocking and the big winter hit last year.

So even in the herbicide area for us, given where we sit in the supply chain, we still foresee some growth in that 10% year over year based on what our customers are telling us.

Okay, thanks very much.

James Sheehan, SunTrust.

Could you comment on the tire additives and Crystex outlook for 2015?

Sure. Great business. Really excited about our technology breakthrough and the investments we are making to grow this business to improve our cost position. In addition to my prepared remarks, the great thing about this technology is it's also going to allow us to have differentiated products, not just cheaper ones, from a cost point of view and therefore a lot of opportunities to grow.

From a primary market demand point of view we expect tire demand growth in 2015 versus 2014. This industry has had a tough couple years. 2014 was a tough year especially for Crystex which is highly levered to commercial tires in construction and mining tires. So obviously 2014 wasn't a good year especially in Asia-Pacific.

But everything we can see right now from our customers suggests that we are going to have solid growth this year on the demand side. We are very committed to maintaining our market share with our new technology and product advantages and growing with that market as we go forward. And so we feel good about it.

Thank you. And what is the latest status of the pipeline dispute?

This is Curt. As it relates to the pipeline, as you have seen the various rulings that have come out from the Texas Railroad Commission continue to be always in our favor, including the unlawful discriminatory action by Westlake to remove the bidirectional flow as well as the pipeline for exchanges.

It is unfortunate these disputes have kind of delayed our ability to get something done and pursue actions with our excess ethylene in the last year and a half. So you take that now combined with the current oil environment, it makes a kind of unlikely we will get anything done soon with that excess ethylene position. So we will still look at options, but right now it is not likely to happen anytime soon.

Thank you.

Jeff Zekauskas, JPMorgan.

Your volume growth and additives I think was 14% in the quarter and fluids I think was plus 4%. If you take out the acquisition benefits what would those numbers have been?

You would have saw some slight growth in those segments. Within Additives & Functional Products I think we talked about there was benefit of improvement in volume in our [nice] coating and product lines offset by some maybe lower tire additives product lines.

Okay. And normally in the fourth quarter your operating cash flow rises versus third quarter. And this year the sequential comparison was weaker. And I think you had a use this year of working capital of around $250 million. Can you speak to what happened to the fourth-quarter cash flows or why this year was different than your historical pattern?

Sure. So if you look at just the trends of cash flows in 2014 versus 2013, first of all our cash conversion cycle metrics have actually improved year over year. And so we are still seeing good working capital management. The main drivers to third and fourth quarter, Jeff, quite honestly just a timing difference of when we made our pension contribution as well just how tax payments flowed. So it is really those two items on a quarterly basis. But then were not that dramatically year over year.

Okay, great. Thank you so much.

P.J. Juvekar, Citi.

Mark, regarding the propane hedge, I remember Eastman always used to hedge against propane during winters, but now you are putting on hedges for going out a couple of years for propane, also for FX. What is behind the change in strategy?

So, as you know, Eastman has had an active hedging program for a number of years, P.J., consistent with some of the changes in discussions you had, whether it is commodities, currencies, interest rates, etc. We talked last year, and we were pretty transparent on this change, that consistent with our strategy to deliver consistent year-over-year earnings growth, we revised our propane hedging program from that winter spike protection you mentioned to a multi-year program in 2014.

Such change in the program was not taken lightly, it was discussed broadly amongst our executive team. It was based on good fundamental analysis and inputs from industry experts, which were all indicating propane was going to remain volatile, much like it did the last few years, and that's where you saw propane vary from $0.80 a gallon to $1.50 a gallon.

Further, all those indications at the time pointed to higher propane costs as the impact of PDH units and expert terminals were supposed to result in US propane prices increasing to be more in line with global prices.

So when we assessed that case and we assessed what other different scenarios could play out, we looked at the likelihood that propane would drop below $0.80 a gallon and that would even mean it would have to have been more than it did back in 2009 and that recessionary period.

So we looked at that as a very extremely remote scenario. But nonetheless, we know where we are at today. The oil shock has in fact occurred and we recognize we will need to work through these hedge positions over the next few years.

Yes, just to add to that, I mean clearly we are a bit of a black swan when it comes to oil and even last October the propane forward market was just above $1 a gallon. So no one really saw this coming and it is an extreme case.

I think it is important to keep in mind that what our goal was to try to neutralize and frankly get olefins off the table obviously. That objective didn't sort of work out.

But when you think about capital deployment and how we are growing our Company you need to step back and realize that while this is an important short-term issue and we are managing it as aggressively as we possibly can, our strategy is to grow our Company in Specialty Products.

Our capital deployment is centered on organic investments, capital deployment in Specialty Products like Tritan, like Crystex and microfibers. Our acquisitions are centered on adding great portfolios of businesses that are durable under these kind of volatile scenarios and have great ways to grow with nice macro trends.

So the things that we are controlling that we are investing in that give long-term growth are all sort of moving in that direction and reducing the amount of olefins as part of our portfolio. We intentionally chose the strategy not to be investing against the spread of oil versus shale gas in large investments. Obviously we are not happy about this hedge, but the hedge also rolls off over the next couple years.

And even if you look at it on a short-term basis more like 2015 to 2016, I don't expect it to be a headwind in 2016 unless we think oil is going to further drop from here and I think most people are of the view that it is stable to up. And then we are back to growing earnings 8% to 12% in 2016 over 2015 per our strategy when you sort of think about this whole oil scenario is really just a 2015 type issue for us.

Thank you. And secondly [resin] volumes were down. On the last quarter you talked about lower rosin supply from this year's crop and how do you see that impacting your resin pricing? And in terms of volumes what do you think is going on in the Chinese adhesive market? Thank you.

Adhesives had a nice recovery in 2014 to 2013 and we expect it to continue into 2015. So we've seen very strong solid demand growth in hygiene, high-value packaging applications that use our more advantaged hydrogenated resins. So it's been a nice demand story in 2014 and that will continue into 2015.

What we also saw is the availability of hydrocarbon raw materials to make resins became tighter again relative to demand growth and we got some pricing power back and were able to start improving our margins.

And as part of that question, rosin prices have been relatively stable at a more normalized level. So it is not as attractive to substitute from hydrocarbons to rosins as it was back in 2013. And that is expected to stay pretty stable and consistent in 2015.

And we just continue to think of this business as having continued recovery, which will be a balance of creating value for our shareholders with price and volume as that raw material market is also a little bit tight to the whole industry on making hydrocarbon resins. So we are going to create value with both levers.

Thank you.

Laurence Alexander, Jefferies.

In your free cash flow bridge for 2015 what is your working capital assumption? And then how do you see working capital days evolving in 2016,2017?

So generally speaking I expect our cash conversion cycle to be roughly the same, particularly what we focus on mostly is the quantity when we look at items like inventory. So as we work through that business by business, look at where some of the growth is going to be and understanding working capital requirements, etc., I generally think it will be flat.

Now we'll also try to estimate the impact of the flow-through of lower raws that we have been talking about today on a net basis. So we have factored in that as well. So when I think about working capital 2015 over 2014 on a net-net I think it's going to be a slight headwind for us on a cash basis going into 2015.

Okay, and then on Taminco, you addressed sort of the Ag impact for amines on the volume side. Are you seeing any pressure on margins for that industry -- for that business either in 2015 or going into 2016?

No, we are not seeing any pressures on the margin side. I'll remind you that most of Taminco's businesses is long-term contracted, pricing structures are typically cost pass-throughs. So if olefins go down they are going to pass through, if it goes up it passes through.

So in general I don't think there is anything meaningful from a price point of view. They of course have some modest currency headwinds in their European operations, but it's not significant relative to some of the other parts of our portfolio. So that is not really a concern.

Thank you.

Bob Koort, Goldman Sachs.

I was wondering if at least in Taminco, I know they had some choline chloride and other products that served the drilling industry. Have you guys started to see some erosion in demand trends for any of your energy application?

Hey, Bob, good question. We are looking at that. Right now the choline chloride is a pretty small percentage of the total portfolio for fracking. Some of that goes into cleaning up sour gas which isn't as vulnerable to some of this dynamic with oil right now. But we aren't seeing any dramatic trends yet in the demand and it seems pretty solid starting out the year.

But our forecast includes an expectation of softening demand growth in that business towards the back half of the year. Just -- you can't avoid the news of how people are cutting back on drilling right now. And so, we expect that to be a little bit more modest. But it is a very small percentage of the total revenue today. So not a big exposure.

Let me ask you -- maybe it's more of a theoretical question, but it seems to meet Eastman is positioned like many companies between sort of cracker outputs and ultimate consumer products. And we've seen a lot of the outputs from these refineries or crackers have melted down and we also hear from a lot of consumer and end market companies saying they haven't really seen any great windfall yet.

So it would seem that there is a whole slug of profitability out there that somebody should be grabbing at the moment. And maybe Eastman, given where you are across that supply chain. So is there potential for that to happen? Are the customers just too aggressive in seeking out their share of that raw material (inaudible)?

Is there something about your particular portfolio that doesn't expose you to that relief beyond the propane hedge? Why aren't companies like yours really sitting in a sweet spot for the next couple of quarters until the customers can bang down pricing?

Well, Bob, first of all I can assure you that we are doing everything we can to aggressively hold onto value everywhere in this raw material environment. The story is product by product I can give you a different story where we have very strong -- a lot of our portfolio frankly just isn't subject to this raw material tailwind, it is just very steady, very nice solid margin businesses.

Our whole cellulose ester stream just isn't part of this dynamic right now. So you put that aside and just say that is focused on volume growth and delivering value.

In the places where you have got benzene, paraxylene, parts of Advanced Materials, heat transfer fluids and PPD, things like that where we've got some raw material tailwinds, some of that is somewhat commodity oriented and you are going to pass the price on pretty fast and you have got formula contracts in place. At other places we are going to hold onto as much of that value as we can and the dynamics are different.

And in the olefins it is the same story, some of it is commodity where it is going to pass on quickly, you can see where prices are going in some of the SFI products in the Isis daily report. But other places we're holding onto it.

So our guidance includes holding onto a modest amount of that value through the year to offset the currency and propane hedge headwinds to get us to where we are guiding right now. If we do better in holding onto that value, which is certainly our goal, that would be upside. But we don't want to get ahead of ourselves until we see how successful we are through the first quarter.

And would you ever consider settling those hedges just to remove the stigma going forward in (technical difficulty) capitalize that?

Well, they are cash flow hedged and we don't get in the habit of trying to reposition them constantly. But we do evaluate that. But if you look at the opportunity right, now it looks like oil is more likely to go up than down. I think quite honestly even if we settle them from a cash basis the earnings implication will still flow-through as a cash flow hedge over the next couple of years.

Great, thanks.

Let's make the next question the last one please.

Mike Sison, KeyBanc.

Mark, you talked about Saflex, the acoustic business doing pretty well in 2014. Can you talk about the growth potential in 2015? And is that a business that could really benefit from the lower raw materials as you hold pricing?

Great question, Mike. The interlayers business is a great business, in particular the premium products acoustics and heads-up displays, both high margin very high-growth double-digits and expected to continue from a volume point of view into 2015 and beyond. OEM auto builders are switching not just windshield to acoustics but side [lams], etc., for both acoustic and light weighting purposes. So it is just a great growth trend.

And we have got some great next-generation products coming out down the pike to make that value proposition even better over the next couple years.

On the pricing side, you are absolutely right. In the premium product you don't have to give a lot of the (inaudible) drill benefit back, so that will also be some tailwind for that business across the whole portfolio.

Those also have -- a lot of our business there has annual contracts like fibers where you sort of get locked in. And so, if you have headwinds like we did last year and VAM prices going up, that hurts and this year we expect to have some tailwinds.

Okay, great. And you maintained your EPS accretion for Taminco that you had previously. Is the integration synergy potential about the same in that number, is it better? How is that coming along?

Well, Mike, thank you. First of all I would say the integration efforts have gone off to a great start across many friends, great feedback from customers, suppliers and we are really thankful to have the talent that has come over from Taminco to help us manage these businesses.

As you look at the synergies themselves, we still feel we are on target to a 5% synergy. If you recall, those 5% synergies are mostly cost synergies in the form of operational synergies, supply chain optimizations, etc. Those will take a little longer than some of the synergies that we have captured from other acquisitions such as Solutia.

So I still feel good about getting the majority of these 5%s over the next two years. We will get just a portion of that in 2015, maybe a little less than I was thinking a little while ago. But we will get the majority of those cost synergies in 2016 and then we will get a little bit beyond that plus the business and revenue synergies will kick in after that.

Great, thank you.

Thanks again, everyone, for joining us this morning. A web replay and a replay in downloadable MP3 format will be available on our website later this morning. Thanks again and have a good day.

Once again, ladies and gentlemen, this does conclude your conference for today. Thank you for your participation.