Appaloosa Management's positions in 4Q 2013

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Part 4
Appaloosa Management's positions in 4Q 2013 PART 4 OF 8

Why did Appaloosa initiate a position in Eastman Chemical?

Eastman Chemical Company (EMN) is a 0.61% position initiated last quarter by Appaloosa. Eastman is a producer of a broad range of advanced materials, additives and functional products, specialty chemicals, and fibers.

Why did Appaloosa initiate a position in Eastman Chemical?

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Shares rose after the company reported a profit of $346 million, or $2.22 a share in its 4Q 2013 results last month driven by sales in its Additives and Functional Products, Advanced Materials, and Fibres divisions. Revenue rose 4% to $2.27 billion. Eastman also announced the acquiring of the assets of BP Plc’s global aviation turbine engine oil unit to expand its product offerings in the aviation market. The unit has annual revenues of approximately $100 million.

Sales revenue at its Adhesives & Plasticizers division fell due to lower selling prices for adhesives resins product lines. Increased competitive pressure resulting from greater industry supply attributed to increased availability of key raw materials and additional competitor capacity leading to lower selling prices. Plasticizers sales volume declined primarily due to a seasonally lower volume in 4Q 2013 compared to higher volume in 4Q 2012. This can be attributed to the timing of substitution of phthalate plasticizers with non-phthalate plasticizers. Specialty Fluids & Intermediates sales revenue increased slightly due to higher sales volume for olefin-based intermediates products sold primarily in North America. This was offset by lower specialty fluids sales volume due to the timing of customer project completions.

Why did Appaloosa initiate a position in Eastman Chemical?

For full year 2014, the company expects 2014 earnings per share to be between $6.70 and $7.00 on the strength of its differentiated portfolio of businesses. The company has also benefited from cost cutting measures and improvement of capacity utilization. Eastman said it faces challenges, including increasing raw material and energy costs, particularly for propane, and continued economic uncertainty. E.I. DuPont de Nemours and Company (DD), Dow Chemical Company (DOW), and PPG Industries, Inc. (PPG) are some of Eastman’s peers.

A report by the American Chemistry Council (ACC) titled the Year End 2013 Chemical Industry Situation and Outlook, published in December last year, expects growth fundamentals in Europe and many emerging markets to be stronger in 2014 and the fragile recovery to gain traction. The research also anticipates positive supply chain impacts from unconventional oil and gas development in the U.S., through increased demand for equipment, chemicals, and services required for energy production in addition to lower fuel prices for all consumers.


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