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Analyzing Eastman Chemical’s Free Cash Flow

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Eastman Chemical’s free cash flow

In the previous part, we discussed Eastman Chemical’s (EMN) debt position and its debt-to-equity ratio. In this part, we’ll discuss Eastman Chemical’s free cash flow trend. We’ll see if Eastman Chemical’s free cash flow could bring down its debt level.

Eastman Chemical has been generating a positive free cash flow over the years. In the past five years, Eastman Chemical has generated an average free cash flow of $871.20 million. In fiscal 2018, the company is working towards generating a free cash flow of $1.1 billion—a record free cash flow per year. Eastman Chemical’s free cash flow has grown at a compound annual growth rate of 6.2%.

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Eastman Chemical’s free cash flow is primarily used to pay the dividend to its shareholders. In the past five years, Eastman Chemical has used ~26.6% of its free cash flows in dividend distribution. Another 29% of the free cash flows is spent on share buybacks. Eastman Chemical has ~45 % of its free cash flows that can be used for other financing activities. Right now, the company doesn’t seem to be looking to redeem its debt early through free cash flows.

Peer comparison

Eastman Chemical’s free cash flow grew at an average of 10.5% from 2013 to 2017. Celanese (CE), LyondellBasell (LYB), and Westlake Chemical (WLK) have average free cash flow growth of 17.9%, 1.75%, and 190.6%, respectively.

To hold Eastman Chemical indirectly, investors could consider the Invesco DWA Basic Materials Momentum ETF (PYZ), which holds 3.1% in Eastman Chemical as of November 28.

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