Apr 25, 2008
Executives
Greg Riddle - Director, IR J. Brian Ferguson - Chairman and CEO Richard A.
Lorraine - Sr. VP and CFO
Analysts
P.J. Juvekar - Citigroup Michael Judd - GreenwichConsultants Frank Mitsch - BBT Capital Markets Kevin McCarthy - Banc of America Securities Jeffrey Zekauskas - JPMorgan Bob Goldberg - Scopus Asset Management
Operator
Good day everyone, and welcome to the Eastman Chemical Company's First Quarter Earnings Conference Call. Today's conference is being recorded.
This call is being broadcast live on the Eastman's website at www.eastman.com. We will now turn the call over to Mr.
Greg Riddle of Eastman Chemical Company, Invertors Relations. Please go ahead, sir.
Greg Riddle - Director, Investor Relations
Okay, thank you Rufus and good morning everyone and thank you for joining us. On the call with me today are Brian Ferguson, Chairman and CEO; Rich Lorraine, Senior Vice President and Chief Financial Officer and Marie Wilson [ph], our new Manger of Investor Relations.
Before we begin, I will cover two items. First, during this call, you will hear certain forward-looking statements concerning our plans and expectations for second quarter and full year 2008.
Actual results could differ materially from our plans and expectations. Certain factors related to future expectations are, or will be detailed in the company's first quarter 2008 financial results news release on our website and in our filings with the Securities Exchange and Commission including the Form 10-K filed for 2007 and a Form 10-Q to be filed for first quarter 2008.
Second, our comments today will reference non-GAAP financial measures such as earning per share and operating earnings that exclude restructuring related items. A reconciliation to the most directly comparable GAAP financial measure and other associated disclosures including a description of the restructuring-related items are available in our first quarter 2008 financial results news release and the tables accompanying the news release.
With that, I will turn the call over to Brian.
J. Brian Ferguson - Chairman and Chief Executive Officer
Well, good morning everyone, thanks for joining us. Last night, we announced another solid quarter with earnings of a $48 per share or $46 on a GAAP basis.
Excluding the restructuring-related costs and charges and tax related items that Rich is going to cover in a few minutes, our EPS was up 24% year-over-year. Sales revenue increased by 6% as we did a good job offsetting high and volatile raw material and energy costs with higher selling prices.
One of the consequences of our restructuring actions is that we have now... now have contract ethylene and contract polymer intermediate sales which have very little impact on earnings.
These contracts will expire over time, and so we have shown their revenue in the tables that accompany our news release. If you disregard these sales, our corporate revenue increased by 10% as higher selling prices more than offset a 2% decline in sales volume.
The volume decline was focused in Performance Polymers and PCI which were both impacted by restructuring actions that we've taken. Gross margins excluding items increased to approximately 20% in the first quarter, an improvement of roughly 150 basis points versus the year ago quarter.
Operating margins excluding items were 11% in the quarter. This is in line with our goal of maintaining operating margins above 10%.
And this is despite a more than $150 million year-over-year increase in raw material and energy costs. By the way, the increases in raw and energy this quarter were almost as much as the increase for the entire year in 2007.
One more point on the solid corporate results. They are dependent on operational excellence at all of our global facilities.
Eastman employees take great pride in operating our facilities safely and reliably, and it continues to directly contribute to our strong results. Now turning to the segments, beginning with Fibers.
Fibers had a really great quarter with a best ever $68 million of operating earnings. Both sales volume and selling prices were up 5%.
The volume increase was primarily due to higher coal volumes in China. And the higher prices were due to efforts to offset higher raw material costs, which, for fibers was primarily wood pulp and methanol.
After the great start to the year, Fibers is on track for full year 2008 earnings to be slightly better than 2007. And if that happens, that will be the fifth year in a row that Fibers has improved their operating earnings versus the prior year.
Looking at our growth initiatives in this segment, we are on track both to expand acetate tow capacity in our United Kingdom facility and to give you more details about our Asian option for growth by the end of this year. Next is CASPI [Coatings, Adhesives, Specialty Polymers and Inks].
Their first quarter 2008 operating earnings remain very solid at $59 million. Revenue increased 13% with higher selling prices partially offsetting higher raw material and energy costs.
Despite a modest decline in the U.S., CASPI had a 2% increase in volume. This is primarily due to higher volume in Europe and Asia and the diversity of markets that CASPI serves.
We expect CASPI will continue to benefit from geographic and market diversity throughout the year. Next is Specialty Plastics.
Their sales revenue increased by 6%. Volume was up slightly as continued double-digit growth in copolyester was offset by lower volumes elsewhere.
For the year, we continue to see volume growth of 6 to 8% as we benefit from the completion in the second quarter of converting 50,000 metric tons of PET capacity to copolyester. And growth for cellulose esters used in LCD screens continues to be very strong.
Operating earnings for the Specialty Plastics were down slightly year-over-year. This is primarily due to higher raw material and energy costs, particularly paraxylene.
I think you all know that most of the plastics that are being sold in the marketplace are stressed right now by higher raw material and energy costs and are having a hard time pushing on prices. And of course we're not different, but we expect this to continue through the year and start to moderate in 2009 as paraxylene capacity is added.
One last point for specialty plastics, you have heard us talk recently about our new copolyester trademarked Tritan, which we launched during the fourth quarter. There has been a lot in the news, a lot of buzz recently about this finale and the fact that Tritan is a BPA-free product.
We are currently working on building a new 30,000 metric ton Tritan facility and we expect we'll be online in early 2010. And we see this as a starting point for our Tritan capacity going forward.
Performance chemicals and Intermediates is next, and they continue their streak of very solid quarters. Operating earnings were $61 million, which is flat compared with last year, despite the significant increase in raw material and energy costs, particularly propane.
Sales revenue excluding the contract ethylene sales increased by 9%, primarily due to higher selling prices. Sales volume was down 8% as the strategic shutdown of a cracker in the fourth quarter impacted the amount of bulk olefins we had to sell.
Regionally, strong results in North America in just about every product line more than offset a decline in Asia-Pacific as our competitors in Asia have restarted some facilities that were down and that led to lower utilization rates and margins there in Asia. Looking forward, we expect strong results for PCI to continue in 2008.
Now turning to Performance Polymers, we made very solid progress during the first quarter on improving the profitability of our PET business. Operating results for the quarter improved significantly, both sequentially and year-over-year, as we had a full quarter of high operating rates for our IntegRex PET manufacturing facility.
The IntegRex facility continues to exceed our expectations for cost improvement and our ParaStar PET is widely accepted in the marketplace. At the end of the quarter, we completed the divestiture of our PET and PTA assets in Europe, so we have now completed the divestiture of our outside U.S.
PET facilities. You remember this is one of our major milestones for improving the profitability of our PET business.
Additionally in South Carolina, we completed the expansion of our PTA intermediates, we shut down our DMT intermediates and we shut down 300,000 metric tons of our existing PET capacity at the end of the first quarter. All were milestones we expected to complete in the first half of 2008.
As a result, we are also on target to remove $30 million in annual costs by the end of the second quarter. One remaining milestone for improving the profitability of our PET business is the 50% debottleneck of the IntegRex facility, and we expect to begin this in the second half of the year.
Looking forward, we expect to report positive operating earnings for the Performance Polymer segment in the second quarter and for the first half of this year. Now since we had a $39 million operating loss in the first half of 2007, you will agree this is a significant improvement.
Turning to the regions and our regional performance, I am going to make some overall comments first. We have said that in 2007, our revenue was about 60% domestic and 40% in the rest of the world while our earnings were closer to 50-50.
With the PET improvement in the first quarter of 2008, which was concentrated in the United States, our domestic earnings were closer to 60% this quarter. But with more than 40% of our earnings coming from outside the U.S., we continued to benefit from our geographic diversity.
Now looking at North America, first quarter North American revenues increased by 9% and excluding the contract sales revenue I mentioned earlier, North American revenues increased by 7%. The increase was primarily due to higher selling prices, particularly in the PCI, CASPI and Performance Polymer segments.
Sales volume was down 5% with a decline in all segments except for Performance Polymers. Operating earnings increased year-over-year primarily due to the improved results in Performance Polymers and PCI segments partially offset by a decline in CASPI.
Asia Pacific revenue increased by 9% as higher selling prices more than offset lower sales volume. The lower sales volume was primarily in PCI and was partially offset by higher volume in Fibers.
Operating earnings declined primarily in PCI as first quarter 2007 results for the segment benefited from competitor outages. On a revenue basis Asia-Pacific remains the company's second largest region in the first quarter of this year.
In Europe revenue increased by 17% driven by the strengthening of the euro versus the dollar and increased sales volume. The higher sales volume was in all segments except Performance Polymers.
Profitability in Europe increased with improvements in Performance Polymers and PCI and then lastly Latin American revenue declined by 29% for the quarter primarily due to the divestiture of PET facilities. Now looking at our second quarter outlook.
We are seeing softness in the U.S economy and there is uncertainty about the global economy. We also expect high and volatile raw material and energy cost to continue during the quarter.
However, due to our global geographic profile and diverse market portfolio, we expect solid results throughout the company in the second quarter. Adding this all up, we expect second quarter 2008 earnings per share excluding items related to strategic decisions to be slightly above first quarter 2008 earnings per share of a $1.48, which is significantly above last year's second quarter EPS of $1.32 on the same basis.
Lastly, let me conclude with some brief remarks about our corporate strategy. In my last quarterly conference call with you, we made some very specific financial commitments and we gave you a number of milestones that you can use to track our progress on major initiatives.
As I mentioned throughout my comments this morning, we are making great progress on a number of those initiatives. We have accomplished many of the milestones we laid out for improving our PET business.
We are moving ahead in Specialty Plastics to convert PET capacity to make co-polyester, and with our new Tritan copolyester facility. We are on track to expand acetate tow capacity at our U.K.
facility by the end of the year, and to give you more details about our Asian option for growth. And we are also marching ahead on all of the complex aspects of the Industrial Gasification projects.
Overall, we remain on track to achieve our goal of doubling our earnings in the next 5 years, and I look forward to telling you more as we have meaningful developments to report. With that, let me turn it over to Rich.
Richard A. Lorraine - Senior Vice President and Chief Financial Officer
Thanks Brian. Good morning everyone.
I'll just reinforce what Bryan said. This was a great quarter for us with solid high quality earnings from all of our segments.
Let me save a little bit of time perhaps on some math. I'll walk through a couple of the items you might be considering when you evaluate the first quarter for us.
We repurchased 3.8 million shares during the quarter at an average price of about $64. When we weight those share repurchases into our calculations, the improvement to EPS from those actions this quarter is about $0.03 per share.
Also this quarter, we recorded three tax benefits, two of which are related to certain items we previously excluded. We did enjoy one $3 million tax benefit item in our pro forma earnings which lowered our effective tax rate for the quarter to 32% and contributed about $0.04 per share to earnings.
Also, we usually get some questions around currency and hedging impacts. My only comment here is that we continue to maintain our strategic risk mitigation program covering currency, key raw materials and interest rates, and the primary purpose is clipping the peaks and valleys of volatility we may experience.
This didn't have any appreciable impact on earnings in the quarter. Turn back to my normal agenda and topics, I'll provide some color around our restructuring-related items, our cash flow, our net debt and our effective tax rate.
Turning to restructuring-related items, as Brian mentioned, we achieved another milestone this quarter in our efforts to restructure the Performance Polymer segment. At the end of the quarter, we closed on the sale at a remainder of the PET and related PTA facilities in Europe for $340 million.
In addition, as part of the transaction, we retained about $10 million in working capital, which will [ph] liquidate over the coming weeks. Consistent with what we've told you recently, the sale resulted in an after-tax gain.
What I couldn't discuss at that time was the amount of the gain, and you've now seen that and it's $18 million. With this divestiture now, we've completed the divestiture of all our PET and PTA assets located outside of the U.S.
As I mentioned last quarter, prior period and first quarter results for all the divested operations in Europe are now reported as discontinued operations as is the gain we recognized in this quarter. Prior period results for the Latin American operations divested are not called out as discontinued.
I should also mention here that under the transition agreements with the divestiture of our Latin American sites, we're supplying polymer intermediate raw materials to the purchaser basically at a break even. And there is information to help you understand this in the conference call tables.
We've also completed a number of other milestones in our efforts to improve the profitability of our PET business. During the quarter, we shutdown our DMT intermediate assets, expanded our PTA intermediates production and shutdown 300,000 metric tons of PET capacity in addition to the 50,000 metric tons we shut down last year.
Related to these actions, during the first quarter of '08, we recognized $1 million of accelerated depreciation costs and 1 million of restructuring charges. We expect another $3 million of accelerated depreciation in the remainder of the year related to this transformation in South Carolina.
Staying with site transformation for another moment, we also incurred accelerated depreciation costs of $1 million related to the shutdown of our cracking facilities at our Longview, Texas site that we report in the PCI segment. We expect another $5 million of accelerated depreciation cost in 2008 related to these cracker shutdowns.
We also incurred asset impairment and restructuring costs of $16 million resulting from the decision to close a previously impaired fine chemicals manufacturing site in Wales in the UK which was part of the PCI segment. This charge is primarily non-cash pension curtailment costs of $11 million and the rest is mainly severance.
Looking at our cash flow, on a net basis, we used $53 million of cash in operations during the first quarter. That compares to $66 million used in the same period last year.
Included in that, we had strong earnings from operations and we did have a seasonal build up in working capital during the quarter which this year includes an additional inventory build of about $30 million in front of planned maintenance shutdowns. We will see this get drawn down over the coming quarters.
Next on cash from investing activities, we had cash proceeds from the sale of assets and investments mostly from the closing of the European PET divestiture of $323 million. We will see additional cash in the second quarter when we settle up on working capital associated with the transaction.
Our capital expenditures totaled $132 million in the first quarter compared to $86 million in the first quarter of 2007. We are tracking on capital expenditures to be a bit above $600 million for the year as we continue to invest in our strategic initiatives.
Hitting those highlights, we are bottlenecking our IntegRex facility, heading an additional 50% to capacity, we are increasing our expenditures in support of our efforts in gasification and we are also increasing the capacities for CTA for LCD screens. We are increasing capacity on Eastman Trading Copolyester and completing our asset $8 expansion in the UK.
Also we continue to fund improvements to increase efficiencies and invest in reliability throughout the company. That brings me down to net debt which is as usual defined this total borrowings less cash and cash equivalence.
We ended the quarter with net debt of $836 million that's a 16% increase over year end of 2007. The increase in that debt has been very deliberate, we had share repurchases in the quarter with $245 million and increase capital spending I just reviewed added to that.
I would also add that we have $72 million of notes maturing in the second quarter that will be repaying from cash. Also in the second quarter we plan to repay a portion of euro- credit facility.
With part of the euro proceeds from the PET facilities sales which says currently being held in cash. How does that impact our net interest expense?
We had $60 million for the first quarter of 2008, that's a bit lower than the first quarter of '07 resulting from higher interest income on our invested cash balance. We do expect net interest expense to increase slightly for full year 2008 compared with '07 due to lower interest income driven by the lower interest rates as well as lower average invested cash balance.
On the tax side our first quarter of this year effective tax-rate for continuing operations on a GAAP basis was 25%. When we exclude the restructuring related items which we called out...
the effective tax-rate was 32%. Looking forward at the tax-rate for the full year on a pro-forma basis, I'm going to be stick my previous guidance that it would be about 34% for the year, with that back to you Greg.
Greg Riddle - Director, Investor Relations
Okay. Thank you very much and that concludes our prepared remarks.
Rufus, we are ready for questions. Question And Answer
Operator
Thank you, sir. Ladies and gentlemen, our question-and-answer session will be conducted electronically.
[Operator Instructions] and we will pass for just a moment to assemble the question roster. And for our first question we go to P.J.
Juvekar with Citi.
P.J. Juvekar - Citigroup
Yes, Good morning.
J. Brian Ferguson - Chairman and Chief Executive Officer
Good morning P.J.
P.J. Juvekar - Citigroup
How much of you're your improvements Brian in PET came from selling the international assets versus the IntegRex plant starting up and is the IntegRex plant in the black?
J. Brian Ferguson - Chairman and Chief Executive Officer
The most of the, vast majority of the improvement was IntegRex running flat out this quarter versus not running as much in first quarter of last year, that's the answer to that. Since we are reporting to you that will be...
how the black quarter with nothing but U.S. assets and the second quarter it would be fair to assume that we are doing fine today, it wouldn't be big step change from to date [ph] to the second quarter...
first quarter to second quarter, so yes.
P.J. Juvekar - Citigroup
Okay, I understand, and secondly on coal gasification projects in Faustina [ph] and in Texas which one is ahead in terms of progress, and what are you on economics relative to your expectations.
J. Brian Ferguson - Chairman and Chief Executive Officer
Well first of all, we are still very excited about these projects. They have some...
each of them some have unique things that makes them attractive not like to us but attractive to others. And what I did P.J.
is that I laid out a number of milestones, and when we get to those milestones I want to report on them. Even in this meeting, you saw as we tripped milestones for PET especially plastics, we reported on them.
The things that you are asking are things that I promise to report on as we get more to the milestone time which is later on this summer. So I am anticipating a series of questions on this call asking me details about every low part of these projects, and I really want to resist that.
We are moving ahead nicely, and all the milestones we continue to be very excited about the profitability, and that's about as much as... I don't want have to report on a micro basis for full years on every part of it.
P.J. Juvekar - Citigroup
Okay, fair enough. And lastly quickly, are you excluding any options for coal gasification in China?
Thank you.
J. Brian Ferguson - Chairman and Chief Executive Officer
Would not exclude that because I think the point that you are observing there is that is value proposition that we are describing to use coals as raw material exist not only here but other places in the world. And where it exists we will seek it out and see if it's interesting for us.
Operator
We go next to Mike Judd with Greenwich Consultant.
Michael Judd - GreenwichConsultants
Yeah, just on the Fibers business, it really had great performance. I am just wondering if you could just provide a little more detail on how the dynamics look for the current quarter and for the rest of the year in that business place.
Unidentified Company Representative
Yes, I have always I have adjective that I've used for fuss almost growing on 7 years now to describe fibers and if they were chunky. There was a phrase that we used in the dialogue there that fibers out performance this quarter was driven by some extra sales in China primarily, and that is usually the source of the chunkiness in there earnings.
They had a very, very good quarter. We often do give an outlook for the year just because their chunkiness is hard to look through.
We would tell you that fibers is on track to be a little bit better this year than it was last year, and that would be 5 years in a row. So you got to track record to look at Mike, that's probably a good indicator for you.
Michael Judd - GreenwichConsultants
Thank you.
Operator
For our next question, we got to Frank Mitsch with BBT Capital Markets.
Frank Mitsch - BBT Capital Markets
Good morning, gentlemen. I was planning on asking about your local relations with the with the coal gasification size, and how you doing there with planning but I guess it's a little bit too granular?
J. Brian Ferguson - Chairman and Chief Executive Officer
Well, you can try again Frank, you are a persistent guy.
Frank Mitsch - BBT Capital Markets
I am indeed. Obviously, a bit of a surprise in terms of the share buy back takes in the first quarter, can you talk about where your shares outstanding was at the end of the quarter, and do you plan on keeping this pace up.
And how much do you have left in terms of your authorization?
Unidentified Company Representative
Frank, we have about $350 million left in the authorization. The phase during the quarter I'd say we are opportunistic, we think the average price we got of $64 was a good buy, given we are trading at 6.5 times cash, and we had a plan to double our EPS, going forward.
So we think that was just a good opportunistic buy and going forward we will continue to be opportunistic.
Frank Mitsch - BBT Capital Markets
Okay and you mentioned that you should have a 30, 000 tons plan up on Tritan in 2010, do you think you may given the... the BPA controversy and a potential opportunities there, is that fully factored into the thinking behind the 30, 000 tons, could that be expanded, what's the...
when would you... so you expect to see first meaningful commercial sales into this...
into the plastic bottle arena during the time frame or can that be moved up?
Unidentified Company Representative
Yes, you are all the questions we've been asking ourselves Frank. This is a brand new plastic, it has some unique ingredients that really very hard for anyone, but has to make.
We have pushed as hard as we can, we're very excited about the enthusiasm of the customers that have come to us, I'm sure you're aware of some of the deep concerns that are emerging about BPA in food contact and children toys and things. So the market pull is remarkable for this product, it has, not only that feature by the way, it has many other positive features that will be described at a later time.
To your question, we are... traditionally we have converted PET lines to copolyester lines, that's what we're doing here.
We will... as soon as we get down the road unless we're working on the next one it'll be a good, bit bigger but to your question, we can't get any meaningful commercial quantities out there until we get this first plant done.
The address for market is so... we are on the...
talking about the potential here, the address will market for this product, its easily 700,000 tons. And the 30,000 ton facility, we are just scratching the surface, so you can bet that, our aspirations, for plans to and beyond, would be will be on it and somewhat different approach to scale there.
Frank Mitsch - BBT Capital Markets
Okay, that's terrific. Lastly, I think you mentioned on last call that you were pursuing in IntegRex licensing opportunities, any progress to report there?
Unidentified Company Representative
We always thought that this was the best technology in the world of its kind and we're getting some confirmation on that by the interest that we've seen. We're really pleased by the interest.
We are in conversations, and since we're in those conversations and negotiation, I can't give you anything else but yes, it's gratifying to see the interest
Frank Mitsch - BBT Capital Markets
Terrific, thank you.
Operator
For our next question, we go to Kevin McCarthy with Banc of America Securities.
Kevin McCarthy - Banc of America Securities
Yes, good morning.
J. Brian Ferguson - Chairman and Chief Executive Officer
Good morning.
Kevin McCarthy - Banc of America Securities
Brian your PCI margins have been strong for quite a while running double digits I guess last six quarters 8 over the last 9. You sound confident that's going to be sustainable at least for this year.
I was wondering if you could talk a little bit about your inputs there... propane looks to be 15 year low versus energy proxy like crude oil.
How important is that in driving the profits in PCI and other things that you can do to may be look in lower propane cost to engender that sustainability.
J. Brian Ferguson - Chairman and Chief Executive Officer
Yeah, you are good in [indiscernible] with your question Kevin. Remember that PCI is a mixture of coal produced products and olefin derivatives.
So the colder [ph] products are marching along happily as for reasons you understand but I... about you but remember that's part of the PCI story as well.
Regarding olefins derivatives, the input costs to the crackers are important and we said on a past to shutdown the older crackers but as we operate them now, it's the continuous make versus buy choices and in the environment that you describing our propane is cheap relative to some of the other things that are going on it could be a mix decision for a longer period of time and that helps us. Also remember that propylene derivatives that we make, are not being built or over built, the same way that she would...
you would think of the whole ethylene cycle or things like ethylene glycol. We have a number of propylene derivatives that just do not have a lot of over building in the future and that is the pretty key factor in that sustainability of our margins as well.
Kevin McCarthy - Banc of America Securities
Just a follow-up on that Brian. If I look at the ethylene cracking margins and propylene starts such a bad [indiscernible] these days especially compared to Masta [ph] and might have not make sense just to run these things for another couple of years?
J. Brian Ferguson - Chairman and Chief Executive Officer
Well, I mean... we have some agreements that we are obliged to follow, we are going to follow the money here as you suggest.
Kevin McCarthy - Banc of America Securities
Okay, great. And then, elsewhere on fibers, what is...
can you remind me of the timing of the UK expansion and the size of that for calculations of financial impact there?
J. Brian Ferguson - Chairman and Chief Executive Officer
Yeah, it's around the end of this year. We think we're going to get it done, it is relatively small in capacity, its light of 4 to 5%, 5% is not a huge incremental of capacity, so its proportionally...
that kind of impact to the business, but as you know we're also working on something in Asia as well and hope to talk about that later.
Kevin McCarthy - Banc of America Securities
Great, thank you very much.
Operator
We will go next to Jeff Zekauskas with JPMorgan.
Jeffrey Zekauskas - JPMorgan
Hi, good morning.
J. Brian Ferguson - Chairman and Chief Executive Officer
Good morning.
Jeffrey Zekauskas - JPMorgan
A few questions, when you originally plan your coal gasification units, you probably had certain cost estimates and has those cost estimates changed and if they have... sort of what order of magnitude?
Unidentified Company Representative
Yes, if the CapEx had not changed, we'll be the only project in the world that had not changed since the beginning of something two years ago, all CapEx cost in every project is going up, commentary with that we're seeing spreads for the materials go up as well. Remember what's important to us is the spread between the solid hydro-carbons and things like natural gas or oil.
And so if those two travel together to some degree and you can lock in some of that spread through financial mechanism set as certain point of time, then you mitigate some of that extra CapEx. There is a number of moving parts here as well in other parts of the project which again...
this is getting to the risk of micro reporting but I want to emphasize the reason people are asking me this question are you do you still think these are attractive? Absolutely.
They are very attractive, we are excited about and we are marching ahead.
Jeffrey Zekauskas - JPMorgan
My question was less on whether they were attractive and that I do think them attractive but it was more on what's the magnitude of higher CapEx?
Unidentified Company Representative
We are in the middle of the feed process, that's one of the milestones as more of the summer milestones so it's always its frankly impossible to report on that until you are done with the feed process.
Jeffrey Zekauskas - JPMorgan
Okay second question, is in can you talk about demand into the fee market domestically, you know that is when you exit [ph] the various operations that you sold what was your underlying PET and growth rate and how do you see that market over the next quarter as we go into the prime selling season.
Unidentified Company Representative
Yeah reporting that we are essentially running flat out we continue to see the growth in North America around 200,000 tons a year. The wildcard in past times has been the Asian import quantities changing the dynamics domestically because primarily there was an arbitrage between North America and paraxylene and PTA versus Asian paraxylene and PTA and charge [ph] has disappeared so that would indicate that with no difference between U.S.
and Asian raw material prices there is not a big driver to bring in a whole lot more imports. So I see this as a fairly stable demand situation.
Jeffrey Zekauskas - JPMorgan
Okay in the BPA market, forgive me Brian but I just don't know how big the size of first BPA maybe bottom market is or whatever else that you want to pull BPA out of it, have you been able to size that just yet.
Unidentified Company Representative
We have, we haven't spoken about it because of... for a couple of a causes but it's bigger than we can handle, lets just say that way the...
you have the Water Bottle Industry... you have the Baby Bottle industry, now...
there may be a New York Times article this morning was talking about contact with children's toys, if you have referenced to New York Times this morning, this is about we're still rolling Jeff so I don't know... it keeps on changing the answer to your question.
So there's... I guess the other thing I want to emphasize is that...
there is a broader way of markets. This is the products that's chemical resistant, its very tough, it's forming in the shapes, its got a higher temperature, you can make products and throw in the dish washer a thousands times and it never get that kind of fussy crack look to it...
we've got a lot of properties that make it attractive.
Jeffrey Zekauskas - JPMorgan
So to assist will do they change your longer term EBIT forecast for Specialty Plastics?
Unidentified Company Representative
Maybe someday but not today.
Jeffrey Zekauskas - JPMorgan
Just because you haven't had time to do the numbers, or because of other reasons?
Unidentified Company Representative
Just because there no time yet.
Jeffrey Zekauskas - JPMorgan
Not time yet. Okay, and then
Unidentified Company Representative
I mean just we were Eastman, right so we want to get the first plan out there, we want to show what the numbers look like and then we'll start talking about it-- I mean talking about it before you get it out there's... I just I would always resist.
Jeffrey Zekauskas - JPMorgan
Just a little lastly, in PCI, how much of operating profit is oxo related?
Unidentified Company Representative
We have never really broken out the split between those two. I will just tell you they are roughly in equal proportion to each other, Coal guys versus olefin guys, and all of our olefin derivatives in PCI for the...
the vast majority of more propylene derivatives.
Jeffrey Zekauskas - JPMorgan
Okay. Thank you very much.
Unidentified Company Representative
Yes, in fact we are down to essentially one meaningful ethylene derivative which is acetaldehyde, and we make ethylene glycol and we consume for ourselves transfers the costs. So it's essentially except for the acetaldehyde it's essentially a propelling machine.
Unidentified Company Representative
Okay. Thank you very much.
Operator
[Operator Instructions]. We'll go on the next to Bob Goldberg with Scopus Asset Management.
Bob Goldberg - Scopus Asset Management
Good morning guys.
J. Brian Ferguson - Chairman and Chief Executive Officer
Good morning.
Bob Goldberg - Scopus Asset Management
Brian, you didn't have any update on the 2008 full year guidance and of course, we understand with the volatility and petrochemical and uncertainty in the economy, it may be earlier in the year to update. But I will...
I had a qualitative question though, because you do have quite a bit going on internally, at the company with the restructuring of South Carolina and other initiatives. And just curious about the seasonality which is normally been skewed toward the first half, what is your thinking on how the internal initiatives will affect the normal seasonality in the two halves of the year?
J. Brian Ferguson - Chairman and Chief Executive Officer
Great question. You gave my answer already for me about why I haven't made more comments about the full year.
I stand by the comments we made earlier at the end of the first quarter about how we think about this year. There is a...
if you think about the guidance I've given for the first half. This first half is in the parade of Eastern first half, so it's a very good first half.
It was only eclipsed by '05 and in '95 when PET drove the story. So, this is obviously very good first half.
Second half, it is more about uncertainty than anything else Bob. On certain economy, you have to get through a lot of hard projects, we expect we can get through them just fine.
But you... I'm just going to stand by the guidance that I have before, so I guess I'm reaffirming that, but that's all I would do.
Bob Goldberg - Scopus Asset Management
But you're going to earn about $3 in the first half?
J. Brian Ferguson - Chairman and Chief Executive Officer
Yeah, it's in neighborhood. Yes.
Bob Goldberg - Scopus Asset Management
Which is about 60% for the full year?
J. Brian Ferguson - Chairman and Chief Executive Officer
Yeah, I know you are doing your 60-40 math Bob and sometime it's 55, 45 sometime it's 60s, 40s, probably its somewhere... I'll let you do the guessing on that...
I don't want to do anything more.
Bob Goldberg - Scopus Asset Management
Okay. Thanks Brian
Operator
And with that ladies and gentlemen we have no further questions on our roster therefore Mr. Riddle I'll turn the conference back over to you for any closing remarks.
Greg Riddle - Director, Investor Relations
Okay great, Rufus, thank you very much, and thank you all for joining us this morning. An audio replay of this conference call will be available this afternoon through Friday May 2nd.
Have a great day.
Operator
And again ladies and gentlemen, this does conclude the Eastman Chemical Company's first quarter earnings conference call. We do appreciate your participation and you may disconnect at this time.