Apr 29, 2011
Executives
James Rogers - Chairman, Chief Executive Officer and President Curtis Espeland - Chief Financial Officer and Senior Vice President Gregory Riddle - Director of Investor Relations
Analysts
David Begleiter - Deutsche Bank AG Manav Gupta - Goldman Sachs Group Inc. Andrew Cash - UBS Investment Bank Jeffrey Zekauskas - JP Morgan Chase & Co Frank Mitsch - BB&T Capital Markets Edlain Rodriguez - Gleacher & Company, Inc.
Kevin McCarthy P.J. Juvekar - Citigroup Inc
Operator
Good day, everyone, and welcome to the Eastman Chemical Co. First Quarter 2011 Earnings Conference Call.
Today's conference is being recorded. This call is being broadcast live on the Eastman's website, www.eastman.com.
We will now turn the call over to Mr. Greg Riddle of Eastman Chemical Co., Investor Relations.
Please go ahead, sir.
Gregory Riddle
Okay, thank you, Alan, and good morning, everyone. And thanks for joining us.
On the call with me today are Jim Rogers, Chairman and CEO; and Curt Espeland, Senior Vice President and Chief Financial Officer. During this call, you will hear certain forward-looking statements concerning our plans and expectations for second quarter and full year 2011.
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 2011 financial results news release on our website and in our filings with the Securities and Exchange Commission, including the Form 10-K filed for full year 2010 and the Form 10-Q to be filed for first quarter 2011.
Also, we posted slides that accompany our remarks for this morning's call on our website at www.investors.eastman.com in the Presentations & Events section. With that, I'll turn the call over to Jim.
James Rogers
Thanks, Greg, and good morning, everyone. We really appreciate you joining us this morning.
We know you had a choice. You could have watched talking heads talk about the royal wedding for a little bit longer, but thanks for joining us here in the real world.
And I'll start on Page 3, and as I normally do, I'll begin with a review of our recent outlook statements. It's fair to say that since we last talked a few months back, business conditions have improved markedly.
Our guidance for first quarter EPS was that we would approach $2 a share, and I'll talk more about why we exceeded that in a few minutes. Our guidance for full year 2011 EPS was that we would approach $8 per share, and given the strong start to the year and with our first quarter results, we now expect to be slightly higher than $9 for the year.
Given the strong net earnings, we are on track to exceed $100 million of free cash flow for the year, and Curt will speak to that in his section. And we remain committed to being disciplined in how we put cash to work and see it as a way to differentiate ourselves from the rest of the industry.
Moving next to Slide 4, in our corporate results. We are hitting on all cylinders right now, and as a result, we continue to demonstrate a new level of earnings performance.
This is the seventh consecutive quarter of year-over-year earnings growth, both operating earnings and EPS, and the sustained earnings growth reflects the strength of our current portfolio of businesses which, as you know, we have substantially improved over the last several years through both divestitures and acquisitions. It also reflects continued volume growth, and this was really throughout the company and in all regions of the globe.
We were also able to increase prices, both due to higher raw material and energy costs, and due to tight end markets. There are probably two main reasons we exceeded our expectations in the first quarter.
First, propylene prices increased more than we thought they would and therefore, we benefited more from the propane propylene spread than we thought, and to be fair, propylene probably went higher than most in the market thought it would. Second, we underestimated just how tight the end-use markets are for many of our key products, and that therefore, even minor outages in the market have a significant impact on pricing, and we expect this tightness to continue unless demand drops off.
I'd also add we were a little bit cautious in our expectations for continued economic growth. These results in a great quarter that demonstrates what 10,000 people working together can accomplish, including near flawless operational excellence in the quarter and gives us a lot of momentum heading into rest of the year.
Turning next to the segments, starting with Fibers on Slide 5. And in a pattern that will never get boring, for me at least, Fibers once again reliably delivered strong earnings in the first quarter.
Revenue was up 8%, with volume up due to the new capacity in Korea filling up. Pricing was up slightly, but we expect you will see more of the annual price increase for acetate tow show up in the second quarter results.
Operating earnings were up both year-over-year and sequentially, but the operating margin was down slightly year-over-year because a higher percentage of our tow volume came from England and South Korea, and although these sites have a good cost position, they aren't quite as attractive as our Kingsport facility, which is fully integrated in larger scale. Looking forward, we continue to expect Fibers to have operating earnings of approximately $340 million for the year.
Up next on Slide 6 is CASPI and to say they had a very strong quarter is quite an understatement. Sales revenue was up 25% on higher pricing and higher volume.
Pricing was up in response to higher raw material and energy costs and also due to strong demand, particularly in the U.S. and high capacity utilization in the industries where they compete.
Volume was up throughout the segment, but particularly in the U.S. in the transportation, industrial and packaging end markets.
CASPI is also benefiting from a more advantageous propane to propylene spread, and I'll talk more about that when I get to PCI. As a result, operating earnings increased significantly year-over-year.
Their operating margin in the first quarter was 21% compared with about 17% in the first quarter of 2010. The higher earnings are due to the higher selling prices, higher volume, and the improved propane to propylene spread which, combined, more than offset higher raw material and energy costs.
We see the first quarter as a start of what we expect will be a very strong year, where CASPI once again establishes a new level of earnings. We expect that full year 2011 operating earnings will be over $350 million.
Moving next to PCI on Slide 7. They also had a terrific quarter, beginning with a 44% increase in sales revenue.
The increase was due to higher volume and increased pricing. The higher volume was the result of the restart of a previously idled cracker and continued growth in plasticizers, both the result of the Genovique acquisition, which closed on May 1 last year, and overall growth in plasticizers.
Selling prices increased, reflecting higher raw material and energy costs and tight end-use market. And as I mentioned, we are benefiting from a more advantageous propane to propylene spread.
Comparing quarters, propylene prices were up about 30% sequentially, and over 15% year-over-year, and with the cracker restart in December, we are now producing a good 2/3 of our propylene needs, up from about 50% before the cracker restart. We are therefore more leveraged to a favorable spread.
And because propylene prices continue to move higher, the spread is wider than we expected. Given our strong first quarter earnings and our expectations for the remainder of the year, we expect PCI to have a full year 2011 operating earnings above $300 million.
I'll wrap up the segments on Slide 8 with Specialty Plastics who continue to deliver on their commitments with another strong quarter. Volume growth year-over-year was a solid 9%, and this builds on top of a 50% volume growth in first quarter 2010 over first quarter '09.
They had all parts of their business contributing: core copolyesters, Tritan Copolyster and cellulose ester. And the capacity expansions we are working on for all 3 product lines are on track.
The CHDM monomer expansion of our core polyesters is expected to come online in two phases. First phase is the second half of this year, second in 2012.
Second Tritan resin facility is expected online in the first part of 2012, and the cellulose triacetate expansion for the LCD market is expected online also in early 2012. Their pricing was up year-over-year, reflecting very high paraxylene prices.
Paraxylene was up over 40% year-over-year and almost 30% sequentially. Driving this increase is new polyester capacity in Asia, as well as high cotton prices, which are further increasing demand for polyester.
There have also been some capacity outages and turnarounds with some of that capacity starting to come back online here in the second quarter. And as a result, we see paraxylene prices moderating but remaining high due to the strong demand for the polyester in Asia.
Operating earnings were up substantially year-over-year due to the higher volume and increased capacity utilization and increased selling prices, which partially offset the higher raw material and energy costs. Looking forward, because of the way costs flow through our system, some of the higher-priced paraxylene costs will be flowing through the second quarter, which will pressure margins and earnings.
But for the year, Specialty Plastics are on track to approach $100 million of operating earnings. Turning next to our geographic profile.
We continue to derive advantage from our global diversity. You can see on this chart, revenue increased by double digits on all regions.
This was supported by strong volume growth, led by the U.S. and Europe, and this volume growth is coming not only from the rebound in the global economy but from our growth initiatives.
In the U.S., these include Tritan Copolyster and our plasticizers business, including the Genovique acquisition and the cracker restart. In Europe, the growth initiatives include our Regalite adhesives expansions and growth in our plasticizers business.
And as a reminder, Genovique's main manufacturing facility is in Estonia. And in Asia Pacific, we filled out our acetate tow capacity expansion in Korea, and our Tritan Copolyster is delivering strong growth.
For the quarter, our sales revenue was roughly 50% in the U.S., so therefore, 50% outside, and our operating earnings were about 60% outside the U.S. That brings me to our outlook for the second quarter and for our full year 2011 on Slide 10.
Clearly, we are off to a great start in 2011 with our first quarter earnings. We are benefiting from a strengthening global economy.
We are also benefiting from the restart of the cracker in the fourth quarter, the Genovique acquisition and the acetate tow capacity expansion in Korea. Our interest expense is also lower due to the debt restructuring actions we took in the fourth quarter.
Headwinds include higher pension expense for the year and costs related to the capacity expansions we're working on, more of which will be recognized in the second half of this year. Volatility of raw material and energy costs is also a headwind, particularly the potential for the spread between propane to propylene prices to narrow in the second half of the year.
And there is a risk that global inflation could lead to demand destruction. But if that were to occur, given the portfolio of businesses that we have, I think we're better positioned than many to limit the impact.
Combining all of these factors, our outlook for the second quarter is that earnings per share will be slightly better than the first quarter, and we expect full-year 2011 earnings per share to be slightly higher than $9. So we are maybe a year ahead of the guidance we gave you at our Investors Day, and I'll remind you that this is before we put our cash to work, and I'm confident we will create value for our stockholders in 2011 by putting our cash to work.
I'd next want to go to the executive spotlight, and I got to tell you, that's my favorite part of the call. I have been doing this since I became CEO, and I do it to remind everyone that there is a team of highly-talented executives leading this company, emphasis on the word "team."
It turns out that I had mentioned every exec except for one, and knowing her sense of humor, she would say I had left the best for last. Theresa Lee is our Chief Legal Officer, and she is simply the best at the job that I've ever seen.
Whether it's litigation, intellectual property rights, SEC compliance, you name it, her department's track record is outstanding. Of course she has some help from lawyers who have and still could work for big firms and big cities, but they chose Eastman instead.
Dave Golden, Dave Woodmansee, Bernie Graves, Joe Davis and Etta Clark, they cover all the basis from corporate to HSE to government affairs and usually play error-free ball. In addition to the legal function, Theresa recently became our Chief Administrative Officer, with responsibility for human resource department, which I've highlighted before.
And one last tidbit, she's on the state's judicial nominating committee, which means she has a hand in the selection of our judges in Tennessee. Now, just how cool is that?
I can also confirm to everyone that I have seen Theresa's birth certificate. And with that, I'll turn it over to Curt Espeland.
Curtis Espeland
All right. Thanks, Jim, and good morning, everyone.
I'm going to focus this morning on how these strong earnings performances are translating to strong cash generation, and then how we're going to put the cash to work in ways that generate value for stockholders. Starting with our financial highlights on Slide 12.
In the first quarter, we used $146 million of cash in our operating activities. There were two primary factors contributing to these results.
First, during the quarter, we made a $100 million pension contribution. You might recall, we had originally targeted the fourth quarter of 2010 to make this contribution, but we moved it to the first quarter to coincide with the timing of the PET divestiture, principally for tax reasons.
Secondly, we built $270 million of working capital because of the very strong revenue growth, and building working capital in the first quarter is a normal seasonal pattern. Given our expectations for continued revenue growth and higher raw material cost, I would expect a good portion of this working capital build will stay with us pretty much through the rest of the year.
This working capital is well within our normal cash conversion cycle metrics as required to support growth, but I will still expect to generate over $800 million of operating cash flows in 2011. These factors contributed to negative free cash flow in the quarter, which, again, is a normal seasonal pattern for us.
But given the strong net earnings and operating cash flows we expect to deliver, we are on track to generate approximately $200 million of free cash flow for the year. This includes capital expenditures of roughly $450 million, which I'll talk about more in a minute, and that's also again after payment of our dividend.
As a reminder, when I project both our operating cash flows and our free cash flows for the year, I am excluding approximately $100 million of cash tax payments related to the sale of PET business that will be made during the remainder of this year. One other item I'll note is that we did put $200 million of our cash and short-term time deposits during the quarter, none of which have durations beyond 10 months.
We did this in order to increase our yield on cash and is slightly accretive for our 2011 interest expense, while still maintaining the liquidity and flexibility with this investment. Given our discussion today, I thought I would update you on our funding capacity, as shown on Slide 13.
With the PET transaction now completed and the process included in our financial statements, you can see that we have the equivalent of $840 million of cash, cash equivalents and short-term time deposits on our balance sheet. We expect to generate approximately $475 million of free cash flow for the remainder of the year, which excludes the cash tax payment related to PET transactions, which I've actually listed separately here.
And we generally maintain a strategic cash reserve of approximately $200 million for seasonality and operating cash flows and other needs. Given the strong earnings outlook, we think we have debt capacity between $500 million to $1 billion.
Ultimately that debt capacity does depend on various factors such as our future earnings growth and our cash flows, how we put that cash to work, et cetera. But putting it altogether, we have funding capacity between $1.5 billion and $2 billion.
And quite honestly, sitting here today, we're probably towards the high end of that range. We recognize in order to grow the company and to provide attractive returns to stockholders, it is important to deploy much of this funding capacity over the next year or so.
So let me recap how we intend to put this funding capacity to work on Slide 14. You've seen this before in different fashions.
There's nothing too complicated about our strategy here. There continues to be a focus on pursuing the best opportunities amongst these four areas.
On joint ventures and acquisitions, we continue to make progress on various opportunities in our pipeline, and I continue to expect that we'll complete a couple of these small- to medium-sized deals sometime this year. And on debt, we'll continue to be opportunistic in the marketplace as appropriate.
I'm going to go into more detail on building and returning cash to stockholders within the next couple of slides, but just to reiterate, the main focus we're having is putting capital work and generating a strong return on investment for our stockholders. And as Jim mentioned earlier, we see this as an area where we can differentiate ourselves with excellent execution.
As previously mentioned, our capital expenditures will be approximately $450 million for the year, maybe a little bit more depending on how the year plays out. Included in this expectation are several organic growth projects here on Slide 15.
The 17% volume growth we've had year-over-year in the first quarter is indicative of the strong volume growth we're seeing due to the strength of demand coming out of the recession and growing demand for our products. And the capacity expansions you see on this slide, which we have spoken to about previously, are our response to continued growth.
These capacity expansions are across the company and our markets where strong demand is driving the need for additional capacity. Each of these expansions is on track, proceeding as planned and are still expected to have returns of 15% to 20% or even better.
Moving to Slide 16. We feel we have a very good track record of returning cash to stockholders.
We have paid a dividend every quarter as a public company and increased the annual dividend by $0.12 a share in the fourth quarter of last year. It is reasonable for investors to expect the dividend to increase as our earnings increase as we see the value of a steadily increasing dividend.
But I would remind you that, that dividend is ultimately a board decision. On share repurchases, we've repurchased $74 million in the first quarter and are on track to at least offset dilution in 2011.
We had $341 million remaining in authorizations at the end of the quarter, and we expect to continue to repurchase shares at a measured pace over the coming year or so. In summary, the strong earnings are translating to cash generation, and we are on track to create value for stockholders by being disciplined in allocating capital.
So thanks for your time and your interest in Eastman Chemical Co., and with that, I'll turn it back over to Greg.
Gregory Riddle
Okay. Thanks, Curt.
And this concludes our prepared remarks. Alan, we are ready for questions.
Operator
[Operator Instructions] Our first question comes from Kevin McCarthy with Bank of America Merrill Lynch.
Kevin McCarthy
Jim, at the top of your remarks, you mentioned that business conditions improved markedly, and you referenced a more favorable C3 spread as well as some markets that were perhaps tighter than you would have anticipated. Can you elaborate on the latter?
Which markets have tightened up the most across your portfolio, creating the most positive variances here?
James Rogers
Yes, and thanks for the compliment, by the way. I got to be careful when I start to pin down certain markets in terms of how tight they are.
So -- but let me speak broadly. And in particular, within CASPI and PCI is where you would see most of that.
And a lot of it has to do with demand, but I think the main driver is the fact that supply is tight. And I think it has to do -- if I just try and think it through, I think it has a lot to do with just how bad the downturn was a couple of years ago, how people put off a lot of their plans.
Just now, you're seeing capacity announcements et cetera, and you know what it's like in our industry. It's going to take a while for that stuff to come on stream.
So I look within CASPI, solvents, the Resins market, the adhesives part has been quite tight. PCI, many of their markets, and the olefins oxo world are quite tight.
I can't think of any market that you would consider to be loose. And so I think this is probably a trend that the whole industry is going to see going for quite sometime.
Kevin McCarthy
Okay, and then a second question if I may. Curt referenced the funding capacity of $1.5 billion to $2 billion, and I thought I heard a comment that you'd be looking to put that to work over the next year or so, so fairly large number there and not a terribly long time frame.
Can you comment on what you're seeing perhaps in the private market in terms of attractive or unattractive acquisition opportunities? Subject to repurchases, offsetting dilution doesn't sound like a heroic ambition there.
James Rogers
Yes, we don't want you to draw the wrong conclusion. I mean, if we see the right opportunities, we're more than willing to put the cash to work.
But there wasn't an implication there that no matter what, we're going to put over $1 billion to work in the next few months. That's not what we're saying at all.
And in fact, you can judge by our track record just how disciplined we are. I do think our pipeline has improved for acquisitions.
Curt and I have talked about it, and we think we're likely to get 2 or 3 deals done this year, more than likely on the small-ish to medium-size, so probably just a few hundred million in total. Doesn't mean we wouldn't look at something bigger.
It's just we're trying to be realistic in order to see the values we like. And to get the kind of deal we like, we're just going to have to continue to be very disciplined.
On the rest, stock buyback, whatever, the dividend, again, it's been a consistent story where we really think how you put your cash to work is one of the key things that creates value for shareholders, and so we're trying to look across all our options and pick off the best ones in each bucket.
Operator
Our next question comes from P.J. Juvekar with Citi.
P.J. Juvekar - Citigroup Inc
Jim, what was the impact of the new cracker starting up in the quarter, or maybe for the year? Can you sort of quantify that for us?
James Rogers
Yes, I'm going to let Curt try and do the numbers, but one thing I want to give credit to our guys on that one. I mean, I've been reading a lot lately about people talking about adding capacity.
You think about it, we made the decision probably a year ago now, that this would be a good thing to do. And so we got it online the end of last year, and I think maybe we're a little ahead on that, and that's one of the reasons we're benefiting now.
But it's definitely material. The other thing I'll remind you is we actually had a cracker down first quarter last year.
So the comparison's perhaps a little more dramatic than you might think. I want -- Curt, I do not know what more you want to add.
Curtis Espeland
Yes, I mean, again, if you look at just the cracking spreads in the first quarter on a year-over-year basis, probably the best way to look at it, if you look at PCI, PCI's year-over-year improvement is roughly $53 million dollars. About 1/3 of that improvement probably relates to that propylene propane spread, that cracking spread that we're benefiting today.
The rest is improved volumes, strength of the derivatives, et cetera, the things Jim talked about. At a corporate level, PCI's probably -- gets about 60% of the benefits.
So if you do the math, CASPI gets the rest. So you put roughly a $30 million benefit year-over-year on that cracking spread.
P.J. Juvekar - Citigroup Inc
Great. That's very helpful.
And Jim, you haven't talked about coal recently, but is there a coal to natural gas spread that maybe the acetyl change benefit from, or is that not material?
James Rogers
I can't think of a time we have not been advantaged by being on coal, P.J. So it will move around.
I would not call it an extraordinary spread now given the gas finds, et cetera, in the States. Still, we still think we're quite advantaged.
A little stuff that we don't often get to talk about, one of the projects we've had over the past year and half is in our gasification plan to diversify what kinds of coal we can use and where the coal comes from, which can keep us from having to pay near-met coal prices for that type coal to -- we can use stuff that looks a lot more like steam coal. And we made great progress on that.
And that's one of the things we'll benefit from long-term, that, that coal cost can look more like steam coal than near-met coal. And so I think that's an advantage that's going to stick to our roots.
Operator
Our next question comes from Frank Mitsch with BB&T Capital Markets.
Frank Mitsch - BB&T Capital Markets
PCI, obviously a very strong year. You raised your guidance for the year from $260 million plus to $300 million plus, and Curt just explained that maybe $18 million or so was coming in the first quarter, this benefit of the propane to propylene spread that you guys didn't factor in initially.
That looks like it's obviously sustainable, it's not going to expand here in the second quarter. So that pretty much accounts for all of that movement there in terms of your guidance.
Does that suggest that there's room for more upside on the PCI business?
James Rogers
What it suggests is we think that, that propane propylene spread may come in a little in the second half of the year, and that would be our expectation just looking at the historic charts and seeing how it's moving around. If it stays where it is today in April, then I would guess we would do better than what we said.
Frank Mitsch - BB&T Capital Markets
All right. So it's nothing more than looking at historics in the second half of the year, but in terms of plant additions et cetera, is there anything there that concerns you about the second half on that spread?
James Rogers
No, not so much that near-term. I mean, long term, you know there'll be more adds.
What we see going forward, though, the adds on propylene will probably be on purpose adds, probably have a little different cost position. It gives you pause to make a decision when you got to do something on purpose versus it's just a byproduct.
But it's just a matter of forecasting, and I'm surprised, Frank, you didn't bust our chops on forecasting again.
Frank Mitsch - BB&T Capital Markets
I save that for off-line.
James Rogers
I was ready for you, so I'll use my line anyway. I was going to say that we're going to stick to what we're good at, and others can beat us on the forecasting, we'll just stick to the actual results.
Frank Mitsch - BB&T Capital Markets
You've indicated in the past that you had a concern about your capacity limitations possibly. Where do you stand on that?
How is operating -- can you generally speak to the operating rates in the first quarter and your expectations for second half et cetera?
James Rogers
Yes, I mean operating rates are high, obviously. By the way, they're not as high as they've ever been.
I mean we still got more room on our existing assets, so. But you'd be at that bottom 90-kind-of-percent range this past quarter, and we got room to operate a little higher than that.
The key thing for us when I look out a little bit and I kind of think '12 over '11 -- because we started working on that sometime ago, one of the main drivers for improvement there is going to be the capacity adds that we talked about in our comments, those coming online and kicking in for 2012. But we got more juice in our existing plants.
A couple of places where we're awfully tight, the resins and core adhesives, and a couple of other places. But we got a little more juice in our core assets.
Frank Mitsch - BB&T Capital Markets
All right. Terrific.
Then lastly, the region with the slowest year-over-year growth was Asia, and obviously it had a terrific first quarter a year ago. So a very difficult comp, but is there anything that you're seeing geographically with respect to Asia that gives you some concern in terms of growth projections there?
James Rogers
No, not at all. I mean, I asked the same question, Frank, when I -- when it all rolled up.
What's going on? And it's really more a factor of just how well the other regions did, and in particular with PCI, you start up a cracker, so North America is going to have an outstanding quarter.
You have an acquisition in Genovique that drives Europe and North America. So it's more like we just got the typical expected kind of growth in Asia, and the other regions had some special stuff going on.
Operator
Our next question comes from Jeff Zekauskas with JP Morgan.
Jeffrey Zekauskas - JP Morgan Chase & Co
When I look at your income statement, I see that your tax rate is 32% or 33%. And if you compare your rate to Dow's rate, I think Dow is at 21%.
And I think more than half of your revenues now come from the offshore areas. So is there anything you can do about it?
I mean, do you have some plans in place to make your taxation rate more efficient.
Curtis Espeland
Yes, Jeff, this is Curt. Where you look at the difference maybe from just purely the revenues, also where your asset base is located.
Jeffrey Zekauskas - JP Morgan Chase & Co
Yes, that's right. You're U.S.
Curtis Espeland
Yes, so predominantly, our assets, 80%, 85% of our assets are still in the U.S., maybe a different profile for the other company you mentioned. And so a lot of that does affect your tax rate.
How we start impacting that longer-term is more of how we deploy our new capital. That gives us opportunity to look at tax jurisdictions that are maybe a little lower than us.
Though currently -- so a lot of it's how we put our capital to work. And then we'll watch the tax regulation.
I mean, if there's some changes in the U.S. tax rate, we'll probably position to benefit from that.
James Rogers
And Jeff, let me tag on that, and forgive me for using your airtime to do this, but the tax rate was one of the things I want to mention when I look longer-term. I mean, I see that as upside.
I can't imagine getting much more worse than 33%. And as we go to drive our strategy, that's one of the things I want us to consider more is how do we bring that down.
Because it's not lost on me that some of the other guys in the industry have noticeably lower taxes. And I think about what's going on in Congress right now, again that's upside.
Now that I'm sitting here today, I'd rather have a tax rate above the kind of range they're talking about than below if I think something could really happen there. So I don't know what the odds are, but there's probably upside.
And if I -- and that was just going to be one of the macro trends I wanted to mention because as I look at longer-term stuff, we -- I think the propane propylene spread is going to be at elevated levels for quite some time when we look at how fast people can bring capacity on, so that's a positive. It may not stay as high as it is today, but it's going to be up there.
I think oil being up generally advantages Eastman overall, unless it kills end market demand for everybody. But overall, buying coal and propane, ethane is a positive compared to the guys who are starting with a different base.
We'll take advantage of emerging markets and sustainability, maybe equal to or a little better than most. But a declining dollar, that trend, that probably advantages Eastman.
Higher inflation, we've been eating inflation from the guys up-pipe of us. And so the more inflation that comes downpipe -- maybe not long-term good for the country and the world, but it may help on the pricing getting passed along, higher interest rates had also helped on the pension pressure that everyone's feeling across industry.
I think the regulatory threats that I used to worry much more about have cooled down some with a split Congress. So I look at some longer-term trends -- I'm fine being a major shareholder, at least personally, Eastman being a major shareholder in my portfolio.
Jeffrey Zekauskas - JP Morgan Chase & Co
What's the timing of you bringing up your other 300 million-pound cracker that's been idled for a while?
James Rogers
Well, that's something -- it's not a no-brainer that we bring it up. Let me say it that way.
I mean, the one we did bring up was a pretty quick decision. I think we've already been paid back for the money we spent to bring it up.
So that was probably an easier decision than we thought it was. This next one is not so easy.
It wasn't just we idled it. We actually shut it down.
You kind of run until you would've done a major turnaround then you don't do it then you rob it for parts. And so what goes into the math on that one, Jeff, is how long would it take you to get it back up, how much money would you spend and how long do you think the spreads are there?
And what else can you do? And there's a number of alternatives versus just bringing it back up and continuing to crack like you do in the other 3.
So we're going through all of that now. Would I like to have already made a decision on how we can approach that?
Yes, but the guys are being cautious and they're trying to understand what all the options are versus just crank it back up the way it used to be cranked up.
Jeffrey Zekauskas - JP Morgan Chase & Co
Okay. And then lastly, you talked about your interest in making acquisitions.
I mean, if you look at Eastman, Eastman is tremendously advantaged because of its ethane and propane positions. When you buy new businesses, is your thrust to buy businesses that have intrinsic raw material advantages or to buy businesses that are more differentiated?
And when you look at your acquisition selection, are they on one side, or are they on the other? I know you'd probably want to buy both, but given the market that you've got today, which one can you actually buy?
James Rogers
Yes, it's funny. It's -- I mean we do look for both.
We look for some kind of sustainable competitive advantage as you might imagine. I think about Genovique, and I hadn't really thought about it as a raw material play, but not bad with benzoic acid and plasticizer marketplace in general if you think about that spread you just talked about and then go into 2-EH and then go into our plasticizers.
There is an advantage. So if I could build off of that, I would.
Most of the opportunities so far seem to be in the PCI area, some popping up in CASPI. We've already done the kind of inorganic stuff in Fibers with the announcement of Korea and China.
It may also depend some size, Jeff, now that I think about it. So to get that raw material advantage maybe bigger things.
Some of the smaller things we're looking at usually already fit in to one of our streams, and you just take advantage of what you've got.
Operator
Our next question comes from Robert Koort with Goldman Sachs.
Manav Gupta - Goldman Sachs Group Inc.
This is Manav in for Robert today. Just on the raw material costs escalation, what could -- how much higher could your raw material costs be in 2011 versus 2010 on current run rate of raw material prices?
James Rogers
Well, I'm going to have Curt try and ballpark that for you, and I'll just take this moment to say that I'm pleased with how the business guys in our supply chain et cetera have been able to handle some virtually dramatic moves in raw materials and still deliver the results they got. So just to give you an idea, paraxylene, I gave you kind of quarter-over-quarter moves, but April to April, year-over-year looks like 60% to 70% move in paraxylene and yet Specialty Plastics delivered the results they did.
Curt, I don't know how much you what to quantify raws.
Curtis Espeland
Well, I can just tell you on a year-over-year basis, raws were up $90 million, on a sequential basis, $75 million. Just looking in the second quarter, that sequential improvement -- or sequential raws are probably only half of what we saw first quarter over fourth.
Second half of the year, you got the same forward curves we have. So that's kind of where our raw material view is right now.
Operator
Our next question comes from David Begleiter with Deutsche Bank.
David Begleiter - Deutsche Bank AG
Jim, just on Specialty Plastics, you mentioned the pressure from paraxylene. Will that business -- it will be down sequentially, obviously.
Will that business be down year-over-year as well from an earnings standpoint?
James Rogers
Well, what we're saying is approaching $100 million. And again, some of the stuff that's harder for you to see, we mention the paraxylene, but we offset some more capacity coming on in that business as we've talked about.
And what we've seen is your income statement takes a hit of a few million dollars, as you're bringing that stuff up, just the expenses of having to shut something down, to tie it in et cetera, as well as going from capitalized interest to whatever. I mean, Curt knows all this stuff on how it works.
But I'm planning on them eating a little bit of expense for starting up capacity in the second half that they won't have had in the first half. So the main thing I know of when I look into the second quarter is just the flow-through of paraxylene, that the way that cost flows through our system, we'll feel more of that in the second quarter than we did in the first.
Curtis Espeland
And David, what I may add is for the things Jim mentioned is $100 million -- to approach $100 million is actually an improvement over last year. And again, that's a function of maybe eating some paraxylene costs but on top of it, getting that volume and benefit of Tritan absorbing some startup costs at end of this year.
But when they bring that new capacity, that's what gives us the confidence about how they can grow beyond that $100 million in 2012.
David Begleiter - Deutsche Bank AG
And Curt, just to be clear, on Q2 that you're saying will be up versus year ago?
Curtis Espeland
Q2, I'd have to back -- go back and look the number. I think they're going to be down sequentially, and -- but probably a little better than last year, if I recall the numbers.
David Begleiter - Deutsche Bank AG
And Jim, just on -- the fiber pricing, you said, should be up -- reflect more of the annual increases in Q2 and Q3 than Q2. Will that have an impact as well on profitability and margins?
James Rogers
Yes, I mean, the guidance we're giving is Fibers will be a little better second quarter than first, but they're at a pretty nice level right now, so I don't expect a lot of volatility around those numbers. I mean their issue is they're going to have more volume in the second quarter will be one of the drivers, I believe.
And the -- and first, on the pricing, we just wanted to point out that I know all you guys like to go through the volume percentages, pricing percentages, et cetera. You're just missing a little bit of the price increase in the first quarter.
A lot of that doesn't kick in until, say, February. So January, a lot of times, you're on the old pricing.
That's all.
David Begleiter - Deutsche Bank AG
And how much pricing did you get this year? Was it typical 7%-ish?
James Rogers
We don't say our percentages. Others may want to go that route, but we negotiate with each customer individually.
And our objective is to try and cover our increased costs, and we all know that there's -- wood pulp, in particular, was a significant increase. But we think Fibers will deliver the results we say, and that's a combination of volume, price, service, et cetera.
David Begleiter - Deutsche Bank AG
And last, just on volume growth Q2 and Q3. In the past, you said you would be constrained, will be constrained.
But won't they have a little more volume now than you did. Have you seen some de-bottlenecking activities give you a little more capacity throughout the past late last year?
James Rogers
Yes, always. It's amazing.
These assets have been around a long time and yet continually, some of that capital we spend goes to a minor de-bottleneck here or there. One of the mainstreams you're always looking to de-bottleneck is your acetyl stream, and there's no major thing I can point to other than the projects we've already pointed out.
But much of it just goes to just excellent operation in terms of running the plants better than we have historically, even. And frankly, it sounds immodest, but we've been pretty good at running chemical plants.
We're doing an excellent job right now.
Operator
Our next question comes from Ed Rodriguez with Gleacher & Company.
Edlain Rodriguez - Gleacher & Company, Inc.
Jim, a quick question on pricing. I mean, they've been extremely strong over the past few quarters and, of course, a good chunk of it is cost push.
But can you talk about how the portfolio is strategically positioned to hold on to some of those prices, or do you have to give them up as quickly as they came if costs come down?
James Rogers
Well, as you can imagine, it depends market by market, right? So -- and also, kind of even within streams.
So in the past, in some of the Investor Days, maybe a couple of Investor's Day, I got a -- I talked about products that cross more than one stream, or maybe we're the only ones in the world who make it. And there you have to be very judicious with price increases.
You try not to tie it too much to raw materials. And so maybe we didn't -- some of the stuff in CASPI or a few things in Specialty Plastics, you don't run them up as fast as the raws, but they also don't have to come off.
The stuff that's -- when raws come off. Stuff that's closer to commodity does move around much closer tied to the raws.
And in fact, much of PCI, you think about price adjusting within 30 days of raws. The key thing we focus on, though, is the spread.
And that's why a lot of times, I don't even like to talk about percentage margins because I'm focusing on absolute dollar spreads. And the final thing I'll say on this is I don't want to imply that I think the industry has changed its psyche.
I think, for sure, we'll still have some period in the future of overbuild, and we'll have a supply-driven cycle eventually. But the downturn was so dramatic that as I talked to guys in the industry, I can just see that they're being much more cautious this time.
They're not just not throwing the cash at steel and concrete and throwing it in the ground. And so at best, I'd say it's probably going to take a little longer to get to that point, speaking broadly for the industry.
Operator
Our next question comes from Andrew Cash with UBS.
Andrew Cash - UBS Investment Bank
Back in the investment day, you highlighted a number of growth opportunities, expanding existing products and margins, markets and so forth. So when you look at 17% year-over-year growth in the first quarter, I was just hoping that you might be able to break that down a little bit in terms of how much was from new products, how much was from perhaps new customers or regions and perhaps is there a way to get an idea how much was pre-price increase buying?
James Rogers
Yes, that's something you always want to watch for. And in fact, the last point about people trying to get in ahead of a price increase, we got systems that handle that pretty well, but you can never shut the door completely.
Frankly, that was part of it when we saw January results. In Investors Day, all we had was January results.
We knew revenue, but we didn't know earnings from February. And there's a little bit of a concern that maybe we had, had some of the business pulled forward into January, and so you shouldn't just take that times 12 or whatever.
And then as the quarter unfolded, February and March were also extremely strong. I don't know, Curt.
Do you want to...
Curtis Espeland
No, I mean, the only thing to add besides that is I also look at how much was just a benefit of the crackers operating first quarter this year versus first quarter last year, and that was just a couple of percentage points.
James Rogers
Yes, I would say is I don't think you -- in fact, I know we haven't gotten a lot of volume -- hardly any volume from some of the great new stuff we've talked about like acetylated wood and surface. Surface is just now getting out in the stores.
That was that coating that goes on trim from Specialty Plastics. I think that's going be really strong.
Early indications are that's good. But you haven't seen it.
And in fact, if anything, you've probably just seen a cost in the numbers so far. So not as much from new products yet.
I'm really thinking that will be a driver for -- probably, what's going to make '14 better than '13, '15 better than '14 is going to be things like microfibers, et cetera.
Andrew Cash - UBS Investment Bank
Okay. So if you strip out the cracker benefit, the underlying growth was 15%?
Curtis Espeland
Yes, roughly, yes.
Andrew Cash - UBS Investment Bank
Okay. Just -- you brought up the acetylated pine project.
Where does that stand now? Have you -- how much money have you spent?
I think you said at Investors Day, you're looking towards maybe $500 million on that project?
James Rogers
No.
Curtis Espeland
Of revenue.
James Rogers
Yes, of revenue.
Andrew Cash - UBS Investment Bank
Of revenue. Okay.
So where do you stand?
James Rogers
No, I could just imagine, if one of my board members was listening [indiscernible] "Why didn't you tell me we were going to spend that much on A-wood?" But no, on the acetylated wood, it's on track.
We're building the small commercial plan here to test the market spring of next year. So not a huge amount of money spent today, but you've seen a lot of the expense on the other line when we put our numbers out there.
And this is one where you probably get $2-plus of revenue for every dollar of capital, so long term, this is a nice business model. But again, we've got to prove it out.
We got to see people willing to pay the price point we need to have the margins we want.
Andrew Cash - UBS Investment Bank
Okay, so if it's not a $500 million project, what's the kind of ball park range that you might be spending there over the next couple of years? [indiscernible].
[Audio Gap]
Curtis Espeland
Well, Andy, if you look at just the small commercial operation we're working on this year, that's including the $450 million outlook. That's probably a modest percentage of that total.
Jim talked about the 2:1 revenue, so if you got a $500 million revenue, that gives you roughly $250 million type of number. And as I mentioned in Investor Day, that really is going to depend on how the spring launch goes in '12.
But that will start in '13, and '14 is where you see that capital.
Operator
Our final question comes from Kevin McCarthy with Bank of America Merrill Lynch.
Kevin McCarthy
Yes, just a follow-up on Fibers. Jim, one of your primary competitors there indicated they may need to run a facility in the United Kingdom a bit longer.
I think the intimation was that some of the crises in Japan have had an impact on that market. Have you seen that at all and maybe you could comment on the incremental capacity you've added in Korea and how much of that is loaded at this point?
James Rogers
Yes, Korea's full, so that's a good thing. I tried to say that in my comments.
The market needs the volume right now, I guess, is the best way to say it. The customers need the volume, so we understand completely what kind of thinking went through the competitor you are talking about, what went through their minds.
Other than that, I would just say Japan, in general, not a major impact as far as we can see it. That's not just Fibers, that's across all our business.
So you want to watch for things like the displays market for Specialty Plastics, but right now, that looks like it's okay. Again, on Fibers, we're trying to make sure we service our customers with what they need across-the-board.
The concern out of Japan would be, in my mind, would be if eventually the supply chain just starts to hit some choke points where some of the end markets can't produce the volume they want that we sell into. But direct impact on us is minimal.
Kevin McCarthy
Okay. And then a couple of housekeeping questions, if I may, on CASPI.
Is your 10% expansion of Eastotac complete at this point? And what is the timeline for Regalite?
Is that on track for this summer?
James Rogers
Yes, all our expansions are on track. I'm trying to remember what the timing was on Eastotac?
Do you remember it?
Curtis Espeland
I don't remember. I'll go back and check.
It's okay.
Kevin McCarthy
Okay. And then on acetyls, Jim, what is your operating rate at this time?
James Rogers
High. I mean, I gave you a ballpark for the whole company at 90%.
I'm rounding a little bit, but say 90%, and the acetyls would be in that ballpark and have a little more juice as well. Overall, it's -- I want people to understand that we were judicious as we went to add capacity, but we really do need to spend this money and add this capacity, and we're doing it in a number of places.
But I have pretty much still got a little capacity left to where I think we need it.
Curtis Espeland
Jim, if I might add. Kevin, one thing that we will have in the fourth quarter this year, we will have a shutdown of that -- at our island.
That will affect some of our operating rates in the fourth quarter. That's a normal periodic turnaround.
James Rogers
That's another chance you take to do when you do de-bottlenecks or cost-saving projects that you've been waiting on until you do a shutdown.
Operator
That does conclude the question-and-answer session today. At this time, I would like to turn the conference back over to your presenters for additional or closing remarks.
Gregory Riddle
Okay. Thanks again for joining us this morning, everyone.
A web replay as well as a replay in a downloadable MP3 format and the accompanying slides for this conference call are going to be available on our website from 11 a.m. this morning.
Thanks, again, and have a great day.
Operator
That does conclude today's conference. Thank you for your participation.