Eastman Chemical Company

Good day, everyone, and welcome to the Eastman Chemical first quarter 2020 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 Company, Chemical Investor Relations. Please go ahead, sir.

Okay, thanks, Molly, and good morning, everyone, and thanks for joining us. On the call with me today are Mark Costa, Board Chair and CEO, Willie McClain, Senior Vice President and CFO, and Jake Leroux, Manager, Investor Relations. In case you missed it, yesterday after market closed, in addition to our first quarter 2020 financial results news release and SEC 8K filing, we posted slides and related prepared comments in the investor section of our website, www.eastman.com. This is new for us. and I hope it's helpful to you. Now, before we begin, I'll cover two items. First, during this presentation, you will hear certain forward-looking statements concerning our plans and expectations. Actual events or results could differ materially. Certain factors related to future expectations are or will be detailed in the company's first quarter 2020 financial results news release. During this call, in the preceding slides and prepared remarks, and in our filings with the Securities and Exchange Commission, including the Form 10-K filed for full year 2019 and the Form 10-Q to be filed for first quarter 2020. Second, earnings referenced in this presentation exclude certain non-core and unusual items and use an adjusted effective tax rate using the forecasted tax rate for the full year. Reconciliations to the most directly comparable GAAP financial measures and other associated disclosures including a description of the excluded and adjusted items, are available in the first quarter financial results news release, which can be found on our website. With that, I'll turn the call over to Mark.

Thanks, Greg. Before we turn it over to your questions, I want to take a few minutes to make some comments. We all recognize that our world is facing unprecedented challenges right now. COVID-19 is unlike anything we've ever seen before. For those affected by the pandemic, I want to recognize how difficult this must be for what you're experiencing. So many are helping, too, in this difficult time, in the healthcare community, our first responders, in government, and local communities. And to them, I want to express my gratitude for helping keep us safe. As importantly, I want to thank the men and women of Eastman. It's been said that character is revealed through adversity, and the Eastman team has demonstrated its character and risen to every challenge we face. You've come together in tremendous ways to keep everyone safe, all while keeping our operations going. I particularly want to thank our operators, our mechanics, our electricians, and their families who have kept our plants running and get our products out to our customers every day. And to the many Eastman employees who are working from home or on-site, thank you for continuing to support our customers and keeping business going. So to you, my colleagues at Eastman, thank you for your courage, your ingenuity, and your dedication. You're truly making an incredible difference in a material way. Turning to Q1, we had a strong first quarter in earnings and even more impressive free cash flow generation. This quarter demonstrates what Eastman can do when we have a day of sunlight between the trade we're starting to moderate and COVID starting to escalate. Given all the uncertainty related to COVID-19, it's extremely difficult to predict financial results for 2020. though we are withdrawing our guidance. We did see some impact in the first quarter as we attribute a $20 to $30 million EBIT decline to the impact of the pandemic. Our diverse end markets mitigated some of this. While we saw a substantial impact in transportation and textiles, we also saw stability in a number of our other markets. As we look forward, we expect to see increasing challenges in transportation, textiles, and energy markets. We also see a number of markets providing stability, such as consumables, medical, personal care, and ag. And there are markets where we expect a mixed impact, such as building construction, consumer durables, and industrial chemicals. None of us can know what will actually happen with how we attempt to restart these economies across the globe. We can take some insight and hope from the recovery we're seeing in China. We are far from having insight in how North America and Europe will restart. We're able to continue to lead from a position of strength because our innovation-driven growth model and our operational discipline. The benefits, especially in this uncertain time, have never been clearer. We have a long track record of transforming our portfolio towards specialties, and within this portfolio, we have built an outstanding innovation capability as well as a decisive operational execution capability. Eastman has industry-leading cash flow, which we have taken aggressive actions to sustain in this current environment. with a strong balance sheet, and significant sources of liquidity. In addition, we have a proven track record in our specialty businesses of driving growth above in-markets with our innovation-driven growth model. That said, in this incredibly uncertain time, we are focused on the actions we can control and are exceptionally well-positioned to weather this environment. We are realizing stability from our diverse in-markets and leveraging our strong customer engagements. We're taking significant cost actions, adjusting operations to the current demand environment, significantly reducing discretionary spend and deferring some turnaround of assets. We're expecting strong free cash flow this year with working capital expected to be a source of greater than $250 million beyond previous expectations. We reduce our expectations of capital expenditures by approximately $100 million to a range of 325 to 375 million. Finally, we will maintain our disciplined approach to capital allocation with a focus on our strong dividend and a significant debt repayment program, which we now expect to be substantially greater than $400 million for the year. All in, we've made great progress strengthening the company, and you can see the evidence in the first quarter earnings and cash flow. With that, Willie and I are happy to take your questions. Operator, we're now ready for the first question.