Eastman Chemical Company

Good day, everyone, and welcome to the Eastman Chemical second quarter 2020 conference call. Today's conference is being recorded. This call is being broadcast live on the Eastman's website, which is www.eastman.com. We will now turn the call over to Mr. Greg Riddle of Eastman Chemical Company, Investor Relations. Please go ahead, sir.

Thank you, Brian, and good morning, everyone, and thanks for joining us. On the call with me today are Mark Costa, Board Chair and CEO, Willie McLean, 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 press release and SECAK filing, we posted slides and related prepared remarks in the investor section of our website, which is www.eisman.com. We've continued this practice from the first quarter, and I hope it continues to be helpful to you. 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 second quarter 2020 financial results news release. During this call, in the preceding slides and prepared remarks, and in our filings with the Securities Exchange Commission, including the Form 10-Q filed for first quarter 2020 and the Form 10-Q to be filed for second 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 second quarter financial results news release, which can be found on our website in the investor section. With that, I'll turn the call over to Mark.

Thanks, Greg. Before we turn it over to questions, I want to take a few minutes to make some comments. The first half of 2020 has been unprecedented given the serious threat to health and safety, the reminders of racism and the need for positive change, the incredible amount of economic volatility, and the lingering uncertainty that confronts us all. I'm grateful to the healthcare community, our first responders, along with government local leaders who are helping at this difficult time. As importantly, I want to thank the women and men of Eastman, their families, who continue to come together in tremendous ways. They've gone above and beyond, working long hours, many times in challenging conditions. Most important, they have been diligent to keep people safe, continue to support our customers, and keep our businesses going. While COVID-19 has caused us to shift some priorities this year, we're renewing our commitment to drive a more inclusive and diverse workforce, which is a core value of Eastman and critical to our growth strategy and ability to innovate. During the quarter, we took steps to strengthen our efforts to build more inclusive teams by increasing our efforts to mitigate the impact of unconscious bias and expanding resources to equip employees for their role in driving a more inclusive culture. We're making progress, and have much more work to do to ensure every team can show up and contribute fully at work and in their communities. As we look at our first half performance, we believe that we have performed relatively well with our focus on free cash flow. Sales revenue for the quarter and for the first half of the year when compared to peer results demonstrated resilience, which is a function of our innovation-driven growth model, as well as the diversity of our end markets, and a testament to the great work of Eastman employees as they navigate this challenging and unprecedented environment. We also made great progress in our $150 million of constructions in the quarter and are on track to hit our full year target. With our focus on free cash flow, we also manage our inventory aggressively to respond to the fall in demand and go beyond that to generate even more cash, delivering our best free cash flow for the first half. Turning now to our expectations for 2020. In the second quarter, the cost from the lower capacity utilization was $120 million sequentially. We expect this will decline by about half in the third quarter and be partially offset by increasing maintenance spending and a moderation of the impact from cost reduction actions as we ramp back up. Advanced materials will have the biggest impact from the improvement in capacity utilization at between $30 and $35 million for the quarter. AFP will see some benefit. And CI will face a net headwind as higher maintenance shutdowns will be more than the utilization tailwind. The third quarter is off to a strong start as we benefit from volume recovery and start to realize the benefits of inventory management actions we took in the second quarter. As a result, we expect a substantial sequential increase in earnings. Most importantly, we are maintaining our focus on cash generation, which is our priority for the year. Building on a very strong start in the first half of the year, we are on track to generate over $1 billion of free cash flow for the year. Given the continued uncertainty related to COVID-19, we are not providing 2020 guidance. While the actions we're taking today are making a significant difference, we remain focused on our innovation strategy and are continuing to invest in our growth and our commercial capabilities. At the same time, we will be driving an operational transformation program to structurally remove costs by greater than $200 million by the end of 2022. with a significant impact in 21. Altogether, these actions we've taken in 2020 are well positioned to benefit from the return of economic growth as we look at the future in 21 and beyond. As we lead from a position of strength with our innovation-driven growth model, it's the heart of how we win. Our strengths have never been clearer during this pandemic. Our portfolio transformation, especially businesses, the outstanding innovation capability we've built, along with our decisive operational execution capability. Generating excellent free cash flow is a top financial priority, our balance sheet's strong, and we have significant sources of liquidity. With that, I'll turn it back to Greg.