Eastman Chemical Company

Good day and welcome to the Eastman Chemical third 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 Chemical Company Investor Relations. Please go ahead, sir.

Thank you, Malia, and good morning, everyone, and thanks for joining us. On the call to me today are Mark Costa, Board Chair and CEO, Willie McLean, Senior Vice President and CFO, and Jake Leroux, Manager of Investor Relations. Yesterday after market closed, in addition to our third quarter 2020 financial results news release and SEC 8K filing, we posted slides and related prepared remarks in the investor section of our website, www.eastman.com. 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 third quarter 2020 financial results news release. During this call, in the slides and prepared remarks, and in our filings with the Securities and Exchange Commission, including the Form 10-Q filed for second quarter 2020, and the form 10-Q to be filed for third 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 a third quarter financial results news release. With that, I'll turn the call over to Mark.

Thanks, Greg. Before we answer your questions, I want to take a few minutes to make some comments. We've had a strong recovery in the third quarter and solid performance through the first nine months of 2020, despite the challenges associated with COVID-19. Our employees around the world have done a great job of taking actions necessary to keep their coworkers and themselves safe and healthy. We remain steadfast in this effort, especially as we see a resurgence of COVID-19 and continue to be committed to building more inclusive teams so everyone can fully contribute at work. As we think about the impact of the pandemic on our business, we're leading from a position of strength with our innovation-driven growth model, which continues to be at the heart of how we win. As we move through the third quarter, demand across our business has improved, particularly for markets most impacted by COVID-19, especially auto, building construction, consumer durables, and some other markets. Our earnings were strong with almost a 60% improvement from the second quarter, driven by innovation and market development, and the outstanding work of Eastman employees as they navigate this challenging and unprecedented environment. Additionally, we made progress in our plans to generate $25 to $15 million of licensing technology earnings over the next few years, with $14 million of earnings in the third quarter. In-markets are recovering as the third quarter reflected a strong improvement. We saw a 10% sequential recovery in volume and mix from Q2 that got us back to within 5% of last year, which was limited by our planned shutdowns in CI. On a nine-month basis, our volume and mix is down 6%, which is well above underlying markets. This resilient performance is due to our robust and diverse in market positions and the strength of our innovations. We realized a strong improvement in our most impacted and mixed impacted markets. In our resilient markets, the benefit we enjoyed in the first part of the year moderated as expected. That said, volume in our resilient markets is approximately flat year over year through the first nine months. We see continued momentum in October and into November. Based on what we know today, we project that volume and mix of Eastman will approach fourth quarter levels of 19. A testament to the resiliency of our portfolio and the great work of the Eastman team has done to mitigate the impacts of COVID-19. All that said, we continue to be focused on what we can control. Across the portfolio, we continue to create our own growth through our innovation-driven growth model. Whether it's in performance films, specialty plastics, or architectural coatings, among others, we are performing better than our recovering in markets. Prepared remarks are shared with you how we're leading the way in innovation market development. I'm excited about the early strong customer engagement with a new potentially revolutionary product in architectural space, which has the potential to become one of Eastman's top three growth platforms. We've expanded our paint protection portfolio by launching a black PPF, expanding our position from clear products to opaque, a market with tremendous growth. In a world where sustainability is driving consumer behavior, we've had a number of wins across our sustainable product offering that leverage our innovative molecular recycling technologies. Assuming economic conditions remain as they currently are, we expect our fourth quarter adjusted EBIT will be similar to the fourth quarter of 2019 adjusted EPS of $1.42. If the volume of mixed strength in October continues the remainder of the quarter, our UPS could be above the prior year. Obviously, there's uncertainty of the impact of COVID resurgence, but we expect to provide an update in Q4 December. Finally, on cash, we've made a priority given the uncertainty. We've done a great job managing working capital and, in particular, inventory. As a result, a free cash flow for the first nine months is the highlight of our company's history. and we are on track for a fourth consecutive year of greater than $1 billion of free cash flow. All this gives me confidence we continue to be well-positioned to manage in this uncertain environment and deliver long-term attractive earnings growth and sustainable value creation for our owners and all of our stakeholders. With that, I'll turn it over to Greg.