Eastman Chemical Company

good day everyone and welcome to the fourth quarter full year 2020 eastman chemical conference call today's conference is being recorded this call is being broadcast live on the eastman website www.eastman.com we will now turn the call over to mr greg riddle of eastman chemicals company investor relations please go ahead sir okay thank you cecilia and good morning everyone and thank you for joining us on the call with me today are mark costa board chair and ceo

William McLean, Senior Vice President and CFO, and Jake Leroux, Manager, Investor Relations. Yesterday, after market closed, in addition to our fourth quarter and full year 2020 financial results news release and SEC 8K filing, we posted slides and related prepared remarks in the investor section of our website, www.eisman.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 our fourth quarter and full year 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-Q filed for third quarter 2020 and the Form 10-K to be filed for full year 2020. Second, earnings referenced in this presentation exclude certain non-core and unusual items. 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 fourth quarter and full year 2020 financial results news release, which can be found on our website. With that, I'll turn the call over to Mark.

Good morning, and 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 fourth quarter and robust performance for the full year, despite the challenges associated with COVID-19. I'm incredibly proud of how Eastman employees around the world responded to these challenges and stepped up to help us deliver in 2020. And here are some of the highlights. Early in the year, we took quick and decisive action to adjust our operations to keep employees safe and preserve our operational integrity. We shifted our financial forecast of prioritizing cash and liquidity given the uncertainties, and we delivered another year of outstanding cash flow, our fourth consecutive year of cash flow greater than $1 billion. While we prioritized cash, our earnings performance was resilient, which is a testament to the tremendous investments we've made in our innovation portfolio and our overall business portfolio over the last decade, including enhancing our market development and commercial capabilities. Additionally, we demonstrated we have diverse portfolio of businesses and in markets, which gives us visibility. As you know, we are committed to being a leader in the circular economy. We've accelerated progress and it's paying off with several wins across our portfolio, including Eastman being named as a Wall Street Journal most sustainably managed company of 2020. In addition, in our 2020 sustainability report, we committed to the ambitious goals of reducing our scope one and two greenhouse gas emissions by one third by 2030 and achieving carbon neutrality by 2050. Looking forward to 2021, we entered this year with momentum from our record fourth quarter results. And we're seeing clear signs of recovery across many of our markets, including strong orders in January. That said, visibility remains limited due to the continuing effects of COVID-19. This means that we will continue to focus on what we can control. In 2020, we meaningfully reduced capacity utilization as we aggressively manage inventory well beyond the decline in demand to maximize cash. As a result, EBIT declined by about $100 million just related to this additional inventory actions we took. If the volume is flat in 21 compared with 20, we would have about $100 million tailwind from this improved utilization as we go into this year. We're about 60 cents a share. Looking at our cost structure, recall that we reduced costs by approximately $150 million in 2020 versus 19. And we estimate about $100 million of this was temporary. We also took actions to accelerate our transformation program, and we are on track to reduce costs in 2021 to offset the return of those temporary costs. As a result, in 2021, we expect our cost structure to be about flat when we compare it to 2020. On top line growth, we expect growth from three levers. First, we anticipate market to continue to improve relative to 2020, as we have seen in Q4 and in January. Second, we continue to make progress with our innovation-driven growth model to grow faster than our underlying markets and many of our specialty products. There are a number of examples of this across our portfolio in 2020, and we expect it to continue in 2021. Third, we project a strong improvement in MIX with recovery in these high-value markets and the innovation-driven growth of our premium products. A significant portion of our headwinds in 2019 with the trade war, as well as 2020 with COVID-19, were related to MIX. As growth in our specialty products accelerates in 21, improved mix will be a powerful driver of our earnings growth. We've already seen this benefit in Q4 of 20 and expect it to accelerate through 21. There are also headwinds, including the lack of visibility related to COVID-19 and other global macroeconomic uncertainties. In addition, we're seeing costs for raw materials, energy, and logistics rising and have competitive pressures in a few products. When we put this together, we expect our 21 adjusted EPS will increase between 20 and 30% compared to 2020. This means our expected 21 EPS will be well above 2019, which would further demonstrate the strength of our portfolio. We anticipate a strong start to 2021 with adjusted EPS similar to the first quarter of 20. You'll recall in the first quarter of 2020, our EPS was up 15% year over year, a very strong performance for our industry at that time. Finally, on cash, a high priority for Eastman We expect 21 to be our fifth consecutive year of free cash flow above $1 billion. A moment ago, I talked about our intention to be a leader in the circular economy. And as part of that commitment, today we're announcing, along with Tennessee Governor Bill Lee, our plan to build one of the world's largest methanolysis facilities here in Kingsport. Through methanolysis, this world-scale facility will convert waste plastic, polyester plastic, that often ends up in landfill and waterways into durable products. Over the next two years, Eastman will invest approximately $250 million in the facility, which will support Eastman's commitment to addressing the global waste crisis and mitigating challenges created by climate change, while also creating value for shareholders. Using the company's polyester renewal technology, this new facility will use 110 kmT of plastic waste to produce premium, high-quality specialty plastics made with recycled content. This will not only reduce the company's use of fossil fuels feedstocks, but it will also reduce our greenhouse gas emissions by 20 to 30%. This is incredibly exciting news, and we're only just beginning. I'll close where I began with appreciation for the men and women of Eastman that make all this happen and do it with a bias for action, adaptability, and optimism for the future. I share their optimism. This is an exciting time for Eastman. Our strengths have never been clearer, and it gives me the confidence that we are 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. That'll turn it back to Greg.