Eastman Chemical Company

Good day, everyone, and welcome to the first quarter 2021 Eastman Chemical 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, Tracy, 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. Yesterday after market closed, we posted our first quarter 2021 financial results news release and SEC 8K filing, our slides and the 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 first quarter 2021 financial results news release, during this call, in the preceding slides and prepared remarks, and in our filings with the SEC, including the Form 10-K filed for full year 2020, and the form 10Q to be filed for first quarter 2021. Second, earnings referenced in this presentation excludes 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 first quarter 2021 financial results news release, which is available on our website. 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're off to an excellent start to 2021, and I'm proud of the many accomplishments we've achieved in just a few short months. We're building momentum and the strong operational execution of our teams is paying off as the global economy improves. There are several highlights I want to cover. First, strong demand from the end of 2020 continued through the first quarter. In many markets, demand is returning to or exceeding 2019 levels. We reported 20% higher adjusted EPS over 2019 and 5% over a very strong first quarter last year before we felt the full impact of the COVID-19 pandemic. Consistent with our track record of strong free cash flow, we also delivered record free cash flow of $125 million in the first quarter, which was up substantially from a very strong performance a year ago. We achieved these solid results despite operational logistical headwinds from winter storm URI. I'm incredibly proud of our team in Texas, who took proactive steps ahead of the storm to avoid a hard shutdown to any of our assets. Then they worked tirelessly to repair and restart our facilities, which helped ensure supply for our customers. Thanks to their proactive planning, we were able to safely start with no injuries and well ahead of our competitors. We had half of our Texas manufacturing facility operational within one week of the storm, and were more than 95% operational within three weeks. To all the Eastman employees who sacrificed and rose to the challenge, thank you. On behalf of our customers and all of the colleagues at Eastman. Moving to other highlights, we've made significant progress with our circular economy efforts, which I'll talk more about in a moment. And our progress hasn't gone unnoticed, with Barron's adding Eastman to its list of the 100 most sustainable companies for 2021, a true honor for us. And we issued our inclusion and diversity report, which you can find on our website. At Eastman, we take our environmental, social, and governance commitments seriously, and transparency is the utmost importance. We also continue to allocate our capital with returns to stockholders in mind. To that end, we recently completed a small bolt-on acquisition of 3F Food and Feed, a leading animal health and nutrition company to accelerate growth in the animal nutrition business. And finally, we think the favorable trends in the economy, coupled with our innovation investments and continued disciplined cost management, sets us up for strong EPS and free cash flow growth this year and next. On our January call, we gave you an update on the progress we're making to become a leader in the circular economy. We announced that we're building one of the world's largest plastic-to-plastic molecular recycling facilities at our site in Kingsport, Tennessee. Since then, we've broken ground on the facility and continue to target mechanical completion by the end of 22. Even more impressive is the amount of momentum we're building with Custer's in many different markets around the world. The demand for our Renew branded products includes Eastman Triton Renew, Eastman Crystal Renew is strong. At this point, demand for our specialty products in the circular economy offerings has been better than we anticipated. And specific to the new facility we announced, we're ahead of schedule in terms of customer demand for the capacity. We have a robust pipeline for additional announcements throughout the year, and we look forward to sharing those with you. Turning to our outlook, as we enter the second quarter with strong demand and mixed momentum, we also expect to benefit from cost discipline, including lower operating costs from our operational transformation program. However, there are specific headwinds we face, including maintenance turnaround, supplier reliability, and some slowdown in auto production. In addition, we have price increases that are continuing to catch up to higher raw material energy and distribution costs in some products. Despite these headwinds, we expect a sequential increase in EPS, with second quarter adjusted EPS expected to be at or above second quarter of 2018, adjusted EPS at 222. Moving the full year, we expect strong market growth and product mix improvement to continue. Our innovation-driven growth model will enable us to grow faster than the underlying market recovery, and we expect a number of markets will be rebuilding inventory. We also expect much of the capacity constraints, supply reliability, and logistics headwinds to lessen alongside a potential moderation in tight commodity markets. We expect to continue to benefit from about $100 million of a full-year tailwind for improved capacity utilization compared to last year when we aggressively managed inventory well below the decline in demand with our focus on cash. And we're on track to keep our cost structure flat compared to 2020 and well below 2019 and 2018 levels. We therefore expect adjusted EPS will be about be between 825 and 875 for the full year of 21. On cash, we expect free cash flow to approach $1.1 billion, which is consistent with our expectations for stronger adjusted EBITDA. We expect 2021 will be our fifth consecutive year of free cash flow greater than $1 billion, and we will work to grow free cash flow from here. Putting it all together, these outstanding results remind me about what gives Eastman this incredible resiliency and strategic advantage. First and foremost, it's the people at Eastman. to continue to persevere and help us win, as we saw in Yuri in a time of crisis, and as we see every day from this get-it-done team. And as we reflect on how we position our company through the global trade disruptions of 2019 and then COVID in 20, I feel confident in our ability to grow UPS and cash off this new level of earnings. Despite a challenging macroeconomic backdrop over the last several years, we have not sacrificed our efforts to innovate and invest in our special portfolio. And I expect those investments to continue to pay off as we finish off 21 and move into 22. In the meantime, we'll continue to focus on what we can control, remain committed to long-term attractive earnings growth and sustainable value creation for our owners and all our stakeholders. With that, I'll turn it back to Greg.