Eastman Chemical Company

now turn the call over to Mr. Greg Riddle, Eastman Investor Relations.

Please go ahead, sir. Thank you, Becky, and good morning, everyone, and thanks for joining us. On the call with me today are Mark Costa, Board Chair and CEO, Willie McLean, Executive Vice President and CFO, and Jake Leroux and Emily Alexander from the Investor Relations team. Yesterday, after market closed, we posted our second quarter 2025 financial results news release and SEC 8K filing. our slides and the related prepared remarks in the investor section of our website 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 our second quarter 2025 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 2024, and the Form 10-Q to be filed for second quarter 2025. Second, earnings referenced in this presentation exclude certain non-core 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 second quarter 2025 financial results news release. As we posted the slides and accompanying prepared remarks on our website last night, we will now go straight into Q&A. Becky, let's go ahead and start with our first question, please.

Thank you. As a reminder as well, if you did want to ask a question, that is star followed by one on your telephone keypad now. When preparing to ask your question, please ensure your device is unmuted locally. Our first question comes from Patrick Cunningham from Citigroup. Your line is now open. Please go ahead.

Hi, good morning. Thanks for taking my question. Look, you're reducing capital spend in 2026, you know, now targeting pretty significant cost savings on top of that even larger in 2025. And this doesn't necessarily signal a stable to modestly improving macro in 2026. So could you help us understand how representative the second half should be when we're thinking about trough earnings levels? And with growth projects deferred and lower for longer macro, has your thinking on mid-cycle earnings power changed at all?

That's a great question, and a large one. And good morning. So first of all, when you think about the back half of this year, you know, it's heavily impacted in the decline by the trade situation that we face. And that's creating a lot of, you know, challenges for this industry and especially for the sort of consumer discretionary side of the house. So I don't think that the back half is really relevant measurement for, you know, how the company is doing in total because you've got a lot of situations around What's going on with the tariff? I mean, when you think about us and the tariff and the exposure we have in the back half of the year, you know, there's sort of really sort of three impacts that it could potentially have on any company. But the biggest for us is by far, you know, what happens with demand. And that was also true in 2019. You know, the second factor, of course, is retaliation that happens in other countries and how you work your way through that. And we do have some high U.S. asset exposure there. when it comes to that equation. And then the third is direct tariff impacts around raw materials and things like that, which we have very little exposure on because North America is all of our vertical integration and scale in North America is connected back to local raw materials. So it really is a big demand question about what's going on in this year and what that then sort of indicates for next year as we think about this whole thing. And the trade war is by far, you know, the driver of the demand dynamics in the second quarter, as well as the back half. And as we look at that, you know, and think about trade, the first thing I want to say is, you know, there are unfair trade practices around the world. And there are there is aggressive dumping by some countries, especially over capacity out of China, and trend shifting to avoid tariffs. So there are real issues here for this industry that need to be addressed. But, you know, those while very serious, need a strategic approach. And the challenge that we're having broadly right now is that that trade strategy, applying to all countries of the world at the same time, may create more economic harm than what's necessary as you try and focus on what the real sources of the trade issues are in the country. And we sit here now where there's a lot of uncertainty. What you had happen in the, even in the GDP data you saw, In Q2, a lot of volatility of imports going up, private inventories dropping. People are moving product all over the world to try and get ahead of tariffs, whether it's retailers or the brands or all the supply chain manufacturers that support them to avoid tariffs, to buy time to see how things are going to get sorted out, take advantage of pauses that happen in the second quarter, et cetera. So it's really chaotic to try and understand what's really going on in market demand. Same question you have around consumers. How much do they buy ahead of tariffs potentially impacting prices, you know, in the first half of the year, which is probably why consumption goes up versus them being conservative about worries about, you know, what they can afford for the year. Same with customers, what they think about demand. So there's a huge amount of chaos that goes into this whole situation that causes, you know, some challenges and complexity in Q2 and Certainly is why we expect a certain big, mid single digit drop in demand for the back half of the year, which is also representing some normal, normal seasonality as well as some of the pre-buy as well as, you know, customers being very cautious for everything I just said. So you've got all that complexity, right? I mean, a 15 plus or 15 to 40% tariffs as of last night on countries is a big impact to the market. So there's reasons to be cautious and careful about the back half of the year. Um, so with that, and with what our customers are doing and being cautious in July, um, you know, we, we sort of built this forecast and this, you know, and staying focused just on Q3 as well as, you know, not really trying to forecast the full back half of the year. Um, so that is a distortion to try and think about what's going on in demand in general. The second is in that chaos, we've very much decided to focus on cash generation, as we told you we would in April. And so we're taking all the actions we can to pull inventory down, generate cash, which unfortunately, when you do this from an accounting point of view, ends up in a utilization headwind. It's not a cash headwind. It's actually generating cash. But utilization headwind is somewhere around $75 to $100 million in the back half of the year. So that distorts the back half as well. So you've got the normal seasonality, you've got all this trade dynamics, and you've got the utilization headwinds. So the back half of the year is by no means something you can annualize and think about as representing, you know, what 2026 looks like. So your question is, what do we think about 2026 and where demand could go there? The answer is, you know, with current chaos, no one knows where demand is going to go next year. But what we can do is With all the trade deals settling in one way or fashion, at least we're going to start getting some certainty that is always better than uncertainty to calm everyone down and everyone starts focusing on what they need to do in this context. So that will help stabilize things. You've got the other things that are very pro-growth in the U.S. administration from the tax bill to less regulation, et cetera. So there are lots of other things that I think are pro-growth outside of this trade disruption. that are going to help stabilize things. Our view is, especially with how challenged demand is this year, on top of what was already a bad situation from 22 to now, there's the reason to expect stability in the back half. I mean, stability as you go into 2026, which would be equal to or certainly more likely better than where demand is now. But in this context, we have to manage our cost. We have to be aggressive in how we manage inventory.

um because we don't know where things are going to go and so we're going to take every action we can great i appreciate the detailed response you know i i guess just a quick one on the metathesis unit you know how far are you along with that investment and what gives you confidence on a pretty healthy step up and profitability there i'm sorry you broke up for a second were you asking about e2p or methanosis i just couldn't hear what you're asking yes

Which one? Okay, sure. So obviously, yeah, got it. So the chemical remittance business obviously is facing some pretty significant challenges. They're the classic example, along with the entire commodity chemical industry, of the impact over capacity coming out of China and other countries impacting businesses. And we certainly see the industry right now at cash cost and frankly, there's indication some of the products being exported to the world are below cash cost. So, you know, we feel like we're probably at the bottom of the market. But we're also constantly looking at how do we improve the structural strength of every business we have. We've done a lot of things to improve the CI business over time. We made the RGP investment, we shut our Singapore plant down, constantly looking at how to value up our mix in North America where our margins are much better than export markets. which at the moment is a challenge because of demand being off, but always looking for every opportunity. And we told you all the way back in 2021, we had an idea of doing an ethylene to propylene investment to convert one of our existing crackers of the three that are at the site to going from ethylene to propylene. For those who are not familiar with Eastman, we make a lot of ethylene and propylene because that's what crackers do. But if we had PDH four decades ago, that's what we would have built. The propylene is where we make all of our specialties. That's where our value sits. And then we're left with a bunch of excess ethylene just to run the crackers. So we've always been trying to reduce that. That's why we made the RGP flexibility investment to increase propylene. But we still have a bunch of ethylene. And so what we can do with this investment, we've come up with a lot of insights since 21 to scale it up to a bigger capability. And that allows us to convert ethylene to propylene. And when you do that and optimize the asset configuration of the site around that investment, you can dramatically improve the earnings by $50 to $100 million in EBIT over the cycle. And it also really reduces volatility because a lot of the volatility comes out of the ethylene side of the equation. So it's a great investment and it's a great payback. It's a very short payback for building this capability because we're leveraging an existing cracker to do it.

Great, thank you so much.

Thank you. Our next question comes from Josh Spector from UBS. Your line is now open. Please go ahead.

Yeah, hi, good morning. I wanted to ask on the methanolysis investments and some of the comments you made about it seemed like you were thinking about you'd delay a decision on Longview by maybe two years now, and you're thinking about expanding Kingsport at some point in the future. So one, I'm just curious if you could expand on if that's right in terms of how you're thinking about it. And then two, what does that mean for Pepsi offtake that you have at the Longview facility? Does that move to Kingsport? Does that get pushed out? How should we think about that? Thank you.

So first of all, we're incredibly excited about how well the methanol cis plant is running. It's been a long journey from the beginning of this project to getting it built to getting the startup and working through a lot of construction issues. So it's great to see the plant run well. Incredibly excited to see the rate test the plant to get up to 105% as it is. And all of that is working really well, which also means our cost benefits this year relative to last year are on track to get that additional $50 million of improvement for the corporation. It also, when we started rate testing it and learning more and more about the facility with its better operational performance, we had, we've come across a variety of insights with some very targeted deep ball decking investments that are, that are, you know, very manageable. um, we can, uh, develop the plan and have a line of sight to get into plant 130%. And we have some ideas to get, you know, you know, beyond that. Um, and so that's fantastic in this environment, right? In this environment where we're trying to always improve our cap, you know, lower our capital intensity and everything we do. And this is, you know, our capital intensive project. If I can now get 30% or maybe even more than that, you know, I I've improved, you know, the ROIC efficiency. Um, so that is, is exciting. The second is That additional capability, especially right now, allows us to continue to grow the EBITDA to that $200 million that we've told you about and keep going from this facility and have more continuous growth than when we cap out on the capacity of this plant and the original plant and wait for the next plant to start. So we can sort of keep the continuous growth going. And that also allows us to, in some sense, pull EBITDA forward from the second plant into the first plant. as we sort of continue to fill it out. So that allows us to also have time to look at different options. So we're certainly not happy about losing the DOE grant and we're highly engaged to try and get it back. That's a highly uncertain process. And so we're focusing on what else can we do. And so this ability to bottleneck gives us the time to work on alternative ideas. And we have a lot of creative ideas about how to take scope out of the project. We have creative ideas of not just looking how to do it at Longview, but looking at three other sites where we might have some better advantages and how to be efficient. And so there's a lot of things going on. We can't talk about the details of all that right now because we're in the middle of doing some of it. But we're pretty excited about the potential to sort of optimize the footprint and find ways to actually pull forward some benefits that we would have had to wait for the second plant. When it comes to contracts in PEPC, you know, our contract with PEPC is still intact and we're still confident that they're committed to working with us, you know, as we sort of pursue all these different options. So, you know, we feel sort of good about that. And the other thing I'd note is we're seeing accelerated demand in some cases with some of our customers who are finding mechanical recycling isn't working well on the RPAT side for food grade packaging applications. And so we're getting more and more confident about that fill out.

Okay, thank you. I'll leave it there.

Thank you. Our next question comes from Vincent Andrews from Morgan Stanley. Your line is now open. Please go ahead.

Thank you, and good morning. Mark, was there a particular trigger? It sounds like in July, all of a sudden, the customer dialogue flipped. And so is there something in particular that happened? Or is it something that they were hearing from their customers? Or just how do you sort of deconstruct exactly what happened when it happened? And as you look forward into the balance of the year and into next year, you know, what's the catalyst path or what are the events that are going to need to happen for your customers, you know, to start feeling differently about their business and about purchasing? Is it just the end of the trade war uncertainty? Is it lower interest rates? But what's really changed and what's the path from here?

Yeah, that's a great question. So, you know, I'd say that the insights developed, you know, through the month of June into July, as we were working with our customers and trying to understand what their views were. The market that's most impacted is consumer durables, which you can imagine are caught up in the trade war since the vast majority were made in places like China or Southeast Asia and imported here. And our supply chain in serving that market is incredibly long as we make a lot of make the products that go into those applications here in the U.S., send them to Asia, they get made and the product come back, so you've got a nine, 12-month supply chain on top of this that you're trying to manage. And so I think that, you know, the trade pause allowed everyone in the second quarter to move material around ahead of potential escalation on July 9th, and so, you know, everyone did that. I mean, every company, you know, like I said earlier, from retailers to brands and manufacturers to people like ourselves. Because of North America, we had to move things to different places like Asia. When we're making it here, that sort of factored into our supply chain being a bit longer and our need to move things being a bit higher because of where we were making it in the U.S. and the risk of retaliation. So you're working through all those dynamics with your customers. And I think that as... they looked to the back half of the year, they became cautious. You know, I think the words were holding orders as opposed to canceling. I think it's important to say as a way to sort of wait and see how all the trade situation was going to resolve itself one way or another. And then they have to, you know, naturally factor that into, you know, where they think consumer demand is going to go and how they sort of, either serve those markets or not. Because while people are moving inventory around all over the planet, they're also trying not to increase inventory too much in total because they are unsure about the back half economy when the consumer is more likely to be impacted. I mean, these tariffs at these rates are likely to show up in inflation. I know there's a lot of debate about that, but the margins, at least in the consumer durable industry, you know, pretty thin, you know, when it comes to the manufacturers in Asia, the retailers here. So, you know, some portion of this has to get passed on. It can't be absorbed. And if even though it's absorbed, people are going to have to lay off people, which impacts the economy. So somewhere in the world. So this dynamic is going on there. I think it's very much going on in the auto industry, plenty of news and flow on that, but probably likely some pre-buy there that, you know, the auto companies have to think about as far as what they think demand is going to do in the back half for them. And in the building construction segment, same dynamics. Obviously, we can challenge. And that half of our revenue is sort of where we're seeing these impacts. Customers are working with us. And I think what we've got in our forecast represents their caution in July. We're assuming things get a little bit better in August and September. you know, with some of this trade certainly coming into place, and we're just going to have to see how it goes. But, you know, the key for us is focus on what you can control, cost, cash, you know, driving methanolysis forward, finding capital efficiency, keeping our capex low, et cetera, you know, and positioning us, I think, reasonably well for earnings to be materially better next year versus this year on the actions that we're controlling and taking.

Thanks very much. I'll pass it along.

Thank you. Our next question comes from Salvatore Tiano from Bank of America. Your line is now open. Please go ahead.

Yes, thank you very much. So I wanted to check on the autos and markets. I mean, you and some other chemical companies today and yesterday did flag that they were weak in Q2 and Q3 could also remain weak, but That seems to be in contrast with both trade consultants and what some of the auto suppliers are saying so far this earnings season. So can you provide a little bit more color on where you're seeing the weakness? And specifically, you know, in the case of Eastman, of course, is it more on the aftermarket films or more, for example, on the interlayers or any other products?

Yeah, good question. So on the aftermarket side, Q2 was a solid quarter. So we saw good performance in North America, a little bit more challenge in China. But overall, the aftermarket held up reasonably well in Q2, where the interlayer business or the aftermarket or the automotive coating business saw some challenges as it produces around the world, given the tariff announcements. we're moderating production rates in preparation for where demand may go. There's a big question on, once again, how much of this tariff is going to get passed on to consumers and inflation and impact demand in the back half of the year. So you're trying to worry about how much cars you're producing for the back half of the year. So you've got to be a little careful on that front. And then you've got the dynamic of the pull forward of people buying cars. ahead of the potential tariff increases. So I think, you know, from what we're seeing, you know, we started the year expecting the auto market to be sort of flat relative to last year, where now our view is sort of most single digits down, which is principally in the back half of the year as opposed to the first half. So I'm not sure we're that different from what I've seen from other car companies in sort of the underlying market assumptions. If it turns out to be flat in production in the back half of the year, it's going to be upside for us relative to what's in the forecast. So I hope those people that are predicting that are correct.

Perfect. Thank you very much.

Thank you. Our next question comes from Jeff Sikowskis from JP Morgan. Your line is now open. Please go ahead.

Thanks very much. In your AFP business, your prices were up 4% year over year. Where did that pricing strength come from, either by sector or by product line? And in your Fibers business, can you discuss the current state of tariffs and whether that's an ongoing impediment to your business or whether it isn't?

Sure, Jeff. So on the AFP question, most of the increase in price was driven by our cost path through contracts in our care chemicals business where we buy some raw materials that just have a lot of volatility to them that go into the product. So we have very steady margins in supplying our customers in that space, but the fatty alcohols that we buy sort of bounce up and down, and that's really what that 4% is primarily driven by. One of the great things about the AFP business that has continued to be proven and valued deeply by us is the stability of the price-cost relationship in that business across the portfolio. Quite a bit of it is in cost-passer contracts, keeping that stable, which is great, by the way, in removing a lot of debate and tension with your customers in procurement, which is let's just focus on how we grow together. We don't need to continue debating how raw materials go up and down. Um, and so it's, it's part of why you see AFP, um, performing well, um, when it comes to the fibers business and, and tariffs, uh, the principal impact of tariffs in the, inside the fibers business, um, on a full year basis, um, is certainly, um, the, uh, Naya textile business, right? So it was always been expected to decline to some degree with market and past the, you know, being out in China, et cetera. Um, but the textile business was a source of growth and the margins were pretty good. Um, and so that, you know, offset some of the dynamics, um, in the tow business. Uh, and it's been extremely helpful, you know, in the last four years in improving that, that segment. Um, so what's unusual about this year is, you know, we're obviously dealing with some, some issues in tow. Um, but the, uh, the textile business was impacted. Most of that sold in China. um and then made in textiles that you know serve the world um and uh and we saw the overall textile market slow down dramatically from tariffs because of the cost of selling fashion goods in the u.s you know against those tariffs so that industry was already weak last year but you know we can further so in market demand has come off customers that we have in china have become more cautious and that's translated to about a $20 million problem, we think, for the year that spread across 2Q through 4Q in impacting the fibrous business on the tariff side. On a short term basis, there is some dynamics of some toe being pulled forward into Q2 in Europe to get ahead of potential tariff risks that will sort of level out. So it's not a full year impact, but it's just a timing impact.

OK, and then You know, you described in your remarks trying to lower working capital by $400 million from where we are at mid-year, and you talk about the earnings penalties this year for changing your operating rates. So, as a base case, I get it. You know, earnings should rise Next year, as you move up to more normal operating rates. But is it also true that what should happen is that cash flow next year should decrease? You know, that is, if you're pulling the cash flow forward into this year, does that mean that as a base case, your free cash flow next year will be, or I'm sorry, your cash flow from operations will be less than a billion? if there's no change in the business condition.

Jeff, thanks for the question. Obviously, to your point, I think the last statement that you just made, it depends on your outlook and the assumption. I think as Mark has described, both from the economic lens as well as our assumptions is that we actually think that you can get to a more stable environment as we see tariffs, et cetera, unfold. With the actions that we're taking in the first half and the timing, obviously, being here at mid-year, we can't fully optimize our working capital scenario. And actually, working capital is a net headwind this year as we look at it overall compared to what we built in the first half and what we're taking out in the second half. So my belief is the billion dollars is the platform at which we'll be able to build off of. with higher cash earnings and the potential to still build and optimize our working capital.

Great. Thank you so much.

Thank you. Our next question comes from David Begleiter from Deutsche Bank. Your line is now open. Please go ahead.

Thank you. Good morning. Mark, just on Q4, reading your prepared comments, it sounds like you're going to similar to Q3 of around $1.25. Is that fair?

Hey, David. I think that's directionally correct. I mean, normally we have seasonality, as you all know, from Q3 to Q4, because Q3 is normally a strong quarter. Obviously, it's not with all the factors that I've described on Q4. on the decline in expected demand and the asset utilization. So when you get to Q4, we're very aggressive in our asset management in Q3. So you're going to get a utilization tailwind because it won't be as aggressive in Q4. The seasonality that normally occurs has already been put into Q3 effectively. And so we expect things to be somewhat similar We've got to get through Q3, to be perfectly honest, David, with all the volatility with the trade and see how it all sort of settles out and impacts the markets. But our current expectation is what you said.

Got it. Understood. And, Mark, your volume outlook is a little more severe than what we've heard from some of your peers this earnings season. Do you think that's due to your business mix, your conservatism, or maybe something else? Thank you.

I think that when you think about what's going on in the dynamic of Q2 to Q3 and the midsignal digits, there are multiple components, and it depends on the business that you're looking at. And it's important to actually sort of frame it correctly. So if you look at Q2 to Q3 and add back the utilization headwind, for $50 million, you know, we're basically flat sequentially from Q2 to Q3 when you back out the utilization headwind. And then you're, okay, what's going on underneath the surface of that? Well, there are two moving parts, right? Chemical immediates is getting better by greater than $30 million, which means specialism fibers is going to be down by $30 million, you know, within the guide that we're talking about. So when you think about advanced materials, and the mid-single-digit decline we're expecting there, what I'd say about half of that is expected market decline, and the other half is this sort of pre-buy dynamic of some materials in Triton, Performance Films, some other polyesters being pulled, you know, ahead of tariff risk into Q2. So when you have it there and then the orders, you know, don't occur in July for that, you know, you've got that decline. So I'd say it's about half and half, you know, market decline, which I think is more in line with what we're hearing from specialty peers, you know, other market participants, and then the other half is this pre-buy thing. I'd also note that, you know, in this segment, especially when you think about it, you know, two-thirds of this is consumer discretionary, right, between autos, consumer durables, and BNC, and those are the most impacted markets. they're incredibly valuable markets to us so as you know as as the volume comes off it hurts um but when the volume comes back you know it's incredibly compelling um so that's how i think about the am part the fibers part is i would pretty much say is all pre-buy in the moderation we're expended expecting from q2 to q3 and afp this is sort of more normal for its decline. So normal ag seasonality coming off, timing of HTF projects that got completed in Q2 instead of Q3, and a little bit of pre-buy in some places is what's behind their mid-signal digit. So again, you back out the pre-buy and the HTF timing and the markets, you know, moderating in a very normal way. So I think that, you know, when we look at it, I don't think we're from an in-market point of view, sort of misaligned too much. But we do have exposure, especially in advanced materials, to these sort of very sensitive markets to what's going on in the trade environment.

Very helpful. Thank you.

Thank you. Our next question is from Frank Mitch from Fermion Research. Your line is now open. Please go ahead.

Good morning. If I could just follow up on that, are you sizing the pre-buy at around $20 million or so, benefit 2Q versus 3Q? Any color there would be helpful. Thank you.

Hey, Frank, that's probably directionally correct. You know, when you follow the math of what I just put out there between fibers and AM, that's going to get you to sort of that number.

All right, great. And... You know, on this $1.25 point estimate for 3Q, you guys put out a 20-cent range for 2Q, and clearly the commentary based on tariffs, et cetera, is that there's a wide range of outcomes for 3Q. This $1.25, is that kind of at the low end of the range that you're thinking, mid-end of the range you're thinking? How much of a range in your mind do you have in terms of how 3Q can play out?

That's a great question, Frank. You know, we put the word around before $1.25. So, you know, we see upside and risk, you know, to that number based on all the trade dynamics that we have in here. In some parts of the bridge, I'd say, are pretty predictable. So the asset utilization is in our control. We're pretty clear on what that's going to be. Our cost reductions in our control are clear what that's going to be. We've had phenomenal commercial excellence over the last four years in defending our price costs and our specialties and our market share being held incredibly well over the last four years. And we certainly expect to continue that excellence in the back half of this year and into 2026. So when I look at all those things that are to some degree in our control, methanalysis running better, et cetera. Um, you know, we feel pretty good about the quality of our guidance, but to your point that we just mentioned in the comments I've made in this call, you know, predicting demand and customer and consumer behavior, um, in, in this world right now, there's no predicting it. Um, and so we didn't put a range on it. But there is certainly uncertainty in either direction. If people really calm down, we could be up in volume. If these higher trade announcements and rates that just got announced through this week have an impact on the market, on people's behavior, then it could be down. We just don't know. And frankly, no one does. There's no way to predict it.

All right, so a wide range around – best guess today is $1.25, but there's probably a bigger range around it than there was the range around the 2Q is kind of what I'm hearing right now.

I don't know if it's bigger than that range, but, you know, I mean, I really think we need to get through this next month. Obviously, if we see, you know, things really changing in either direction, you know, we'll update people at a conference somewhere along the way, but – Right now, you know, we're in the middle of trying to digest all these announcements that happened last week and this week. Every customer, every retailer, every consumer, you know, are trying to figure out what does this mean for me right now? And what am I going to do in this context? So we just got to see how it plays out.

Okay, gotcha. All right. Thanks so much.

Thank you. Our next question comes from Alexey Yefimov from Key Corp. Your line is not open. Please go ahead.

Good morning. Mark, to me, you sound less optimistic about methanalysis sales this year and at the same time more optimistic about next year. Could you maybe talk about this contrast, why there's this difference, and any sort of signs of confidence you have into this ramp in methanalysis next year?

Sure. So, you know, it's a great question. Obviously, in our prepared remarks, we've acknowledged that things are going a bit slower. You know, the interest in renew, I think, and recycle content is still very much there from an in-market point of view, both in the specialties, which is what the purpose of this current plant is aimed at serving, as well as, you know, our pet, you know, which is, you know, partially going to be served off of this facility as a way to fill the assets. And then, you know, as we migrate and upgrade specialties, we'll, you know, move that PET to the second plant. But when I look at the overall underlying dynamics about demand, you know, you are attached to the underlying market, right? So we've proven in Dryden over the last, you know, over decades more than a decade that we can grow well above the market by being vpa free and substituting out of the materials and taking market share and growing incredibly well and that's true but there's still some connection you have to the market so if the market's incredibly challenged it's going to moderate the rate at which your customers launch new products that have your renew content in it which we've talked about so that's the short-term dynamic of everything we've been talking about in this call You know, when it creates that challenge in durables, it slows down the rate at which, you know, people are adopting new features and launching new products in that space. Even through in luxury cosmetics, you know, that market's also a bit challenged and moving a little bit slower as another key market. So, you know, but what I would say is we're not seeing any signs where suddenly people think plastic waste is good, right? You know, a lot of people are debating climate, right? But I haven't seen anyone debating plastic waste and wanting it out of their environment and not impacting their lives. And so that's not going away. The rate at which customers want to solve this problem when they're incredibly economically challenged this year from tariffs for raw materials they're buying or market demand that's not that strong, the rate at which they adopt is slowing down. Um, but as you get to economic stability, I'm pretty confident that, you know, this issue is going to be important and the responsibility of brands have to address their plastic waste and the environment's going to be there. There's going to be continued pressure and there's lots of regulation that's still happening in Europe and the U S driving it. So in this context, you know, we still have, you know, over a hundred customers on the specialty side committed, um, and buying and paying premiums. They're just not ramping up orders as fast. Um, We're not seeing a bunch of order cancellations. We're just not seeing the ramp up as fast as we'd like. And as I mentioned on the RPET side earlier, we're picking up more interest in demand for next year. We don't have it available this year because we're still in the middle of switching our Triton line over to making PET, where we'd be selling it now. But as we bring that on in the fall, and those two of our largest brands, in fact, on the RPET side, Committee to Meaningful Volume next year. And what's most interesting about that is it's because mechanical RPET is not working in some of their applications. They're having performance issues, color issues, integrity issues around the product on the mechanical side. And so they need chemical recycled product, which is identical to Virgin. to have recycled content for it not to be brown or yellow relative to other products on the shelf or not being able to make bottles quickly enough because of integrity issues, et cetera. So that confirmation that we have a differentiated value proposition in our pet with chemical recycling and we're the only player in the world that can do it effectively well, I still think it's going to be a big competitive advantage for us and create a lot of value in the future.

Thanks, Mark. And if you had to guess next year, Fibers flat up or down in terms of earnings?

Great question. Thank you for it. It's one we're spending a lot of time on and focusing on. You know, the Fibers business and the decline we're seeing this year is certainly more than we expected at the beginning of the year. And to sort of frame the Fibers conversation, I want to sort of unpack what's going on within the segment One question already came up, which is what's going on in the segment, and I highlighted textiles as a $20 million headwind within the segment. In addition to that, there's about a $20 million asset utilization headwind as we're pulling inventory down here to free up cash, just like we're doing in AM and other parts of the portfolio. And I would say the utilization impact here is meaningful for the segment at $20 million. And then there's about $10 to $15 million of higher energy cost that's not covered by the cost pass through contracts. So when you look at that, put those all together, that's about 40% roughly of where the decline is headed, roughly. that gets you to, you know, thinking about those businesses. And both the asset utilization comes back as a tailwind next year, as long as we have growth in textiles and event and other things. So the vast majority of that utilization headwind is before you get to spinning tow. It's in the making of the plastic and the stream that feeds into it. So any growth anywhere in the portfolio on cellulosic plastic you know, we'll actually sort of turn that $20 million into a tailwind for Flavers. And then you've got, you know, recovery in the NIA textile business that we are, you know, moving with our customers outside of China as they're trying to manage their tariff exposures, as well as, you know, winning business in new accounts around the world and finding ways to get some of our Chinese business back as sort of tariffs have settled a bit. So all that sort of becomes an offset relative to whatever happens in the remainder of the decline this year, which is tow. And on the tow side, what I'd say is we don't see a shift in market still declining one to 2%. You know, we always expected losing some volume as the Chinese capacity came online and everyone had to adjust their market shares to sort of make room for that capacity. But the volume, you know, is turning out to be worse than that because there's a bunch of de-stocking going on, as we talked about in prior calls where people were holding a lot of safety stock and now are feeling a little more safe about not needing as much safety stock and de-stocking, and they were clearly holding a lot more inventory than we expected. But there's another dynamic going on as well, which is we had some medium-sized customers that were very aggressive and wanting to grow their market share in the cigarette industry. And we're adding capacity for that and building inventory to fill that capacity and signing contracts that committed them to grow that volume with us and have our support. But unfortunately, these customers were not successful in growing their share and actually ended up losing a little bit of share so far. They're obviously not happy about that, and they're trying to take their share back. But in this current situation, they're trying to destock the inventory that they built for that growth that's not playing out. And for us, when we had that expectation of that growth and we had sort of given up some share with our price discipline in a few other places in this market context, we had an expectation of how volume would net out that isn't playing out the way we expected. There's a range of actions we're planning to take right now to address this situation. and be very focused on maintaining stability for us in this market. And so that, I think, is sort of how we got here. We didn't really get some of these insights from these medium customers until the second quarter, which is what we're adjusting to now. From a destocking point of view, while there's a lot of destocking certainly going on this year, it's reasonable to expect next year it will be less than this year from what we can tell. And we've got all these, you know, offsets of things like utilization and textiles, et cetera, you know, being an offset to this tow dynamic. So when you put it all together, we think we can stabilize the situation as we go into next year.

Thanks, Mark.

Thank you. Our next question comes from Kevin McCarthy from VRP. Your line is now open. Please go ahead.

Thank you, and good morning. Mark, in the prepared remarks that you released last night, I think you mentioned that you're now targeting additional cost cuts of $75 to $100 million. So can you maybe elaborate on the actions that you're taking and how those savings might flow through the financials over the next, I don't know, several quarters here?

We'll let Willie hit the cost reduction targets, and then I'll add a couple comments to that.

Thanks, Kevin. Good morning. Obviously, in this environment, we're focused on building on the improvements that we've made here in 2025 as we enter 26. And we've got detailed plans that we'll be pulling together in the back half of the year that enable us to, again, deliver another 75 to 100 million as long as the environment continues to persist. I would say also just highlight that our actions do not reflect a change in our strategy. As we think about innovation and excellence and how we execute, having an efficient and effective cost structure goes hand in hand with achieving that and generating returns over the long term. So our actions range from optimizing our contract partners and then the overall usage of that. I think we've shown in multiple economic environments that we ultimately take structure that looks fixed and make it variable. As we think about reliability and maintenance execution, that is a focus as we continue to enhance and deliver reliability over the long term and reduce overall maintenance. As we think about purchasing an MRO in this environment as we're going through tariffs right now, we're looking at how do we optimize that supply chain and ultimately overall mitigate and reduce that cost structure. Energy efficiency, as Mark has highlighted, energy is a headwind this year, and that's core, and we have opportunities on that front. And obviously, in this type of environment, it will also result in reduced labor costs as we think about year-over-year performance.

Yeah, what I'd sort of like to add to this is, you came up earlier, Where do we view the world next year and are we really worried about getting worse? First of all, to be clear, you can't annualize the back half of this year with what we're going through. You've got all this asset utilization headwind that's distorting. You've got normal seasonality that you'd always have to correct for where we're more 55%, 45% first half to back half normally. And you've got this sort of pre-BioDynamic and just the absolute chaos of tariffs and how it's impacting demand behavior in the marketplace. do that so you know when we think about cost structures and what we're trying to do going into next year and really think about on a full year basis how do we go from this year to next year which i think is a better way to think about it um these cost actions are incredibly important but what you didn't hear willie say is we're shutting down a bunch of plants um and rationalizing them um you know a lot of the industry right now is going you know both on the specialty and the commodity side are rationalizing plants you know entirely because if they're doing that, they don't see that demand coming back in the future. We're not doing that. We're actually confident with our innovation and the way we find ways to value up our facilities and grow and leverage them efficiently, like we did from PET to copolyester to triton or standard interlayers to acoustic interlayers to HUD. We believe that our asset base, outside of some tweaks here and there, Is well positioned for the growth that we would expect to have in 26 and 27 and beyond So that's you know, so we think about that hundred million dollars that that helps improve earnings next year to this year When you think about the actualization once again focused on cash and discipline you know that 75 to 100 million dollar headwind becomes a tailwind and the way to think about that as a tailwind is If the demand is really as bad as the back half of this year, it's a $50 million tailwind in utilization next year. If it gets back to the front half of this year, it's a $100 million tailwind relative to this year. Just how those utilization numbers work. And to be clear, the demand was not strong in the first half of this year with all the dynamics that we're facing. So we feel good about that being a tailwind for next year. We've got all the innovation going on across the portfolio, growing, of course, the revenue on the Kingsport plan, as we talked about. There's growth that we have and can see in new hub interlayers on the Aventa products, gaining traction and being key to driving that utilization in the cellulose extreme. New products and cosmetics, and especially plastics, et cetera, recovering NIA. We do think we'll continue to have great discipline on managing our price-cost And so that won't be a headwind or a tailwind, but, you know, good to defend and manage and proof about the value of our products by doing that four years into a difficult world. Reasonable expect there will be some recovery in CI. And, of course, with our cash discipline and improving operating cash flow next year versus this year, more cash to return to shareholders, especially since we're able to delay the step up of the next methanolysis plant due to the the advantages we have into bottlenecking the current one. So I think we're well positioned to recover next year, you know, but as I said earlier, no one can predict where the absolute economy is going to go at this stage.

Appreciate all the color there. Just to follow up on your add-on comment, Mark, in listening to you, is it fair to say that as the U.S. moves into this new tariff regime, you do not anticipate any you know, large changes in terms of portfolio composition. The reason I ask is in the second to last paragraph of the remarks, you know, there was some commentary about, you know, addressing underperforming parts of the portfolio and a reminder that you've divested certain businesses in the past. But it doesn't sound like you have anything larger than a breadbox under consideration right now. Is that fair?

In the short term, I think that's fair, Kevin. I mean, I think that, you know, just to be clear, there's optimizing capacity and then there's thinking about what businesses belong in the portfolio, which are two very different questions. On the first question around optimizing capacity, you know, we've done things like optimize some production inside our Massachusetts site in Interlayer. So we shut the Singapore plant down and optimize some capacity and heat transfer fluids to, you know, align with market conditions. And none of those are big, significant cost cut steps, but it's just being conscious of managing cost structure. And we'll continue doing things like that across the portfolio. That's part of what Willie's talking about when we have network asset optimization. The E2P investment in CI is a structural investment to improve that site's performance. And so as we are more prepared to get into the details of that, you know, we'll give you more insight on what that means. But again, we're not shutting the entire site down like, you know, like in Europe, there's just major sites just all being shut down by companies left and right. We're probably going to be to 30% shutdown by the end of the year over the last four years. So we're not seeing that. When it comes to portfolio, we're always disciplined. I think we've proven that. We've proven it with adhesives and tires and the seeding asset plan. If you want to go back far enough in history, we've proved it from 2006 to 2012 and divesting a lot of underperforming businesses. And, you know, we'll always keep an eye on that and look at what belongs in our portfolio and be open-minded to things that can be segregated and separated from the company. You know, integration does create constraints on that. But certainly right now at the bottom of the market is not a time where you look at doing things like that.

Perfect. Thank you.

Let's make the next question, the last one, please.

No worries. The next question is from Lawrence Alexander from Jefferies. Your line is now open. Please go ahead.

Just to follow up on the innovation points you brought up, what are you seeing in terms of customers delaying versus canceling or accelerating their investments in evaluating new alternatives or innovative products? Is the uncertainty leading to a freeze in activity, or is it helping you on that front?

That's great. You're talking about across the portfolio, because I think I've already hit.

Yes, across the portfolio, just for your customers, because that's always been one of your differentiations. Just curious, is it becoming a demand pull for 27, 28, 29, or is that becoming more of a concern?

What's interesting across the portfolio, I'd say, is customers are still highly engaged. You know, they, like us, realize that, you know, to get out of a weak environment, you've got to create your own growth. You can't just sit there and wait for things to get better. And you also want to maintain your differentiation against competition. So whether it's next generation HUD and different versions of that, we're seeing very strong engagement in the auto industry as well as, you know, specialized companies. products necessary for the EVs, um, you know, uh, which are still growing in lots of parts of the market. Um, you know, you see a lot of engagement there, a lot of engagement, um, around Aventa, um, as a solution, you know, polystyrene is being banned in a lot of food tray, protein tray applications or straws and this and the other, and you know, the retailers or the food service companies, um, you know, need products, uh, to sort of solve those problems. So the engagement there has been, been very good. along with new products we're always launching, especially plastics. We have a product that replaces polyethylene coatings for paper cups and other paper food applications that has strong engagement. So across the circular platforms, across the automotive space, personal care space, et cetera, we're definitely seeing engagement. But the rate at which they're adopting is still constrained about economic reality here in the short term. You know, with all this, everyone's just focused on how you manage costs and get through these tariffs. But the great news is it has not resulted in a pause on engagement on innovation.

Thank you.

Thank you very much, everyone, for joining us today. We appreciate your time.

Hope you have a great rest of the day and a great weekend. Thanks again.

This concludes today's call. Thank you for your participation. You may now disconnect.