Eastman Chemical Company

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 third quarter 2025 financial results news release and SEC AK filing, our slides and the related prepared remarks, and this is 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 third quarter 2025 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 2024, and the Form 10-Q to be filed for third 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 third quarter 2025 financial results news release. As we posted the slides and accompanying prepared remarks on our website last night, we'll go straight into Q&A. Becky, please, let's start with our first question.

Thank you. We will now take our first question from Vincent Andrews from Morgan Stanley. Your line is now open. Please go ahead.

Thank you, and good morning, everyone. Mark, could you help us with the bridge to 2026? And in particular, is it just as simple as taking your full-year EBIT from this year, adding the $100 million of cost savings and the $50 to $75 million of asset utilization reversal. But then I'm wondering, you're talking about, you know, recycling being a good news story next year, but you kind of just mentioned that there'll be a revenue lift. So not clear whether that revenue lift is being offset by weakness somewhere else in the portfolio, or if there are other puts and takes that we need to put in that bridge to get to sort of what you're expecting at this point for 2026.

First, good morning, Vincent. Thank you for the question. Obviously, it's an extremely important question for us as we think about working through the back half of this year and building earnings growth for next year. And I think you named a lot of the components. The way I'd start this conversation first is what you said. You got to look at a full year number. When you look at the back half of this year, you can't annualize the back half for three reasons. One is there's always normal seasonality in the back half of the year, especially in AFP through the back half and advanced materials having a normal material drop from Q3 to Q4. Second reason, obviously, as we've discussed in the prepared remarks, the trade disputes have exaggerated this dynamic with all the pull forward of material that happened in the first half of the year to get ahead of tariff risk and now with consumer demand being sort of weaker than was expected in the first half. for the back half, you know, it's taking a lot longer to unwind that inventory. So that's exaggerating the sequential decline. And the third, of course, is, you know, we started the year believing we'd have volume and growth and stability in the first quarter, which we did have. And then a lot changed, obviously, through the second quarter. So we had volume that was, you know, sort of built for that scenario that was no longer needed as demand was softening more than expected. And we had that about $100 million asset utilization headwind in the back half of the year relative to the first half. So those three things really distort the back half of this year. So you're right. The best way to think about and build a base case scenario for next year is you have to look at the full year volume numbers, especially in advanced materials and AFP, which would be AM being down around 4% and AFP being down around 2% on a four-year basis. And you sort of start there. When we then look underneath that, we think about the stable markets, which is about a third in AM and two-thirds in AFP, are going to have sort of low single-digit growth that is just normal from these kind of stable markets. And it's coming from a bit of a soft year, so I think it's even more credible that there'll be some recovery and growth in those products. The discretionary markets are where the sensitivity and the impact of the trade war is really felt. For now, we're just going to assume, let's just say the baseline volume is stable. Now, with lower interest rates and tax legislation, et cetera, you could believe there'll be upside to that, and that's for every investor to make their decision. On CI, I would say we'll have more volume. That's really due to less shutdown time that we expect next year versus this year. So we'll have more volume to sell. And then fibrous, we intend to try and keep that volume stable to this year. You've got a baseline that's stable, some sort of modest growth throughout the portfolio, and then it gets to, okay, that's the underlying assumptions. What can we do with that scenario, and how do we create earnings growth above that? It starts with a cost reduction, right? So we've done $75 million of cost reduction this year. A lot of that's in the back half, so that annualizes and helps with the $100 million cost reduction target we've told you we have for next year on top of this year. So we're focused on that, a lot of action going on with that. With the volume scenario I gave you, you know, the utilization tailwind for next year relative to this year is somewhere in the $50 to $75 million range, depending on what happens in the volumes, right? So volumes are flat, come more towards the 50. Volumes have the modest growth, you know, that we're talking about, come more towards the $75 million. And then you've got innovation. That is the center of our strategy, and it couldn't be more valuable than it is in this market environment. We actually expect a meaningful increase in revenue in the circular polyester methanolysis plant, as we've discussed in prepared remarks, and we'll have a tailwind with better utilization and cost, so you'll have a meaningful impact in EBITDA from this year. It will be the normal innovation that we always have in HUD growing in cars as well as EVs in the interlayers business. Our event is gaining traction. Nye Textile is recovering. used to pure semiconductor solvents, a lot of places where there's innovation growing. And then we're going to be focusing on how we can win share in a number of markets. There's some where we're already regaining some share that we lost in architectural and coalescence in architectural markets and interlayers. And then there's also some places in tariffs helping us, like especially polyesters in ARPA in the U.S. Tariff is significant for our competitors to compete in the U.S. And we're following our customers around the world as they're moving out of China. Underneath all this is our commercial excellence to defend and keep price steady and stable, only slight declines probably expected, and that it preserves a lot of cash flow. So we continue to be focused on cash. We continue to be focused on innovation. We're adding on aggressive cost management at the same time. All that comes together for a meaningful earnings increase under this scenario.

Vincent? Thank you. We will move on to our next question from David Begleiter from Deutsche Bank. Your line is now open. Please go ahead.

Thank you. Good morning. Mark, a lot of good things happening at Kingsport. You discussed two things, the conversion to the RPIC capacity, how much is being converted, what it means for next year, the bottlenecking, how much will it cost when we'll be on stream. And your plans for the second plant? You mentioned three locations. Where do we stand on that? It's long view now off the table, so thank you.

Those are all great questions. I'm a little limited on how I can answer some of them. But to start with Kingsport, first, the plant continues to run well. We're still on track to hit our production target. We've had, you know, great confidence built about our ability to bottleneck the plant, as well as our yields are turning out to be better than expected. We've hit 90% yields, which is extraordinary. We're taking garbage and turning it into first quality, perfectly clear, high quality polymer. So we're really, really excited about what we're learning, what we're doing on the project. And we believe that 30% expansion of the capacity is very feasible. The capital to do that, which would be done over a series of our normal shutdowns, is relatively modest capital. So we're not disclosing that number at this stage, but it's not significant. So excited about stretching that plan, getting a lot more value out of it, and that giving us more continuous earnings growth while we work on the second project. When it comes to the revenue for the project, In this market environment, especially in consumer durables, where a lot of the renewed content goes in our specialty Triton products, it hasn't been growing as fast as we wanted in the in-market, which means product launches aren't that fast. But as we look towards next year, two things, we continue to get more wins on the specialty side and continue to build confidence there where customers are committing and buying and paying premiums. But the RPED is a significant step up. So we told you last year that with adding 80,000 tons of new Triton capacity, we could take an existing Triton line and switch it back over to making RPET, along with a couple other lines that we have that are able to do that. So it gave us a decent amount of capacity to make RPET. And we've been really encouraged by several customers, very interested and committed to growing their RPED in different applications. And the commitment and the strength of their interest is really driven by the challenges they're having in mechanical recycled content, where the color's not great, the appearance on the shelf is not what they want for their high-end products on the shelf that need to look pristine. And so, our product sense is identical basically through the chemical recycling and the purification allows us to provide virgin quality product on the shelf. So we expect a very significant step up in volume to go a good distance in filling up that capacity. And that revenue, which is also the attractive margins, combined especially will give us a big step up in revenue versus where we are this year. Those commitments are close to complete. So we feel very good about where we are on that. And then when it comes to building the second plant, the great thing about the Dubal neck is it gives us time. to work on a much more capital-efficient way of building that plant. And it also allows us to really step up in capital right now in this economic environment. But we are making great progress on three different options of where we could leverage existing assets very effectively in combination with our methanolysis technology to build a plant in a much more affordable manner. We know the value of vertical integration, which we do in Kingsport with everything we do, and that applies when you're building something new too. So we're excited about that. We're not going to get much more in the details on that. Hopefully we'll have more to say in January.

Perfect. And Mark, just on Q1, looking to next year, how should earnings ram from Q4 to Q1? I assume most of the asset utilization headwind should be gone by then. Is that fair?

Yeah, the asset utilization headwind turns into a tailwind as you look at Q1. That's one of several factors. You have the normal seasonality of Q4 where demand is just always low, especially in advanced materials and AFP. So that snaps back, you know, seasonal paint, you know, lots of things being made for holiday season. Just you don't get orders for that in the fourth quarter, but they start doing that in the first quarter. In fact, in our specialty plastics business, we have a number of our customers already, you know, talking to us about their plans on buying more volume relative to where they are today. So that's encouraging. So I think you have that. You also have this exaggeration of this demand, this inventory that was built the first half of the year being used up in the second half of the year, which is also artificially pushing demand down in the fourth quarter beyond normal seasonality. And our belief is that there's a good probability that will be fully depleted hopefully by the end of the year. It's very hard to know. We've learned our lesson about guessing on what happens with inventory, you know, depletions, you know, back in 2023. But there's a big difference this time, which is in 21-22, there's a huge amount of inventory built on the expectation of a lot of growth. This year, no one expected a lot of growth. And you can see in the retailer data or the consumer brand data, they didn't build that much inventory. They moved around the planet a lot to get it in the right places to avoid tariff risk, including our products into China and Europe, but they didn't build a lot of inventory. So they don't have that much actually to unwind. So, you know, we should get some relief on that as well, we hope. And then, of course, the revenue we just talked about, methanol is starting to kick in. You know, the ARP that really ramps up in Q1. We have our normal innovation that's always driving some growth. And then the cost actions is the last part that should also help. As you have ramped up the cost action through this year, that should annualize into an advantage for Q1.

Thank you.

Thank you. Our next question comes from Alexia from Key Corp. Your line is now open. Please go ahead.

Thank you. Good morning. Mark, you just discussed this dynamic with Renew. Your customers seem to be interested in these specialty applications for the polymer, but they're not actually buying the volumes. So how do you gauge their real interest and sort of ability to pay for the price that you're charging for Renew?

It's a great question. It's come up a number of times. you know, the value of renew is to put it in a product as a way to differentiate that product and being different on the shelf, right? And they do that to get a better price point, to get some volume growth. So that's how any of these, especially on the consumer durable side of things, think about the value of this content. So there was extreme strong interest in this, you know, in 21 into 24, as they saw this opportunity. But the economic determinant of seeing the value and realizing the value depends on the market and consumer actually being there to buy it. And when you have consumer durable markets being soft and not growing very much, last year they were a little hesitant on how much they wanted to try and launch new products in that soft environment. You have to remember that building construction demand, I mean, sorry, consumer durable demand in 24 is probably 5 to 15% below 2019, depending on the product. And it's connected to home sales. Remember, home sales, all home sales are triggering events for durables, right? And that's down 20% in 24 versus 19 in the U.S. and Europe. And China's even worse. So the underlying market, you know, of triggering events to buy new products is weak. So in that context, while it's great to see we still have over 100 customers, we only have one cancel their commitment to renew. the rate at which they're launching that renew into new products and getting volume from the consumers is just limited by the in-market constraints. The good news is the pent-up demand is accumulating. These appliances are all getting really old from one's bought in COVID. And so you expect that at some point with some stability in the economy, you're going to see a pretty significant resurgence in demand because it's adding up under the curve from 22 to now. the trade war of course just made the challenge even worse this year as i described earlier so it doesn't change our confidence if they're really not interested they cut the you know cut the orders and they're not doing that makes sense and second question on fibers

Why are volumes just stable next year in terms of your expectations? I thought we had some weaker textiles this year, and also you had some customer destock. Could you just talk about these dynamics, how you see them evolving next year?

Yeah, there's a lot of moving parts inside the fibers business. And as I mentioned in the second quarter call, about 40% of the challenges in fibers is not associated with the tow business, right? So to your point, textiles, which was a source of growth to offset total market decline up through 24 and had done it nicely, you know, suddenly flipped. You know, this whole tariff issue that we've run into where we had, you know, modest growth year over year in the first quarter that then flips to a good single-digit headwind, whether it's housewares or textiles or, you know, appliances in May after the sort of tariff announced in April created a headwind there. And it's turning out to be a bit more than we thought. So we told you 20 million headwind. We think it's more closer to 30 million headwind for the back half of this year as we sort of go through the back half. So that is a real headwind in textiles. Now, the good news about textiles, this is a cyclical demand change. It's not structural. So when we think about recovery, we already can see some places where we're gaining some share. We're trying to move outside of China. where the reciprocal tariffs are hurting us into China with our product to other markets. And so we were confident we can rebuild that business and we'll start doing some of that next year. The whole stream had less demand. So we had a $20 million headwind out of acid utilization across the stream in the back half of the year. That's the part that's impacting fibers. We had some higher energy costs there. probably doesn't become a tailwind, but the textiles and the actualization can reverse and become a tailwind as we go into next year and the following years. So that takes you to the remainder, which is tow. Obviously, there is a pretty significant step down in tow volume this year that was driven by the de-stocking. The more we dig into it, the more we learn about inventory. Our customers' built-in tow is pretty significant. due to all the concerns they had about reliable supply when the market was so tight. And now that the market's a bit looser, they're feeling, because of the pass out in China, they're feeling they can take that inventory down. And that's the vast majority of what the drop is. I mean, we don't expect it to get worse next year, but we do expect it to continue into next year and to some degree lessen, but a little hard to call. It's a bit like what we've been going through with the medical destocking. It's not a single year And then there was some share that was lost by the industry to the new entrant. And so we're adjusting to that dynamic from China. And so as we look at that, we think that the share situation is stabilizing. Destocking will continue, but not get worse. And when you put that together, if we manage our positions correctly in the marketplace, we should have stable volume.

Thanks, Mark.

Thank you. Our next question comes from Patrick Cunningham from Citigroup. Your line is now open. Please go ahead.

Hi, good morning. Apologies if I missed this, but on the PEPC contract, can you remind us in rough terms what the initial agreement looks like and what is prompting restructuring of that agreement?

So the Pepsi contract was a very important foundational baseload contract to give us confidence in building the second plant. So the volumes, which we've not disclosed due to confidentiality with Pepsi, you know, is sufficient to baseload a second plant at 100,000 tons of scale, which is similar to the one we currently have built here, which will now be 30% greater than that with our development capability. So that contract provided provisions to give us confidence in the revenue that would come from it, both in price stability that would move with the changes in our key variable costs on feedstock and energy, and it would give us committed volume in that contract. And that contract was obviously designed around when that second plant would start. you know, which is obviously even back then a couple of years out. The change when we say restructuring is, you know, we've been very successfully working with them on how to move that volume into next year, start the volume next year. So, you know, they're one of the companies that certainly see a lot of value in our pet and in recycling content. One have high quality products on the shelf. And so they're interested in volume next year. And that's the restructuring is pulling forward the start of that contract.

Great. And then just at a high level, how should we think about CI earnings next year? You have some asset utilization tailwinds, cost reduction. And is there anything encouraging you're seeing from either trade regulations or perhaps planned asset rationalization that maybe helped pull forward any selection points there? Yeah, that's a good question.

I mean, so first of all, obviously, we're in a manufacturing recession across the entire business, you know, that started in 22. And we're now in our third, actually going into our fourth year of being in a recession. And there's no precedent in history of this, right? In 09 or 2020, you know, you have a sharp drop and then a sharp recovery and everyone sort of goes and moves on. So, it's hard to look at the current situation for a precedent and you also have a lot more capacity out of China being sort of dumped on the planet at very low prices. So, the CI dynamic in the whole commodity industry in large is going through a fairly unique situation. To answer your question, I do think there is a lot of rationalization capacity going on in Europe and it's expected that will continue. I think the Chinese government is trying to make some impacts on rationalization, but it's unclear how much and how far they will go on that. But without a doubt, capacity is coming out of the marketplace. But the market's loose, so it's a little hard to know exactly when that's going to tighten the markets up and get back to some more stable conditions. So that's one dynamic, and it's a little hard to call. I can definitely tell you the back half of this year is definitely at the bottom from a competitive cash cost point of view with how the Chinese are pricing into these markets from outside the US. The tariffs are providing a bit of protection to the margins to us in North America. So the second challenge we have is that the North American market, which is where we predominantly want to sell everything we make if we can, always has higher margins and is an attractive market. So when the trade war impacted demand in building construction, in consumer durables, or we didn't get a lift in recovery in housing that everyone expected at the beginning of this year, you know, the demand of those products in this market came down. And that's a mix hit because margins here are a lot better than the export markets, which have become very challenged with the Chinese capacity being sort of put on the global market. So, you know, recovery in demand on housing, interest rates causing housing recover and you know, immediately start improving the mix and earnings value of CI. So that, I believe, will help next year because I think odds are, you know, some of that demand will get better than where we are right now. We also, as I mentioned, just have a lot more volume to sell next year. So, you know, we'll have that benefit. And then we have a lot of aggressive cost structure, as you know, going on and reducing the cost here in this year as well as next year. And CI picks up a good portion of that cost. So there are a number of reasons CI earnings can get better. But at this stage, I think you would be cautious on just how much spreads would improve until we see more insight on the sort of broader market dynamics.

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 firstly, I want to ask, you brought up fibers as a business that's facing cyclical and non-structural headwinds. And I'm just wondering, in the past few quarters, we've been hearing, you know, whether it's from you that you lost some share in China in coating additives or from other players about interlayers, etc., that there has been competitive pressure in China. And I'm wondering, are there any chemical chains where you are actually seeing uh more structural supply coming in china and where earnings and volumes could go lower in the next few years and in the case of films or coding additives is the issue you've been having this year more cyclical or structural yeah there's there's a lot of questions you know buried in that question so i'm going to try and hit them first i just want to clarify when we talked about what's going on in fibers the cyclical part is textiles

where that demand, and a lot of it is sold into China, has come off. We don't really have much competition in that product, in a direct-like product that we make in our Naya yarn, but obviously there's constant substitution going on across different chemistries of textiles, which is where we're winning all of our share because our product is so much more sustainable than the other markets that we sell into, and that's why we're confident long-term in that product. I mean, when you have a 60% biopolymer with recycled plastic as the other feedstock. And it's the microfibers are entirely biodegradable environment. You have a lot of growth opportunities. So we're feeling great about that market, our ability to grow in it. When you ask the question around where we're losing some share, there is, you know, the lower value part of interlayers is the architectural business. And we lost a bit of share more than we expected this year, which we are regaining back in contracts for next year. Um, and then coalescence is a competitive product where the Chinese have, you know, equal coalescence. And so competition within China is, is, uh, pretty intense. And so we've walked away for some, walked away from some share there. They're now starting to pick up some share in some other parts of the world. So, you know, those dynamics exist, but for the vast majority of what's in, um, AM and AFP, we are fortunate where innovation is strong. and our competitive positions are strong, we don't really face that much direct competition from China capacity at this point. And the dynamics by far in what's going on from 22 through 25 is more about in-market volume demand that's associated first with out of control inflation that led to out of control interest rate hikes to then a trade war just to make things more interesting. Those are the key things that are driving the situation up to this point. And we don't have any signs of significant capacity being built in our specialties that would be coming online that we can see at this stage.

Perfect. And one quick one on buybacks. I may have missed it, but I think last quarter there was a comment about committing to more buybacks next year than this year. Is this still the case?

So what I would say is obviously we're always disciplined when it comes to capital allocation. We've bought another $50 million in addition to our dividend in Q3. We've completed the buybacks that we expect to do this year with keeping our net debt flat on a year-over-year basis. And what I would say is as we think about the scenarios that Mark described, obviously we're confident in our dividend in 26 and going forward. And obviously, we don't let cash sit on the balance sheet, but making sure net debt is aligned with and moving back towards our two and a half times goal will put the rest of the cash to use. But we'll update you in January on what the range of buybacks could look like.

Perfect. Thank you very 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 want to go back to the initial questions around the bridge to 26 and just really clarify the basis for when you're thinking about what we should be bridging off of. Because I think in your comments, you know, you were adding back inventory actions from the second half, but we know you overproduced in the first half. So, you know, should we be thinking about that additive to the full year or that additive to the second half? I think that's kind of the difference between getting to 550 versus something like 650 and EPS as a base expectation for 2026. So hoping you can clarify that.

Thanks. Yes, Josh, this is Willie. So, you know, on the utilization front, obviously we've been talking about first half, second half. As you also look at, you know, the volume and the demand outlook that Mark described, we've more than offset the inventory bill that we had in the first half and expect to do that by the end of the year. And that should give us utilization benefits as we're going through a more normalized year of stable demand that's growing on a year-over-year basis. So as we think about utilization, you at a minimum have 50 million due to the absence of inventory depletion on a year-over-year basis. And, you know, ultimately upside comes from there to the 75, depending on how much other demand drops to the bottom line.

Yeah, I think that just on the underlying volume scenario, just for volumes, what I tried to be clear about is don't use the first half or don't use the second half, but put them together. And that's a better assumption about what the volume, you know, decline for this year is because of all these dynamics going on. Um, it would be around a 4% decline AM. And as I said, around the 2% decline in AFP. And so you're from a volume point of view, you're building off of that volume base into next year. And then, you know, you have the overlay of all the things like first question on for things micro.

Yep. No, I appreciate that. That makes sense. And I guess, I mean, related point, I guess on combining the volumes, I mean, your first half volumes were down low single. Your second half is maybe down five single. I guess when you look at customer order patterns and what they're talking about, do you expect that you grow over the first half basis or because of the exit rate or volumes actually down in first half in terms of your base thinking and then it's easy comps in the second half?

Well, for sure, the back half is going to be easy comps. So we can answer that question. On the front half, I think it's a little complicated to know exactly how we entered the front half of this year. and how that plays out, especially Q1, right? Because remember, in Q1, you know, our view of the economy, along with everyone else in the industry and our customers, was pretty positive, right? They thought demand was going to be relatively stable. There's got to be some modest growth here and there. They thought Fed would be lowering interest rates at some point. And so our volume, the underlying market volume, was up about those single digits when we look at some of the places, you know, that we sell into, especially in advanced materials. And our whole strategy and volume build and manufacturers built around that will continue for the rest of the year. That's why things, you know, flip so much on D stocking. So the back half. So when you think about, you know, that, that change, you know, and how, and exactly how much of all the inventories depleted, you know, for all, from all of those pre-buy in the first half and, you know, the sum of that drag into the first quarter, we just don't know. Um, you know, we're confident Q1 will be better than Q4. It's a little hard to say exactly how it will compare to, you know, Q1 of last year. We're going to have to just wait until we get to January to answer that question.

Understood. Thank you.

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

Yes, thank you, and good morning. Mark, with regard to your PEPC contract, Is there any downside financial risk to Eastman now that you're rethinking the second plan? Or is it the case that there's really no downside risk because you're either protected contractually or you can perform against the contract through supply from Kingsport?

Well, first of all, we feel safe. great about having them as a partner. We feel great about them seeing the value of recycled content, the importance of recycling their packaging in the market and creating our closed loop. And they've been a true leader in the industry on this front. And we're proud to have them as our baseload. When it comes to the contract, you know, we believe the way the contract's structured, you know, we can reliably supply them from Kingsport and the Dabal neck that we're doing to get that extra 30%. and the different ways we can configure polymer lines to support what they need. So clearly we want that baseload contract to support our second plant, but with the actions that we've taken, we're in a position to support them from the different existing lines and how they can be configured, and the margins are attractive and give us a good return on investment around renews, so we're happy to support them.

Great. And then as a second question, I think you've raised your dividend every year since 2010. And with the actions you've taken, it looks like you've really supported the cash flow. I think you've said approaching $1 billion. So given that's the case, would it be reasonable to expect that streak of annual dividend increases to I realize it's a board decision, but it does seem like you're generating enough cash to do that. Any thoughts along those lines, Mark?

Well, first, thanks for the question and bringing up how solid and attractive our dividend is, which is well covered by our cash flow, as you also recognized. To your point, it is a board decision, and we're not going to get in front of that process. But we do have a record of 15 consecutive years, and I think that speaks for itself. Also, as you've seen, our most recent dividends, they haven't really significantly impacted the cash flows that are required to ultimately fund the dividend going forward. And we do have a strong cash flow that we would expect in 2026. Thanks.

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

Thank you so much. And if I could get a little more granular on the outlook question, going back beginning of August, the expectation was 4Q would be in line, if not better than 3Q. And then in September, Willie indicated that 4Q might be a little bit weaker than 3Q. And then obviously with last night's guide, things got even weaker. So I'm wondering if you can speak to the pace of activity that you've seen in the past couple of months? And what are your order books suggesting here for November? And how confident can you be that this is the bottom?

That's a good question, Frank. And as you may exist, we spent a lot of time trying to understand all the market dynamics that we're in right now. And it is a very chaotic time. It's hard to even get high quality data to know what's going on in the marketplace. And so we're doing everything we can to understand it. The dynamic, whether it's from the Q2 call to September to now, and what's changed is demand. Nothing else has changed. Our cost plans are on track. In fact, we're probably being a bit more aggressive in cost management with the challenges that we face. The price-cost relationships on spreads and everything else are holding up as we expected. So it really is just a question of in-market demand and how it's trending. And it really connects back to this question, which is just where exactly is consumer demand right now, you know, and how it's changed, you know, after April, as well as, you know, this, you know, just how much inventory is out there that was built in warehouses all over the country in the U.S. or warehouses with Art Frighten and other, you know, Cellulose 6, et cetera, in China that was, you know, bought ahead of, you know, potential risk on those retaliatory tariffs getting worse or et cetera. We don't know exactly how long that's going to take. Clearly, with the way that order patterns have evolved, where we thought it was going to be relatively short back in July, is dragging out through the back half of the year. The thing that gives us comfort is we just haven't built that much inventory, as I said earlier, in total, from what we can see from all the public companies that we sell to or the retailers. There's a limit on just how much they can do this, but it depends on where consumer demand goes. All those dynamics are in play. And the fourth quarter is always a wild card, especially as you go through the quarter. October rubbed in as expected, so we feel good about that. And we're just going to have to see how things trend. We are encouraged, for example, and especially Plastics with these customers that are on a very long supply chain to make consumer durables, talking to us already about planning for higher orders in Q1. So that's encouraging. way too early to recall exactly how this is going to play out from a precise timing point of view.

Okay, understood. And you did mention that you're becoming a little bit more aggressive on the cost reduction front. You announced the 7% headcount reduction. Can you talk to the locations, geographies, and how much of that is embedded in that $175 million in cost cuts that you're expecting between 2025 and 2026?

So, Frank, on the cost discipline, it's a fundamental part of who Eastman is and our strategy. I would also say that the cost reductions that we set out, and it's a very aggressive level of cost reductions for both 25 and 26, both offset some of the declines in fibers and our chemical intermediates that may not be recovered. And it's also been foundational to our ability to basically support our growth and our growth spend for innovation. As I think about this year, our net savings is going to exceed the $75 million target that we set out at the beginning of the year. And the momentum that we've gained in the back half gives us confidence now that we can raise next year's net number to $100 million on top of that. As you think about gross numbers, that's an excess of $300 million of cost reduction actions. It's really driven by three core areas. It's effectively productivity. It's also being competitive on both the manufacturing and functional standpoints. And now with the acceleration of AI, how do we bring that to scale within Eastman, both in our commercial as well as our manufacturing areas. As you talked about the 7%, the 7% is our headcount that we started at the beginning of the year where we expect to be at the end of the year. So we've been doing that effectively across our enterprise, both in response to the environment that we're in, but also as we think about How do we compete in a world that's only going to continue to raise the bar as we think about excellence? So as we think about reclaiming productivity, I think there's been studies post-COVID that have demonstrated a loss of productivity of at least 8%. And that also was compounded with the impacts of retirements that both happened at Eastman as well as across the chemical sector. of a lot of knowledge. So this is not just normal productivity of offsetting labor. It's going above and beyond to recapture productivity more broadly. And the only way that you get that, we've been investing in capability, training, structure, and how we get work done. As you think about areas beyond just productivity, part of this we just announced optimizing our footprint. We've continued, like we have in the past, to look at how we should manage these supply chains. Supply chains have, I'll call it, put an inordinate amount of cost, both through tariffs, through logistics over the past several years. And the example that we optimized here in Q3 was the announcement around how we're going to run our films business. basically from a regional asset footprint, which is resulting in some restructuring here in the US of our assets. So we will continue to transform how we do maintenance, also how we think about reliability. And you've got to have the right partners. So we've gone through transformations this year of changing out partners across a couple of our large assets, both here in Tennessee and Texas. And as you think about getting that benefit run right here in the back half, that gives me confidence that we're going to deliver the $100 million as well as we go into next year. And from there, it's AI. This is where it gets really exciting. As you think about in our technology space, this is where we can ultimately reduce the cost of innovation, the speed to market as we look at predicting what formulations are going to be the right formulations to take to market, And also, as we think about the capacity that we need and where we need that. Finally, I would just give the example on the commercial front, right? We're ultimately, as we think about commercial, commercial excellence that Mark has highlighted on pricing, we're using AI when it comes to, you know, setting up compelling offers, how we generate returns off of those offers, and also how We build off of that and win new business. So those are a spectrum. We're right-sizing the cost so that we can invest in innovation for the long term. And we're on track to deliver both here in 25 and in 26.

Thanks so much, Willie.

Thank you. Our next question comes from Mike from Wells Fargo. Your line is now open. Please go ahead.

Hey, good morning. Um, Mark, when you think about the portfolio that you have now, I, you know, I think the hope over the last decade was to move it to more specialty type areas. Your multiples compressed a lot. When you think about what to do for the next five years or so, do you think you need to make any changes? You know, the results granted unprecedented times, um, has, has been difficult. So when you think about things to do to improve the portfolio, any thoughts there?

Hi, Mike, and thanks for the question. So, you know, we're always thinking about our portfolio, and we're always thinking about, you know, where we want to go in the future. I want to emphasize that the core strategy we put in place that really goes back over a decade to be an innovation-centric company is absolutely the correct strategy, especially as one to get through all this chaos. You defend value in market share because you have differentiated products in the market that customers need. You find a way to launch new products, you create your own growth. So we fundamentally believe that strategy is the correct strategy. And we've now added on a much more aggressive cost management program to go with it. So it used to be pre-COVID, we had productivity that offset inflation. We're clearly going way beyond that now because we realize that we have to be more competitive in these market situations. So that concept, that strategy, allows us to get our normalized EBITDA back towards what we talked about at the deep dive in November, and we're still operating on that strategy. And portfolio has been important for us. We've shown a lot of discipline to sell parts of our portfolio when they didn't make sense, like tires, adhesives, the Texas acetic acid plant. But if you go back even further, we demonstrated a willing to really convert our portfolio to be especially. So we sold off a huge amount of commodities, about $3.5 billion leading up to 2012. We then did a series of acquisitions that were quite large, like Solution, Tominko, and some bolt-ons to really change the quality of our portfolio in a pretty dramatic fashion. So we know how to do M&A. We know how to do integrations. We know how to buy assets at a rational price. So we're always thinking about these kind of opportunities. Without a doubt, the industry is going to be going through a lot of significant change right now. with all that you see going on across the peer set. So, you know, of course, we're thinking about how, you know, our portfolio should evolve in this context. But, I mean, we're not going to say more than that.

Yeah, and then in terms of the quick follow-up, when you think about the normalized EBITDA, you talked about a year ago a little over $2 billion or so. Is it less volume to get there now, given your cost savings? Is there any major changes to the walk, or is it still fairly similar, meaning we need some volume to get there?

Well, I think that without a doubt, volume is the story and the challenge that we've had since 2022. And we need volume to stabilize. We just need economy to stabilize and volume to get a bit better. In that context, innovation accelerates when customers are confident and think there's a stable environment. They want to launch new products. They're trying to gain share and win. So volume, not just from the market, but from innovation, accelerates. The cost reductions that we're doing that Willie discussed are significant and lower our cost structure in a material way. A lot of that is being masked this year because of the $100 million reduction. sequential headwind of utilization that we've encountered in managing our inventory because the world didn't grow as expected. And so you can't really see the cost benefits this year. But as you move into next year with the volumes, if we're in a scenario where volumes are stable this year, economy is stable, you get the acceleration of all that cost cutting as well as that utilization tailwind kicking in. So you do get a benefit from volume, but you also get a benefit from leveraging a much more competitive cost structure. And it's important to keep in mind a lot of that headwind that we've encountered with volume this year because we have these large sites like Tennessee that has a lot of vertical integration and fixed cost. It's painful when the volume goes down like you've seen. It's also extremely attractive when the volume comes back. The incremental margins will be very attractive.

Thank you.

Thank you. Our next question comes from Aaron from RBC Capital Markets. Your line is now open. Please go ahead.

Great. Thanks for taking my question. Most of my questions have been answered. I guess just wanted to maybe you could elaborate on some of the choices you're making between giving up some maybe lower value business and the market share losses and what that kind of means for the future as you look into 2026. Does that set you up for maybe some improved margin performance, or how should we think about that? Thanks.

So, you know, we're always optimizing our asset base. This has been a core part of our strategy since, you know, we started on this, right? If you think about just the simple idea that Eastman made PET, that got competitive. We moved into a whole set of copolyesters that we made with some proprietary monomers that upgraded that value. Then we came out with Triton. which really upgraded the value in a very proprietary product and how it's been so successful, on the same PET assets that we started with. In fact, the Triton line we're adding right now, that 80,000 lines, the first PT line we've added in decades, because we're constantly valuing up the asset basis we have. Same is true in interlayers, whether it's a standard interlayer to one that had Acoustic, to the one that has HUD, et cetera. So this idea of optimizing our asset base to drive returns, and move to higher ground is embedded in our strategy forever. So there's always choices you're making, you know, where you look at some of the lower value products and replacing them with higher value products and upgrading mix. We have lots of charts we've shown you in past investor days on how that's worked. And we're always doing that. But right now with the market being soft, the other value of some low value applications is asset utilization and running the assets full. So you want to make sure you're always keeping that balance in place. And with all the drama we've been through in the end markets, we've freed up some capacity just because demand is off. And so we're trying to reassert and add some of the lower value applications back into the mix to drive asset utilization. Then as the economy recovers, we'll value up that mix again like we always do. Thanks.

Thank you. Our next question comes from John Roberts from Mizuho. Your line is now open. Please go ahead.

Thank you. In PET bottles, do you expect Renew to be used in a consistent way, or is it going to be maybe blended at different levels? And do you expect any differentiated marketing around Renew in bottles?

We do, John. I think different brands, both on the specialty side, by the way, as well as on our PET packaging, are making different choices about what percentage of recycled content they want to put in the bottle. And it can be 50% recycled content. In some places, it can be 100% in another place. It ties to what they want to do on marketing on the label, and it ties to what they want to do in achieving corporate goals. of recycled content for the company overall versus what they put on a package. So it's a full spectrum out there on how companies are doing that. We provide, because of the way we can flex our assets, we can put whatever level of recycled content they want into the product very seamlessly. You know, we flex to whatever is most valuable to the consumers, and we have, you know, good prices, you know, for different levels of value.

Is there an average level in your plan?

I would say that at the moment, our expectation is when you look at the specialties and the RPAC combined together, it's probably going to be around 50% for a while. You'll have products that are going 100%. You'll have some that are 50%. And then you have products, you know, that, that, uh, you know, some cases might be lower, but, you know, somewhere on average, I'd say when you look at it, somewhere in the 50 to 75% range is sort of where the recycled content, uh, you know, will, will land. You know, it's really evolving. What I expect to see happen is people go with a low, you know, a lower level recycled content when the economy is as stressed as it is, because there's a premium they're paying for it, but they want to make progress on their goals. They want to demonstrate commitment to the consumers. And then as the economy stabilizes, they'll start ramping up to a higher level of recycled content, you know, when they have better economics to afford it.

Thank you.

Thank you. Our next question comes from Duffy Fisher from Goldman Sachs. Your line is now open. Please go ahead.

Good morning, fellas. We've had a number of announcements from your Ag Chem customers about difficulties they're having in the market. A number of consultants are talking about pretty big structural changes there with the Chinese pushing harder into those markets. When you look through the view of your intermediates chemicals into the ag chem industry, do you think you have the right position or do you see changes that's going to affect you and, you know, cause you to have to change your business model there?

Yeah, we're very fortunate to have a very strong relationship with a lot of the top ag companies. And the vast majority of our business is in North America where we make these intermediates and they're sold here. We're also very fortunate to be aligned with winners in the marketplace like Corteva when we're providing the key ingredients of the Enlist product. So we're in a better position because we're just not as exposed to all the competition and battle that's going on in South America, which I think is what you're probably getting at. the tariffs of course you know you know to get in the us are sort of helping um manage some of the pressure here so i think you know we feel relatively good we're not having any conversations uh with our customers at this point at least uh you know where they they're concerned you know about their position in north america great and then um

As you've seen some weakness in your downstream tow business and the textiles business, does that mean you're going to run your Acetyls chain at lower operating rates, or will you have to push into more Acetyls derivatives upstream from those markets?

That is the beauty of having an innovation-driven company. A long time ago, we knew that demand would not be forever there for tow. We've been lucky that it's declined at a relatively slow rate. But we've been building a whole innovation portfolio, as we discussed at the deep dive last November, around how to take cellulosic polymer into a wide range of new applications. So Textiles was one of those applications which was doing its job to offset that, as I said earlier. But the Aventa program is still having great progress going forward. This is the foamed cellulose. polymer that can replace expanded polystyrene food trays, you know, go into straws, et cetera, and all these food service areas where you can't really do recycling because of the way the product is contaminated. And it completely biodegrades. So we have a lot of growth opportunity, huge markets in Aventa that we can serve. And we've got some great IP positions around some of those products. And we also have some specialties that are very high value microbeads that are made out of nylon acrylic being replaced by a biodegradable cellulosic cosmetic formulations that we can replace polyethylene coating on paper cups and paper wrappers around candy bars whatever the biodegradable polymer so our whole portfolio is in action obviously the volumes are still relatively low and building but we have great traction with our customers so that's how you drive overall company stream utilization because the stream has always gone into specialties in am and afp as well as toe and generate a lot of value in those segments and we're going to keep growing and expanding through those to keep the whole stream vital. Great. Thanks, fellas.

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

Perfect. The last question comes from Lawrence Alexander from Jefferies. Your line is now open. Please go ahead.

Good morning. Thanks for squeezing me in. Just very quickly, can you give a sense for how much of a shift is happening in terms of reshoring of appliance capacity in the US, maybe as a possible catalyst for 27 and 28. I'm just thinking about like the G Louisville announcement and things like that. And secondly, with the Chinese five-year plan is your initial read on the kind of first drafts being circulated, that it's a net positive because they need, you know, they're emphasizing innovation and more formulated products. or is it a negative in the sense that they're emphasizing profit sharing to encourage and incentivize consumption, so lower return on capital for the chemical industry there and everything that entails?

So on the reshoring question, I think that you will see people reshoring to the U.S., and we'll see the benefit of that. You know, there are companies that have been leaders in doing that, like Whirlpool and Newell, and I think, you know, after all this, you know, pre-bought inventory, but having the first half, you know, gets exhausted, you know, they'll see benefits, you know, to their position in the U.S., and we'll see more of that. If U.S. MCA gets preserved, you know, I think you'll see it not just in the U.S., but also in places like Mexico where that will continue to be built, as well as people still moving to other places like Southeast Asia where the tariffs are still, you know, quite a bit lower than doing it in China these days. So we're following our customers wherever they go. But it takes a while to build plants. It doesn't happen overnight. So we'll see how that plays out over time. Regarding the latest Chinese five-year plan, I have to admit I'm not an expert on that plan. So I don't want to get into territory of details I don't really know. What I would say is, you know, from what we see in the China market is uniquely Chinese. challenge as part of the global challenge where they don't have consumer demand growing very much there because of the stress of the collapse of the housing market and they're adding a lot of manufacturing capacity and aggressively exporting it and that's creating strain in the country and it's also creating strain around the world which is leading to these tariffs that you start seeing happen not just here but you're going to see them in other countries so i think the china government's got a lot of complexity to manage there And their excess capacity is not helping their local economy or the world's economy. And hopefully some of the actions they're talking about to sort of rationalize capacity to be more appropriate, they actually do. But we're just going to have to wait and see what they do on that front. And hopefully they stimulate some consumer demand in China, which would certainly help their economy a lot.

Thank you.

Thanks again, everyone, for joining us. We appreciate you taking time with us, and I hope that you have a great day and great rest of your week. Thanks again.

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