Eastman Chemical Company

good day everyone and welcome to the first quarter 2026 eastman conference call today's conference is being recorded this call is being broadcast live on the eastman website at www.eastman.com i will 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, Senior Manager, Corporate Analysis and Investor Relations. Yesterday after market closed, we posted our first quarter 2026 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 first quarter 2026 financial results news release, during this call, in the preceding slides and prepared remarks, and in our filings with the Securities Exchange Commission, including the Form 10-Q to be filed for first quarter 2026 and the Form 10-K filed for full year 2025. Second, earnings referenced in this presentation exclude certain non-core and unusual items. Reconciliations to the most directly comparable GAAP financial measures and other associated disclosures, including a description of the excluded and adjusted items, are available in the first quarter of 2026 financial results news release. As we posted the slides and the accompanying prepared remarks on our website last night, we will now go straight into questions. Becky, please let's start with our first question.

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

Thank you, and good morning. Mark, I'm wondering, in methanolysis, given what's going on, the run-up in crude oil prices and virgin plastic prices running beyond that, if in methanolysis this is providing an opportunity for more customer trial or adaptation, whether it's in the U.S., potentially some export opportunities. Because I seem to remember over the last year or so, we've been talking about, you know, customers not wanting to spend or try things that are different. But it would seem to me now your product probably offers some significant relative value beyond just its, you know, recycled nature. So if you could comment on that, that'd be really interesting.

Good morning, Vincent. So we certainly are very excited about the strength of revenue growth associated with the Renew platform around methanolysis, both on the specialty side as well as the RPET side. We need to keep in mind that the in-markets here, even though there's a lot of stress in the marketplace right now with the Mideast conflict, the in-market demand situation hasn't really changed dramatically. Consumer discretionary on durables is still relatively challenged, or cosmetics, et cetera. So we're not seeing an uptick in market demand in this context. And the customers are still, fortunately, very focused on the value of renewed content and interested in buying it. So on the specialty side, I don't think anything's really changed. We are getting a bunch of wins. We're seeing a great build in specialty customers. You saw some of that volume growth happen in Q1. It'll continue into Q2. and into the back end of the year. And it's happening with Triton sales and cosmetic packaging where we're seeing the most adoption. On the RPET side, I think there is more of a question around just relative value of our RPET relative to where virgin PET prices are going with the increase in oil. And certainly that improves the price position of our material relative to those materials. that are going up in a considerable way. And so we see strong demand there. But honestly, the demand was strong before. Why not? And we're running our capacity to serve that. And so that 4% to 5% revenue growth that we've talked about in January, we still think that's probably accurate. There may be some upside. The real upside, I think, relative to the underlying market, sits more in the Middle East-related issue than it is just on the renewed value proposition. across the portfolio, but in particular, especially plastics, since we're talking about advanced materials right now, you know, has some upside there. You know, as our competitors in Asia principally, you know, are facing a much higher oil cost, much higher, you know, natural gas cost. They're, you know, they're having to raise prices like we are aggressively in this context, but they're also facing, you know, security supply issues. There are shortages out there that's driving all this price increase. So people are going to start running into the inability to actually make product polymers, whether it's direct competition or indirect polymer competition. So we're just seeing signs of it, but we expect to see more potential volume upside driven by that operational constraint that's going to be occurring in Asia in particular. So there's a combination of renewed growth for sure. What's impressive in this entire environment is even with The challenges that our customers are facing economically, we're still building. They're still paying premiums for these products, which is a really impressive test of the value proposition. Vincent?

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

Hi, good morning. Thanks for taking my question. Sort of a related question just on, you know, the volume upside, you know, it's being a reliable supplier here. You know, have you seen, you know, tangible market share gains, particularly in CI at this point? And then you kind of touched on this, but, you know, how would you sort of handicap the potential for share upside, you know, in other parts of the specialty business as a result of the conflict?

Yes, that's a great question, and we're certainly paying a lot of attention to this issue, as I just mentioned. So on the chemical immediate side, certainly we can sell everything that we can make. And the good news about this year, because we had such large cracker turnarounds last year, is we have a lot more volume to sell this year than last year. So we have more volume to sell. Remember, we sell a good amount of that in North America, where we have good margins always. And then we had the export market that we would send material into from chemical intermediates to run the assets. But those margins had been significantly compressed last year. So those margins now with the shortage of the Middle East have gone up significantly. And so we're going to see the benefit of that. So we see the benefit of a lot more volume than we expected in North America with the tightness in the overall markets from the imports that would have come from Asia that are not coming as much, as well as the spreads expanding and a lot more volume to sell. So we're definitely seeing share benefits. well as being out you know explored to higher value markets like europe um than asia uh where where markets are being shorted by material that's not coming from asia as readily so lots of different benefits going on there when it comes to the specialty side i already hit the point i think but we definitely see the potential for a volume in markets upside in afp and uh advanced materials um but it has we haven't seen any significant amount of improvement yet so we're We think that's still to come. A lot of people are very focused on the price of oil or the price of global natural gas, which is certainly raising the cost structure of our competitors around the world much higher than us. But the quantity shortage, I think, is an impact to the world that we haven't actually seen yet. People are living off of a certain amount of inventory, whether it's customers or competitors, and serving the market. But that's going to start running out. And they're going to start seeing more shortages impacting the markets in addition to just the sort of direct oil or natural gas dynamic.

Understood. Very helpful. And then just on fibers, you specifically called out reduced customer shipments, you know, some forward-looking volume risk. Can you elaborate what you're seeing there and why the implied, you know, second half earnings run rate should, you know, still show some improvement year on year?

Sure. So just to sort of go back just a moment to sort of what we're dealing with in fibers, when the earnings came off last year relative to 24, it was really multiple components. The tow volume is part of the story, but it's important to remember that about 30 million of the decline was textiles, 20 million was sort of stream mass utilization due to weak demand across the company, and about 15 in energy. So when you move to this year, what we told you in January was Um, we thought that, uh, the, the tow volume would be moderately up. Uh, relative to last year, uh, which was a combination of, you know, locking in our contract business with everyone. So we did, we had a modest price decline to lock in our contracts, but our, our middle East customers were expected to grow a bit because they were the ones that were missing, uh, their contract commitments last year due to the issues we explained about, uh, them not realizing market share growth in their markets. Um, and so we were expecting some, some, you know, modest growth, you know, until from that, obviously while the middle East war happening, uh, the, uh, those customers, you know, have been impacted. We actually have tow there to serve their demand, uh, in some warehouses. So, you know, it's not an issue of us getting material to them. It's an issue of their ability to operate in this environment. and be able to export their cigarettes to other markets, because a good portion of their production isn't just for the Mideast, it's for exports to other markets. And so how they get that material out is a bit of a constraint. So Q1 was fine. We see a little bit of risk in Q2, you know, where they're not going to buy quite as much in that quarter as we expected. And the real question is, how do they come back in the back half of the year to meet their contract commitments? You know when it comes to your back half question, the other thing that's going a little bit slower and why we lowered earnings about $20 million in our guide here. Is the yarn business is not growing as fast in this market context, so we don't see that volume pickup and, as a result, we don't we're not getting as much of an asset utilization tailwind as we expected. So when you think about that we still feel really good about how the business is doing and then, when you look at it from a second half point of view. you have several drivers that will make the second half much better than the first half. First is these contract commitments. So even with our large customers who have signed annual contracts that holds relatively constant to last year, the contracts allow flexibility in how and when they buy it. And a number of them have chosen to buy less in the first half and buy more in the second half. So you have a pretty significant ramp up in volume with our core customers around the world. Just mean their contract minimums, which is sort of you know what we have in this outlook so that's happening. The second is you know you've got some continued building the night night a yarn and and and film side of things, you will have a little bit of energy tailwind as the energy gets cheaper. From a flow through basis from the winter storm, you know in Q1 to lower natural gas prices going forward so number of these factors come together. to enable this, and of course our cost reductions are sort of back-end loaded as well across the company, and some of that flows in here.

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, on CI, if you were to hold spreads steady at today's rates, and layer in that $15 million of maintenance tailwind for Q3. What would that mean for Q3 EBIT? Could we see EBIT $100 million in Q3, or is that too ambitious?

Well, I think, Dave, we sort of guide you that Q2 would be around $50 million in EBIT with a pretty tight market situation that's going on obviously right now. As we look at Q3, and what the trends could be, you know, I would think it's going to be more similar than to be substantially up. I mean, without a doubt, you know, the margins are tied right now, and there will be a tailwind from Q2 to Q3 on the shutdown side. But it then comes to your assumptions around, you know, when the straight's going to get opened. You know, if the straight gets opened in the next month, obviously some pressure is going to come off in the marketplace and you'll have spreads moderate a bit. So that makes it a little more complicated to sort of say it's going to be up. I think it being similar is a reasonable expectation. But it really comes down to how this whole straight situation plays out and how long the market tightness goes. When you think about it, the price of oil, price of global natural gas are obviously incredibly high right now. And that gives us, you know, a very significant advantage in how we make a lot of products, not just olefins, but everything. Because a lot of our customers are also, or competitors are based on natural gas, not just for energy, but for feedstock. But, you know, if you think about just the cracker side of things on olefins, which is the vast majority of the improvement for us, you know, you've got naphtha offline and you've got methanol offline. That's 15, 20%, you know, of that, not just the oil, but these derived products. a lot of time for these refineries to restart. Then you've got to get the derivatives to restart. Then you've got to fix the logistics questions. And then you've got damage in places that have to be repaired. All of this says, you know, the moderation isn't going to go all the way back to pre-conflict in our minds on oil or the derivatives. But certainly, you know, when this rate opens, some of that pressure will come off, you know, and factor into sort of how the margins trend in the back half of the year. But we feel great about how the business has improved. We're happy to have the cash flow that comes from this business. And we certainly think that it lets us to reset better.

Very good. And just on the potential volume upside and specialties from these disruptions in Asia, how do you go about making these permanent rather than just temporary?

That's a great question. So, I mean, I think it's going to You know, it's unfortunately a dependence answer, David, on where we pick up the volume. In some places where it's a like competitor, you know, the shares may normalize back a bit. But customers are learning painful lessons about exposure and reliable suppliers. And I think one thing to keep in mind is this is an excellent proof point about the advantages of being a North American chemical company. And in particular, being a very vertically integrated chemical company with 80% of our assets in the U.S., gives us a huge cost advantage, but it also gives us a huge security supply advantage to our customers, and there's value to that. And certainly one we intend to take full advantage of in supplying our existing customers, but also picking up new ones that we will intend to hold on to. When we pick up customers, by the way, from other materials, then the chances are we can hold on to them because the value proposition of our product is better once they once they start using it. Typically, they're using some cheaper polymer like polycarbonate or SAN that doesn't perform as well, but it's cheap. When they switch over to our polymer, they're going to see it perform far better with their consumers, and then that should provide some stickiness in how we hold on to that share once they've realized it. So we're going to be doing everything we can. And of course, we're going to be trying to lock the business in on contracts for a longer term commitment where we can as well in this environment to give us resilience on the volume and the price side.

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

Yeah, hi, good morning. Just curious around your visibility around any pull forward or not. I mean, I think in your prepared remarks, you said it's not pull forward, but how are you validating that? I guess all the conversation around potential supply risks for some of your competitors probably makes your customers a bit more nervous and probably build a little bit of inventory. So curious there, and then related with that, just how does this impact your production plans? I think you kept your asset utilization tailwind kind of the same, I would think if you're anticipating their demand, maybe there could be some upside there. So curious if you could talk about that as well. Thank you.

So when you think about the demand pull forward, we're operating with the underlying assumption that in-market demand this year is going to be similar to last year, which is the same assumption we gave you at the beginning of the year. And it's the same thing we're using for how we think about planning and assessing what's going on. And in that context, What we're seeing in volume growth in the second quarter sequentially is strength and growth in the AEM business, really especially plastics, which is associated with all the methanolysis wins, which is associated with clear wins of new applications and market share we're getting in our port and Triton business, our cosmetic business, that doesn't have anything to do with pull forward. We don't see a big spike in demand like last year where people were just trying to buy stuff ahead of tariff risk. I think part of what's going on is, you know, customers, you know, see the risks and want to get ahead of price increases or, you know, want to have security supply, but they're also being cautious about what they do when it comes to building too much demand with, you know, market uncertainty that we all can recognize in the back half of the year in this context. And, you know, the other factor in this too is inventories were really low at the end of last year. So you also have to keep that in mind. That's part of the strength of recovery you saw from Q4 to Q1. People just started to rebuild some inventories or, you know, if you will, end of the stocking that was going on in Q4. But we don't see a lot of inventory out there in the supply chains at this stage. It's always difficult to see it. To be clear, we certainly, along with the entire industry, have not been experts in understanding supply chain inventory. But, you know, we don't see a lot of build to that, certainly not in March. And as we go through this quarter, our order books are really strong. So we had a good March, a strong March, and we see that continuing April and May. But June's a wild card in this market context. You know, we don't see any problems, but we still have that much visibility all the way out to June. But overall, you know, there's just a sign of, you know, just giving a market pull through in the specialties. As I said, in CI, we can sell what we want to make, you know, and probably can do that through the end of the year. Great. Thank you.

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

Thank you so much. I was struck by the $500 million of price increases that you have started to implement. I'm wondering if you could talk about how you see that phasing in, what has been the initial reactions from your customer base, and how How does that match up in terms of your expected inflation in raw materials?

Hey, Frank, good morning. What I would say is, as Mark's already highlighted, in chemical intermediates, we were reacting in the moment and driving price increases and volume growth as we think about what's required to supply. In the specialties, obviously our pricing philosophy has been around the value of our products. And as we pace that with our partners over time, what we expect sequentially is in our specialties, mid-single-digit price increases from Q1 to Q2. When you think about our chemical intermediates, those are phasing in. I would say they're in the high teens or approaching 20% as we see that sequential momentum. So our teams across the world reacted in the moment in Q1 when March occurred, and we have good progress out of the day.

Yeah, so just to answer the question around the sort of market competitive dynamics around this, clearly everyone is raising prices, whether it's polymers or chemicals, across the entire industry. So you have that momentum to leverage. Being cautious on price increases will accomplish nothing when you're trying to think about consumer demand, except you're missing out on margin. I think everyone understands that. So that's point one. Number two is the competitors we have, especially in the specialties, especially in advanced materials, are Asian-based. They've got significant increase in oil and they have significant increase in natural gas prices. So their cost structure, their energy cost structure has gone up more than us. And so they're feeling a lot of pressure to manage their prices. And we're seeing the price increases from our competitors similar to us across the markets. So in this context, we feel pretty good that we can get the price up, hold our volumes. And we've got great commercial teams. We've shown the value of innovation by holding on to price incredibly well in 24 and 25 in very weak market conditions. And now we're in a hyper-inflated market condition and we're showing we can increase our price on our specialties and keep track with our raw material and distribution costs, which is just further proof that we have a specialty business that has differentiated value propositions. But we're always close to our customers. We'll always be keeping an eye on competitive activity and make adjustments if we have to, but we're not seeing the need to do that at this stage.

That's very helpful. And if I could come back and get a clarification, You know, when talking about fibers getting better in the second half of the year, part of that is you have contract commitments from Middle East customers that you're anticipating, you know, they're going to meet their contract minimums, et cetera, et cetera. But wouldn't this qualify as force majeure? I mean, wouldn't they be able to say, hey, look, I mean, you know, to me this seems like the very definition of force majeure. How should we think about that?

First to frame it, the Middle East customers are about 10% of our revenue in this segment. So the other 90%, you know, is predominantly tow as well as some yarn customers. And in that 90%, you know, the real dynamic here is just they all have contracts. They all have, you know, volume commitments. Our forecast is based on them buying at the bottom, you know, end of the volume range in those contract commitments. And so that's global. It has nothing to do with the Middle East. And they bought less in the first half of the year and going to buy more in the back half of the year. And that is the principal driver of the increase in earnings in the second half relative to the first half. And when you get down to the Mideast part, you know, these customers have made a lot of investments in new capacity and were winning in the marketplace, but not quite as fast as they wanted. And that's where their volume draw last year came up short. They had taken a bunch of actions to start gaining market share this year and are very focused on doing it. They just have a logistics issue of getting it out. And so we've adjusted our expectations for the risk of that challenge by lowering the range expectation segment to this 210 to 240 range, which is about a $20 million drop. And part of it is just a bit less volume from them, a bit less yarn growth, and a bit less asset utilization benefit. And you put those three together, and that's how you get to that 20 versus where we were originally. And that's really sort of the dynamic. So it's about customers meeting their contracts. Those customers historically have always met their contracts under any situation, and they don't have a force majeure excuse on that 90%.

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

Morning. I can't remember right now if it was the slides or the release, but you talked a little bit about the IEPA tariff refunds. Wondering if that was a tailwind to 1Q or if that's more 2Q. If it was, how much are you expecting to get back there?

Good morning, Matt. On the IEPA tariffs, obviously with the Supreme Court ruling and the Court of International Trade, we recognized about $20 million within Q1. That wasn't a tailwind. The IEPA recognition of the refund was basically in line with the winter storm impact. So you can think about those two as being neutralized in Q1. Also, that is the recognition. There's no further IEPA refunds to recognize, and we would expect to get the cash related to that sometime in the second half of the year.

Just to clarify, that's been, like, included in the 1Q results, then? Yeah, both the winter storm and IEPA are in the 1Q.

Okay.

So if you think about it, they neutralize each other out. So when we give you our guides, When we gave you our guide in January, we said, you know, this is our outlook, excluding the winter storm impact that we were in the middle of. But by the time we got to the end of the quarter, the IFA tariffs neutralized the winter storm. It turned out to be about the same. So it was just a clean quarter relative to how we got it in January.

All right.

That's helpful. Thanks.

I'm jumping back in. So context is helpful for me. And then on methanalysis, Right. I just wanted to kind of square some of the commentary because you talk a bit about new wins. And at the other side, you're saying, you know, demand hasn't really changed much. So can you just kind of refresh where we are on kind of the upscaling here?

Sure. So when it comes to the, you know, revenue of circular, there are two components to it, right? There's the core business we have where we're adding recycled content to our Triton products, our cosmetic products. in our specialty businesses and growing those businesses. Obviously those in-market businesses have been very challenged economically from 22 through 25 as a discretionary spend where consumers have pulled back. So the rate of growth we've seen on the specialty side has not been as good as we would have expected in the last couple of years in 24 and 25, in particular as we were ramping up this plant. The good news is we've been winning some more applications through the back half of last year that are showing up as additional revenue that you saw some of the benefit in Q1. You'll see it building Q2 and even more so in the back half on that specialty side with those wins. So to be clear, we're not saying the end market is improving. We're just picking up more market share in durables or in cosmetic packaging with our value proposition. So that's happening. Then on top of that, we swung a line that could make Triton back to making PET that we explained to you guys a year ago so that we could make PET and serve that our pet market. Pepsi and some others wanted to start buying sooner than their original contract obligations because they saw the value proposition we have with our renewed products. So our superior clarity, our superior, uh, quality, uh, our superior performance, you know, and how the, the product actually performs, um, was recognized and, and they wanted, you know, to start building and use that material this year. Um, so when you put those two together of selling more, our pet, uh, with Pepsi and with some other, uh, packaging companies, brands, um, you get that four to 5% revenue growth that we talked about in January. Um, and when I was answering Vincent's call, I'm just confirming, we still see that four to 5% growth. But the middle East conflict hasn't yet significantly increased that to be more than four to 5% growth. Um, we were going to pick up volume for other reasons, as I described, um, you know, due to sort of impact on competitors, but, but in this case, you know, we're going to sell what we can make. Um, and we're ramping up our PT capability to sell even more, but it takes a bit time. to do that on the capacity side to continue supporting that growth, not just this year, but also additional growth next year on the RPET side.

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

Thanks very much. You talked about earning $50 million, perhaps, in the second quarter and in the third quarter in chemical intermediates. But propane prices have really been pretty volatile. Sometimes they're 75 cents a gallon and sometimes they're 90 cents a gallon. How are you handling your propane values? And can you reach these numbers that you're talking about if propane is at 90 cents a gallon?

So, Jeff, obviously we're buying propane at the market prices that you're referencing. We do believe here in Q3, I'm sorry, in Q2, that we believe that we've appropriately taken that into consideration as we look at the supply-demand balances and how we've priced into the market with our price increases. So, yes, there's some range of, as we say, approaching $50 million for the quarter. But we think we've taken that into the appropriate context for 75 to 90 cent range.

And you talked about for the year perhaps approaching the cash flow that you generated last year. What are the parts of working capital that are are sort of holding your operating cash flow back. Are they payables or receivables or something else?

Yeah, Jeff, what I would say is, as always, the Eastman team does a great job of generating and managing our cash flows. And that was demonstrated again here in Q1 as we think about the level of consumption of cash actually being lower than the prior year. So for Q1 out of the gate, I believe we've got things well managed and under control. As we think about sequentially, we know that we built some inventory in Q1 for our large turnarounds, and we expect to deplete that. That's going to be offset with some of the inflation that we've described and have been talking about through the call. At the end of the day, the pressure will come as you think about there's pressure on the inventory and on the receivables accounts, but we also think that that'll be mitigated by higher accounts payable year-end. And we're just trying to look and see what's the second half scenario when we get to mid-year as we then think about managing all the various levers. So under control, the range is narrow because of the level and magnitude of inflation overall. And as you think about net working capital, you've got two-thirds in your assets and a third in payables. So net tension on that front. That's all we're highlighting at this point.

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, can you speak to the expected quarterly earnings cadence in advanced materials? Seems like we have a fair number of moving parts there. I'm curious about You know how you're dealing with Paris eileen inflation here and whether you think you can recover or possibly over recover those sorts of input costs. You know whether there are any lag effects, we should be keeping in mind, and you know I think you called out some auto production variances there so maybe you can kind of just kind of walk us through some of those moving parts and think about you know whether you would expect. earnings to do better in the back half versus the second quarter and that sort of thing.

Here, Kevin. So when you think about advanced materials, there's a cadence, as you said. So first of all, it was great recovery out of Q4 into Q1. Obviously, we had some mass utilization headwinds with some choices we made there. So as you go into Q2, you've got the benefit of, you know, seasonal increase in volumes. These application wins we've talked about, starting with, you know, ARPET and, you know, renewed specialty product selling, but other products, you know, growing. That's going to give us a lift into Q2. The automotive market, you know, relative on a year-over-year basis, you know, for the year, we're expecting to be sort of down. sort of low single digits. So that's on a year-over-year basis, it's a bit of headwind. On a sequential basis, it's a tailwind because the performance film business always has a big ramp up in volume from Q1 to Q2 that we'll also see helping us on that front. So you have all those factors coming together on the volume side. And then you've got the actions we're taking on price, as you mentioned. teams have moved incredibly quickly to start implementing prices on either April 1 or May 1 to cover the expected increase in raw material costs of paraxylene, of FAM, the key raw materials that go into this segment. And we believe we're very much on track to keep pace with those as we go through the quarter. And then you've got utilization benefits coming underneath of this that also start help out. So a number of reasons why we'll certainly have a better sequential quarter in Q2. And then as you look forward into the back half of the year, what you'd expect to see here is continued volume growth, because a lot of the build in the circular side is back half loaded. You're going to see continued improvement in just winds in general. So the back half won't have a normal seasonal decline. in volume because of all those winds that will offset what is still a normal seasonal decline. So you get volumes that could be flat a bit better in the back half, which would be not normal, but it makes sense with all the innovation we have in this market context. So you've got that happening. You've got the prices having fully caught up. So you've got a first half to second half sequential tailwind in price cost as that plays out as well as energy coming off of it. And then you have the cost savings and a lot of the utilization benefits going to be in the back half too. So a number of reasons where AM will be stronger than normal in the back half of the year, which is also true of the fibers business being stronger than normal. And just to finish out the string since we're on the topic, you know, AFP would be normal, right? So it would be normal seasonality in the back half of the year. And then as we just talked about, chemical intermediates margins are going to be better in the back half of the year. TAB, Mark McIntyre, relative to the first half of the year, especially on a Q1 basis, you know relative to the back half, so we put all that together in that definitely drives earnings to be very attractive in am. TAB, Mark McIntyre, To you know be as we expected, you know as well, holding similar and AFP ci a lot better this year fibers a bit off. TAB, Mark McIntyre, So the overall number, you know means our earnings per share, you know should be above $6 a share.

Very helpful. And then secondly, with regard to your chemical intermediates segment, how much harder can you run your assets in the second quarter and moving forward relative to the first quarter? Is there a meaningful uplift from utilization or is it really all about the more favorable spreads there?

So I would just highlight, obviously we were impacted by some of the winter storm on operations as well. Uh, so as we think about, uh, going from Q1 to Q2, we'll have definitely, uh, have that as a tailwind. And, uh, you know, also as we look at our Olisons and the Oxos, uh, from that perspective, I would highlight that we did build some inventory in Q1 for our planned Acetyl turnaround. So our Acetyl, uh, I'll call it upside here in Q2 is limited. But for us, we see most of that margin growth coming in our olefins at this stage.

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

Thank you. Within the automotive weakness, are you seeing better performance in your coatings ingredients than you're seeing in the films area?

Good morning, John. So, no, we're not really seeing a difference. You have to remember a lot of our demand is driven by the refinish market as opposed to the OEM market on the coding side. Obviously, that market has been a bit challenged, just like the performance films, the aftermarket in general is more discretionary in consumers' behavior. That's been true in 24-25, and we expect that to continue here. And the overall auto market, you know, as I said earlier, is expected to be a little bit soft. And I'd say our demand will be in line with the market on the coating side. And certainly I think that's, you know, not true in the AM side. So we'll continue to do a little bit better in the market with our innovation like HUD and even EVs, you know, still take three times as much material per, you know, car versus ice, you know, where there is growth in EVs. And I think some growth in EVs will certainly come back, especially in places like Europe and China with the high price of gasoline. You're going to see some people moving back to EVs for economic reasons, maybe even the US. But I would focus more on Europe and China for that. So I think that those kind of advantages will help us do a little bit better on the interlayer side. Performance film side will be like coatings, more in line with where the market goes.

Then was the winter storm impact and the tariff refund benefit largely booked in the same segments?

John, what I would highlight is obviously those aren't going to be uniform, but I would say there's not a material difference that I would highlight for you.

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

Hey, good morning. For chemical intermediates, can you give us a thought what pricing needs to be year over year in 2Q to get to the $50 million? And I'm just curious on the delta there in terms of the improvement year over year.

Yeah, Mike, what I highlighted earlier is you can think about the sequential price increases approaching 20% for chemical intermediates overall.

And while we're at it, in the specialties, it's about mid-single-digit price increases going on on the specialty side that gets you to that $500 million.

Got it. And then it seems like advanced materials margins are going to continue to improve, you know, sequentially in 2Q. This is a segment that I recall used to be at 20%. Is that still the potential for that segment longer term?

Absolutely. You know, the business is a great business. The main issue that's affecting the margins and advanced materials is volume relative to fixed costs. It's not a price, you know, variable cost issue. The price to variable cost has been good, held up, and been incredibly stable, frankly. from 2022 to now, and even now with incredible inflation that we're facing in the business and across the company, we're implementing prices to keep up with it. So this really, when you think about AM, is more of a utilization-based issue, right? So you've got the underlying cost structure, then we added $100 million of the cost structure for the methanolysis plant, and you've been stuck in a really weak economic environment that hasn't improved since 2022. You know, where volumes in housing, consumer durables are still well below 2019 levels. And even autos now dropping probably below 2019 levels with the trend this year, we sort of got back to 19 last year. So, you know, a lot of opportunity and a lot of pent up demand with cars 15 years old, you know, appliances, you know, getting to their end of life. that's in our future. So we feel very good about demand coming back when we get past one crisis after another and driving utilization benefits. Then we're creating our own growth and filling out the methanolysis plant in a weak environment, proving innovation is a critical success factor for our company and how to win in this industry. And we're holding our price cost stable through all that. So that starts translating into materially improving margins as well as you know, as utilization better than last year without the inventory management of last year and, you know, cost reduction activities that have been pretty significant in 25 and 26. So, no, we feel that we can get the margins back. We just need a stable economy.

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

Yeah, thanks for taking the question. I guess a few questions. So first off, just on the spreads environment in CI, you noted some strength, and I guess obviously that should continue into Q2. I guess, are you seeing any supply issues for your competitors or anything out there that could lead to maybe some permanent rationalization of capacity and And, yeah, I guess what are you seeing on the supply and demand side for some of the markets in CI? Thanks.

It's a great question. I mean, under this sort of economic stress, there was a lot of assets in Europe in the chemical intermediates world that were, you know, on the edge of being rationalized, you know, shut down for economic reasons. And obviously the economic situation has gotten worse for them. And I think that's also true of some assets in Japan. and South Korea, where there was a lot of discussion around rationalizations. So I think it's reasonable to expect that some people are going to look at the current situation and say, if I was going to be planning on shutting that asset down two years from now, maybe I'd just do it now in this context. I don't have a lot of evidence of that because we're 60 days into a crisis. So everyone's just managing their way through this dynamic. And we don't even know how long the straight will stay closed. a lot, you know, that'll factor into that. But I do think, you know, global natural gas prices, for example, will likely stay higher for some period of time. Because even when the Strait opens, Qatar's got to repair all the damage that was done to their fields and their processing capability. You know, you've got oil fields that could get permanently shut in, in Iran right now, if this goes on much longer, a lot of debate around that. You've got just, it's hard to imagine oil production globally and natural gas production globally suddenly coming back to pre-conflict levels. Not to mention turning oil and natural gas into methanol and naphtha and ammonia and everything else. It would be very surprising for it just to snap back to those low levels. So I think all of that then just creates more economic pressure on the people on the far right side of the cost curve, those locations that I just mentioned. where they're going to have to start considering some rationalization. For sure, we're the low-cost winner, you know, in this kind of a context. You know, China's got its own dynamics where, you know, it will probably be fine. So I wouldn't expect, you know, a lot of rationalizations there, except for some maybe they're old assets that are not competitive anymore as well, I guess. So, yeah, we expect to see it, but I can't quote you a bunch of plans that have announced in the last, you know, 60 days.

Okay, I appreciate that. And then just as a quick follow-up, obviously, historically, your spreads have expanded after inflationary cycles like this. Maybe you can just contextualize the magnitude that we should expect on maybe AM and AFP spread expansion in Q3 and the durability of that. I guess just wondering if you think that these feedstock levels will allow for some you know, more durable pricing power as you move through the year. Thanks.

I think we've talked previously around high oil environments being positive for Eastman, and as Mark has just highlighted, you know, cost curves over time. You know, in our specialty businesses, obviously, we price off of the value and the relative value, and Mark has highlighted, you know, the tension and I'll call it price increases and lower value products within the polyester business and how ultimately that can lead to share and other opportunities as we continue to grow. As we think about the momentum, obviously we're making the price increases so that we're pricing through the quarter to ensure that our margins are stable. And we'll look to continue to do that in the Q3.

One thing you have to watch out, we run our business on a dollar per kg basis, not a percent basis. So when you get these kind of significant increases like 21, you also have a denominator math problem. So the prices go up a lot. That goes in the denominator, not just numerator when you're calculating margins. So you've got to watch out for that. But we'll be very clear about trends around how dollar per kg is going in our margins.

Thank you. Our next question comes from Lawrence Alexander from Jefferies. Your line is now open. Please go ahead.

So good morning. A short term and a long term. In the near term, how are you thinking about the rough magnitude of working capital as an impact on your free cash flow conversion this year? And secondly, you mentioned kind of the sort of hitting the quantity limits or the outright shortages. Do you have a sense from your customers where kind of they are expecting or kind of where everybody's waiting to see this actually crack in terms of which end markets feel the outright shortages first and then which ones, if shortages do develop, take the longest to fit?

So on the working capital front, as we think about the full year impacts, obviously we built some here in Q1. A lot of that was around planned turnaround. But just as a proxy, I would use the $500 million increase in revenue. And you can take a third of that as I think about how things could balance out, and that could be the full year headwinds. uh and obviously that could go up or down depending on uh you know the timing of this freight opening etc but i think uh you know 150 200 million uh roughly can you repeat the second question please sure when you think about um if where shortages

are likely to develop first, you know, when you're when you speak with your customers and they say kind of where the most where they're warning you or if they do warn you about potential plant shutdowns, where they're flagging kind of that may happen first or which markets are I mean, obviously, Southeast Asia seems most likely. And then kind of which ones are saying, well, if we shut down, it's going to take us a long time to come back up and fix things because it snarls up the downstream chain too much.

Those are great questions. There's a question about our competitors, and then there's a question about our customers, and then the whole supply chain. We're not seeing any disruption yet at the customer level where they can't get something to finish making the product. It's like the semiconductors back in the auto situation back in the 2021 timeframe. We are keeping an eye on that, but we haven't had any customers come to us with that problem yet. It will be sporadic and it will be customer specific. It won't be something you can really foresee, is my guess, and how that plays out. But we're keeping a very close eye on it. I think that the dynamics around this is obviously pretty volatile, which is why we're not giving full year guidance. You've got a lot of potential upsides, as we've been talking about. There's obviously in-market risk. with inflation that has to be all sort of weighed together. But, you know, what I'd say overall is, you know, we feel really good about our team and how well they perform. But when you think about all the dynamics, I'm all the way back to COVID, to, you know, this inflationary environment, to total collapse and sort of discretionary demand in 22 that's stayed with us until now. And then, you know, a Mideast crisis. And it's a lot to manage. So I'm incredibly incredibly proud of how our team manages through all this and finds a way to defend our value propositions. I think the innovation strategy is one that is being proven out to have been a very good choice we made over a decade ago to have ways to defend our value to grow in markets where they're flat or challenged and defend our value in weak times or supply shock times like now. And it's creating a lot of strength in this company. And the circular platform certainly is turning out to be a very good choice that's delivering a lot of growth in this market context. And then, of course, translating all that into cash flow and having a strong balance sheet. So we feel good about how we're navigating with this. We think we have a very meaningful improvement earnings this year relative to last year. And we're going to focus on what we can control in this chaos to keep delivering for our shareholders every day.

As that was the last question, I'll say thanks again for joining us. We appreciate you spending time with Eastman. I hope everybody has a great day.

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