Q2 2021 Eastman Chemical Co Earnings Call

Okay.

Good day, everyone and welcome to the second quarter 2021Eastman.

Operator: Good day, everyone, and welcome to the Q2 2021 Eastman Chemical Conference Call. Today's conference is being recorded. It is being broadcast live on the Eastman's website, www.eastman.com. We will now turn the call over to Mr. Greg Riddle of Eastman Chemical Company Investor Relations. Please go ahead, sir.

And chemical conference call.

Today's conference is being recorded.

All is being broadcast live on the Eastman website Www Dot Eastman Com, we will now turn the call over to Mr. Greg Riddle of Eastman Chemical Company Investor Relations. Please go ahead Sir.

Greg Riddle: Thank you, Christina, and good morning, everyone, and thanks for joining us. On the call with me today are Mark Costa, Board Chair and CEO; Willie McLain, Senior Vice President and CFO; and Jake LaRoe, Manager of Investor Relations. Yesterday, after market close, we posted our Q2 2021 financial results news release, the SEC 8-K filing, our slides, and the related prepared remarks in the investor section of our website, www.eastman.com. Before we begin, I'll cover two items. First, during this call, you will hear certain forward-looking statements concerning our plans and expectations.

Thank you Christina and good morning, everyone and thanks for joining us on the call with me today are Mark Costa Board Chair and CEO, Willy Mclain, Senior Vice President and CFO, and Jake Laroe manager Investor Relations.

Yesterday after market close we posted our second quarter 2021 financial results news release and SEC.

SEC 8-K filing.

Our slides and the related prepared remarks, and the investors section of our website www Dot Eastman Dot com.

Before we begin I'll cover 2 items first during this call you will hear certain forward looking statements concerning our plans and expectations.

Operator: Actual events or results could differ materially. Certain factors related to future expectations are or will be detailed in our Q2 2021 financial results news release during this call, in the preceding slides and prepared remarks, and in our filings with the Securities and Exchange Commission, including the Form 10-Q for Q1 2021 and the Form 10-Q to be filed for Q2 2021. Second, earnings referenced in this call 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 Q2 2021 financial results news release, which is available on our website. As we posted the slides and accompanying prepared remarks on our website last night, we will now go straight into Q&A. Christina, please let's start with our first question. Thank you.

Actual events or results could differ materially. Certain factors related to future expectations are or will be detailed in our Q2 2021 financial results news release during this call, in the preceding slides and prepared remarks, and in our filings with the Securities and Exchange Commission, including the Form 10-Q for Q1 2021 and the Form 10-Q to be filed for Q2 2021. Second, earnings referenced in this call 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 Q2 2021 financial results news release, which is available on our website. As we posted the slides and accompanying prepared remarks on our website last night, we will now go straight into Q&A. Christina, please let's start with our first question. Thank you.

Fuel events or results could differ materially.

Certain factors related to future expectations are or will be detailed in our second quarter 2021 financial results news release.

During this call in the preceding slides and prepared remarks, and and our filings with the Securities and Exchange Commission, including the form 10-Q for first quarter 2021.

And the form 10-Q to be filed for second quarter 2021.

Second earnings referenced in this call exclude certain noncore 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 and the second quarter 2021 financial results news release, which is available on our website.

As we posted the slides and accompanying prepared remarks on our website last night, we will now go straight into Q&A Christina Please let's start with our first question.

Thank you and if you would like to ask a question. Please signal by pressing star 1 on your telephone keypad.

Operator: If you would like to ask a question, please signal by pressing star one on your telephone keypad. Go to our first question from Mike Sisson with Wells Fargo. Hey, good morning, guys. Nice quarter. Mark, I guess when you think about the second half of the year, how much of the improved outlook do you think will come from the specialty businesses and how much of it comes from intermediates? Sure. Good morning, Mike. It's a great day here in Appalachia, a beautiful morning. We're really excited about the results we had in the second quarter. To your point, really excited about the momentum we're building in our specialties as we go forward into the back half of the year, which will be the driving force for earnings in the back half.

Operator: If you would like to ask a question, please signal by pressing star one on your telephone keypad. Go to our first question from Mike Sisson with Wells Fargo.

Our first question from Mike Sison with Wells Fargo.

Mike Sison: Hey, good morning, guys. Nice quarter. Mark, I guess when you think about the second half of the year, how much of the improved outlook do you think will come from the specialty businesses and how much of it comes from intermediates?

Hey, good morning, guys nice quarter.

And the.

Mark I I guess, when if and when you think about the second half of the year.

How much of the improved outlook do you think will come from the specialty businesses and and and Hum how much of it comes from the from intermediates.

Mark Costa: Sure. Good morning, Mike. It's a great day here in Appalachia, a beautiful morning. We're really excited about the results we had in the second quarter. To your point, really excited about the momentum we're building in our specialties as we go forward into the back half of the year, which will be the driving force for earnings in the back half.

Sure and good morning, Mike and and it's a it's a great day here in Appalachia and beautiful morning, and we're really excited about the results, we had and the second quarter and to your point.

Really excited about the momentum we're building and our specialties as we go forward into the back half of the year, which will be the driving force for earnings and the back half and when you think about it.

Operator: When you think about it, we had strong volume and mixed growth in the specialties, especially relative to last year or 2019 or even 2018 and the progress that we're making. And that momentum will continue into the back half of this year. Now, some of that strength in volume and mixed growth was offset by sort of temporarily high distribution costs and some of the other supply chain factors that we faced in the second quarter, and expect those to abate. So not only do you get the volume and mixed growth, you get some improvement in spreads relative to the first half. So that's going to drive a nice improvement for specialties. And I would say that it's going to hold up better, I think, in the fourth quarter than what is normal seasonality as we look at the lack of restocking customers have made to date.

When you think about it, we had strong volume and mixed growth in the specialties, especially relative to last year or 2019 or even 2018 and the progress that we're making. And that momentum will continue into the back half of this year. Now, some of that strength in volume and mixed growth was offset by sort of temporarily high distribution costs and some of the other supply chain factors that we faced in the second quarter, and expect those to abate. So not only do you get the volume and mixed growth, you get some improvement in spreads relative to the first half. So that's going to drive a nice improvement for specialties. And I would say that it's going to hold up better, I think, in the fourth quarter than what is normal seasonality as we look at the lack of restocking customers have made to date.

We had strong volume and mix growth and the specialties, especially relative to last year or 19, or even 18 and the progress that we're making.

And that momentum will continue into the back half of this year and now some of that.

Strength and volume and mix growth was offset by sort of temporary temporarily high so our distribution costs and some of the other supply chain factors that we face and the second quarter and expect those to abate.

So not only do you get the volume and mix growth you get some improvement.

And spreads relative to the first half so that's going to drive a nice improvement for specialties and I would say that you know that it's going to hold up better I think and the fourth quarter.

And what is normal seasonality as we look at the lack of restocking and customers have made to date and we.

Operator: And we don't think that they're going to make much progress on it really through this year, and that will extend into next year. So that's a big driver. In addition to that, you've got lower shutdown costs. A lot of that hit AFP in particular. So you've got that as a benefit. You've got lower operating costs from all of our operational transformation work. And as I mentioned earlier, this disinflation coming off the surge spike that it was. There are, of course, headwinds as we expect: some moderation in spreads and chemical intermediates, and we have an increasing G&A spend. So there are some factors that offset some of that, but it's definitely much more of a specialty story in how you deliver a back half that's better than the first. Got it.

And we don't think that they're going to make much progress on it really through this year, and that will extend into next year. So that's a big driver. In addition to that, you've got lower shutdown costs. A lot of that hit AFP in particular. So you've got that as a benefit. You've got lower operating costs from all of our operational transformation work. And as I mentioned earlier, this disinflation coming off the surge spike that it was. There are, of course, headwinds as we expect: some moderation in spreads and chemical intermediates, and we have an increasing G&A spend. So there are some factors that offset some of that, but it's definitely much more of a specialty story in how you deliver a back half that's better than the first.

We don't think that they're going to make much progress on it really through this year and that will extend into next year. So that's a big driver. In addition to that you've got lower shutdown costs.

A lot of that hit AFP and particular, so you've got debt as a benefit you've got lower operating costs from all of our operational transformation work.

And as I mentioned earlier in this distribution coming off the off the sort of spiked and it was.

And there are of course headwinds as we expect some moderation in spreads and chemical intermediates.

And we ever increasing gross spend so there are some factors that offset some of that but it is definitely much more of a specialty story and how you deliver our back half that's better and the first.

Mike Sison: Got it. And as a quick follow-up, slide 6, I noticed you got a lot of cool companies in terms of the new Q2 sign-ups or commitments for your new facility. Are you close to selling out that facility at this point? And at what point do you sort of consider maybe continuing to expand given the momentum you've had there?

Got it and as a quick follow up slide 6 I noticed you've got a lot of cool companies and the incentives of the Nu Q2.

Operator: And as a quick follow-up, slide 6, I noticed you got a lot of cool companies in terms of the new Q2 sign-ups or commitments for your new facility. Are you close to selling out that facility at this point? And at what point do you sort of consider maybe continuing to expand given the momentum you've had there? Yeah, Mike, great question. So we're really excited about how our circular economy investments are both solving a serious challenge in the planet, a dual challenge really, of getting plastic waste out of the environment and deploying a technology that avoids using fossil fuels and does it in a way that has a lower carbon footprint than our current traditional process. So really a win on both fronts. And our customers see that benefit. And it's important. Both elements are really important in the solution. And we've had tremendous engagement.

Sign ups or commitments for your new facility are you close to filling up that facility at this point and and at what point do you sort of consider may be continuing to expand given given the momentum you've had there.

Mark Costa: Yeah, Mike, great question. So we're really excited about how our circular economy investments are both solving a serious challenge in the planet, a dual challenge really, of getting plastic waste out of the environment and deploying a technology that avoids using fossil fuels and does it in a way that has a lower carbon footprint than our current traditional process. So really a win on both fronts. And our customers see that benefit. And it's important. Both elements are really important in the solution. And we've had tremendous engagement.

Yes, Mike Great question. So we're really excited about how our circular economy investments or.

Both solving a serious challenge and the plan at a dual challenge really of getting plastic waste in the environment and deploying a technology that.

Avoid using fossil fuels and does it in a way that has a lower carbon footprint than our current traditional process. So.

Really a win on both fronts and our customers see that benefit and it's important both both elements are really important and the solution.

And we've had tremendous engagement as we talked about and the first quarter you saw a spectrum of brands signing on to take our recycle content both from our polyester renewable technology as well as our carbon rule technology under the ball and to the Biopolymers.

Operator: As we talked about in Q1, you saw a spectrum of brands signing on to take our recycled content, both from our polyester renewal technology as well as our carbon renewal technology into the biopolymers. And getting P&G, Ferragamo, and a variety of other brands to sign on top is putting us in a great position to fill out this first facility that we're building that will come online. Now, we're already getting benefits from this because we have a bridging capacity in place with our current assets. So we're building volume and momentum this year and into next. That's part of our growth story. But with these commitments, we're going to be in a good position to sort of fill out that plant really quickly with specialty products, which is great.

As we talked about in Q1, you saw a spectrum of brands signing on to take our recycled content, both from our polyester renewal technology as well as our carbon renewal technology into the biopolymers. And getting P&G, Ferragamo, and a variety of other brands to sign on top is putting us in a great position to fill out this first facility that we're building that will come online. Now, we're already getting benefits from this because we have a bridging capacity in place with our current assets. So we're building volume and momentum this year and into next. That's part of our growth story. But with these commitments, we're going to be in a good position to sort of fill out that plant really quickly with specialty products, which is great.

And getting P&G and.

Ferragamo and a variety of other brands to sign on top.

Putting us in a great position.

And to fill out this first facility and we're building that will come online and we're already getting benefit from those because we have a bridging capacity in place with our current asset. So we're building more volume and momentum this year and into next that's part of our growth story.

But with these commitments, we're going to be and a good position to sort of fill up that plant really quickly with specialty products.

Which as Greg.

Operator: And that's the best way to build a plant is when it ramps up full, especially in specialty product line. That's not normal and certainly improves the return. And yes, there are interests in going beyond this. We have, of course, specialty spreads we're really excited about, and we're going to continue to invest in that. But beyond that, a lot of customers out there in the fast-moving consumer goods world still have to do a lot of packaging. And they realize that the best carbon footprint is plastic. It's important to keep that in mind when you think about solving these problems because in our world of polyester, glass has doubled the carbon footprint, even with much higher recycling rates than polyester today, and aluminum is 50% higher. So we need to solve this problem.

And that's the best way to build a plant is when it ramps up full, especially in specialty product line. That's not normal and certainly improves the return. And yes, there are interests in going beyond this. We have, of course, specialty spreads we're really excited about, and we're going to continue to invest in that. But beyond that, a lot of customers out there in the fast-moving consumer goods world still have to do a lot of packaging. And they realize that the best carbon footprint is plastic. It's important to keep that in mind when you think about solving these problems because in our world of polyester, glass has doubled the carbon footprint, even with much higher recycling rates than polyester today, and aluminum is 50% higher. So we need to solve this problem.

And Thats, the best way to build a plant as and when it ramps up full especially in specialty specialty product line.

That's not normal.

And certainly improves the return and yes, there are interest and going beyond this.

We have a core specialty strategy really excited about where and continue to invest and that but beyond that a lot of customers out there and the fast moving consumer goods world still have to do a lot of packaging and they realize that the best carbon footprint is plastic it's important to keep that in mind. When you think about solving these problems because in our world.

And the polyester glass has doubled the carbon footprint, even with much higher recycling rates. Then then Paul yesterday and aluminum is 50% higher so we need to solve this problem our brands understand this problem needs to be solved by recycling polymer.

Operator: Our brands understand this problem needs to be solved by recycling polymer as the best carbon footprint solution as well as a way to get the waste out of the environment. So we have a number of countries actually engage with us about how to help them think about solving their waste problem. And we have a number of brands engaged with us on how we would potentially build facilities for their packaging needs that really solves this dual challenge. And so we're engaged. But to be clear, we're not going to get back into the sort of merchant PET business. We are happy to get back into making this product, but it's got to be in a more industrial gas model. We bring a lot to the table in the technology that's proven and scalable.

Our brands understand this problem needs to be solved by recycling polymer as the best carbon footprint solution as well as a way to get the waste out of the environment. So we have a number of countries actually engage with us about how to help them think about solving their waste problem. And we have a number of brands engaged with us on how we would potentially build facilities for their packaging needs that really solves this dual challenge. And so we're engaged. But to be clear, we're not going to get back into the sort of merchant PET business. We are happy to get back into making this product, but it's got to be in a more industrial gas model. We bring a lot to the table in the technology that's proven and scalable.

And as the best carbon footprint solution as well as a way to get the waste out of the environment. So we have a number of countries actually engage with us about how to help them think about solving their their waste problem and we have a number of brands and engaged with us and how we would potentially build.

Facilities for their packaging needs.

And is that really solves this dual challenge and.

And so we're engaged but to be clear, we're not going to get back into the sort of merchant PT business.

We are happy to get back into making this product, but it's got to be and a more airgas model, we bring a lot to the table and the technology, that's proven and scalable we have a lot of operational capability a lot of ability to build and scale up facilities as well as operate them really well and a lot of history with methanol is that allows us.

Operator: We have a lot of operational capability, a lot of ability to build and scale up facilities as well as operate them really well. And a lot of history with methanol is just that allows us to know exactly how to operate this kind of technology, which is difficult when you've got a variable feed stream of content coming into it. And for what we bring to the table, we want sort of spread stability. So we need to have long-term contracts with customers that give us a sort of predictable margin and as well feel certain we've got access to raw material supply, which is significant but still complicated to access. So if we meet these conditions, we'll for sure build these facilities. And we think that the return on capital and the amount of EBITDA each of these facilities could generate would be quite substantial.

We have a lot of operational capability, a lot of ability to build and scale up facilities as well as operate them really well. And a lot of history with methanol is just that allows us to know exactly how to operate this kind of technology, which is difficult when you've got a variable feed stream of content coming into it. And for what we bring to the table, we want sort of spread stability. So we need to have long-term contracts with customers that give us a sort of predictable margin and as well feel certain we've got access to raw material supply, which is significant but still complicated to access. So if we meet these conditions, we'll for sure build these facilities. And we think that the return on capital and the amount of EBITDA each of these facilities could generate would be quite substantial.

And to know exactly how to operate this kind of technology, which is difficult when you've got a variable feed stream of content coming into it.

And from what we bring the table, we want sort of.

Spread stability, so we need to have long term contracts with customers that give us.

A sort of predictable margin.

And well and as well feel certain we've got access to raw material supply, which is significant but still complicated access.

So we meet these conditions will for sure build these facilities and we think that the.

Our return on capital.

And the amount of EBITDA each of these facilities could generate would be quite substantial we're not going to get into the details of that now.

Operator: We're not going to get into the details of that now. But we're really excited about doing this, but it depends on the customers, and the countries engaging in the right way. And hopefully, we'll be able to build several of these plants going forward. Great. Thank you. Take our next question from PJ Juvekar with Citigroup. Yeah. Hi. Good morning. Good morning, PJ. Good morning, PJ. Yeah. It feels like Friday with the Eastman call. It does. I'm a little disoriented about 9:00AM too. I'm still trying to get used to that. Yeah. Just a couple of questions. With the sale of the tire business, you took a big loss on the sale of half a billion dollars. Did this business decline significantly in the last few years? Was the supply demand getting worse that the loss was so big? Against a book value. PJ, this is Willie.

We're not going to get into the details of that now. But we're really excited about doing this, but it depends on the customers, and the countries engaging in the right way. And hopefully, we'll be able to build several of these plants going forward.

But we're really excited about doing this but it depends on the customers and the countries.

Engaging and the right way.

And hopefully we'll be able to build several of these plants going forward.

Mike Sison: Great. Thank you.

Great. Thank you.

Operator: Take our next question from PJ Juvekar with Citigroup.

Take our next question from P J <unk> with Citigroup.

PJ Juvekar: Yeah. Hi. Good morning.

Yes, hi, good morning.

Mark Costa: Good morning, PJ.

Good morning, VJ wanting to gain.

Willie McLain: Good morning, PJ.

PJ Juvekar: Yeah. It feels like Friday with the Eastman call.

Yes, it feels like Friday release, 1 caller.

Mark Costa: It does. I'm a little disoriented about 9:00AM too. I'm still trying to get used to that.

It does and I'm, a little just worried about 9 a M to I'm still trying to.

And get used to that.

PJ Juvekar: Yeah. Just a couple of questions. With the sale of the tire business, you took a big loss on the sale of half a billion dollars. Did this business decline significantly in the last few years? Was the supply demand getting worse that the loss was so big? Against a book value.

Yeah.

Just a couple of questions.

And with the sale and the sale of the tire business you took a big loss on the sale of half a billion dollars.

Sure.

Did this business declined significantly and the last few years, where the supply demand and getting worse debt. The loss was so big.

Against the book value.

Willie McLain: PJ, this is Willie. Let me start out here. I would also highlight the Solution was a transformative acquisition that's created significant shareholder value and positioned us for growth through the innovation and the innovation-driven growth model that we have. And that's been highlighted in interlayers, performance films, and specialty fluids, which are doing incredibly well right now. And we've highlighted that on many calls. Also, over the past couple of years, we've highlighted the fact of the headwinds in the one-third, many of those being macro with trade, also the competition. So as we assess this business, as you know, the accounting rules don't let us reallocate the goodwill back to the purchase date. So overall, we've got a strong portfolio and it's transformed. But we also need to move forward. And I think we've been decisive with those actions.

P J this.

And this is Willie let me start out here.

Operator: Let me start out here. I would also highlight the Solution was a transformative acquisition that's created significant shareholder value and positioned us for growth through the innovation and the innovation-driven growth model that we have. And that's been highlighted in interlayers, performance films, and specialty fluids, which are doing incredibly well right now. And we've highlighted that on many calls. Also, over the past couple of years, we've highlighted the fact of the headwinds in the one-third, many of those being macro with trade, also the competition. So as we assess this business, as you know, the accounting rules don't let us reallocate the goodwill back to the purchase date. So overall, we've got a strong portfolio and it's transformed. But we also need to move forward. And I think we've been decisive with those actions.

I will highlight the solution with a transformative acquisition that has created significant shareholder value and.

And positioned us for growth through the innovation.

And the innovation driven growth model that we have and thats been highlighted and inner layers performance sales and specialty fluids, which are doing incredibly well right now and we've highlighted that on many calls also over the past couple of years and we highlighted the fact.

<unk> headwinds and the 1 third.

Many of those being macro and trade also the competition.

So as we assess this business as you know the accounting rules out let us reallocate the goodwill.

Back to the purchase date.

So overall, we've got a strong portfolio and a transformed but we also need to move forward and I think we've been decisive with those actions and yes, it's resulting in a $500 million write off but we believe we've contributed.

Operator: And yes, it's resulting in a $500 million write-off, but we believe we've created a tremendous amount of value. And now we're wanting to focus on what Mark just spoke about, which is investing in the circular economy and growing the two-thirds. Okay. Thank you. And I'll follow up with that with Greg later on. In molecular recycling, Mark, where do you get the raw material waste plastic and at what prices? And then on the other side of that, if the recycled plastic costs, if they're higher, are the consumer companies planning to pass that through to their customers, i.e., consumers? Is that what they're expecting to do? So the supply is one of the more interesting conversations around the circular economy, which is there's a vast majority of plastic waste out there, but you have to have a plan and a structure to access it.

And yes, it's resulting in a $500 million write-off, but we believe we've created a tremendous amount of value. And now we're wanting to focus on what Mark just spoke about, which is investing in the circular economy and growing the two-thirds.

Great and a tremendous amount of value and that we're wanting to focus on what Mark just spoke about which is investing and the circular economy and growing the 2 thirds.

PJ Juvekar: Okay. Thank you. And I'll follow up with that with Greg later on. In molecular recycling, Mark, where do you get the raw material waste plastic and at what prices? And then on the other side of that, if the recycled plastic costs, if they're higher, are the consumer companies planning to pass that through to their customers, i.e., consumers? Is that what they're expecting to do?

Okay. Thank you and I'll follow up with that with Greg later on.

And molecular recycling.

Mark where do you get the raw material waste plastic and at what prices and.

And then on the other side of that debt.

Second plastic costs and they are higher and the consumer companies planning to past debt total debt or their customers consumers.

Is that what they're expecting to do.

Mark Costa: So the supply is one of the more interesting conversations around the circular economy, which is there's a vast majority of plastic waste out there, but you have to have a plan and a structure to access it. So when you think about polyester in the US, just around the first plant we're building here, there's about 20 billion pounds of polyester waste annually produced in this country that goes into packaging, textiles, and carpet. 40%, only 40% of it is actually packaging. And when you look at what can be mechanically recycled of that 40%, only 25% to 30% can realistically be mechanically recycled.

And so.

Yes.

And the supply is what are the more interesting conversations around the circular economy, which is there is a vast majority of plastic waste out there, but it's also you have to have a plan and a structure to access. It. So when you think about polyester and the U S. Just around the first point, we are building here Theres about 20 billion pounds of polyester way.

Operator: So when you think about polyester in the US, just around the first plant we're building here, there's about 20 billion pounds of polyester waste annually produced in this country that goes into packaging, textiles, and carpet. 40%, only 40% of it is actually packaging. And when you look at what can be mechanically recycled of that 40%, only 25% to 30% can realistically be mechanically recycled. And the vast majority of that recycling is actually into textiles, not back into bottles because you have to have extremely clean polymer to clean up and melt back into a bottle. So it's very limited on how you can actually solve the packaging problem with mechanical recycling. And then all the carpet and textiles pretty much ends up in landfill because mechanical recycling, again, doesn't really have an ability to do something with it.

Just annually produced in this country that goes into packaging textiles, and carpet, 40% only 40% of it is actually packaging.

And when you look at what can be mechanically recycled over that 40% only 25% to 30% can realistically be mechanically recycled and the vast majority of that recycling is actually into textiles not back into bottles, because you have to have extremely clean power.

Mark Costa: And the vast majority of that recycling is actually into textiles, not back into bottles because you have to have extremely clean polymer to clean up and melt back into a bottle. So it's very limited on how you can actually solve the packaging problem with mechanical recycling. And then all the carpet and textiles pretty much ends up in landfill because mechanical recycling, again, doesn't really have an ability to do something with it.

Polymer to cleanup and melt to back into a bottle. So it's very limited on how you can actually solve the packaging problem with mechanical recycling.

And then all the carpet and textiles pretty much ends up and landfill because mechanical recycling again doesn't really have an ability to do something with it so.

Operator: So under any of these scenarios, when you look at all this waste, and we want as much mechanical recycling to happen as possible because it has a good carbon footprint, it's going to be very limited. And it also doesn't have a long-term life because through mechanical recycling, the polymer breaks down after sort of five cycles. So molecular recycling, which is what we're doing, is essential to really solving this problem. And again, it's essential because the alternative materials have a worse carbon footprint. So we're really excited to be a leader in how to solve this. And the advantage of being a leader for our feedstock teams who are out there engaging on multiple sources is we're way ahead of everyone else in going to commercial scale, right?

So under any of these scenarios, when you look at all this waste, and we want as much mechanical recycling to happen as possible because it has a good carbon footprint, it's going to be very limited. And it also doesn't have a long-term life because through mechanical recycling, the polymer breaks down after sort of five cycles. So molecular recycling, which is what we're doing, is essential to really solving this problem. And again, it's essential because the alternative materials have a worse carbon footprint. So we're really excited to be a leader in how to solve this. And the advantage of being a leader for our feedstock teams who are out there engaging on multiple sources is we're way ahead of everyone else in going to commercial scale, right?

So under any of these scenarios when you look at all this waste and we want as much mechanical recycling to happen as possible because it has a good carbon footprint is going to be very limited and it also doesn't have a long term life because through mechanical recycling and polymer breaks down after sort of 5 cycles. So.

And our molecular recycling, which is what we're doing is essential to really solving this problem and again, it's essential because the alternative materials have a worst carbon footprint.

So we're really excited to be a leader and how to solve this and the advantage of being a leader for our feedstock teams are out there engaging on multiple sources is we're way ahead of everyone else and go into commercial scale right.

Operator: In the polyester world, we only have other sort of small startups attempting to get into this space on the planet. And they don't have the resources that we have in technology, operations, how to build and scale up a plant, etc. So when we engage with the brands, we have a compelling story, not just of a solution, but our ability to actually deliver it and be scalable in how we do it. And when you're willing to assign value to waste that's going to landfill versus landfill, customer suppliers engage quite actively. And so we're feeling very good about being able to access that. So we're not going to get into what the price is. We're keeping our strategy and details of how we're accessing feedstock confidential as a competitive advantage in our point of view.

In the polyester world, we only have other sort of small startups attempting to get into this space on the planet. And they don't have the resources that we have in technology, operations, how to build and scale up a plant, etc. So when we engage with the brands, we have a compelling story, not just of a solution, but our ability to actually deliver it and be scalable in how we do it. And when you're willing to assign value to waste that's going to landfill versus landfill, customer suppliers engage quite actively. And so we're feeling very good about being able to access that. So we're not going to get into what the price is. We're keeping our strategy and details of how we're accessing feedstock confidential as a competitive advantage in our point of view.

Only in the polyester world and when we have other sort of small startups are attempting to get into this space.

On the planet.

And in.

And if they don't have the resources that we have and technology operations, how to build and scope of planned et cetera. So when we engage with our brands. We have a compelling story not just of the solution, but our ability to actually deliver it and be scalable and how we do it.

And when youre willing to assign value to a waste that's going to landfill versus landfill.

Customers and suppliers engaged quite actively and so we're feeling very good about being able to access that so.

We're not going into the with the prices and we're keeping our strategy and details of how we're accessing feedstock.

Confidential as a competitive advantage and our point of view.

Operator: But we're very confident we can access waste at a very affordable level. And then on the customer side, the customers recognize that recycled content is going to be at a premium. As we shared with you all the way back in January, the premium that our PET is getting relative to fossil fuel-based PET is substantial, 60% to 80% premium in Europe right now. And the premiums aren't that far behind as they're now starting to climb in the US as well. So they know that this is going to cost additional money. And what we can provide is more certainty on the price and predictability than what you can get from the spot-hour PET market that's at the food-grade level. So that's also part of our value proposition, our industrial gas models.

But we're very confident we can access waste at a very affordable level. And then on the customer side, the customers recognize that recycled content is going to be at a premium. As we shared with you all the way back in January, the premium that our PET is getting relative to fossil fuel-based PET is substantial, 60% to 80% premium in Europe right now. And the premiums aren't that far behind as they're now starting to climb in the US as well. So they know that this is going to cost additional money. And what we can provide is more certainty on the price and predictability than what you can get from the spot-hour PET market that's at the food-grade level. So that's also part of our value proposition, our industrial gas models.

But we're very confident we can access waste at a very affordable level.

And then on the customer side the customers recognize that recycled content is going to be at a premium as we shared with you all the way back in January.

The premium that our pet is getting relative to.

Fossil fuel based.

And is substantial 60% to 80% premium and Europe, right now and the.

The premiums aren't that far behind us are now starting to climb and the U S as well so.

They know that this is going to cost additional money.

And what we can provide us more certainty on the price and predictability.

And then what you can get from the spot market.

Market Thats at the food grade level.

So that's also part of our value proposition and I guess models, while we want to make.

Operator: While we want to have long-term commitments for our customers to make our economics work, it also is structured in a way that gives them a lot more price certainty in how to manage their business. So I think it works for both parties. Thank you. Go to our next question from Jeff Zekauskas with JPMorgan. Thanks very much. In your commodity business, you earned $144 million, and I think last year you earned $22 million. Can you analyze the year-over-year change in that operation? And I think sometimes you talk about intermediates, plasticizers, functional amines as being the larger chunks of it. How did those sub-subsegments do year-over-year? Can you talk about the dynamics? Sure, Jeff. And yeah, it's quite the recovery in chemical intermediates like many other companies who have similar kind of products versus last year.

While we want to have long-term commitments for our customers to make our economics work, it also is structured in a way that gives them a lot more price certainty in how to manage their business. So I think it works for both parties.

While we have to have long term commitments for our customers to make our economics work. It also the structure and a way that gives them a lot more price certainty and <unk>.

How to manage their business. So I think it works for both parties.

PJ Juvekar: Thank you.

Thank you.

Operator: Go to our next question from Jeff Zekauskas with JPMorgan.

Go to our next question from Jeff Zekauskas with Jpmorgan.

Jeff Zekauskas: Thanks very much. In your commodity business, you earned $144 million, and I think last year you earned $22 million. Can you analyze the year-over-year change in that operation? And I think sometimes you talk about intermediates, plasticizers, functional amines as being the larger chunks of it. How did those sub-subsegments do year-over-year? Can you talk about the dynamics?

Alright, thanks very much.

And your commodity business, you earned $144 million and I think last year you earned <unk> 22.

Can you analyze that year over year change and that operation.

And I think sometimes you talk about intermediates.

Plasticizers and functional amines as being the larger chunks of it.

How did those sub sub segments to year over year can you talk about the dynamics.

Mark Costa: Sure, Jeff. And yeah, it's quite the recovery in chemical intermediates like many other companies who have similar kind of products versus last year. It's a combination of better volume, but significantly better spread that's driving that success in the portfolio. But before I get to the spread part, I want to just get to the composition of CI first, as you asked. So about 25% of the revenue in CI is actually amines, functional amines. They're mostly on cost-pass-through contracts. And so they've had very steady spreads since we've frankly bought Taminco in the way their business is structured. And they've had a nice, solid, steady volume growth over time, delivering very predictable and attractive earnings. And they've got a few accelerants on top of that beyond just the normal ag growth.

Sure Jeff.

Quite the recovery and chemical intermediates like many other companies who have similar kind of products.

Versus last year, and it's a combination of better volume, but significantly better spread that's driving that success and.

Operator: It's a combination of better volume, but significantly better spread that's driving that success in the portfolio. But before I get to the spread part, I want to just get to the composition of CI first, as you asked. So about 25% of the revenue in CI is actually amines, functional amines. They're mostly on cost-pass-through contracts. And so they've had very steady spreads since we've frankly bought Taminco in the way their business is structured. And they've had a nice, solid, steady volume growth over time, delivering very predictable and attractive earnings. And they've got a few accelerants on top of that beyond just the normal ag growth. So we've got a plant that we just built and are ramping up for Corteva for their Enlist product that's giving us a lot more additional growth on top of that core business.

And the portfolio, but before I get to the spread part I wanted to just get to the composition of CGI first as you asked so about 25% of the revenue and Ci is actually it means functional amines, they're mostly are cost pass through contracts and so they've had very steady spreads since we've frankly bought domingo.

And the way their business is structured and they've had a nice solid steady volume growth over time, delivering very predictable and attractive earnings.

And they've got a few accelerants on top of that beyond just the normal ad growth.

So we've got a plant that we just built and are ramping up for Corteva for their Enlist product that's giving us a lot more additional growth on top of that core business. So that's just been a nice, great, steady business. Then you do have plasticizers, which has been a very attractive business. We've been a leader in non-phthalate plasticizers for a long time. And so we get not just underlying market growth, but above market growth in that business as we've been replacing other plasticizers. And the spreads there, of course, connected to the olefins chain have done quite well this year. But it's not just spreads. It's also a nice growth story with the position we have in that marketplace. And then you've got olefins and acetyls.

And so we've got a plant that we just built and are ramping up for Curt debit for their enlist products thats, giving us a lot more additional growth from top of that core business. So thats just been a nice great.

Operator: So that's just been a nice, great, steady business. Then you do have plasticizers, which has been a very attractive business. We've been a leader in non-phthalate plasticizers for a long time. And so we get not just underlying market growth, but above market growth in that business as we've been replacing other plasticizers. And the spreads there, of course, connected to the olefins chain have done quite well this year. But it's not just spreads. It's also a nice growth story with the position we have in that marketplace. And then you've got olefins and acetyls. Olefins and that set of intermediates that we make there is by far a bigger part of the business than acetyls. And spreads have obviously significantly improved with the dynamics in propylene relative to propane. So that's been a driver of the performance. Acetyls is a much smaller business for us.

Steady business.

And then you do have plasticizers, which has been a very attractive business, we've been a leader and non phthalate plasticizers for a long time and so we get not just underlying market growth but.

Our above market growth and that business as we've been replacing other plasticizers.

And the spreads there of course connected to the olefin chain has done quite well this year.

But it's not just spreads it's also a nice growth story.

With the position we have in that marketplace.

And then you've got olefins and asset yields olefins and that set of interviews that we make there is by far a bigger part of the business than asset yields.

Olefins and that set of intermediates that we make there is by far a bigger part of the business than acetyls. And spreads have obviously significantly improved with the dynamics in propylene relative to propane. So that's been a driver of the performance. Acetyls is a much smaller business for us. And it's important to remember we're not really in acetic acid very much. It's just a co-product. We make acetic anhydride, and we're the largest player in acetic anhydride in the world to make cellulosics, right? And so when we look at the value of that stream with all the specialties that are made off of that and advanced materials, AFP, and of course, fibers, the margins of that integrated acetyl stream is quite significant and above company average.

And spreads have obviously significantly improved with.

And with the dynamics and propylene relative to appropriate so that's been a driver of the performance.

<unk> is a much smaller business for us and it's important to remember.

Operator: And it's important to remember we're not really in acetic acid very much. It's just a co-product. We make acetic anhydride, and we're the largest player in acetic anhydride in the world to make cellulosics, right? And so when we look at the value of that stream with all the specialties that are made off of that and advanced materials, AFP, and of course, fibers, the margins of that integrated acetyl stream is quite significant and above company average. So it's really about the olefins part where we're having some benefits, obviously, right now, as well as at some point, we'll expect moderation. But even there, we've made investments to improve CI and its stability.

We're not really in acetic acid very much. It's just a co products, we make are sick and hydro and we're the largest player and silicon nitride.

And the world.

To make cellulosic right and so when we look at the value of that stream with all the specialties that are made off of that and advanced materials AFP and of course fibers.

And the margins are that integrated acetyl stream is quite.

Significant and and above company average.

So it's really about the olefins part where we're having some benefits, obviously, right now, as well as at some point, we'll expect moderation. But even there, we've made investments to improve CI and its stability. So we have a lot of that business on cost-pass-through contracts versus spot because we wanted predictable earnings that really showed a lot of benefit in how well CI held up on an annual basis in 2019 and 2020 relative to 2018. So we did quite a bit better than others on that front. And of course, we're getting a benefit this year, not quite the same spot prices as some others might have. And we're happy to make that trade-off.

And so it's really about the olefins part.

Where we're having some benefits obviously right now as well as.

At some point expect moderation, but even there we've made investments to improve Ci and and stability. So we have a lot of that business and cost pass through contracts versus spot because we wanted to predictable earnings that really showed a lot of benefit and <unk> held up.

Operator: So we have a lot of that business on cost-pass-through contracts versus spot because we wanted predictable earnings that really showed a lot of benefit in how well CI held up on an annual basis in 2019 and 2020 relative to 2018. So we did quite a bit better than others on that front. And of course, we're getting a benefit this year, not quite the same spot prices as some others might have. And we're happy to make that trade-off. But we've done other things like the RGP investment, which has been a phenomenal investment to give us the ability to reduce the amount of ethylene we produce when it's not attractive and still make it when it is. So that's been a great way to stabilize that business.

On an annual basis, and 19 and 20.

Relative to <unk>, So we did quite a bit better than others on that front and.

And of course, we're getting a benefit this year not quite the same spot prices and some others might have and we're happy to make that tradeoff, but we've done and other things like the <unk> investment, which has been a phenomenal investment and give us the ability to reduce the amount of ethylene we produce when it's not attractive and still make it when it is so thats been a great way to stabilize that business and.

But we've done other things like the RGP investment, which has been a phenomenal investment to give us the ability to reduce the amount of ethylene we produce when it's not attractive and still make it when it is. So that's been a great way to stabilize that business. And we've optimized sites like taking Singapore down, which has been one of the highest parts of olefin volatility in our portfolio. And shutting that down will improve not just earnings, but reduce volatility. So a lot of things going on across the board to optimize value here. And it's important to keep in mind chemical intermediates exist to support the specialties, which are growing really well. And part of the reason you'll see volume going down this business is because the specialties are consuming it so fast in their growth.

Operator: And we've optimized sites like taking Singapore down, which has been one of the highest parts of olefin volatility in our portfolio. And shutting that down will improve not just earnings, but reduce volatility. So a lot of things going on across the board to optimize value here. And it's important to keep in mind chemical intermediates exist to support the specialties, which are growing really well. And part of the reason you'll see volume going down this business is because the specialties are consuming it so fast in their growth. So overall, it's playing its role, creating the value of reliability for customers, creating value to optimize our cost structure. And we're really proud of the team and how they've optimized value here in the first half of the year. How much of what's produced in the commodity segment is used internally, roughly?

We've optimized sites like taking Singapore down.

Down which has been 1 of the highest parts of olefin volatility and our portfolio and and shutting that down will improve not just earnings but reduce volatility. So a lot of things going on across the board.

To optimize value here and it's important to keep in mind chemical intermediates exist to support the specialties, which are growing really well and part of the reason you'll see volume going down. This business is because the specialties are consuming it and so fast and their growth. So overall, it's playing its role in creating the value reliability for customers, creating value to optimize our cost structure and we're really proud.

So overall, it's playing its role, creating the value of reliability for customers, creating value to optimize our cost structure. And we're really proud of the team and how they've optimized value here in the first half of the year.

And for the team and how they've optimize value here and the first half of the year.

Jeff Zekauskas: How much of what's produced in the commodity segment is used internally, roughly? And how is that changing in the current environment?

And how much of what's produced and commodity segment is used internally and roughly and how is that changing and the current environment.

Operator: And how is that changing in the current environment? Yeah. So Jeff, what I would say is approximately 50%. And as Mark has highlighted, we continue to debottleneck and get 1% to 2% growth a year in that space. So over time, we're trying to keep the reliability for our customers, but at the same time, be there when our specialties need it. Okay. Great. Thank you so much. And we'll take our next question from Frank Mitsch with Fermium Research. Hey. Good morning, folks. And I agree with PJ. Thank God it's Friday. Just following up on chemical intermediates in terms of the margins and the spreads, how did July turn out relative to the Q2 average? Any sort of pace that you could provide for us on how chemical intermediates profitability has been trending would be great. Yeah.

Willie McLain: Yeah. So Jeff, what I would say is approximately 50%. And as Mark has highlighted, we continue to debottleneck and get 1% to 2% growth a year in that space. So over time, we're trying to keep the reliability for our customers, but at the same time, be there when our specialties need it.

And so.

Yes, what I would say is approximately 50% and as Mark has highlighted we continue to debottleneck and get 1% and 2% growth a year and that and that space.

So over time.

And trying to keep the reliability for our customers, but at the same time be there when our specialty is needed.

Jeff Zekauskas: Okay. Great. Thank you so much.

Okay, great. Thank you so much.

And we will take our next question from Frank Mitsch with.

Operator: And we'll take our next question from Frank Mitsch with Fermium Research.

For me and research.

Frank Mitsch: Hey. Good morning, folks. And I agree with PJ. Thank God it's Friday. Just following up on chemical intermediates in terms of the margins and the spreads, how did July turn out relative to the Q2 average? Any sort of pace that you could provide for us on how chemical intermediates profitability has been trending would be great.

Hey, good morning, folks and I agree with P. J, Thank God, It's Friday.

Hey.

Just just following up on chemical intermediates in terms of the in terms of the margins and the spreads how and how did you lie.

Turn out relative to the <unk> average any any sort of pace that you could provide for us on how chemical intermediates profitability has been has been training with Greg.

Mark Costa: Yeah. So as we look at July, what I'd say, Frank, is prices have held up similar in July to Q2, but propane costs are trending higher, right? So part of our commentary is that propane was about $0.90 on average in Q2. It's $1.10 in July. So you've got some propane headwind. But prices are holding up well. Now, our guidance includes some expectation that prices will start to normalize as we go through the back half of this year. I think there's a wide range of opinions about the rate at which prices may or may not normalize in the back half of the year. I'd say we're probably in the middle of the road relative to the commentary out there where we expect some, but not dramatic.

Yes, so as we look at July what I'd say Frank is.

Operator: So as we look at July, what I'd say, Frank, is prices have held up similar in July to Q2, but propane costs are trending higher, right? So part of our commentary is that propane was about $0.90 on average in Q2. It's $1.10 in July. So you've got some propane headwind. But prices are holding up well. Now, our guidance includes some expectation that prices will start to normalize as we go through the back half of this year. I think there's a wide range of opinions about the rate at which prices may or may not normalize in the back half of the year. I'd say we're probably in the middle of the road relative to the commentary out there where we expect some, but not dramatic.

Prices have held up similar.

And July to the second quarter, the propane costs are trending higher right. So.

Part of our commentary is is that propane was about 90 on average and the second quarters, It's $1.10 and July so you've got some propane headwind.

The prices are holding up well and now our guidance includes some expectation that prices will start to normalize as we go through the back half of this year I think there is a wide range of opinions about the rate at which <unk>.

Prices may or may not normalize.

The back half of the year I would say, we're probably in the middle of the road on relative to the commentary out there.

And where we expect some but not dramatic and.

Operator: We said we're getting out of the olefin forecasting business a long time ago, and we're going to stick with that. It's a little hard to predict the pace at which these markets can change, but we appreciate the earnings. It's actually been a nice balance as we're working pricing relative to ROS and the specialties. So these sort of neutralize each other out in some ways. On the spread front, our strategy is focused on growing high-value volume and mix through innovation in the specialties, which is the vast majority of who we are. It's nice to get these benefits out of CI, but it's also nice that it's a small part of the company and not a big driver of our long-term growth story. Gotcha. Actually, that feeds into my question in terms of seasonality on Q4.

And we say, we're getting out of the olefin forecasting business, a long time ago and and.

We said we're getting out of the olefin forecasting business a long time ago, and we're going to stick with that. It's a little hard to predict the pace at which these markets can change, but we appreciate the earnings. It's actually been a nice balance as we're working pricing relative to ROS and the specialties. So these sort of neutralize each other out in some ways. On the spread front, our strategy is focused on growing high-value volume and mix through innovation in the specialties, which is the vast majority of who we are. It's nice to get these benefits out of CI, but it's also nice that it's a small part of the company and not a big driver of our long-term growth story.

And we're going to stick with that.

It's a little hard to predict the pace at which these markets can change but.

And I appreciate the earnings it's actually been a nice balance.

Working pricing relative to raws and the specialties.

And so these sort of neutralize each other out in some ways and.

And on the spread front, our strategy is focused on growing high value and volume and mix through innovation and the specialties, which is the vast majority of who we are.

It's nice to get these benefits OCI, but it's also nice that it's a small part of the company.

And not a big driver of our long term growth story.

Frank Mitsch: Gotcha. Actually, that feeds into my question in terms of seasonality on Q4. It looks like the guide is more heavily weighted on the Q3. Is that more a function of that you have greater near-term visibility? And just in general, what are your thoughts on Q4 seasonality since there does seem to be some thought out there that it's going to be less than typical in normal years?

Got you and.

And actually that feeds into my question in terms of seasonality and <unk>. It looks like the guide is more heavily weighted on the third quarter is that is that more a function of.

Operator: It looks like the guide is more heavily weighted on the Q3. Is that more a function of that you have greater near-term visibility? And just in general, what are your thoughts on Q4 seasonality since there does seem to be some thought out there that it's going to be less than typical in normal years? Yeah. So on the specialty side, I'd say our view is demand is going to be strong and hold up well in the Q3 and continue into the Q4. So not that normal seasonal drop as we don't see a lot of progress in customers making sort of improvements in their inventory situation, especially in some markets like automotive or construction. And those kind of markets clearly are being sort of rate-limited by supply chain challenges in the way they're serving underlying market demand, which is very strong around the world.

That you have greater near term visibility.

And just in general what are your thoughts on non.

For Q seasonality.

And it does seem to be.

From some thought out there that it's going to be less than typical and normal years.

Mark Costa: Yeah. So on the specialty side, I'd say our view is demand is going to be strong and hold up well in the Q3 and continue into the Q4. So not that normal seasonal drop as we don't see a lot of progress in customers making sort of improvements in their inventory situation, especially in some markets like automotive or construction. And those kind of markets clearly are being sort of rate-limited by supply chain challenges in the way they're serving underlying market demand, which is very strong around the world.

Yes, so on the specialty side I'd say.

Our view is demand is going to be strong and and.

Hold up well and the third quarter and continue into the fourth quarters and not that normal seasonal drop.

As we.

Don't see a lot of progress and customers, making sort of.

Improvements in their inventory situation, especially in some markets like automotive or construction.

And.

And those kind of markets clearly are being sort of rate limited by supply chain challenges and.

And the way, they're serving underlying market demand, which is very strong.

Around the world.

Operator: And so they're going to continue to want to sort of ramp up production whenever they get raw materials to serve that need. And so we think that continues, that sort of strength continues in the back half of this year and frankly into next year in those kind of end markets. And then you've got other steady markets that are just constantly growing like care chemicals, water treatment, ag, etc., that always provide stability. So yeah, we think it's going to hold up better on that side. When it comes to chemical intermediates, I think I already hit that, which is at some point we expect normalization of spreads. I just don't know when. Gotcha. Very helpful. Thank you. Take our next call from Vincent Andrews with Morgan Stanley. Thank you.

And so they're going to continue to want to sort of ramp up production whenever they get raw materials to serve that need. And so we think that continues, that sort of strength continues in the back half of this year and frankly into next year in those kind of end markets. And then you've got other steady markets that are just constantly growing like care chemicals, water treatment, ag, etc., that always provide stability. So yeah, we think it's going to hold up better on that side. When it comes to chemical intermediates, I think I already hit that, which is at some point we expect normalization of spreads. I just don't know when.

And and so they're going to continue to want to sort of ramp up production and whatever they get raw materials.

To serve that need and so we think that continues and that sort of strength continues and the back half of this year and frankly.

And the next year and those kind of end markets and then you've got other steady markets are just constantly growing.

Care chemicals water treatment tag et cetera.

Well that always provides stability. So yes, we think it's going to hold up better on that side. When it comes to chemical intermediates I think already hit that which is at some point, we expect normalization and spreads I just don't know when.

Frank Mitsch: Gotcha. Very helpful. Thank you.

Got you and very helpful. Thank you.

Operator: Take our next call from Vincent Andrews with Morgan Stanley.

Our next come from Vincent Andrews with Morgan Stanley.

Vincent Andrews: Thank you. Mark, I'm wondering in the sort of molecular recycling arena, you've talked about the PET opportunity on a take-or-pay basis. I'm wondering in polyester fibers, if there's an avenue into the apparel industry or textile industry. I mean, I know you obviously have Naia through the fibers, but that's a different solution. So I'm just wondering if there's another source of customer opportunity to sell recycled polyester fiber.

Thank you Mark and I'm wondering and the sort of molecular.

Operator: Mark, I'm wondering in the sort of molecular recycling arena, you've talked about the PET opportunity on a take-or-pay basis. I'm wondering in polyester fibers, if there's an avenue into the apparel industry or textile industry. I mean, I know you obviously have Naia through the fibers, but that's a different solution. So I'm just wondering if there's another source of customer opportunity to sell recycled polyester fiber. Yeah. So there's two different opportunities for us, Vincent, and good to hear from you in the textile world. First and foremost, we're having tremendous success with our biopolymer, right? So you got to remember we have a cellulosic polymer called Naia that is half biopolymer from certified sustainable forests. And the other half now is going to have recycled content in it through our recycling technology. And as a microfiber, it's certified as biodegradable.

Cycling arena, and you've talked about the PDT opportunity on a take or pay basis.

I'm wondering if I can polyester fibers, if theres an avenue into the apparel industry textile industry and I know you. Obviously have have now after the 5 years, but thats a different solutions. So I'm just wondering if there is.

Another source of customer opportunity to sell.

Recycled polyester fiber.

Mark Costa: Yeah. So there's two different opportunities for us, Vincent, and good to hear from you in the textile world. First and foremost, we're having tremendous success with our biopolymer, right? So you got to remember we have a cellulosic polymer called Naia that is half biopolymer from certified sustainable forests. And the other half now is going to have recycled content in it through our recycling technology. And as a microfiber, it's certified as biodegradable. So it's the hat trick of solving the environmental problems that are out there. And we see really strong engagement from customers on that. It's a nice high-margin product for us and a way to sort of repurpose all of the fibers capacity that was making tow. So we're spending a lot of time driving that, and it's just a great success story.

Yes.

2 different opportunities for as Vincent and good to hear from you.

And the textile world first and foremost, we're having tremendous success with our biopolymer right. So you got to remember we are a cellulosic polymers called <unk>.

That is half biopolymer from certified sustainable Forest and.

And the other half now is going to have recycled content and it through our recycling technology.

And it is a microfiber.

Certified as biodegradable so it's a hat trick of solving the environmental problems that are out there.

Operator: So it's the hat trick of solving the environmental problems that are out there. And we see really strong engagement from customers on that. It's a nice high-margin product for us and a way to sort of repurpose all of the fibers capacity that was making tow. So we're spending a lot of time driving that, and it's just a great success story. And when you think about just this year, the amount of growth we're having in textiles is offsetting the decline in tow, and the one-time hit we took in that discontinued specialty product, which was $10 million alone. So really great progress by that team. And yes, there is the opportunity in addition to that to look at polyester fiber with recycled content in it.

And we see really strong engagement from customers on that it's a nice high margin product for us and.

And a way to sort of repurpose all of the fibers capacity that was making toes. So we're spending a lot of time driving that and it's just a great success story and when you think about just this year the amount of growth, we're having and textiles is offsetting the decline and toe and the onetime hit we took and that discontinued specialty products, which was 2 million.

Mark Costa: And when you think about just this year, the amount of growth we're having in textiles is offsetting the decline in tow, and the one-time hit we took in that discontinued specialty product, which was $10 million alone. So really great progress by that team. And yes, there is the opportunity in addition to that to look at polyester fiber with recycled content in it. Those are some of the conversations we're starting to have along with some of the packaging customers on where we could potentially lean in and help on that front. So it's a possibility to add to our growth story in the biopolymer textiles.

And the loan so.

Really great progress by that team and yes. There is the opportunity. In addition to that to look at polyester fiber with recycled content in it and those are some of the conversations we are starting to have along with some of the packaging customers on where we could potentially lean in and help on that front.

Operator: Those are some of the conversations we're starting to have along with some of the packaging customers on where we could potentially lean in and help on that front. So it's a possibility to add to our growth story in the biopolymer textiles. And can I just ask you on, I know you raised the free cash flow guidance, but just curious how you're thinking of managing the sort of raw materials issues that are out there in terms of inventories. And some companies sort of are seeing a bulge sort of during the year while they're trying to procure inventories to make sure they have what they need for customers.

So it's a possibility to add to our growth story and the.

Biopolymer textiles.

Vincent Andrews: And can I just ask you on, I know you raised the free cash flow guidance, but just curious how you're thinking of managing the sort of raw materials issues that are out there in terms of inventories. And some companies sort of are seeing a bulge sort of during the year while they're trying to procure inventories to make sure they have what they need for customers. Others are talking about maybe they want to have more on hand in general in the future just given we continue to see sort of unplanned outages and things like that, and they want to be a little bit more nimble. What's the thinking inside of Eastman in terms of how you want to manage inventories given that you're obviously a very strong free cash flow generator, and that's an important part of the story?

Okay and can I just ask you on.

And I know you raised the free cash flow guidance, but just curious how you're thinking of managing sort of raw materials issues that are out there in terms of in terms of inventories and some companies certainly we're seeing a bulge share during the year, while theyre trying to procure inventory to make sure. They have what they need for customer and others are talking about maybe they want to have.

Operator: Others are talking about maybe they want to have more on hand in general in the future just given we continue to see sort of unplanned outages and things like that, and they want to be a little bit more nimble. What's the thinking inside of Eastman in terms of how you want to manage inventories given that you're obviously a very strong free cash flow generator, and that's an important part of the story? Thanks, Vincent. This is Willie. Yes, I would like to highlight, I'll call it the tremendous efforts that our team members across the world did to deliver free cash flow here in the first half of the year. To your point, we've delivered greater free cash flow this year, almost $450 million in the first six months. That's facing raw material pricing inflation of about $200 million higher than last year.

More on hand, and general and the future just given we continue to see.

Sort of unplanned outages and things like that they wanted to be a little bit more nimble.

And what's the thinking inside of Eastman and in terms of how you want to manage inventory given that you're obviously, a very strong free cash flow generator and that's an important part of the story.

Willie McLain: Thanks, Vincent. This is Willie. Yes, I would like to highlight, I'll call it the tremendous efforts that our team members across the world did to deliver free cash flow here in the first half of the year. To your point, we've delivered greater free cash flow this year, almost $450 million in the first six months. That's facing raw material pricing inflation of about $200 million higher than last year. As Mark highlighted earlier, the supply chains continue, I'll call it, to be thin. We're looking to ensure security of supply. So there would be choices that we would make to ensure in our specialties that we have the ability to meet our demands of our customers, and we would make those trade-offs.

Thanks, Vincent this is Willie yes, I would like to highlight I'll call. It the tremendous efforts that our team members across the world debt to deliver free cash flow here and the first half of the year.

To your point, we've delivered greater free cash flow this year, almost $450 million and the first 6 months and thats facing raw material pricing inflation of about $200 million higher than last year.

As Mark highlighted earlier and the supply chains continue.

Operator: As Mark highlighted earlier, the supply chains continue, I'll call it, to be thin. We're looking to ensure security of supply. So there would be choices that we would make to ensure in our specialties that we have the ability to meet our demands of our customers, and we would make those trade-offs. We've factored that into our forecast guidance as we think about delivering greater than $1.1 billion this year. But it is choices that we will continue to make as we see the demand scenarios play out. It's hard to imagine building a lot of inventory right now just if we assume demand levels of Q2. Thanks very much. Go to our next question from Kevin McCarthy with Vertical Research Partners. Yes. Good morning. Mark, with regard to your specialty segments, margins came down a bit on a sequential basis.

Call it to be.

And I'll call. It 10, and we're looking to ensure security of supply. So there would be choices that we would make.

And to ensure our specialties that we have the ability to meet our demands of our customers and we would make those trade offs, we factored that and to our forecast and guidance as we think about delivering greater than $1.1 billion. This year.

We've factored that into our forecast guidance as we think about delivering greater than $1.1 billion this year. But it is choices that we will continue to make as we see the demand scenarios play out. It's hard to imagine building a lot of inventory right now just if we assume demand levels of Q2.

And as choices that we will continue to make as we see the demand scenarios play out.

Hard to imagine building a lot of inventory right now just.

If we assume demand levels of Q2.

Vincent Andrews: Thanks very much.

Thanks very much.

Operator: Go to our next question from Kevin McCarthy with Vertical Research Partners.

Go to our next question from Kevin Mccarthy with vertical research partners.

Kevin McCarthy: Yes. Good morning. Mark, with regard to your specialty segments, margins came down a bit on a sequential basis. In that context, I was wondering if you'd talk about how much of the cost inflation has been recovered and how much you think you will need to recover, and what role price increases might play in that process for additives and functional products as well as advanced materials. Thanks.

Yes, good morning, Mark with regard to your specialty segments margins came down a bit on a sequential basis.

Operator: In that context, I was wondering if you'd talk about how much of the cost inflation has been recovered and how much you think you will need to recover, and what role price increases might play in that process for additives and functional products as well as advanced materials. Thanks. Yeah. So I think we're doing well on managing prices in the specialties. As we look through Q2 and the way we're increasing prices here in Q3, we think we're well on track to managing prices relative to raw material costs, and really incredibly proud of the teams and how they're doing that. The challenge we had in Q2 was the spike in distribution costs on top of the raw materials. A lot of it was just air freighting, right?

And that context I was wondering if you talk about how much of the cost inflation has been recovered.

And how much you think you will need to recover and what role price increases might play and that process for additives and functional products as well as advanced materials.

Mark Costa: Yeah. So I think we're doing well on managing prices in the specialties. As we look through Q2 and the way we're increasing prices here in Q3, we think we're well on track to managing prices relative to raw material costs, and really incredibly proud of the teams and how they're doing that. The challenge we had in Q2 was the spike in distribution costs on top of the raw materials. A lot of it was just air freighting, right? So it's not just price per unit delivered, but it's mode that we had to use to keep our customers supplied. So there just was a tremendous amount of air freighting going on. We expect that to abate back to more normal modes as well as sort of calm down a bit.

Yes, so I think we're doing well and managing prices and the specialties.

We look to the second quarter and.

The way, we're increasing prices here and the third quarter.

We think we're.

Well on track to managing prices relative to raw material costs.

And I'm really proud of the teams and how they are doing that.

The challenge, we had and the second quarter was the spike and distribution costs on top of the raw materials a lot of it was just air freighting right. So it's not just price per unit delivered but it's mode that we had to use to keep our customers supplied. So there just was a tremendous amount of airfreight and going on we expect that to abate back to more normal modes and.

Operator: So it's not just price per unit delivered, but it's mode that we had to use to keep our customers supplied. So there just was a tremendous amount of air freighting going on. We expect that to abate back to more normal modes as well as sort of calm down a bit. Now, we're getting some price to cover some of those costs, but not all of it. And that's part of the offset that you saw in Q2. So as we go into the back half, we feel really quite good about keeping up with ROS and managing the distribution total cost. So that's not really our concern. We're focused on just trying to get volume and mix delivered to customers. And the market demand out there is really good, well above our logistics capabilities that we can access.

And as well as sort.

Sort of calmed down a bit now we're getting some price and cover some of those costs, but not all of it and that's part of the offset that you saw in the second quarter. So as we go into the back half.

Now, we're getting some price to cover some of those costs, but not all of it. And that's part of the offset that you saw in Q2. So as we go into the back half, we feel really quite good about keeping up with ROS and managing the distribution total cost. So that's not really our concern. We're focused on just trying to get volume and mix delivered to customers. And the market demand out there is really good, well above our logistics capabilities that we can access. And so the constraint is going to be more about just access to logistics on how we drive demand in the back half of the year, and how much that could limit the level of growth in the back half relative to the second quarter. But we feel quite good about managing the raw material situation.

We feel really quite good about keeping up with raws and managing the distribution total cost.

So that's not really our concern we're focused on just trying to get volume and mix delivered to customers and and the market demand out there is really good.

And are well above our logistics capabilities that we can access and so the constraint.

Operator: And so the constraint is going to be more about just access to logistics on how we drive demand in the back half of the year, and how much that could limit the level of growth in the back half relative to the second quarter. But we feel quite good about managing the raw material situation. I see. Thank you for that. And then secondly, your prepared remarks released last night reference $100 million of savings from digitization, site optimization, operations transformation, etc. So a few questions. Maybe you could elaborate on what exactly you're doing there and how these savings might spread among your segments and what the associated cash outlay might be attached to those projected savings. So what I would highlight is we've had three primary buckets that we've talked about of cost savings.

He is going to be more about just access to logistics on how we drive demand and the back half of the year and how much.

And how much that could limit the level of growth and the back half relative to the second quarter, but.

We feel quite good about the raw materials and managing the raw material situation.

Kevin McCarthy: I see. Thank you for that. And then secondly, your prepared remarks released last night reference $100 million of savings from digitization, site optimization, operations transformation, etc. So a few questions. Maybe you could elaborate on what exactly you're doing there and how these savings might spread among your segments and what the associated cash outlay might be attached to those projected savings.

Thank you for that and then secondly, your prepared remarks released last night reference $100 million of savings from Digitization and <unk>.

Optimization and operations transformation et cetera.

So a few questions maybe you could elaborate on what exactly youre doing there and how these savings might spread among your segments and what the associated cash outlay might might be attached to those projected savings.

Willie McLain: So what I would highlight is we've had three primary buckets that we've talked about of cost savings. So as we think about site optimizations, we've, I would say, have substantially executed most of those through mid-year. We expect a tailwind. We framed that all in to be a $50 million program of which we would expect, I'll call it about half of that to flow into next year as well. We've also talked about how we do maintenance, maintenance turnarounds, I'll call it spans and layers across our operations fronts. We've made those implementations at the end of 2020, going into 2021. We expect as that's fully implemented, there will be additional tailwinds from those actions.

So.

What I would highlight is we've had 3 primary buckets that we've talked about cost savings. So as we think about site optimizations. We've I would say have substantially executed most of those through mid year and.

Operator: So as we think about site optimizations, we've, I would say, have substantially executed most of those through mid-year. We expect a tailwind. We framed that all in to be a $50 million program of which we would expect, I'll call it about half of that to flow into next year as well. We've also talked about how we do maintenance, maintenance turnarounds, I'll call it spans and layers across our operations fronts. We've made those implementations at the end of 2020, going into 2021. We expect as that's fully implemented, there will be additional tailwinds from those actions. Additionally, as we continue to think about leveraging our sites for other partners as another way of creating value and gaining, I'll call it earnings from additional capacities that we have, and we're continuing to make progress on those fronts as well.

And we expect a tailwind and we frame that all and EMEA at $50 million program of which we would expect.

Sure.

About half of that to flow into next year as well.

We've also talked about how we do maintenance maintenance turnarounds.

I'll call it spans and layers across our operations front and we've made those implementations at the end of <unk>.

I'll call it and a 'twenty 'twenty going into 'twenty, 1 and we expect and Thats fully implemented there will be additional tailwind from those actions.

Additionally, as we continue to think about leveraging our sites for other partners as another way of creating value and gaining, I'll call it earnings from additional capacities that we have, and we're continuing to make progress on those fronts as well. Year in and year out, our goal is to not, I'll call it in normal operations, is to offset inflation. And also, as you think about going from 2021 to 2022, I would say on the variable comp will also be a tailwind as we manage all three of those buckets.

Additionally, as we continue to think about leveraging our sites for other partners as another way of creating value and.

Gaming.

All right.

Earnings from additional capacities that we have and we're continuing to make progress on those fronts as well year end and year out our goal is to not.

Operator: Year in and year out, our goal is to not, I'll call it in normal operations, is to offset inflation. And also, as you think about going from 2021 to 2022, I would say on the variable comp will also be a tailwind as we manage all three of those buckets. Thanks very much. Our next question from Aleksey Yefremov with KeyBank. Thank you. And good morning, everyone. Mark, where do you stand in advancing this industrial gas-like business model for your methanolysis technology? Are you in any specific discussions with potential partners, and have those discussions been fruitful? Yeah. So we are engaged in specific discussions with partners both at the country and the brand level as well as sources of feedstock supply. So we have a lot of conversations going on over now.

And I'll call it and normal operations is to offset inflation.

And also as you think about volume from 21 to 'twenty 2.

I would say on the variable comp.

And so via tailwind as we manage all 3 of those buckets.

Kevin McCarthy: Thanks very much.

Thanks very much.

Operator: Our next question from Aleksey Yefremov with KeyBank.

Our next question from Alex Yao from Us.

And <unk> Keybanc.

Aleksey Yefremov: Thank you. And good morning, everyone. Mark, where do you stand in advancing this industrial gas-like business model for your methanolysis technology? Are you in any specific discussions with potential partners, and have those discussions been fruitful?

Thank you and good morning, everyone.

Mark where do you stand and advancing this industrial and industrial gas light business model, 3 and math analysis technology, IU and any specific discussions with potential partners and have those discussions been fruitful.

Mark Costa: Yeah. So we are engaged in specific discussions with partners both at the country and the brand level as well as sources of feedstock supply. So we have a lot of conversations going on over now. We have a full team just dedicated to managing this area and quite encouraged by the level and seriousness at which the counterparties are taking this and understanding the challenges and what we see in their commitments to make a real difference in improving the environment with their products. So I feel good about it, but it's not over until it's over. And so we just have to see how these discussions play out. And I'll be excited to share the news with you once I've actually achieved my objective on the structure of these kind of deals.

And so we are engaged and specific discussions with partners both at the country and the brand level.

As well as.

Sources of feedstock supply so a lot of conversations going on over there and we have a full team dedicated to managing this area.

Operator: We have a full team just dedicated to managing this area and quite encouraged by the level and seriousness at which the counterparties are taking this and understanding the challenges and what we see in their commitments to make a real difference in improving the environment with their products. So I feel good about it, but it's not over until it's over. And so we just have to see how these discussions play out. And I'll be excited to share the news with you once I've actually achieved my objective on the structure of these kind of deals. Great. Well, we look forward to that. And as a follow-up on free cash flow, you mentioned for next year, priorities are dividend increase, M&A, and share purchases. The last two categories, how do you think about the balance?

And quite encouraged by the level and seriousness with which the Counterparties are taking this and understanding the challenges and.

And what we see and their commitments to make a real difference and improving the environment with their products. So.

And I feel good about it but it's not over until it's over.

And so we just have to see how these discussions play out and it will be.

We're excited to share the news with you once I've actually achieve my objective on on the structure of these kind of.

<unk>.

Aleksey Yefremov: Great. Well, we look forward to that. And as a follow-up on free cash flow, you mentioned for next year, priorities are dividend increase, M&A, and share purchases. The last two categories, how do you think about the balance? If you can't find bolt-ons, should we think of sort of share purchases as sort of a default option or repurchases? Is it going to be more opportunistic in nature?

Great well we.

Look forward to that and as a follow up on free cash flow you mentioned.

For next year.

Priorities and our dividend increase M&A and share repurchases. The last 2 categories. How do you think about the balance if you can't find bolt ons and should we think of sort of share repurchases and sort of a default option.

Operator: If you can't find bolt-ons, should we think of sort of share purchases as sort of a default option or repurchases? Is it going to be more opportunistic in nature? Yeah. So I'm going to sort of answer the first part of that question, and then I'm going to hand it off to Willie for more of the detail. But first of all, I just want to sort of recognize we really are proud of how well our teams have managed and delivered free cash flow and the stability in which we've been able to do it in both good and challenging times. And really, when we reflect on it, it's been a decade journey to get to this kind of performance. When you go back to where we were before the Solution transaction, our free cash flow, frankly, wasn't as strong.

And our repurchases and theyre going to be more opportunistic in nature.

Mark Costa: Yeah. So I'm going to sort of answer the first part of that question, and then I'm going to hand it off to Willie for more of the detail. But first of all, I just want to sort of recognize we really are proud of how well our teams have managed and delivered free cash flow and the stability in which we've been able to do it in both good and challenging times. And really, when we reflect on it, it's been a decade journey to get to this kind of performance. When you go back to where we were before the Solution transaction, our free cash flow, frankly, wasn't as strong.

Yes, so I'm going to sort of answer the first part of that question and then I'll hand, it off to Willie from more of the detail, but first of all I just wanted to sort of recognize we really are proud of how well our teams have managed and delivered free cash flow and the stability and which we've been able to do it and both good and challenging times.

And it really when we reflect on it it's been a decade journey to get to and this kind of performance.

And when you go back to where we were before the Solutia transaction.

Free cash flow frankly wasn't as strong and.

Operator: Solutia dramatically improved the quality of our portfolio along with Taminco being less capital-intensive and improving our free cash flow. So in addition to earnings, there was a significant benefit that came out of the Solutia acquisition on the free cash flow side. And then we've had just tremendous success in growing these high-value innovation products that are quite attractive margins, which means they generate a lot of cash and improving the cash flow of the portfolio that way. And then, of course, there's recent actions we've taken in optimizing our portfolio, like selling tires. That's going to give us additional cash. So we're in a very strong sort of strategic position from a cash and balance sheet point of view.

And solutia dramatically improves the quality of our portfolio along with to make co being less capital intensive and improving our free cash flow. So in addition to earnings.

Solutia dramatically improved the quality of our portfolio along with Taminco being less capital-intensive and improving our free cash flow. So in addition to earnings, there was a significant benefit that came out of the Solutia acquisition on the free cash flow side. And then we've had just tremendous success in growing these high-value innovation products that are quite attractive margins, which means they generate a lot of cash and improving the cash flow of the portfolio that way. And then, of course, there's recent actions we've taken in optimizing our portfolio, like selling tires. That's going to give us additional cash. So we're in a very strong sort of strategic position from a cash and balance sheet point of view.

And there was a significant benefit that came out of the Solutia acquisition and the free cash flow side.

And on.

And then we've had just tremendous success and growing these high value innovation products that are quite attractive margins, which means they generate a lot of cash.

And improve and the cash flow of the portfolio that way.

And then of course, there's recent actions, we've taken and optimizing our portfolio like selling tires, and that's going to give us additional cash so.

We're in a very strong through strategic position from a cash and balance sheet point of view.

And as we look at it going forward just to reiterate our priorities first and foremost as youre doing capex consistent with their especially innovation and growth strategy and making sure. We have the capacity in place to support our growth then of course, there is this acceleration opportunity around that.

Operator: And as we look at it going forward, just to reiterate our priorities, first and foremost is doing CapEx consistent with our specialty innovation growth strategy and making sure we have the capacity in place to support our growth. Then, of course, there's this acceleration opportunity around the circular economy. The first step is just part of our strategy, which is how do we add recycled content to our specialty products. But as we've discussed on this call, there's this opportunity to build additional plants in this industrial gas model that could substantially add to our EBITDA. And so we're going to be looking at those as an option for cash. And then you get to share purchases, and bolt-on M&A as the next steps. Of course, we always have a growing dividend that is part of that overall cash story. So the priorities are clear there.

And as we look at it going forward, just to reiterate our priorities, first and foremost is doing CapEx consistent with our specialty innovation growth strategy and making sure we have the capacity in place to support our growth. Then, of course, there's this acceleration opportunity around the circular economy. The first step is just part of our strategy, which is how do we add recycled content to our specialty products. But as we've discussed on this call, there's this opportunity to build additional plants in this industrial gas model that could substantially add to our EBITDA. And so we're going to be looking at those as an option for cash. And then you get to share purchases, and bolt-on M&A as the next steps. Of course, we always have a growing dividend that is part of that overall cash story. So the priorities are clear there.

The circular economy. The first step is just part of our strategy, which is how do we add recycled content to our specialty products, but as we've discussed and.

On this call there is this opportunity to build additional plants.

And this airgas model that could.

Essentially add too.

Our EBITDA and so we're going to be looking at those as an option for cash and then you get to share repurchases and bolt on M&A.

As next steps of course, we always have a growing dividend.

Debt as part of that overall cash story. So it's the prior to clear there to be clear, we're not looking at large M&A questions out there.

Operator: To be clear, we're not looking at large M&A if that question's out there. We think that pulling all these levers in concert is a way to create a nice balanced growth story for the company. I'll let Willie give you a little more details around exactly where the cash position sits at this point. Yeah. What I would say is with the improving EBITDA, we expect to be done with delevering at the end of this year. I would also add we're now not expecting to need to further delever for the Texas divestiture. We've committed to roughly $250 million of share repurchases in the back half of the year. Now thinking that we would have roughly $600 to 650 million of cash to repurchase shares and/or bolt-ons, as Mark has highlighted, as we wrap up the year.

To be clear, we're not looking at large M&A if that question's out there. We think that pulling all these levers in concert is a way to create a nice balanced growth story for the company. I'll let Willie give you a little more details around exactly where the cash position sits at this point.

And we think that pulling all these levers and concert as a way to create a nice balanced growth story for the company I'll, let will give you a little more details around exactly where the cash position sits at this point, yes, what I would say is with the improving EBITDA, we expect to be deal done with Delevering at the end of this year and I would also add.

Willie McLain: Yeah. What I would say is with the improving EBITDA, we expect to be done with delevering at the end of this year. I would also add we're now not expecting to need to further delever for the Texas divestiture. We've committed to roughly $250 million of share repurchases in the back half of the year. Now thinking that we would have roughly $600 to 650 million of cash to repurchase shares and/or bolt-ons, as Mark has highlighted, as we wrap up the year.

We're now not expecting to need to further de lever for the tires divestiture.

And so we've committed roughly $250 million of share repurchases and the back half of the year and now thinking that we would have roughly $600 million to $650 million of cash to repurchase shares and or bolt ons as Mike as Mark has highlighted.

As we wrap up the year, our balance sheet is in great shape.

Operator: Our balance sheet is in great shape. We're below 2.5 times net debt to EBITDA and expect also from a rating agency view to achieve 2.5 times or below by year-end. We're in a great position. And as we think about going forward, we have roughly $1.2 billion remaining on our current stock repurchase authorization. And with the cash that I talked about as we wrap up the year and think about potentially $700 million of free cash flow to put the strategic uses next year, we're in a strong position as we move forward, as Mark highlighted. Yeah. And just on the bolt-ons, we're not going to be opportunistic. We're going to be very strategic.

Our balance sheet is in great shape. We're below 2.5 times net debt to EBITDA and expect also from a rating agency view to achieve 2.5 times or below by year-end. We're in a great position. And as we think about going forward, we have roughly $1.2 billion remaining on our current stock repurchase authorization. And with the cash that I talked about as we wrap up the year and think about potentially $700 million of free cash flow to put the strategic uses next year, we're in a strong position as we move forward, as Mark highlighted.

Below 2 and a 2.5 times net debt to EBITDA and expect to also from a rating agency view.

To achieve 2.5 times or below by year and we're in a great.

Great position and as we think about going forward.

We have roughly $1.2 billion remaining on our current stock repurchase authorization.

And with the cash that I talked about as we wrap up the year and think about potentially $700 million of free.

Free cash flow to put the strategic pieces next year, where and our strong position as we move forward as mark highlighted and.

Mark Costa: Yeah. And just on the bolt-ons, we're not going to be opportunistic. We're going to be very strategic. In other words, we're only going to do bolt-ons if they really fit with the company, they really create a lot of value, and reinforce an existing business, and we're going to be disciplined about what we pay. So we're not going to get caught up in deal fever. Having said that, we very much would like to do bolt-on M&A, but it's got to meet those conditions.

Just on the bolt ons, we're not going to be opportunistic and we're going to be very strategic in other words, we're only and do bolt ons, if they really fit with the company and they really create a lot of value and reinforced and existing business and we're going to be disciplined about what we pay.

Operator: In other words, we're only going to do bolt-ons if they really fit with the company, they really create a lot of value, and reinforce an existing business, and we're going to be disciplined about what we pay. So we're not going to get caught up in deal fever. Having said that, we very much would like to do bolt-on M&A, but it's got to meet those conditions. We'll go to our next question from John Roberts with UBS. Thank you. In AFP, when you say looking at additional actions, is that more divestments or is that taking out stranded costs from the tire and rubber chemicals divestment? Well, we're always committed, John, to managing our cost structure, including what residual costs might occur from a divestiture. And so we'll manage that as part of our overall operational and business operating model transition work.

So we're not gonna get caught up and deal fever, having said that we very much would like to be bolt on M&A, but it's got to meet those conditions.

Operator: We'll go to our next question from John Roberts with UBS.

We'll go to our next question from John Roberts with UBS.

John Roberts: Thank you. In AFP, when you say looking at additional actions, is that more divestments or is that taking out stranded costs from the tire and rubber chemicals divestment?

Thank you and.

Asps when you say looking at additional actions is that more divestments or is that taking out stranded costs from the tire and rubber chemicals divestment.

Well, we're always committed John to managing our cost structure, including what residual costs might occur.

Mark Costa: Well, we're always committed, John, to managing our cost structure, including what residual costs might occur from a divestiture. And so we'll manage that as part of our overall operational and business operating model transition work. But when it comes to other work, we're referring to adhesives where we're continuing to pursue both JV and divestiture options with that business where we have good engagement from multiple parties, and we'll see how that plays out.

From a divestiture and so we'll manage that as part of our overall operational and business operating model transition work.

Operator: But when it comes to other work, we're referring to adhesives where we're continuing to pursue both JV and divestiture options with that business where we have good engagement from multiple parties, and we'll see how that plays out. Okay. And then after the conversion of more standard copolyesters to Tritan, what percent of the copolyester production will be Tritan? How much capacity do you have left so that you can have low capital-intensity upgrades there? Well, we certainly have low capital-intensity upgrades. That's been the story of specialty plastics since it began, right? It started with a bunch of PET assets handed to it from CI at that time. If you want to go back far enough in history, they're a big brother. And then repurpose those PET assets to making our traditional copolyesters and then repurposing those polymer assets to make Tritan.

But when it comes to other work, it's referring to adhesives, where we're continuing to pursue both JV and divestiture options with that business.

And where we have good engagement from multiple parties and we'll see how that plays out.

John Roberts: Okay. And then after the conversion of more standard copolyesters to Tritan, what percent of the copolyester production will be Tritan? How much capacity do you have left so that you can have low capital-intensity upgrades there?

Okay and then after the conversion of more standards standard co polyesters to Triton what percentage of the co polyester production will be trite and how much capacity do you have left that you can have low low capital intensity upgrades there.

Mark Costa: Well, we certainly have low capital-intensity upgrades. That's been the story of specialty plastics since it began, right? It started with a bunch of PET assets handed to it from CI at that time. If you want to go back far enough in history, they're a big brother. And then repurpose those PET assets to making our traditional copolyesters and then repurposing those polymer assets to make Tritan.

Well, we certainly have low capital intensity upgrades, that's been the story, especially plastics since it began right and it started with a bunch of Pts that's handed to it from from at that time, if you want to go back far enough and history. There are big brother.

And.

And then repurpose those pte assets to making our traditional co polyesters and the repurposing those polymer assets to make trading and.

Operator: We did a bunch of expansions in 2018 to support growth across the entire company portfolio and are doing a number of them here that we started last year expecting recovery on the back end of COVID and the need for growth assets. Tritan's one of those mini projects that we have going on where we've converted a copolyester line in Q2 of this year to Tritan, and it'll come online this quarter. That's a continuous story. In addition, probably we're getting to a point where we're probably going to add polymer capacity because the growth across the portfolio, not just Tritan, has been so robust. I think that that really has been a big driver of the story. Greg wants to talk. Greg, go ahead. Sorry.

And we.

We did a bunch of expansions in 2018 to support growth across the entire company portfolio and are doing a number of them here that we started last year expecting recovery on the back end of COVID and the need for growth assets. Tritan's one of those mini projects that we have going on where we've converted a copolyester line in Q2 of this year to Tritan, and it'll come online this quarter. That's a continuous story. In addition, probably we're getting to a point where we're probably going to add polymer capacity because the growth across the portfolio, not just Tritan, has been so robust. I think that that really has been a big driver of the story. Greg wants to talk. Greg, go ahead. Sorry.

We did a bunch of expansions and 2018 to support growth across the entire company portfolio and our.

We're doing a number of them here that.

And that we started last year expecting recovery and the back into Covid and the need for growth assets.

And 1 of those many projects that we have going on where we've converted a co polyester line and the second quarter of this year to try and it will come online this quarter.

And that's a continuous story in addition to probably we're getting to a point, where we're probably going to add polymer capacity because of the growth across the portfolio not just try and has been so robust.

But I think that.

And that really has been a big driver of the story.

No Greg wants to talk so Greg go ahead sorry.

Operator: Tritan today probably represents about 1/3, a little over 1/3 of the revenue for specialty plastics. So if you're looking for a quantification, that's about what it is. Yeah. But it continues to grow, but it's important to understand that we're adding recycled content, not just to Tritan, but to all the copolyesters. So our Crystal Renew product that goes in cosmetic packaging, a variety of other polyesters, are also growing really fast with the circular addition to our story. That's why we're going to have to add total polymer capacity. Go to our next question from Matthew DeYoe with Bank of America. Morning. Congrats on the P&G announcement. And from what I read in the press release, I guess I understand the agreement for purchasing of Renew, but how are you two working together to address the infrastructure problems?

Greg Riddle: Tritan today probably represents about 1/3, a little over 1/3 of the revenue for specialty plastics. So if you're looking for a quantification, that's about what it is.

Titan today, probably represents about a third from over a third and the revenue for specialty plastics and looking for a quantification and that's about what it is.

Mark Costa: Yeah. But it continues to grow, but it's important to understand that we're adding recycled content, not just to Tritan, but to all the copolyesters. So our Crystal Renew product that goes in cosmetic packaging, a variety of other polyesters, are also growing really fast with the circular addition to our story. That's why we're going to have to add total polymer capacity.

Okay, Great and continues to grow but it's important understand that we're adding recycled content not just to try it and but to all the co polyesters are crystal renewable product that goes and cosmetic packaging a variety of other polyesters are also growing really fast with the circular addition to our story.

That's why we're going to have to add total polymer capacity.

Operator: Go to our next question from Matthew DeYoe with Bank of America.

Our next question from Matthew <unk>.

With.

Think of America.

Matthew DeYoe: Morning. Congrats on the P&G announcement. And from what I read in the press release, I guess I understand the agreement for purchasing of Renew, but how are you two working together to address the infrastructure problems? You kind of alluded to that in the press release. I'm just wondering what P&G is committing to doing here.

Good morning.

Congrats on the P&G announcements and.

And when I read the press release, I guess I understand.

And the agreement for purchasing and renew but.

How are you 2 working together to address the infrastructure problems.

Operator: You kind of alluded to that in the press release. I'm just wondering what P&G is committing to doing here. Well, there's a lot of policy as well as collaboration with the existing recycling infrastructure that I think is amplified when we're working with brands who have a very deep relationship with the recyclers, right? So they buy a lot of recycled content today from those companies. And working with them and encouraging them to broaden what they do beyond just easy-to-recycle product and making this broader waste stream available to us is a point of collaboration for us. So there's collaboration with the existing infrastructure, and encouragement for them to improve their capabilities. There's also collaboration at the political level, both national and state level, and even local level on policy that supports the improvement in recycling infrastructure, encourages the consumers to have the right behavior.

You kind of alluded to that and the press release and I'm just wondering what P&G is committing to doing here.

Mark Costa: Well, there's a lot of policy as well as collaboration with the existing recycling infrastructure that I think is amplified when we're working with brands who have a very deep relationship with the recyclers, right? So they buy a lot of recycled content today from those companies. And working with them and encouraging them to broaden what they do beyond just easy-to-recycle product and making this broader waste stream available to us is a point of collaboration for us. So there's collaboration with the existing infrastructure, and encouragement for them to improve their capabilities. There's also collaboration at the political level, both national and state level, and even local level on policy that supports the improvement in recycling infrastructure, encourages the consumers to have the right behavior.

Well Theres a lot of policy as well as collaboration with the recycling and existing recycling infrastructure that I think is.

Amplified when we're working with brands.

Who have a very deep relationship with the recyclers right. So they buy a lot of recycled content today from those companies and working with them and encouraging them to broad and what they do beyond just easy to recycle product and making this broader waste stream available to us as a point of collaboration for us.

And so there is a collaboration with the existing infrastructure and encourage it for them to improve their capabilities. There's also collaboration at the political level, both national and state level and even local level on policy that supports the improvement in recycling and infrastructure encourages.

The consumers to have the right behavior.

Operator: There's a lot of different ways to get at that with what's called EPRs, expanded producer responsibility, or bottle bills, etc., that can drive more recycling and ensuring that the value of recycling material versus putting it in landfill has more value. And policy comes into play there too. So there's a lot to be done at multiple levels. And I think P&G and, frankly, a number of other brands that we're talking to are going to be really valuable partners in advocating to help improve our ability to sort of be responsible with this valuable resource and create a true circular economy. All right. That makes sense. And as a follow-up, so paint protection film has been a nice source of growth for Eastman over the last couple of quarters.

There's a lot of different ways to get at that with what's called EPRs, expanded producer responsibility, or bottle bills, etc., that can drive more recycling and ensuring that the value of recycling material versus putting it in landfill has more value. And policy comes into play there too. So there's a lot to be done at multiple levels. And I think P&G and, frankly, a number of other brands that we're talking to are going to be really valuable partners in advocating to help improve our ability to sort of be responsible with this valuable resource and create a true circular economy.

There is a lot of different ways to get at that with what's called EPR has expanded producer responsibility or bottle bills et cetera that can drive more recycling and.

And ensuring that the value of recycling materials versus putting it landfill has more value and <unk>.

Policy comes into play there too so there's a lot to be done and multiple levels.

And I think P&G and frankly, a number of other brands that we're talking to you are going to be really valuable partners and advocating.

And to help improve our ability to sort of be responsible with this valuable resource and created a true circular economy.

Matthew DeYoe: All right. That makes sense. And as a follow-up, so paint protection film has been a nice source of growth for Eastman over the last couple of quarters. Has sales expectations for the year kind of decelerated for that business in line with auto sales forecasts, or is the adoption cycle making up for that kind of downshift in the underlying?

And it makes sense and as a follow up so paint protection film and a nice source of growth from here.

And then over the last couple of quarters and sales expectations for the year kind of decelerate and for that business in line with auto sales forecasts or is the adoption cycle and making up for that kind of down shift and the underlying.

Operator: Has sales expectations for the year kind of decelerated for that business in line with auto sales forecasts, or is the adoption cycle making up for that kind of downshift in the underlying? No, it's doing great. And it's not been a couple of quarters. It's been many years of how well this performance films business has done, both in the window film and the paint protection film. It's been a tremendous growth story. Last year, they grew in a very down market because this category of paint protection film in particular is just dramatically growing in how people want to protect their paint. And we just launched a new Gen 3 product that is substantially better than our existing products, which were still market-leading in their performance, but it's much easier to install. It performs better in protecting the paint.

Mark Costa: No, it's doing great. And it's not been a couple of quarters. It's been many years of how well this performance films business has done, both in the window film and the paint protection film. It's been a tremendous growth story. Last year, they grew in a very down market because this category of paint protection film in particular is just dramatically growing in how people want to protect their paint. And we just launched a new Gen 3 product that is substantially better than our existing products, which were still market-leading in their performance, but it's much easier to install. It performs better in protecting the paint.

No, it's doing great and it.

It's not been a couple of quarters, it's been many years.

Of how well this performance films business is done both in the window film and the paint protection film.

It's been a tremendous growth story.

Last year, they grew and.

And a very down market.

Because this category of paint protection film in particular.

Is just dramatically growing and how people want to protect their pain.

And we just launched a new Gen 3 product.

That is substantially better than our existing products, which were still market, leading and their performance, but it's much easier to install it performs better and protecting the pain and and now actually has the gloss of ceramic coating if youre familiar with the car industry.

Operator: And it now actually has the gloss of ceramic coating, if you're familiar with the car industry. So it actually has a better gloss when you put this on than the original clear coat of the car. I just came back from visiting a bunch of dealers out west and getting their direct feedback about how this is going. And they're just incredibly excited about that. And it's not just the product. We've also rolled out a new software program called Core that has superior pattern cutting, which is a really difficult part of doing paint protection film well when you think about all the different car shapes there and getting the film to fit properly around the car.

And it now actually has the gloss of ceramic coating, if you're familiar with the car industry. So it actually has a better gloss when you put this on than the original clear coat of the car. I just came back from visiting a bunch of dealers out west and getting their direct feedback about how this is going. And they're just incredibly excited about that. And it's not just the product. We've also rolled out a new software program called Core that has superior pattern cutting, which is a really difficult part of doing paint protection film well when you think about all the different car shapes there and getting the film to fit properly around the car.

So it actually has a better gloss when you put this on and the original clear coat. The car I just came back from visiting a bunch of dealers.

West and getting their direct feedback about how this is going and.

And they're just incredibly excited about that and it's not just the products. We've also rolled out a new software program called core that has <unk>.

Appear year pattern, cutting which is a really difficult part of doing paint protection film well when you think about all the different car shapes, there and gave the film to fit properly.

And the car and.

Operator: And this software allows them to make very precise cuts and install much easier with the patterns of all the cars in the last 10 years, which is a non-trivial task to create, I might add. So it's done really well. And then the channel strategies we've deployed about working with auto dealers and additionally, the retail market has expanded our market tremendously over the last five years. So it's a great business, growing well, high-value mix upgrade to the segment. And even with the auto market slowing down, we're seeing this business continue to do well because dealers are trying to focus on what they can upsell onto their car with the limited volume they have to sell. So we're getting good engagement as they're trying to add features to what they're selling.

And this software allows them to make very precise cuts and install much easier with the patterns of all the cars in the last 10 years, which is a non-trivial task to create, I might add. So it's done really well. And then the channel strategies we've deployed about working with auto dealers and additionally, the retail market has expanded our market tremendously over the last five years. So it's a great business, growing well, high-value mix upgrade to the segment. And even with the auto market slowing down, we're seeing this business continue to do well because dealers are trying to focus on what they can upsell onto their car with the limited volume they have to sell. So we're getting good engagement as they're trying to add features to what they're selling.

This software allows them to make very precise cuts.

And install much easier.

With the patterns of all of the cars and the last 10 years, which is a non trivial task to create I might add so it's done really well and then the channel strategies, we've deployed about working with auto dealers and additional the retail market has expanded our market tremendously over the last 5 years. So it's.

It's a great business growing well and high value mix upgrade to this segment and even with the auto market slowing down we're seeing this business continue to do well because dealers are trying to focus on what they can upsell onto their car.

And the limited volume they have to sell so we're getting good engagement as they are trying to.

Add features to what they are selling.

Would you ever if I can just tack on would you ever look into and moving into the installer game for the paint protection films, because I understand the margins, they're pretty fat and Mike X dollars.

Operator: If I can just tack on, would you ever look into moving into the installer game for the paint protection film? Because I understand the margins there are pretty fat and XPEL is slowly kind of moving downstream, or is that something that you wouldn't do? No, we're looking at all models to make sure that our dealers and both the retail dealers as well as the auto dealers have the resources to do the installation, I think, is what you're getting at. And there's a lot of different ways to do that. We have no interest in getting into competition with our customers. We don't think that's a very good business model when the retailers have been such loyal and valuable partners with us. But we do recognize that with labor constraints out there, we've got to have different models to enable installation resources to be in place.

Matthew DeYoe: If I can just tack on, would you ever look into moving into the installer game for the paint protection film? Because I understand the margins there are pretty fat and XPEL is slowly kind of moving downstream, or is that something that you wouldn't do?

Low Lee kind of moving downstream or is that something that you wouldn't do.

Mark Costa: No, we're looking at all models to make sure that our dealers and both the retail dealers as well as the auto dealers have the resources to do the installation, I think, is what you're getting at. And there's a lot of different ways to do that. We have no interest in getting into competition with our customers. We don't think that's a very good business model when the retailers have been such loyal and valuable partners with us. But we do recognize that with labor constraints out there, we've got to have different models to enable installation resources to be in place. And so we're looking at multiple ways to do that. So that's sort of how we look at it. But it is an important aspect of what you do is help them develop the high-quality installers.

No. We're looking at our models to make sure that our dealers and our both the retail dealers.

<unk> as well as <unk>.

<unk>.

The auto dealers have the resources to do the installation I think is what youre getting at and and.

And there's a lot of different ways to do that we have no interest and getting into competition with our customers.

We don't think Thats, a very good business model.

And the retailers have been such.

Loyal.

And valuable partners with us, but we do recognize that with labor constraints out there we've got to have different models to enable installation.

And the resources to be in place and so we're looking at multiple ways to do that so.

Operator: And so we're looking at multiple ways to do that. So that's sort of how we look at it. But it is an important aspect of what you do is help them develop the high-quality installers. We'll take our next question from Bob Koort with Goldman Sachs. Thanks. Good morning, guys. Good morning. Good morning. Mark, I wanted to ask you, you highlighted quite a few times about being a specialty story. Obviously, the CI earnings are maybe making that a little more challenging for people to embrace. And we've seen some pretty good devaluation in your stock over the last few months, almost akin to you being lumped in with some of the peak fears that are out there on some other maybe more commoditized names. So I guess, how do you see CI?

And that's sort of how we look at it.

But it's.

It is a important aspect of what you do is help help them develop the <unk>.

High quality installers.

Operator: We'll take our next question from Bob Koort with Goldman Sachs.

We will take our next question from Bob Court with Goldman Sachs.

Bob Koort: Thanks. Good morning, guys.

Thanks, Good morning, guys.

Mark Costa: Good morning.

Good morning, Good morning, Mark I wanted to ask you you highlighted quite a few times about being a specialty story.

Willie McLain: Good morning.

Bob Koort: Mark, I wanted to ask you, you highlighted quite a few times about being a specialty story. Obviously, the CI earnings are maybe making that a little more challenging for people to embrace. And we've seen some pretty good devaluation in your stock over the last few months, almost akin to you being lumped in with some of the peak fears that are out there on some other maybe more commoditized names. So I guess, how do you see CI? I mean, is it going to fade and create a big step down that sort of robs from the aggregate growth as the specialty businesses grow? Do you think it can stabilize? And I was just looking at consensus numbers, and it looks like something like 2% EBITDA growth in 2022 and 2023. Can you give us some inspiration that that isn't adequate? Thanks.

Obviously, the Ci earnings are maybe making that a little more challenging for people to embrace.

And we've seen some pretty good devaluation and your stock over the last few months.

Almost akin to you being lumped in with some of the.

And the peak fears that are out there and some other maybe more commoditized names so I guess.

How do you see Ci I mean is it going to fade and create a big step down debt, that's sort of rob's from the aggregate growth as the specialty businesses grow do you think it can stabilize and.

Operator: I mean, is it going to fade and create a big step down that sort of robs from the aggregate growth as the specialty businesses grow? Do you think it can stabilize? And I was just looking at consensus numbers, and it looks like something like 2% EBITDA growth in 2022 and 2023. Can you give us some inspiration that that isn't adequate? Thanks. Yeah. So Bob, thanks for the question. And look, we think we're making tremendous progress on changing our portfolio and our performance towards specialty. We've done the analysis. I know all of you can go do it, but if you go look at how we've held up margins over the 2018 to now or 2017 to now as a total company, how we've delivered earnings, performance, we're much more in the specialty category than in the commodity category of our peer set.

And I was just looking at consensus numbers and it looks like something like 2%.

EBITDA growth and 22 and 'twenty 3 can you give us some inspiration that debt is inadequate.

Mark Costa: Yeah. So Bob, thanks for the question. And look, we think we're making tremendous progress on changing our portfolio and our performance towards specialty. We've done the analysis. I know all of you can go do it, but if you go look at how we've held up margins over the 2018 to now or 2017 to now as a total company, how we've delivered earnings, performance, we're much more in the specialty category than in the commodity category of our peer set.

Thanks.

Yeah, So so Bob and thanks for the question and look we think we're making tremendous progress.

On changing our portfolio and our performance towards specialty.

We've done the analysis and I know all of you can go do it but if you go look at how we've held up margins.

Over the over the 18 day now or <unk> 17 to now.

As a total company how we've delivered earnings performance.

And we're much more in the.

The specialty category.

And then in the commodity category of our peer set the data is actually quite clear.

Operator: The data is actually quite clear. At some point, I'll show it to you. So I think we've actually held up really well. There's no question that people sort of focus on the CI question right now. And the way I look at CI is it's an incredibly valuable part of our vertical integration and our reliability to our customers. We've proven the value to customers multiple times on how it supports that. And at times like this where they get some expansion while prices are catching up to ROS in some other parts of the business, it actually gives us more stable earnings. That diversity actually creates economic stability. So I don't see what's wrong with that. And as I look at 2022, we certainly expect some moderation of CI in its spreads as we go into that year relative to this year.

The data is actually quite clear. At some point, I'll show it to you. So I think we've actually held up really well. There's no question that people sort of focus on the CI question right now. And the way I look at CI is it's an incredibly valuable part of our vertical integration and our reliability to our customers. We've proven the value to customers multiple times on how it supports that. And at times like this where they get some expansion while prices are catching up to ROS in some other parts of the business, it actually gives us more stable earnings. That diversity actually creates economic stability. So I don't see what's wrong with that. And as I look at 2022, we certainly expect some moderation of CI in its spreads as we go into that year relative to this year.

It's a point I'll show it to you.

So I think we've actually held up really well there is no question that people.

Sort of a focus on the <unk> question right now and the way I look at <unk> and.

Incredibly valuable part of our vertical integration and our reliability to our customers we've proven the value to customers multiple times on how it supports that.

And at times like this where they get some expansion why prices are catching up to raws and some other parts of the business. It actually gives us more stable earnings.

Net diversity actually creates economic stability.

So I don't see what's wrong with that.

And as I look at 22.

Certainly expect some moderation of Ci and its moderate and its and its spreads.

As we go into that year relative to this year.

But when we look at all the growth that we have going for ourselves and improvements and the cost structure and we're actually quite confident we can deliver quite attractive earnings growth and 22 relative to 'twenty, 1, including the offset of the moderation and Ci. So when you got and we'll get it and from a market point of view.

Operator: But when we look at all the growth that we have going for ourselves and improvements in the cost structure, we're actually quite confident we can deliver quite attractive earnings growth in 2022 relative to 2021, including the offset of the moderation in CI. So when you look at it from a market's point of view, you have a lot of markets that are still going to be in recovery mode next year, whether it's auto, building construction, medical, and aviation. You've got restocking that will still continue into next year, I think. And then you've got really steady growth markets like chemicals, ag, water treatment, and consumables that are those sort of stable markets that are about 40% of our revenue. On top of that, you've got all the innovation driving growth across the whole portfolio, whether it's performance films I just discussed, Tritan we've hit on.

But when we look at all the growth that we have going for ourselves and improvements in the cost structure, we're actually quite confident we can deliver quite attractive earnings growth in 2022 relative to 2021, including the offset of the moderation in CI. So when you look at it from a market's point of view, you have a lot of markets that are still going to be in recovery mode next year, whether it's auto, building construction, medical, and aviation. You've got restocking that will still continue into next year, I think. And then you've got really steady growth markets like chemicals, ag, water treatment, and consumables that are those sort of stable markets that are about 40% of our revenue. On top of that, you've got all the innovation driving growth across the whole portfolio, whether it's performance films I just discussed, Tritan we've hit on.

Other markets that are still going to be in recovery mode next year, whether it's auto build and construction medical aviation.

<unk> got restocking that will still continue into next year I think and.

And you've got really steady growth markets like air chemicals AG and water treatment and consumables that about those sort of stable markets that are about 40% of our revenue.

On top of that you've got all the innovation driving growth across the whole portfolio, whether it's performance films I just discussed and we've hit on we.

Operator: We've still got next-gen acoustics and HUD and inner layers growing. We've got TetraShield and food and beverage packaging, textiles, animal nutrition, etc. And then you've got the circular economy driving more growth. And then we've got good, smart segmentation strategies in the business we're in. So we're in the right parts of the markets like luxury cars and EVs, etc. And it's not just volume. You've got to remember all these things that are growing really well are high-value mix. And the challenges we had in 2019 and 2020 were not spread, right? It was as a company. We're in the specialties. It was just that high-value mix coming off. And it's now coming back. And we said, "You'll see the mirror image benefit of that. And you're seeing it this year.

We've still got next-gen acoustics and HUD and inner layers growing. We've got TetraShield and food and beverage packaging, textiles, animal nutrition, etc. And then you've got the circular economy driving more growth. And then we've got good, smart segmentation strategies in the business we're in. So we're in the right parts of the markets like luxury cars and EVs, etc. And it's not just volume. You've got to remember all these things that are growing really well are high-value mix. And the challenges we had in 2019 and 2020 were not spread, right? It was as a company. We're in the specialties. It was just that high-value mix coming off. And it's now coming back. And we said, "You'll see the mirror image benefit of that. And you're seeing it this year.

Still got next Gen acoustics, and HUD and and layers growing we've got Tetra shield, and food and beverage packaging, textiles, and and what Tricia et cetera, and then you've got the circular economy driving more growth.

And then we've got good smart segmentation strategies and business Rins were and the right parts of the markets like luxury cars and Evs et cetera.

And it's not just volume and got to remember all of these things that are growing really well our high value mix and the challenges, we had and 19 and 20, where not spread it was as a company where and the specialty as it was just debt high value mixed coming off and it's now coming back and we said Youll see the mirror image benefit of that and Youre seeing it this year and Youll see it next year.

Operator: You'll see it next year. In addition to that, you've got costs coming off by $100 million on the operational level, plus another $50 million in lower distribution and shutdown costs seem to sort of the one-time things. And then you've got where you think spreads might go, and you've got increased gross spend. So when you put it all together net, we're well positioned to deliver EPS growth in 2022 relative to this year. All right. I'll give you a check on more inspired then. Thank you. We'll go to our next. We'll go to our next question from Arun Viswanathan with RBC Capital Markets. Great. Thanks for taking my question. Maybe I could just ask a similar question to Bob's here. So if we look at 2021 versus, say, 2019 or even 2022 versus 2019 EPS, you're in the $9 or so range this year.

You'll see it next year. In addition to that, you've got costs coming off by $100 million on the operational level, plus another $50 million in lower distribution and shutdown costs seem to sort of the one-time things. And then you've got where you think spreads might go, and you've got increased gross spend. So when you put it all together net, we're well positioned to deliver EPS growth in 2022 relative to this year.

In addition that you got cost coming off by $1 million on the operational level plus another 50 and.

Lower distribution and shutdown costs and the sort of the 1 time things.

And then.

<unk> got where you think spreads might go and <unk> got increased gross spend.

And so when you put it altogether.

Net.

And well positioned to deliver EPS growth and 22.

Relative to this year.

Bob Koort: All right. I'll give you a check on more inspired then. Thank you.

Alright, I'll give you a check on more inspired then thank you.

Operator: We'll go to our next. We'll go to our next question from Arun Viswanathan with RBC Capital Markets.

Lindsay Please Bob.

Well go to our next question from Arun Vishwanathan with RBC capital markets.

Arun Viswanathan: Great. Thanks for taking my question. Maybe I could just ask a similar question to Bob's here. So if we look at 2021 versus, say, 2019 or even 2022 versus 2019 EPS, you're in the $9 or so range this year. If we look at a three-year average CAGR, maybe it's around 9%, which is definitely commendable and within your 8% to 12% earlier comments from a while back. I guess, is that still kind of how you're looking at it? And then maybe if you could just put a finer point on some of this. So if we look at next year, you have potentially some parts of the $50 million coming on from the recycling technology. Maybe CI falls off a little bit. But how much of AM and AFP is still left for recovery? If you could help us with that, that'd be great. Thanks.

Alright, Thanks for taking my question.

Maybe I could just add.

Ask a similar question to Bob's here and so we.

Look at <unk>.

'twenty, 1 versus say 19, or even 22 versus.

2019, EPS and.

And you are and the $9 range this year.

If we and looking at 3 year average CAGR, maybe it's around 9%, which is definitely a commendable and within your your 8% to 12% earlier comments.

Operator: If we look at a three-year average CAGR, maybe it's around 9%, which is definitely commendable and within your 8% to 12% earlier comments from a while back. I guess, is that still kind of how you're looking at it? And then maybe if you could just put a finer point on some of this. So if we look at next year, you have potentially some parts of the $50 million coming on from the recycling technology. Maybe CI falls off a little bit. But how much of AM and AFP is still left for recovery? If you could help us with that, that'd be great. Thanks. So yeah, we've been doing everything relative to 2018, which was our last peak. And we're really excited that we're going to have EPS well above 2018.

A while back I guess is that still kind of how youre looking at it and then maybe if you could just put a finer point on some of that stuff and look at next year.

Potentially some parts of the $50 million coming on from the recycling technology, maybe Ci falls off a little bit, but how much of M&A AFP and.

Still left for recovery, if you could help us with that that'd be great. Thanks.

Mark Costa: So yeah, we've been doing everything relative to 2018, which was our last peak. And we're really excited that we're going to have EPS well above 2018. And then, as I just laid out, we're confident we're going to keep growing it from 2021 into 2022. And I think that everything we said at Innovation Day is still true. Plus, we've added a lot more growth to the circular economy onto the Innovation Day story. So thinking about that growth rate of 8% to 12%, I think is a reasonable way to think about next year at the EPS level. You've got to remember, if we succeed in divestitures, that will have an impact on EBIT, but we'll be buying back stock to offset it. So all of our guidance and commentary today is not at the EBIT level, including the impact of divestitures.

So yes, we've been doing everything relative to 18, which was our last peak and we're really excited that we're going to have EPS well above 2018.

And then as I, just laid out where copper and and keep growing it from 'twenty 1 into 'twenty 2.

Operator: And then, as I just laid out, we're confident we're going to keep growing it from 2021 into 2022. And I think that everything we said at Innovation Day is still true. Plus, we've added a lot more growth to the circular economy onto the Innovation Day story. So thinking about that growth rate of 8% to 12%, I think is a reasonable way to think about next year at the EPS level. You've got to remember, if we succeed in divestitures, that will have an impact on EBIT, but we'll be buying back stock to offset it. So all of our guidance and commentary today is not at the EBIT level, including the impact of divestitures. And I'm sorry, how much of AFP and AM you think is still left for recovery? Oh, I think there's a lot of growth left in both businesses.

And I think that everything we said innovation day is still true plus we've added a lot more growth to circular economy onto the innovation day story.

So thinking about that.

Growth rate of 8% to 12% I think is a reasonable way to think about next year.

At the EPS level and got to remember if we succeed and divestitures that will have an impact on EBIT, but we'll be buying back stock to offset it so all of our guidance and commentary today is.

Not at the EBIT level, including the impact of divestitures.

Arun Viswanathan: And I'm sorry, how much of AFP and AM you think is still left for recovery?

And I'm, sorry, how much of an AFP and am you'd think and still left for recovery.

Mark Costa: Oh, I think there's a lot of growth left in both businesses. As we look at advanced materials, we actually expect very strong growth in advanced materials next year relative to this year. So that story is going to continue to be strong and be even more compelling next year. So that's really exciting. When you look at AFP and look at the two-thirds of AFP, in other words, without tires and adhesives in it, the earnings this year are expected to be a bit better than 2018 levels when you look at that portfolio. And a lot of that's just tremendous growth in coatings in line with our customers, in addition to good steady growth in things like ag, animal nutrition, and animal care chemicals, as well as fluids.

I think theres a lot of growth left and both businesses as we look at advanced materials, we actually expect very strong growth and advanced materials next year relative to this year.

Operator: As we look at advanced materials, we actually expect very strong growth in advanced materials next year relative to this year. So that story is going to continue to be strong and be even more compelling next year. So that's really exciting. When you look at AFP and look at the two-thirds of AFP, in other words, without tires and adhesives in it, the earnings this year are expected to be a bit better than 2018 levels when you look at that portfolio. And a lot of that's just tremendous growth in coatings in line with our customers, in addition to good steady growth in things like ag, animal nutrition, and animal care chemicals, as well as fluids. So good story across the board. And that even includes the aviation headwind when I say that about this year being better than 2018 for the two-thirds of AFP.

So that story is going to continue to be strong and be even more compelling next year.

So thats really exciting when you look at A&P and look at the 2 thirds of AFP and other words without tires and adhesives and it.

The earnings this year are expected to be a bit better than 2018 levels. When you look at that portfolio and a lot of that is just tremendous growth and.

And coatings in line with our customers. In addition to good steady growth and things like AG and animal nutrition and.

And in care chemicals, as well as fluids. So good story across the board and that even includes the aviation headwind when I say that about this year being better than 2000.

Mark Costa: So good story across the board. And that even includes the aviation headwind when I say that about this year being better than 2018 for the two-thirds of AFP. And that's also positioned to keep growing both through recovering markets and innovation next year. Not quite as much as AM because they're still earlier in their innovation cycle, but still delivering nice growth. So those two grow well, fibers being quite stable, and improving cost structure gives you a very solid position.

<unk> for the 2 thirds of AFP.

Operator: And that's also positioned to keep growing both through recovering markets and innovation next year. Not quite as much as AM because they're still earlier in their innovation cycle, but still delivering nice growth. So those two grow well, fibers being quite stable, and improving cost structure gives you a very solid position. Thanks. Christina, let's make this next one the last question, please. We'll take our last question from David Begleiter with Deutsche Bank. Thank you. And Mark, first, on the molecular recycling facility, when would you be in position to announce an additional capital investment either as an addition to that facility or a new one? Could it be in 2022, or do you think after that for another investment in molecular recycling? Great question, David. And it sort of depends on the pace at which we go in our discussions with these customers and countries.

And that's also position and keep growing both through recovering markets and and innovation next year not quite as much as.

And because theres still earlier in the innovation cycle, but.

But still delivering nice growth so those 2 grow well fibers being quite stable.

And improving cost structure.

It gives you a very solid position.

Arun Viswanathan: Thanks.

Greg Riddle: Christina, let's make this next one the last question, please.

Thanks.

And Steve I want to make this next 1 and the last question. Please.

Operator: We'll take our last question from David Begleiter with Deutsche Bank.

And we'll take our last question from David Begleiter with Deutsche Bank.

David Begleiter: Thank you. And Mark, first, on the molecular recycling facility, when would you be in position to announce an additional capital investment either as an addition to that facility or a new one? Could it be in 2022, or do you think after that for another investment in molecular recycling?

Thank you and.

And Mark first on the molecular recycling facility.

Won't you be in position to announce and additional capital investments either hasn't additions debt facility or new 1 could it be and 22 do you think after that for another investment.

And in molecular and molecular recycling.

Mark Costa: Great question, David. And it sort of depends on the pace at which we go in our discussions with these customers and countries. But for our internal needs, I think that this first facility is what we're going to need for 2023, 2024. So we're not going to be starting a new specialty plant until we get this one up and running. But when you look at these other additional growth opportunities, I hope in the next 12 months or sooner, we could have an announcement around making progress on these other additional plans.

Great question, David and.

So it depends on the pace at which we go and our discussions with with these these customers and countries but.

Operator: But for our internal needs, I think that this first facility is what we're going to need for 2023, 2024. So we're not going to be starting a new specialty plant until we get this one up and running. But when you look at these other additional growth opportunities, I hope in the next 12 months or sooner, we could have an announcement around making progress on these other additional plans. Very good. And just rolling on free cash flow, if we do achieve EPS growth, which you say will be attractive in 2022, how much above the $1 billion or $1.1 billion of cash flow do you think you could achieve next year? Thank you. Yeah, David, thanks for the question.

For our internal needs I think that this first facility is what we're going to need for 'twenty 3 'twenty 4.

Sure.

So we're not going to be starting a new specialty plant.

Until we get this 1 up and running.

But when you look at these other additional growth opportunities I hope and the next 12 months or sooner.

Could have an announcement around making progress on that.

And these other additional plants.

David Begleiter: Very good. And just rolling on free cash flow, if we do achieve EPS growth, which you say will be attractive in 2022, how much above the $1 billion or $1.1 billion of cash flow do you think you could achieve next year? Thank you.

Very good and just from rolling on on free cash flow. If we do achieve the EPS growth would you say will be attractive and 2022.

How much above the $1 billion billion, 1 billing 1 of cash flow do you think you can achieve next year. Thank you.

Willie McLain: Yeah, David, thanks for the question. So as I think about it, as we've talked about all the comps and being, I'll call it accretive now on the tires as we think about putting more cash to use on repurchases, it'll be a headwind as we think about cash flow next year. So again, we're looking, I'll call it to be in the $1 billion to $1.1 billion as a starting point. And that's taking into consideration the headwind that we'll see from the divestiture of the tires business.

Yes, David Thanks for the question.

Operator: So as I think about it, as we've talked about all the comps and being, I'll call it accretive now on the tires as we think about putting more cash to use on repurchases, it'll be a headwind as we think about cash flow next year. So again, we're looking, I'll call it to be in the $1 billion to $1.1 billion as a starting point. And that's taking into consideration the headwind that we'll see from the divestiture of the tires business. Thank you. So just to wrap up, I wanted to make a couple of quick comments really to my employees and to the investors, which is I can only sit here and talk about the success we've had this year, how well we've performed even in holding up last year. And our ability to actually deliver growth next year on top of this year is the employees.

And I think about it as we've talked about all the Thompson and being I'll call. It accretive now on the tires, and we think about putting more cash to use on repurchases.

It'll be a headwind as we think about cash flow next year. So again, we're looking at.

<unk> and the 1 billion to $1.1 billion as a starting point and that's taking into consideration the headwind that we will see from the divestiture of the <unk> business.

David Begleiter: Thank you.

Thank you.

Mark Costa: So just to wrap up, I wanted to make a couple of quick comments really to my employees and to the investors, which is I can only sit here and talk about the success we've had this year, how well we've performed even in holding up last year. And our ability to actually deliver growth next year on top of this year is the employees. They've just done a phenomenal job. There's a lot of stress and fatigue out there when it comes to trying to keep this market supplied with how strong demand's been. And every day they show up and just do remarkable work, not just in sort of operating, delivering against the demand we have in this marketplace and ensuring we get the raw materials that we need, but also keeping innovation alive.

So just to wrap up I wanted to make a couple of quick comments really to my employees and to the investors which is <unk>.

I can only sit here and talk about the success. We've had this year, how well we performed even and holding up last year.

And our ability to actually deliver growth next year on top of this year is the employees.

Operator: They've just done a phenomenal job. There's a lot of stress and fatigue out there when it comes to trying to keep this market supplied with how strong demand's been. And every day they show up and just do remarkable work, not just in sort of operating, delivering against the demand we have in this marketplace and ensuring we get the raw materials that we need, but also keeping innovation alive. To get to $600 million of revenue from innovation this year on top of all of the chaos that comes from working our way through this dynamic environment is a real testament to the team, to our growth model, and to the way they engage the marketplace. And I just wanted to express my deep appreciation to all of them for the phenomenal job that they've done.

They've just done a phenomenal job.

There is a lot of stress and fatigue out there when it comes to trying to keep this market supplied with how strong demand has been.

And every day they show up and just do remarkable work.

Not just in sort of operating delivering against the demand we have and this marketplace and ensure.

And we get the raw materials that we need.

But also keeping innovation alive to get to $600 million of revenue.

To get to $600 million of revenue from innovation this year on top of all of the chaos that comes from working our way through this dynamic environment is a real testament to the team, to our growth model, and to the way they engage the marketplace. And I just wanted to express my deep appreciation to all of them for the phenomenal job that they've done. With that, I want to thank you for all your questions and wish you all a good day.

From innovation this year on top of all of the chaos that comes from working our way through this dynamic environment.

It's a real testament to the team to our growth model and to the way they engage the marketplace.

And I just wanted to express my deep appreciation to all of them for the phenomenal job that they've done.

Operator: With that, I want to thank you for all your questions and wish you all a good day. This is today's call. Thank you for your participation. You may now disconnect.

And with that I want to thank you for all your questions and.

And wish you all and good day.

Operator: This is today's call. Thank you for your participation. You may now disconnect.

Today's call. Thank you for your participation you may now disconnect.

Okay.

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Okay.

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Yes.

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And.