Q3 2024 Eastman Chemical Co Earnings Call
Good day, everyone and welcome to the third quarter of 2020 for Eastman Conference call. Today's conference is being recorded this call is being broadcast live on the Eastman website Www Dot Eastman Dot com.
Speaker Change: You entered the queue for questions. Please dial star followed by one on your telephone keypad.
Speaker Change: We will now turn the call over to Mr. Greg Riddle Eastman Investor Relations. Please go ahead Sir.
Greg Riddle: Okay. Thank you Harry and good morning, everyone and thanks very much for joining us on the call with me today are Mark Costa Board Chair and CEO, Willie Mcclain, Executive Vice President and CFO and Jake ROE in Italy, Alexander from the Investor Relations team.
Greg Riddle: Yesterday after market closed we posted our third quarter 2024 financial results news release, and SEC 8-K filing our slides and the related prepared remarks in the investor.
Greg Riddle: Relations section of our website Eastman Dot com.
Before we begin I'll cover two items first during this presentation you will hear certain forward looking statements concerning our plans and expectations.
Actual events or results could differ materially.
Certain factors related to future expectations are or will be detailed in our third quarter 2024 financial results news release during this call and the preceding slides and prepared remarks and in our filings with the Securities and Exchange Commission, including the Form 10-K filed for full year 2023, and the Form 10-Q to be filed for third.
Greg Riddle: Quarter 2024.
Greg Riddle: Second earnings referenced in this presentation 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 in the third quarter 2024 financial results news release.
Speaker Change: As we posted the slides accompanying prepared remarks on our website last night and we will now go straight into Q&A Kerry. Please let's start with our first question.
Greg Riddle: Yeah.
Speaker Change: Thank you. Our first question will be from the line of David Begleiter with Deutsche Bank. Please go ahead. Your line is now open.
Speaker Change: Thank you and good morning.
David Begleiter: Mark on your 25 outlook, you mentioned modest underlying growth, but then he will have above market growth driven by your innovation. So.
David Begleiter: A little more detail what can that mean for overall top volume growth for Eastman and 2025.
Speaker Change: Alright, Thanks, David good.
Speaker Change: Good question, we're obviously spending a lot of time, focusing first on getting through this year and delivering earnings, but obviously now looking towards next year as well.
Speaker Change: The story for Eastman has always been.
Speaker Change: Over the last several years, the sort of volume and mix story is our biggest driver of some of the challenges we faced as well as the opportunity Thats now in front of us.
Speaker Change: Eastman has clearly leverage to an economic recovery and we can't accelerated with our innovation. When you think about just the last couple of years, we've had incredibly high inflation and interest rates as everyone knows and we've been in a manufacturing recession that really started in the summer of 'twenty two.
Speaker Change: We've had almost two and a half years now of no improvement in end market demand, especially in the discretionary markets.
Speaker Change: And when you think about the area under that curve of low demand if you will.
Speaker Change: There's a lot of pent up demand that has not been served even when you consider some of the over stimulation in 'twenty one.
So the macro is clearly an uncertain right now we all know that but we do know I think at this point is that the customer inventory destocking is over and we're re correct reconnected to primary demand.
Speaker Change: We can also to say that in the sort of what we call our stable markets things like personal care aviation and water treatment egg.
Speaker Change: Those markets have all been.
Speaker Change: Sort of steadily growing at modest rates this year and we expect that to continue into next year.
Speaker Change: I think we will continue in this year, that's about 60% of our revenue.
Speaker Change: The discretionary markets, which are auto housing consumer durables.
Speaker Change: That's where we see.
Speaker Change: Demand has not really improved very much in this year, that's about 40% of our revenue normal would be closer to 50. So a lot of upside here as we sort of returned to normal for lower interest rates are for sure going to Hell.
Speaker Change: Help improve the affordability.
Speaker Change: Of cars affordability of homes, when you think about the U S home market right now we're at 95 995 levels, 30% below 2019.
Speaker Change: In Europe and China.
Speaker Change: So challenged so when interest rates start to become more affordable, which we expect will happen through next year at some point.
Speaker Change: So you're going to see that is starting to improve and that will certainly drive upside for US same is true in auto where youll see the lower interest rates, helping affordability.
Speaker Change: And same thing demand has not been very good for quite some time on the consumer durable front.
Speaker Change: Same thing well below 2019 levels. This year from an end market point of view a lot of pent up demand since the summer of 'twenty two.
Speaker Change: Recovery in housing will certainly help influence purchases.
Speaker Change: Less inflation pressure on everyday life will open up the opportunity for people start, replacing and upgrading consumer durable products are now starting to get pretty old. So we see modest growth across all of these markets I don't want to oversell it.
Speaker Change: But what we expect and we're going to plan for some modest gross growth year, along with the stable market. So clearly that's going to help drive revenue and increase and then you get to our programs to create our own growth.
Speaker Change: Got the Kingsport methanol facility.
Obviously in three weeks will give you a lot more detail about how we think that EBITDA will improve but it will be a substantial improvement both on the revenue side as well as on a cost tailwind relative to this year you have got a auto film business. The auto interlayer business always creating their own growth, especially in layers is doing quite well with their <unk>.
Speaker Change: <unk>.
Speaker Change: Portfolio right now.
Speaker Change: Got a whole range of Cellulosic products.
Speaker Change: Turning to deliver some innovation growth now you're continuing to grow we already have commercial orders and event in food applications and expect that to accelerate in a variety of other programs, which will also tell you about.
Speaker Change: At the deep dive day coming up.
Speaker Change: And then there's a variety of smaller but helpful innovation programs around semiconductors and coatings in the FTP segment. So overall I would say revenue is going to improve.
Speaker Change: In a modest way from an end market point of view accelerated by innovation, giving us some good growth and just to finish off the bridge, we do expect price to raw material cost to be relatively stable as we go into next year on the specialty side, we think we'll have spread tailwind in olefins.
And then on cost structure, we are going to take a set of actions to drive cost.
Speaker Change: Lower than than.
Speaker Change: Just offsetting inflation, so youll have a tailwind there.
Speaker Change: And then there'll be two sort of modest headwinds, we expect energy natural gas prices to go up and so theres always a lag in catching up to them as well as some a bit lower volume in fibers as the markets adjust down and some inventory management. So we put it all together I think volume mix is going to be a big driver and that's a key.
Speaker Change: Combination of market and innovation.
Speaker Change: On top of the structure that is favorable on cost and.
Speaker Change: And when you netted together I think that translates into pretty substantial improvement in EPS.
Speaker Change: Over this year.
Speaker Change: Very good Marc just on that cost issue, where are you taking out costs that are driving the.
Speaker Change: Cost savings above productivity and how material could that be in 'twenty five.
Speaker Change: So David what I would highlight is we're focused on improving the cost structure, because we have continued to be in a challenging environment.
Speaker Change: So as we look beyond just the normal productivity.
Speaker Change: Our success in innovation has driven some level of complexity in our operation and we're optimizing that.
Speaker Change: From a product and an operation standpoint, so that we can maximize gross margin realization.
Speaker Change: Additionally, as you think about we just announced here in the quarter. There are targeted optimized opportunities to optimize our global asset base with the shutdown of our inner layers rhythm.
Speaker Change: Operation line at our Massachusetts facility and then as we continue to Decarbonize, we think driving energy efficiency in the face of some of the higher energy costs that Mark just talked about is another pathway that can lead us to driving.
Speaker Change: I'll call it cost savings above and beyond our normal level of inflation and we've talked about that being approximately $75 million in the past so.
Speaker Change: So it will be above that and we'll finalize those plans and.
Speaker Change: I'll tell you more about that on.
Speaker Change: You'll recall.
Speaker Change: Thank you.
Speaker Change: Our next question will be from the line of Patrick Cunningham with Citigroup. Please go ahead. Your line is now open.
Speaker Change: Hi, good morning.
Patrick Cunningham: Nightly lower methanol since guide here I think you cited continued consumer weakness how should we think about some of these challenges weighing on incremental EBITDA into next year.
Speaker Change: So when you think about companies and brands trying to drive growth.
Speaker Change: They always want to use innovation drive growth, that's always the best way to win in the marketplace.
Speaker Change: But when the economies are incredibly weak and youre under lot of pressure.
Speaker Change: On inflation the rate of which they're trying to launch new products versus just manage our cost structure is weighted towards managing our cost structure. So we're seeing that through this year.
Speaker Change: As the market stabilized, which I believe they have done.
And the interest rates also helped improve affordability of a number of different things for the consumer.
Speaker Change: Youre going to see some recovery and stability in demand and that companies will start switching more to how do I use product differentiation on the shelf to sort of drive growth.
Speaker Change: Well certainly the product launches are a bit slower this year and clearly.
Speaker Change: In a normal seasonal decline in the fourth quarter youre not going to have a lot of product launches.
Speaker Change: We expect and see customers staying highly engaged and thinking about what they want to do is they go through 2025.
Speaker Change: We think we're in the right place for that to recover and get better, but certainly not as strong as what we would have guessed at the beginning of this year relative to where we are today.
Speaker Change: Very helpful and then it sounds like there some softness on the fibers business into next year have any of the recent capacity announcements in tow started to weigh on some of your contract conversations and is there any intention of repurposing any of those assets for the business near term.
Speaker Change: Yes. Good question. So first of all we expect fibers to stay stable over the next three years, we do.
Speaker Change: See a bit of capacity coming online.
Speaker Change: In China.
Speaker Change: Which is primarily aimed at serving demand in China in a few countries that we don't serve.
So in that sense, there is that dynamic that the industry has had a lot of history around managing capacity to be aligned with serving the market.
Speaker Change: Eastman has been repurposing, both our toe in flake capacity as you mentioned.
Speaker Change: To support our near textile growth and now we have the advent of food packaging, which will tell you more about in three weeks.
Speaker Change: Really excited to have huge volume market and a great opportunity and margins a bit above company average.
Speaker Change: So we have opportunities to continue to run our assets full that are directly dependent on toe.
Speaker Change: And we will continue to drive that strategy, which I think is unique to us in this market space.
Speaker Change: The other competitors.
Speaker Change: Have rationalized some capacity.
Speaker Change: Have other high cost assets.
Speaker Change: So we'll have to just see what they choose to do.
But in the next few years, we're not really worried about that.
Speaker Change: We think that the customers are still very much focused on security of supply and reliability supply.
Speaker Change: Stay ever gets shorted on product to serve the market is that a huge cost to them the cost of <unk> as a percentage of the price of a cigarette is extremely small so you have to be very careful about missing out on sales if you get.
Speaker Change: Short on supply so in that sense I think we're in good shape when we when we talked about the decline next year, that's really just about market decline, which we think is 1% to 2%.
Speaker Change: That's traditional cigarettes declining 2% to 3% being offset by the heat not burn netting out to that kind of a number.
Speaker Change: And we do see a.
Speaker Change: A bit of inventory management going on with customers in the fourth quarter here and expect that some of that will continue into next year. So we're putting a little bit of targeted inventory management at a few customers.
Speaker Change: Sara into whats going.
Speaker Change: Going on this quarter as well as what we might expect next year.
Sara: They've been holding a lot of security of supply back to my point and I think they are trying to look at how to optimize some of that inventory for cash purposes.
Sara: So thats sort of how we look at it so we would expect utilization rates to stay strong over the next three years.
Speaker Change: Great. Thank you so much.
Speaker Change: The next question today will be from the line of Duffy Fischer with Goldman Sachs. Please go ahead your line is actually.
Speaker Change: Yes, good morning, guys.
Duffy Fischer: First question is just around the Texas plant the ESI deed.
Speaker Change: I guess.
Duffy Fischer: Main question would be what's going to be different about that lessons learned from kingsport.
This footprint going to be different.
Duffy Fischer: The capital cost the timeline to build how will that be different than what you did in kingsport.
Well certainly.
The.
Speaker Change: Texas plant, we will incorporate all of the learnings we've had on the Kingsport project both in how to construct it more effectively as well as how they started up better.
Speaker Change: And then what we've gone through this year and run it.
Reliable so theres all types of improvements and insights we've had that we're factoring into this.
Speaker Change: And certainly feel very confident that.
Speaker Change: We with a better construction approach.
Speaker Change: And a great large partner that we have we will be able to construct the projects. The methanol. So part of this project at a much lower cost.
Speaker Change: Then what we spent on in Kingsport, so that I think is pretty clear and well engineered and we feel confident about it.
Speaker Change: The project is different though in that it has a lot more scope to it than just building a methanol plant.
Speaker Change: Because while we're leveraging a brownfield site in our Longview, Texas site, we are still having to build another new polymer line that goes with this we'll have infrastructure around this facility that already existed in kingsport that we need to create the tanks pipe bridges et cetera that go with supporting this.
Speaker Change: <unk> overall plant <unk>.
Speaker Change: So you've got more infrastructure involved and.
Speaker Change: And we have an investment that's being supported by the Doe.
Speaker Change: A much slower de carbonization plan, so the use of thermal battery and solar too.
Speaker Change: Sort of drive it.
Speaker Change: As a another capital cost that is different than where we are today it does get us.
Speaker Change: Down and our carbon emissions by 90%. So it's a very compelling project from a carbon emission not just waste management recycling point of view.
Speaker Change: So worthwhile investment.
Speaker Change: The good news is unlike Kingsport, we have support from the federal government. So we've got $375 million of.
Speaker Change: Funding coming in from the Doa another $70 million of tax breaks coming in from the state of Texas.
Speaker Change: And we've got.
Speaker Change: All of that factoring in to help manage some of the inflation, we're facing as well as supporting this decarbonization aspect of the project.
Speaker Change: So overall, it's a bigger capital program being supported by these incentives.
Speaker Change: And still has an attractive return around 12% as we aimed at achieving from the beginning of this platform.
Okay. Thanks, and just if you could.
Speaker Change: Volume mix was strong in both am and AFP could you break out how much of that was volume how much of that was mixed in each of those segments.
Greg Riddle: Duffy. This is Greg we do not have a breakout of volume versus mix, but in both of those cases mix as a contributor as it always has been for Eastman.
Greg Riddle: I don't have a breakout for you today, but certainly mix was a contributor.
Speaker Change: What I would say, though Duffy is if you think about leverage to economic recovery.
Greg Riddle: The discretionary markets.
Greg Riddle: <unk> are more challenged obviously than the stable markets and those are our highest margin markets.
Greg Riddle: As you think about the recovery in homes cars and consumer durables.
Greg Riddle: A large mix lift going forward into next year and the years to come as we drive a lot of innovation in that space.
Speaker Change: Thank you guys.
Speaker Change: Our next question will be from the line of Frank Mitsch Fermium Research. Please go ahead. Your line is open.
Frank Mitsch: Good morning, and congrats on the World series Mr. Riddle.
Frank Mitsch: Mark you mentioned on the fiber side.
Frank Mitsch: That you are looking at applications I believe you said in food packaging.
Frank Mitsch: That sounds Nuomi can you expand upon that please.
Frank Mitsch: Sure.
Speaker Change: It's not sitting in fibers at the moment just to be clear, it's actually sitting in corporate other but it's a new innovation program that we're launching.
Speaker Change: In foodservice.
Speaker Change: Basically our cellulose acetate, which is what we do use to make.
Speaker Change: The <unk> fibers or eyewear and additives for coatings et cetera that core cellulosic platform that we have one feature about it that way.
Speaker Change: It didn't talk a lot about into the last three years. It's also very biodegradable and you can tune the rate of to biodegrade ability of it as well depending on how you make that polymer.
Speaker Change: So a huge opportunity in foodservice is theres a lot of packaging.
Speaker Change: That cannot be recycled and ends up in landfill for example of those.
Speaker Change: Standard polystyrene foam trays that your chicken and pork and beef sit on in the grocery store or the clamshell. So we're straws for that matter.
Speaker Change: And what we figured out is we're making excellent strides thats already going national here with one large company.
Speaker Change: That is completely home and industrial Compostable, we also figured out how to fund. It. So we can actually replace polystyrene is a drop in replacement to the current equipment and all of those phone trades can now be made out of our event.
Speaker Change: <unk> assay product and is completely biodegradable and even the micro plastics and might originate from it will not persistent environment. That's been certified in Europe. So it's a great platform huge amount of volume margins are good and.
Speaker Change: And it's another exciting way to sort of keep asset utilization high and start turning to cellulosic stream into net growth.
Speaker Change: Across the company and we'll tell you more about that when we get to the deep dive. So the deep dive is going to focus on polyester and the ethanol. This facility, but we're also going to spend time on all of these different cellulosic products that are launching right now that we're really excited about.
Speaker Change: That sounds, yes, looking forward to that.
Speaker Change: And the company reported 4% higher sequential volume mix in <unk> can you talk about where are you seeing that in terms of end markets and geographies.
Speaker Change: That would be great.
Speaker Change: Yes, so so very happy to see the improvement on the volume mix.
Speaker Change: <unk> had a strong performance some of that was heat transfer fluids into some different projects and that was sort of around the world. Those are more sort of LNG oriented projects not spin.
Speaker Change: Specifically tied to China.
Speaker Change: And then we also had some improvement in coatings again shipments around the world.
Speaker Change: And some of our high value coating additives.
Speaker Change: The biggest drivers of that improvement.
Speaker Change: And.
And AAM were about flat inside that we had great performance in the interlayer business driving some of that volume mix improvement.
Speaker Change: I would say that the performance film business was sort of in line with the market.
Speaker Change: And the.
Speaker Change: <unk>.
Speaker Change: Especially plastics side things are relatively stable.
Speaker Change: And then on <unk>, we just sold more volume as we had more volume to sell.
Speaker Change: As we came out of some of those.
Plant shutdown constraint on volume in Q2.
Speaker Change: That was mostly North America.
Speaker Change: Okay.
Speaker Change: Great. Thanks, so much.
Speaker Change: Our next question will be from the line of Vincent Andrews with Morgan Stanley. Please go ahead. Your line is open.
Vincent Andrews: Thank you and good morning, everyone. Mark just wondering if on the chemical recycling. If you can just give us some dimensions around.
Vincent Andrews: $20 million to $30 million this year of EBITDA and I think that the original number was around 75, so that walk from $75 to $20 to 30, how much of it was from.
Vincent Andrews: Just sort of ramping the plant and having some teething issues that drove me to get the other side versus how much of it was.
Vincent Andrews: Just that the consumer offtake, and maybe not as robust because of the macro maybe we could start there.
Speaker Change: Yes, so the walk as you described it between sort of the lower uptime that we had in the startup process in the plant.
Speaker Change: Versus sort of the ramp up of sales, we expect I'd say two thirds of it is is around costs and one third around the volume.
Speaker Change: Just to address the cost side of it when you look at the year, we're obviously a bit optimistic.
Speaker Change: How quickly the plant will start up.
Speaker Change: So we've sort of learned from that I mean, the construction environment was obviously very challenging as you. All know that led to also a lot of construction quality issues and vendor equipment issues and we lost about four months.
Through the spring and.
Speaker Change: And to me.
Speaker Change: Just dealing with all those sort of mechanical integrity issues around that.
Construction of the plant and then once we got the feedstock issue.
Speaker Change: Ramp up.
Speaker Change: And running at higher rates with that we knew we were going to have complicated challenges in feedstock, we're using waste as feedstock.
Speaker Change: And we have always been using hardware recycled material from the very beginning.
Speaker Change: So we've always been using challenging material.
Speaker Change: And the great news about that material is.
Speaker Change: The process Chemistries worked incredibly well from the beginning so as the plant runs it's making on spec material.
Speaker Change: Going into food grade product with high clarity.
Speaker Change: It's just really exciting to see that process chemistry works out well and produce such a high quality product.
Speaker Change: But as we told you in the second quarter call. We did run into some feedstock preparation issues impacting how the first part of the plant brands and that was sort of causing us uptime problems.
Speaker Change: And how the feedstock sort of went into the plant.
Speaker Change: And we had a plan to fix it it just took us longer to fix some of those issues and make the improvements necessary.
Speaker Change: So we had a lot.
Speaker Change: No more downtime through August than we had planned on the good news is.
Speaker Change: We got into September with those improvements.
Speaker Change: Improvements in place and ran well.
Speaker Change: Through the through September.
Speaker Change: With much higher uptime, and so we feel good about how we entered our planned shutdown that we had a planned shutdown for this facility that's aligned with the shutdown of all of our polymer lines for the for the specialty plastics business.
Speaker Change: So in that we also made a few additional improvements that we are.
Speaker Change: Needed to be down to do so we feel good about that where it start up of the plant.
Speaker Change: And the final steps of that sort of startup process.
Speaker Change: And looking forward to sort of running.
Speaker Change: As we lead up to the deep dive day on the 21st of November So those cost issues, which is predominantly a downtime related issue of how the plant was running due to these sort of issues on the front end.
Speaker Change: Caused the cost to come to be higher as opposed to inventory and close out of inventory.
Speaker Change: And then I already addressed the volume question prior.
Speaker Change: Prior question, which is.
Speaker Change: When the economy is really weak the rate at which people are launching new products is slower, but we're still seeing very high engagement from customers we haven't lost.
Speaker Change: I think we've only lost one customer now I think about it when it comes to sort of wanting to move forward. It's just the pace at which we're moving forward has moderated.
Speaker Change: Okay, and then just on the Texas plant can you, let us know the mechanics of how that Doe Grant works in terms of like a project finance, where you draw it down and then and then you have to pay it back over time.
Speaker Change: And I assume the $70 million in the state of Texas required pre tax income from that plant to get the to get the credit or are you able to use any.
Speaker Change: Income from Texas in the meantime.
Speaker Change: Vincent on the Doe Grant you can think about we've got in the first phase improved and we're going to be receiving the cash as as we make progress on on the investment.
Speaker Change: The project overall.
The $375 million will match the capital outlay over the time horizon and we will.
Speaker Change: I'll talk more specifically at the deep dive around the capital level.
Correct on the stay.
Speaker Change: In Texas. It is on the I'll call. It the income, but the income will be initiated as we build the project.
Speaker Change: Thanks very much.
Speaker Change: Next question is from the line of Michael <unk> with Barclays. Please go ahead. Your line is now open.
Speaker Change: Great. Thank you good morning, guys.
Speaker Change: What's the latest status update on the France Office project.
Speaker Change: So the France project as we've discussed in the.
Speaker Change: First and second quarter.
Speaker Change: It is on <unk>.
Speaker Change: Lower path of development.
Speaker Change: We've made phenomenal good progress on many dimensions of the projects. So we've.
Speaker Change: As we've discussed before we got over 70% of the feedstock source we have.
Speaker Change: Great progress on permitting.
Speaker Change: In fact have a permit.
Great progress on the incentives and have those secured for almost complete on the engineering work.
Speaker Change: So all of that's on track.
Speaker Change: The one thing we have not succeeded in getting as the customer contracts for the packaging side of this project.
Speaker Change: And that's really been a delay due to the sort of policy in the EU, So as I mentioned before.
Speaker Change: At the last moment in the spring of this year. They made a change to the policy. The policy was always written to drive high recycling rates high recyclability of products within the union and aiming to try and get that recycling of local waste out of the environment and not being incinerated, which is the primary thing that they do with.
Speaker Change: Waste in Europe.
Speaker Change: Which also violates <unk> policies.
Speaker Change: Getting.
Climate down.
But they came up with some WTO concerns and said that imports needed to be allowed into the mix of what counts is recycled content.
Speaker Change: Obviously imports, replacing local demand for recycling doesn't make a lot of sense, if youre trying to get waste and reduce incineration.
Speaker Change: Fact.
Speaker Change: Happen with all of this imported materials that will end up being incinerated and increase carbon footprint for the for the Union. So while there is a trade issue that needs to be sorted out it doesn't really make any sense for recycling policy.
Speaker Change: So I think that there is a number of efforts going on to try and address this issue, but with that uncertainty or the ability to use waste from other countries.
Speaker Change: That's caused the slowdown in the customer discussions that theyre trying things through their sourcing strategy. So.
Speaker Change: We don't yet have those customer contracts.
Speaker Change: And to be very clear.
Speaker Change: We have been from the beginning.
Speaker Change: With our principles about the contracting model for packaging, we do.
Don't have commitments from customers that gives us a long term commitment with stable margins and the pricing structure at the appropriate levels. We're not going to proceed forward with this project so.
Speaker Change: Until we get these issues resolved to the customers as they look at what they want their sourcing strategy to be.
Speaker Change: We will have to sort of.
Speaker Change: Hold on this project, but as shovel ready so if we get the contracts we can move forward.
Speaker Change: Government French government is extremely supportive and doing everything they can to help us on this and we'll tell you more about this also at the deep dive and a couple of weeks.
Speaker Change: Great.
Speaker Change: And then on the Kingsport methanol unit I think.
Speaker Change: Last question you talked about very good uptime in September after getting through some of those teething issues, what's been the steady state utilization rate from this facility when the site has been running well during those periods.
So I'm going to hold off on answering that question because we have a lot of exciting stuff to show you around the plant and at running and we have been running at reasonably good rates.
Speaker Change: Sure.
Speaker Change: We've told you in the past, we've been able to run that 65% to 70% rate range.
Speaker Change: No I'd say, that's consistent the issue isn't been being able to run at good rates. The issue is just downtime to deal with some of these feedstock preparation issues.
Speaker Change: So and we've tested every part of the plant at a very high rate. So we'll tell you a lot more about that in a lot more detail around sort of how we are going and you can see the plant herself.
Speaker Change: Great. Thank you.
Speaker Change: Our next question will be from the line of Josh Spector with UBS. Please go ahead. Your line is now open.
Speaker Change: Hey, good morning.
Speaker Change: Try again on PRT and just specifically 25 I understand you want to say some things for a few weeks from now, but you guys have been pretty clear about kind of a break in earnings from that this year into next year.
Speaker Change: Can we at least frame how we're thinking about the contribution to <unk> 25 at this point.
Speaker Change: Sure. So one I'm not taking the bait, so I'm not going to give you a number but we will be sharing our thoughts with you.
And three weeks when we have more time to actually provide the proper context, but.
Speaker Change: There will be two drivers of the economics as you go from 24% to 25.
Speaker Change: The very low uptime, we've had in the first eight months of this project this year.
Speaker Change: Obviously.
Speaker Change: We will be much better next year right. So we have a pretty high cost.
Speaker Change: Per unit going into the inventory this year.
Speaker Change: A headwind in the economics this year.
Speaker Change: So as you start ramping up that cost per unit goes down pretty dramatically from where we are right now and so youre going to have a pretty meaningful cost tailwind relative to this year.
Speaker Change: Running the plant.
<unk>.
Speaker Change: Is that just pure operating leverage and utilization defense and then the.
The second part of course is ramping up on the revenue side.
Speaker Change: And it will spend some more time, but both will be meaningful contributors to how you get to a better EBITDA next year versus this year and.
Speaker Change: And it will be a key contributor to growth this year, even in a challenged economic environment.
Speaker Change: Alright, Thanks Patrick.
Speaker Change: On free cash flow do you want to add.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: Any commentary on inventory build a strategic inventory build being a driver for the $100 million reduction can you just talk about that it seems to contrast, a little bit late.
Speaker Change: Some of the weaker slower demand commentary, so where do you see that opportunity and why.
Speaker Change: So there is a couple of items that would highlight one's in the polyester space and the others in the Cellulosic, which both mark has touched on.
Speaker Change: So we have made selective choices in those specialty product lines, one was to manage shutdowns.
Speaker Change: Here in September and October So we will get some of that back in fourth quarter and as we think about 2025 and being prepared for growth.
Speaker Change: Polyester space, you've heard us talk about the flexibility of our polyesters and we have.
Triton facility coming online in late fall of next year.
Speaker Change: So what we're looking at doing is.
Exhibiting that flexibility here in the early part of 'twenty five by switching those polyester lines back to co polyesters as well as PDP production and were building inventory to enable us to do that now so that we can make those transitions and leverage.
Speaker Change: The assets that we have on that front.
Speaker Change: We also saw we continue to have capital discipline on our Capex and we can reduce that to $625 million for this year.
<unk> side, we are leveraging that to build inventory for products like event.
Speaker Change: And.
Speaker Change: So that we have those market adoption rates et cetera, as we make plans to debottleneck those assets.
Speaker Change: And are leveraging the inventory versus the capital here in the front end.
Speaker Change: So well positioned to provide growth and to be capital efficient as well between capex and working capital.
Speaker Change: Okay. Thank you.
Speaker Change: The next question is from the line of Jeff <unk>.
Speaker Change: J P. Morgan. Please go ahead your line is open.
Speaker Change: Thanks very much.
Speaker Change: Okay.
Speaker Change: The EBIT drag from the methanol plan 2024.
Speaker Change: So Jeff.
Speaker Change: Obviously as we've dropped down.
Speaker Change: The EBITDA expectations the incremental.
Speaker Change: On a year over year basis is neutral. So there is no incremental on a year over year basis.
Speaker Change: And.
Speaker Change: As we've talked about previously.
Speaker Change: The cost of the preproduction et cetera was fully reflected in our other segment in 2020.
<unk> thousand 23.
Speaker Change: Okay.
Speaker Change: Hi.
Speaker Change: And for my follow up.
Is that the price of methanol assist product very different from your <unk>.
Speaker Change: Methanol losses coal co polyesters or how does that compare to Triton.
Speaker Change: What seemed to be the.
Primary applications.
Speaker Change: Who's buying it and buy in.
Speaker Change: Is it a wide variety of customers or is it very concentrated can you give us a sense of.
Speaker Change: Who wants the product in Hawaii.
Speaker Change: Sure. So first of all the premiums were getting for renewable content. The recycled content in our products is a premium on any of the existing products, whether it's striking our co polyester PT, there's a premium above all of those different products. Obviously the amount of premium varies based on the pricing of the underlying product.
Speaker Change: And the value that it is creating in the applications going into but theirs.
Speaker Change: A good return on that.
Speaker Change: It's also driving a lot of new market growth. So to answer your question in the applications. We're going into are a wide spectrum of applications. This is a very fragmented market today that we serve.
Speaker Change: In the specialty business and it will be fragmented spread across a variety of market. So it can range anywhere from cycle content going into reasonable water bottles with Nalgene <unk> camelback.
Speaker Change: Those kind of applications that are very obvious where you'd want to have recycled bottle.
Speaker Change: Going into making a reasonable waterfall.
Speaker Change: You've got all the applications in the appliance world, whether it's blenders or.
Speaker Change: Cuisinarts in things like those kind of products that once you have a better sustainability footprint, you've got new applications that it's opened up to us like the housings for drills. We've told you the story around black <unk> Decker in the past.
Speaker Change: You've got.
Speaker Change: Large appliance is also looking at these opportunities a lot of that is Triton <unk> got a lot of cosmetic packaging, which have very aggressive sustainability goals that are converting over to recycle content.
Speaker Change: Where they are trying to get to a 100% recycled content in a lot of that cosmetic packaging.
Speaker Change: And that's a lot of our co polyesters and you've got packaging and consumer packaging opportunities, it's really across the spectrum of end markets, where we see the opportunity to.
Speaker Change: Create new growth and win applications that we didn't currently have which is.
Speaker Change: Very profitable when it's opening up an entirely new market.
Speaker Change: To valuing up markets that we're currently in so we'll share a lot more about that with you also in three weeks, but it's a broad spectrum.
Speaker Change: Okay. Thank you very much.
Speaker Change: Next question will be from the line of Alexia.
Speaker Change: Keybanc capital markets. Please go ahead your line is open.
Alexia: Thanks, Good morning, Marc could you maybe provide some detail around advanced materials.
Speaker Change: A lot of categories auto sales seem to really is striking and chatter on what's been happening with demand and margins in Q3 and heading into Q4.
Speaker Change: Sure. So first of all I mean.
Speaker Change: All of the end markets.
Excluding autos, which is a bit of a different story, but all the other markets, obviously went through pretty steep destocking cycle.
Speaker Change: In the end of 'twenty two through 'twenty three so what we saw in 24 was most of that being completely over.
Speaker Change: And a lot of volume improvement.
Speaker Change: That lack of Destocking.
Speaker Change: And then you've got some modest growth occurring in markets across the space. So in the automotive side of things.
Speaker Change: The automotive underlying market.
Speaker Change: Is clearly one that's getting a lot of attention right now.
Speaker Change: It's been a bit weak so I'd say our views consistent with the other views out there where the overall underlying market is probably down 2% roughly.
Speaker Change: In that our Innerwear business has had high single digit volume mix growth so significantly outperforming the business. So it's been exciting to see that happen.
Speaker Change: And a lot of drivers behind that but there's just a lot of design trends helping us.
Speaker Change: On two dimensions, and why we're doing well and not just evs, which we're highly levered to but also an ice cars.
Speaker Change: Getting more territory per car, whether it's a nice car or an EV.
Speaker Change: Side Windows are now being laminated, it's actually moving at a pace of almost four years to five X radio builds.
Speaker Change: And how they're adopting side windows that usually includes acoustic management as well.
Speaker Change: You've got larger centers significantly larger on an EV, but even on ice cars they are bigger.
Speaker Change: And with Evs when you put it altogether in particular your three times of square meters of an ice cars, but even the ice cars are trending in a very favorable way for using more glass laminated glass and the products have a lot more value.
Speaker Change: So the heads up display that's been growing double digits. They have solar rejection color matching especially on the centers et cetera. So a lot of trends, helping us grow better this year than the underlying market.
Pretty meaningful way.
Speaker Change: And those trends will continue into next year and if you combine it with modest growth in the underlying auto market. That's a good story on performance films. That's an accessory aftermarket if you will so the window films and paint protection films.
Speaker Change: It's not growing as fast this year and this economically challenged environment as people manage their pricing, it's still growing still growing a little bit better than underlying markets, but not the same story as <unk>. So that's on the performance films side, which is holding in reasonably well for the market that we're in.
Speaker Change: And then on the specialty plastic side I think that a lot of the volume growth. This year is a lack of destocking.
Speaker Change: A little bit of modest growth in some of the stable markets that theyre in.
Speaker Change: And thats sort of where we sit so again, it's all about innovation, it's all about a little stability in underlying market growth. It helps accelerate that innovation and adoption with the brands as they look to create growth.
Speaker Change: And a more stable environment, so combined to help growth next year.
Speaker Change: Thanks, Mark and your coatings customers have been pretty vocal about.
Speaker Change: How they feel regarding negotiating position with their suppliers.
Speaker Change: How do you think about preserving your margins in the coatings business in 2025.
Speaker Change: Okay.
Speaker Change: Look I think that every customer.
Speaker Change: Including us is negotiating as hard as we can to get the best prices possible for what we're buying.
Speaker Change: Weakened economic environment, Youre, obviously going to do that.
Speaker Change: In the end if you've got a specialty business you are differentiated value in the products that you're surprised at your customers and you can maintain.
Speaker Change: Price discipline, which I think we've demonstrated extremely well so in an increasing environment like 'twenty one at the beginning of 'twenty. Two you saw us very successfully raised prices.
Speaker Change: In that environment to stay up with hyper inflation in our raw materials.
Speaker Change: And you've seen since then.
Speaker Change: Maintaining very good discipline on pricing.
Speaker Change: For the value of our products.
Speaker Change: Theres always a little bit of sharing that you do with raw material declines and that happens we've always been clear about that theres a bit of a lag on the way up and there is a bit of a lag on the way down.
But we're confident that we can maintain stability in our price raw material costs.
We've done this year and we will continue to manage it that way as we go into next year I'd say, the only exception of that is a bit of energy increase on our side. So if the natural gas prices go up a lot like the forward curve implies relative to this year.
Speaker Change: Bit of a lag in our pricing and how that how it goes up relative to those costs.
Speaker Change: That will be a bit of a headwind but.
Speaker Change: We intend to manage the pricing and value of our products as we always have.
Speaker Change: Thanks Mark.
Speaker Change: The next question will be from the line of Mike Sison with Wells Fargo. Please go ahead. Your line is open.
Mike Sison: Hey, good morning, guys nice quarter.
Mike Sison: Mark you've been running volume next year.
Mike Sison: David over the last couple of quarters, it looks like Youre, probably hit that for the full year.
Mike Sison: And as you described not a clean environment. So.
Mike Sison: Thanks.
Mike Sison: In 2025.
Companies have said the first half could be similar to the second half of 'twenty four is that a good base case, because a lot of the new products.
Mike Sison: And innovation that you've done heading into 2025, and if demand does get better that's helped.
Would you be better than that.
Speaker Change: So I think again it depends on the markets. There is no sort of uniform answer to that Mike.
Speaker Change: In the stable markets I think we've been seeing some steady modest growth. This year and that continues through next year. If that's not back half loaded so whether it's personal care aviation medical he's talking by the way is mostly over so we'll get back to having growth in medical.
Speaker Change: Packaging and consumer packaging actually was a bit down this year as you can see from all of those companies.
Speaker Change: That are in that space and we do believe that we will sort of swing from a low base to some positive growth next year. So I think those are all going to happen through the year.
Speaker Change: The ones, you're really talking about that are back half loaded or more interest rate sensitive markets like housing and auto.
Speaker Change: Sure.
It's a little unclear exactly when interest rates get to a point that encourages people to start selling their existing homes.
Speaker Change: Or how affordability works on on autos between interest rates and just the pricing that the car companies are choosing to pursue.
Speaker Change: They've increased prices a lot over the last three years, so how they sort of manage that pricing.
Speaker Change: I expect we will start to come off a little bit.
Speaker Change: So those kind of markets are probably going to be a little bit more backend loaded than front end loaded.
Speaker Change: <unk> probably in between those two stories.
Speaker Change: And the rate at which it grows.
Speaker Change: So I don't think we are waiting for the back into the back half to be strong I think we will have.
Speaker Change: Decent growth, but its really early to say right now there's a lot of it.
Speaker Change: Uncertainty in the macro economy, you've got an election coming up yet instability in the middle East.
Without a doubt we see it in the fourth quarter brands and retailers are being cautious right now.
Speaker Change: They are uncertain about where the economy is headed.
Speaker Change: And so they're being a little bit careful.
Speaker Change: It was understandable in the context.
Speaker Change: And so I think we need to get to January pass the election, and some of them. Some of these other sort of uncertainties right now.
Speaker Change: So you see how the economy looks and we'll obviously provide you a good update on the fourth quarter call.
Speaker Change: Got it and then one quick follow up on the matter.
Speaker Change: The analysis.
Speaker Change: For 2025 do you have a baseload.
Speaker Change: Kind of orders heading into 2025 and is there any impact from the election on that do you think.
Speaker Change: When it goes the other.
Speaker Change: I had a kick start to matter ADT command, a little bit tepid.
Speaker Change: Yeah.
Speaker Change: So I'm definitely not taking the election date.
Speaker Change: Syed.
Speaker Change: Yeah.
Speaker Change: I think that there is 11 certainty that.
Speaker Change: Election that holds people up and you could debate the pros and cons of.
Speaker Change: What Trump our Harris would do.
Speaker Change: So I think we just need to wait five days and see what happens but.
Speaker Change: When I think that.
Speaker Change: Okay.
Speaker Change: When you talk about these uncertainties.
Speaker Change: I think that.
Speaker Change: They're not going to have a direct impact on <unk>.
On what we do right now in any significant way I think the markets are stable I don't think the policy changes that could be made right now would have a significant impact one way or another.
Speaker Change: Thank you.
Speaker Change: Our next question will be from the line of Kevin Mccarthy with VIP. Please go ahead. Your line is open.
Kevin Mccarthy: Yes, Thank you and good morning, Mark your additives and functional products.
This wound up doing quite a bit better than you would've thought three months ago, and so can you talk through what drove that it sounded like heat transfer fluids was part of the equation there cognizant I believe anyway.
Kevin Mccarthy: Spanning capacity in that product line in Alabama is that done and did it.
Kevin Mccarthy: Help your business or is that unrelated and and really you garnered the upside from from other factors, maybe you could just help with a forward trajectory there as well.
Speaker Change: So as a photo products has done well because it's just excellent execution on every dimension of running the business I Wouldnt decided to any one thing without a doubt.
Speaker Change: Fluids came in a little bit better than we expected, but when you added up for the year and even for Q3.
Speaker Change: It was great execution.
Speaker Change: And getting volume in coatings. It was great execution in growing the care chemicals business, who has great execution and minimizing the decline in AG that.
Speaker Change: That normally happens as you go from Q2 Q3 was not quite as much as we expected. So it was lots of little wins.
Speaker Change: That added up to delivering excellent performance, it's great commercial excellence in managing pricing back to the question a moment ago.
Speaker Change: And defending the value of our products across our portfolio and improving and maintaining spread so.
Speaker Change: I would give credit to the whole team on how they are just delivering really good performance in a soft environment.
Speaker Change: Okay, and then as a follow up perhaps for Willy can you comment on your capital expenditures for 2025 relative to the diminished level of $625 million this year.
How does how does the ramp in Texas factor into next year's budget.
Speaker Change: Thanks for the question just as a reminder, our I'll call. It Baseload maintenance capital is about $350 million.
Speaker Change: This year, we're going to come in around the $625 million.
Speaker Change: We're still setting our capital plan and the velocity as we look at.
Speaker Change: I'll call it the.
Speaker Change: The startup of the Longview, Texas facility, but you can expect it.
Speaker Change: Essentially be around when we started this year, which was around that 800 million Mark will talk more about the deep dive then.
Speaker Change: Here in three weeks as well as on the <unk>.
Speaker Change: Q4 call as we finalize plans.
Speaker Change: Great. Thank you very much.
Speaker Change: The next question will be from the line of John Roberts with Mizuho. Please go ahead. Your line is open.
John Roberts: Thank you is the methanol CIS unit running at full rates today.
No John I mentioned earlier, we're still in the startup. So it was a month long planned shutdown, we shut down all of our polymer lines for an annual planned maintenance every year.
John Roberts: In this timeframe and.
At this plant shut down.
In alignment with it otherwise we would have nowhere to go with.
John Roberts: The monitor is coming out of the plant.
John Roberts: It has not yet started up but we're in the we're in the final days of startup right now.
Speaker Change: Okay, and then I think you mentioned that Vantiv is in corporate and other when does it move to the it will move to the.
Speaker Change: Advanced materials segment or will it move to fibers, because its cellulosic and when do you make that move.
Speaker Change: Keith I was looking at me to answer that question, because we're still debating it.
We're excited about getting it ramping up we haven't made a final decision about where it's going to land inside the company. So we'll let you know once we decide where we probably have a point of view on that by the time, we get to January.
Speaker Change: But do you have a timeframe when it moves to out of corporate.
Speaker Change: I think it will move next year.
Speaker Change: We just haven't decided which segment yet.
Speaker Change: There is good logic for both segments as you just mentioned so we're just working through the through the final decision.
Speaker Change #100: Okay. Thank you.
Speaker Change #100: Okay.
The next question will be from the line of Laurence Alexander with Jefferies. Please go ahead. Your line is open.
Speaker Change #101: So good morning, two questions.
First on your comments about biodegradable micro plastics side effects.
Speaker Change #101: Or a consequence of your new product.
Speaker Change #101: Where are you seeing demand pool if anywhere.
Speaker Change #101: Weighted to that as a concern.
Speaker Change #101: And then secondly, we spoke quite a bit over the last couple of years about the amount of.
Speaker Change #101: Innovation around the automobile.
That helps you grow faster than the market can you just walk through where youre seeing similar.
Speaker Change #101: Demand plus <unk>.
Speaker Change #101: Driver in either construction or appliances durable those types of durable goods just to get a sense for what your operating leverage might be on a cyclical recovery in like how much capacity you might grow relative to what the multiplier effect might be.
Speaker Change #102: So I'm sorry, you just broke up a little bit on the first question what was the first part of your question again.
Speaker Change #103: So around the Michaels com.
Comments, you made a very quick comment because if you can unpack it where youre seeing it actually be relevant to demand pool.
Speaker Change #104: Yes, so when it comes to.
Speaker Change #103: Plastic waste.
People don't want it going to landfill, they don't want to be incinerated, and they certainly don't want to going into the environment.
Speaker Change #103: And.
Speaker Change #103: A lot of things a lot of consumer packaging like most <unk> packaging is very recyclable and should be captured in recycled and some combination mechanical.
Speaker Change #103: As well as what we're doing in chemical recycling. So that's great, but there are applications, where you just can't do that too.
Speaker Change #105: Meet Trey.
Speaker Change #105: We've got a bunch of blood.
Speaker Change #105: Intuit is not something thats getting.
Speaker Change #105: Recycled.
Speaker Change #105: And a lot of other food waste containers.
Speaker Change #105: So it just ends up in landfill and there needs to be a solution and so the whole point here is we don't want staying Atlanta landfill and we certainly don't want to break down to small parts and becoming micro plastics. So.
Speaker Change #105: And the good news about our Cellulosic.
Any form or fashion, they will not persist in the environment, that's a micro plastics and thats been sort of certified in Europe.
Speaker Change #105: There are certain regulatory process and testing as well as composed to pull so we have a great solution is primarily driven by I don't want waste in my environment.
Speaker Change #105: And there are policies in several states are banning polystyrene and food packaging, where they have to go to something else.
Speaker Change #105: This is by far the best solution on the marketplace as far as we can tell.
Speaker Change #105: So it's all it's all connected back to that plastic waste thing and in these specific applications on your second question in regards to do we have underlying trends driving above market growth.
Speaker Change #105: Certainly in the spec.
Speaker Change #105: Specialty plastics business, that's been true for well.
Speaker Change #105: Two decades, but certainly in the last decade so.
Speaker Change #105: Brighton has grown.
Speaker Change #105: <unk> grown because it's a better product in many applications in polycarbonate functionally, but also because it's BPA free.
So you've got lots of growth happening across specialty plastics, where were growing because we have a better performing product or a safer product happening in coatings.
Speaker Change #105: We have the same opportunities.
Speaker Change #105: Shield, which is a <unk>.
Speaker Change #105: Coding version of tracking you've got growth happening in those markets.
Speaker Change #105: And under.
Underlying growth to be BPA free PFS free so we have a lot of different places where markets are being accelerated.
Speaker Change #105: Thank you.
Speaker Change #106: Let's make the next question the last one please.
Speaker Change #107: Yes of course. The next question is on your line of Salvator Tiano with Bank of America. Please go ahead.
Salvator Tiano: Yes. Thank you very much personally I wanted to ask who will become the long view.
Salvator Tiano: So I know you had.
Salvator Tiano: Major amcor customers than before but you were still waiting for a bunch of other things including <unk>.
Salvator Tiano: <unk> more customers so.
Salvator Tiano: I guess, what changed that you decided to jump through the plant at this point again get anymore.
Salvator Tiano: Any more cosmic <unk>. One example.
Speaker Change #109: So the decision to move forward on the Texas project, one we already have a very large customer Pepsi that baseload plant, which we don't yet have for the French project as a contrast.
Speaker Change #109: So we feel very good about that.
Speaker Change #109: That side of it.
Speaker Change #109: This plant is going to be designed to include flexibility for serving specialties. So the combination of Pepsi and the confidence we have around serving some of the specialty markets makes us feel good about that and we got the Doe funding as we talked about earlier that obviously supports the economics.
Speaker Change #109: And the engineering work is pointing out the capital cost that has an attractive return, but that engineering work by the way still underway it needs to be completed.
It came together in a sense that we had clarity.
Speaker Change #109: About this and that clarity and commitment is important.
Speaker Change #109: For continuing to sort of sign up new customers at this stage as well as some of the incentive work done.
Speaker Change #109: Just wanted to.
Speaker Change #110: To clarify a little bit. This year, you also have to be getting some benefit from higher operating leverage from operating at high rates. How should we think about <unk> going to be an improvement or IV leach down there.
Speaker Change #110: Normal run rates at this point.
Speaker Change #111: Yes, so we have seen the benefit that we highlighted earlier this year with the operating leverage across the company and specifically in advanced materials. We will have further operating leverage in 2025 as Mark has highlighted.
Speaker Change #112: With the Kingsport methanol is this as we have a.
Speaker Change #112: Stable operations and have the uptime behind it.
Speaker Change #112: Look to have further leverage in 2025, and we will give.
Speaker Change #112: An update on guidance on our Q4 call.
Speaker Change #113: Thank you very much.
Speaker Change #113: Yes.
Speaker Change #114: Thanks again, everyone for joining us today, we appreciate your time and your interest in Eastman I Hope you have a great day, and a great weekend and I just want to end with that let's go Dodgers. Thank you very much.
Speaker Change #115: This concludes today's call. Thank you for your participation you may now disconnect.
Speaker Change #115: [music].
Speaker Change #115: Thank you very much.