Q4 2024 Eastman Chemical Co Earnings Call
Speaker Change: Good day everyone and welcome to the fourth quarter and full year 2024 Eastman conference call. Today's conference is being recorded. This call is being broadcast live on the Eastman website www.eastman.com. We will now turn the call over to Mr Greg Riddle, Eastman Investor Relations. Please go ahead sir.
Speaker Change: Thank you, William McLean, Executive Vice President, CFO and Jake Leroux and Emily Alexander from the Investor Relations team.
Speaker Change: Yesterday after market close we posted our fourth quarter and full year 2024 financial results news release and SEC and SEC AK filing. Our slides and the related prepared remarks in the investor section of our website Eastman.com. Before we begin I'll cover two items.
Speaker Change: First, during this presentation you will hear certain forward-looking statements concerning our plans and expectations.
Speaker Change: Actual events or results could differ materially. Certain factors related to our future expectations are or will be detailed in our fourth quarter and full year 2024 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-K filed for full year 2023 and the Form 10-K to be filed for full year 2024.
Speaker Change: Second, earnings referenced in this presentation exclude certain non-core and unusual items. Reconciliations to the most directly comparable GAAP financial measures and other associated disclosures, including a description of the excluded and adjusted items, are available in the fourth quarter and full year 2024 financial results news release.
Speaker Change: As we posted the slides and accompanying prepared remarks on our website last night, we will now go straight into Q&A. Perry, please let's start with our first question.
Speaker Change: Our first question will come from the line of Josh Spector with UBS. Please go ahead, your line is open.
Speaker Change: Hey guys, this is James Cannon. I'm for Josh. Thanks for taking my question.
I just wanted to jump in on.
Speaker Change: The AM guidance, I think, between the overall segment and what you're assuming for the Kingsport contribution, it seems like you're assuming a decline in the base business, and I just was wondering if you could unpack some of the moving pieces there.
Speaker Change: Yes, sure. First of all, AM's had a great success in recovering earnings from a challenging environment in 23 through 24, and it really is an impressive recovery of the actual core business and advanced materials in 24.
Speaker Change: as we, you know, fell short on sort of our circular earnings goals in that year. So the macroeconomy is certainly challenging right now as we all know.
and lack of de-stalking.
Speaker Change: certainly helped last year. As we move into this year you really got a more stable flat market without that tailwind.
Speaker Change: So, you have to create all of your own growth this year, which we're doing. So when you look at.
Speaker Change: The growth that we're going to deliver in the circular platform is pretty substantial with that $75 to $100 million guide for the company with 50 of it being in advanced materials. When you look at the innovation that we're creating that drove growth last year and will continue to drive growth this year through innovation in our core business.
Speaker Change: in a very flat market, I think is again a testament to the power of our strategy and the value of this segment.
Speaker Change: But there are headwinds in the core business that sort of mitigate some of that volume growth within the core to your question. So we've got increasing natural gas prices across the company, and a good portion of that shows up in advanced materials. You've got currency being a headwind, and a good portion of that shows up in advanced materials. That's a good portion of the 50 in natural gas and the 30 in currency.
So that offsets some of that volume and mixed growth.
Speaker Change: and sort of levels out the core earnings. But we still expect the segment overall to have very strong performance.
Speaker Change: And I think it's really well-positioned when you think about the strength of that stability in the core, building with innovation on top of it, and how that then levers into more growth in 2026. I would also say that cost management is going to help this segment as well. So it's a combination of things that sort of flatten out the earnings growth in the core, do these new headwinds, but I don't think there's anything to be concerned about long-term.
Speaker Change: We continued to work through the higher cost associated with reduced uptime from earlier in the year But in the fourth quarter, we demonstrated continual operational improvement
Speaker Change: and we've run well since we saw each of you in November.
Speaker Change: We're at 85% DMT yield since our fall turnaround, and uptime continues to improve. We continue setting new production levels since that last shutdown, and we're well positioned for strong operating leverage in 2025 from both higher production and reduced operational spend.
I would add that
All the success in this plant.
Speaker Change: is a tremendous testament to the teams, the operators, the engineers.
everyone who's surrounded and built this plant.
Speaker Change: and got it up and running. It's just an extraordinary amount of effort that this team has invested to get such a complicated plant to do something so extraordinary to take basically garbage and turn it into high quality virgin polymer is a real proof point for how Eastman can build extraordinarily advantaged technologies and build a long-term competitive advantage that I think will be very difficult.
Speaker Change: for anyone to replicate. And the only reason that happens is all the people who've done such great work.
Great, thank you.
Speaker Change: Strategic trade actions, along with addressing sort of overwhelming regulations, having progress tax policy workforce development et cetera are all critical to sort of driving and growing U S manufacturing, which will certainly benefit Eastman and long term and many other companies.
Speaker Change: When I look back at the last time, there was a sort of a trade event.
Speaker Change: In 2019.
Speaker Change: Eastman actually manage that from a direct impact really quite well.
Speaker Change: And the only impact we really had was there was a slowdown in the short term therefore economic activity and sort of we felt that.
Speaker Change: And when I reflect back on that time frame, we don't really face that much Chinese competition in North America. So it didn't have a lot of relevance to us to see the trade benefits, but obviously a lot of U S manufacturing did and that helped stabilize the economy in some other areas that sort of helps.
Speaker Change: As we sort of go through that trade friction.
Speaker Change: Today is different though so when you look at.
Where we are today versus in the economy was actually relatively strong going into that event.
Speaker Change: Economy, and global manufacturing hours incredibly weak.
Speaker Change: Across the globe. So I think the the rate at which people can get aggressive if they are focused on stabilizing and growing the economy will be limited.
Speaker Change: Given those weaker positions that many countries have.
Speaker Change: And we're also in a pretty challenged economic times. So it's not clear to me how much more negative impact tariffs can have on top of their manufacturing recession, we're already in.
Speaker Change: So I think that this well it sounds really dramatic because theres. So many different countries being discussed around.
Speaker Change: What might have some tariff actions in it.
Speaker Change: And that is certainly a wider factor than 2019.
Speaker Change: I think that there's pros and cons of this and I think so far we have seen some careful thought being deployed by the administration about what's appropriate.
Speaker Change: And not acting yet until we have a clear plan. So we will see theres no way for me to estimate the impacts at this stage.
Speaker Change: Given given everything I, just said, we're going to need to see specific actions.
Speaker Change: We have an informed point of view, but I will say that our forecast does not include any significant impact.
Speaker Change: From a from the trade actions.
Speaker Change: Thank you.
Speaker Change: Our next question will be from the line of Mike Sison with Wells Fargo. Please go ahead. Your line is open.
Mike Sison: Hey, guys Nice nice ended the year I had a question on ASP.
Speaker Change: <unk>.
Speaker Change: Adjusted EBIT came in a lot stronger in the fourth quarter versus the third quarter and relative to your guidance.
Speaker Change: You talked about a couple of things and in the.
Speaker Change: And then in the transcript but.
Speaker Change: Can you give us a little bit of color on why that segment did sell while sequentially Glenn yes, normally it takes a little bit of a debt.
Speaker Change: Yes, so first A&P had a great year as well as a great quarter and frankly, the whole company had a great year, we're really excited about it both on the earnings we delivered in the strength of cash flow that.
Speaker Change: We generated so and.
Speaker Change: <unk> is a strong contributor to both the earnings and the cash flow. So it was great.
Speaker Change: When it came to sort of how it came in better than expected.
It was on both fronts. So volume mix came in a bit more came in a bit better than we expected.
Speaker Change: We expected a certain amount of destocking that might've gone beyond normal destocking.
Speaker Change: And we came in a little bit better than our original thought on on that side, and then raw material flow through.
Speaker Change: Also.
Speaker Change: Even better across a number of different products and that combination of those two things helps we even got some more fills in HTS than we expected as part of that.
Speaker Change: All of those came together in a way that.
Speaker Change: Made the they all come better than that.
Speaker Change: The story for the year for AAM and for the company.
Speaker Change: We didn't have in the market that gave us a lot of tailwind outside of a lack of destocking.
Speaker Change: So the 22% earnings growth Asp's contribution and it is about pulling every lever we got defending every bit of volume we had with customers finding innovation everywhere, we can spending price incredibly well.
Speaker Change: Which is a true testament to the sustainability of our value proposition through our innovation.
Speaker Change: And good management on cost et cetera. So.
Speaker Change: Was a tough year that was delivered by actions small little actions taken by everyone across the company to deliver it.
Speaker Change: Okay.
Speaker Change: Got it and then just a quick one on <unk>. It looks like this will be the Saturday and morale is really good.
Speaker Change: Margins pricing.
Speaker Change: The guidance that looks pretty good in that 400 plus level.
Speaker Change: When you think about that business going forward, how sustainable do you think is tightening levels are you saw some destocking here I think there is some new capacity coming on as well.
Speaker Change: And just given that it's been such a big improvement from 2002 to 2021 levels.
Speaker Change: So certainly fiber says improved.
Speaker Change: <unk> back to where it was back in 2013 14 timeframe.
Speaker Change: Not like these are new levels, we were at them.
Speaker Change: In our history.
Speaker Change: In the short term what I would say is basically everything and customers are telling us you've got a set of actions that are happening that are causing earnings to sort of normalize.
Speaker Change: Inventory management is certainly the key driver of the volume.
Speaker Change: Adjusted cant.
Speaker Change: You have to remember that.
Speaker Change: So there is 2% of the price of a cigarette.
Speaker Change: And the cigarette margins for our customers are greater than 60%.
Speaker Change: And gross margin so they really don't want to Miss a sale. So security supply is phenomenally important to them when the markets are very tight.
Speaker Change: And so they built a lot of safety stock as a result of the 'twenty one 'twenty two time frame.
Speaker Change: To make sure that they were never shorting.
Speaker Change: Customers I think that is what's going on right now.
Speaker Change: And we.
Speaker Change: We still have.
Speaker Change: As we look through 'twenty, six greater than 80% of our customers under volume commitments, but theres a band of volume that they can hit inside these contracts and so that destocking is showing up with some customers.
Speaker Change: And we do expect the prices to be higher but the bigger overall question is just what's the supply demand dynamics in this context.
Speaker Change: First demand is not changing so when it comes to volume adjustments here, we're not seeing any sort of material change in in the demand.
Speaker Change: From the end market, we still expect it to be a modest 1% to 2% declining.
Speaker Change: Cigarettes are declining faster than that but it's being offset by the high growth of.
Speaker Change: The heat not burn products that still used to and in some cases more than a cigarette.
Speaker Change: So market end market stability I think still is in place there.
Speaker Change: There is some new capacity that's been added in China, which is roughly sort of 5%.
Speaker Change: Of market demand. So when you compare this back to 2015.
Speaker Change: The amount of change in demand in 2015 was significantly higher than this kind of modest market decline.
Speaker Change: Because the Chinese have massively overbuilt inventory through the through the retail channel and where.
Speaker Change: Destocking at a pretty aggressive way.
Speaker Change: And the capacity that was added in China also back in that timeframe.
Speaker Change: Significantly it makes this current capacity ads look very small in comparison to the backward integration that they did in that 2014 timeframe. So.
Speaker Change: These conditions now are a lot more modest so when you put them together.
Speaker Change: For now we're going from a very tight market condition to probably utilizations in the low nineties.
Speaker Change: So while we certainly see some adjustments going on.
Speaker Change: We think of that.
Speaker Change: Sure the current dynamic being a lot more stable than what was put occurred in the past.
Speaker Change: And also historically we've seen.
Speaker Change: Companies in this industry adjust high cost capacity to align.
Speaker Change: They are low cost capacity to serve the existing market as it as it adjusts to volume so.
Speaker Change: And there is still a high cost assets out there. So we will see how this plays out but we think this business is still going to normalize at a.
Speaker Change: At a very attractive level for the company and for investors.
Speaker Change: Of course, we're also not just sitting around waiting for the market, we're taking our cost reduction actions across the company and significant amount of that it also applies into this area over the next couple of years.
Speaker Change: As a way to continue to manage our cost competitiveness.
Speaker Change: And we haven't been sitting on our laurels on this one either right, we've known that a diverse portfolio of ways to grow from the Cellulosic chain as we talked about the deep dive is incredibly important so a lot of growth opportunities and I a lot of growth opportunities in an event.
Speaker Change: And some other products to drive the stream and keep it growing so we feel good about where we're at and all the innovation investments we've made to make this whole stream vital going forward.
Speaker Change: Okay.
Speaker Change: Alright, thank you.
Speaker Change: The next question will be from the line of Alexia <unk> with Keybanc capital markets. Please go ahead. Your line is open.
Speaker Change: Thanks, Good morning, everyone reading about your rapid.
Speaker Change: Alright was quite a blessing I wanted to ask you a question about advanced materials.
Speaker Change: This year Youre discussing that there's higher costs in the first half that contention margins Tonight, and then you'll be raising our prices with a lag.
Speaker Change: Should we think of that dynamic as the first half earnings in advanced materials are somewhat under the run rate at which they will be exiting the year.
Speaker Change: Yeah. So look there's a lot of dynamics going on and it's a little more complicated this year than most so in the first quarter.
Speaker Change: <unk> got it.
Speaker Change: Roughly $25 million of costs.
Speaker Change: It's moving out of corporate other than going into advanced materials in Q1.
Speaker Change: So on a year over year basis, obviously.
Speaker Change: That's a headwind.
Speaker Change: And it's impressive that we're delivering the earnings and our forecast for Q Q1 offsetting that.
Speaker Change: With unit volume.
Speaker Change: Mix growth as well as maintaining.
Speaker Change: Good price discipline and starting to layer in some cost reduction actions for the year.
Speaker Change: Which will start it.
Speaker Change: We started.
Speaker Change: In December and November headed into this year. So you can see some of that benefit but that will definitely filled through the year. So as you look through the year.
Speaker Change: <unk> got.
Speaker Change: The cost benefits coming in through the year.
Speaker Change: That are helpful. You've got the circular economy, that's going to definitely be back half loaded.
Speaker Change: And how it helps earnings in the back half.
Speaker Change: Relative to the first half of sales ramp up in utilization ramps up.
Speaker Change: Offsetting that you've got natural gas energy costs.
Speaker Change: You know a good portion of that 50 million I mentioned earlier flows into the segment and that flows in it as a headwind through the year.
Speaker Change: You know as those costs go into inventory and then flow out of inventory.
Speaker Change: Increasing energy costs. So there are a lot of moving parts I think the segment overall is well positioned.
Speaker Change: To deliver.
Speaker Change: Very attractive results for the year.
But it's there's a lot there's a lot of pleasant pluses and minuses as you look first half back half.
Speaker Change: Thanks, Mark and I also wanted to follow up on the filter channel. So in the past you used to go through your annual contract negotiations right about now so I wanted to ask you to gain any visibility in your portfolio of contracts here beyond 'twenty six.
Speaker Change: In terms of prices margins volumes et cetera.
Speaker Change: Yes so.
Speaker Change: So we switched from an annual contracting process to a multi year process with a number of customers not all but a number of them.
Speaker Change: Especially the big ones.
Speaker Change: And to provide that stability, we've talked a lot about that too to all of you over the past quarters.
Speaker Change: That process is still in place, where we have you know.
Speaker Change: As I said about 80% of the volume contracted in 2026.
Speaker Change: We probably have 60% contracted in 2027.
Speaker Change: <unk>.
Speaker Change: Probably its actually higher than that but.
Speaker Change: It's closer to 70%. So we feel good about sort of this multiyear contracting that we have in place.
Speaker Change: And how that adds a certain amount of volume stability and price stability.
Speaker Change: To this business, but we also have to respect our customers have to manage our inventory to make sure is that the right levels to demand and working with them on how to make those adjustments this year.
Speaker Change: Thanks, a lot.
Speaker Change: The next question will be from the line of Vincent Andrews with Morgan Stanley. Please go ahead. Your line is now.
Speaker Change: Thank you and good morning, everyone.
Speaker Change: It sounds like the methanol plant is running well still which is great. So maybe you could talk a little bit about the volume sales side of the equation and I think last year.
Sales were a little bit below what you expected and I think some of it had to do with just sort of not being able to run the plant as well as you wanted too early in the year when the consumer products companies tend to.
Introduce innovation and maybe you missed some opportunities to be in those in.
Speaker Change: And those lines. So could you talk about how you're seeing the order book at this point in the year from that perspective, as well as the pension sort of high profile backing off from some of the consumer brands on summer there.
Speaker Change: Recycled plastic targets. So just where are we all of that in your view on sales for this year.
Speaker Change: That's a great question. That's in as you might guess I spent a lot of my personal time with the team on this topic and all things circular.
Speaker Change: First of all I think that we covered this topic fairly well at the deep dive.
Speaker Change: And our perspective.
Speaker Change: On sort of the market conditions, both this year and beyond.
Speaker Change: Have not changed so nothing has substantially changed.
Speaker Change: But to hit the sort of key points that we discussed back then I mean first we have to recognize that.
Speaker Change: Is that the macroeconomic conditions that we're in right now.
Speaker Change: Not helpful right. So when you've got an economy that is challenged in a weak demand combined with inflation at the same time.
Speaker Change: That our customers are trying to manage through and what they are buying as well as you know.
Speaker Change: Tumors.
Speaker Change: Attitude about all of these brands in the prices.
Speaker Change: They're having to make choices and.
Speaker Change: And so I think that has reduced the pace at which.
Speaker Change: The brands are converting.
Speaker Change: To ramp up their workers, but we see a solid funnel.
Speaker Change: That has developed.
Speaker Change: And I believe we're sort of on track across all the different markets we're serving.
Speaker Change: It is a bit different depending on which market you look at them.
Speaker Change: When you look at the durable side, we already have over 100 customers, who have committed to renew and they're already paying premiums for those products. So there's not a lack of interest in the product, but there's a moderated pace they want to really focus.
Speaker Change: Their efforts around <unk>.
Speaker Change: New launches, where they can sort of do something in the market and see a way to grow share and create their own growth weak underlying market just like we are doing.
Speaker Change: And where we can help them do that but less interest and cannibalize something that's been on the shelf, where they don't necessarily see an immediate improvement in their demand and that kind of upgrade because they need the splash of the new products. So I think thats pretty aligned and pretty sensible and we still see a lot of growth happening for us as a result of that.
Speaker Change: The consumer packaging side.
Speaker Change: If you remember that the first plant. We built here is not really aimed at recycled P. T.
Speaker Change: We are converting a line over to.
Speaker Change: To be able to make recycled P T, but by the summer, where we will sell some P. T in the back half of the year with a number of different customers.
Speaker Change: And we believe that we'll be successful I think on the broader question that you asked Vince there are people sort of changing their sort of commitment.
Speaker Change: Two sort of recycled content I don't think theres any signs from a long term point of view, where we see people backing off on the.
Speaker Change: At the brand level and the need to change I mean, the reality is the brands are very focused on our brand equity and consumers' engagement around their products.
Speaker Change: And consumers really don't like plastic waste.
Speaker Change: It's visible tangible issue to them in their lives every day I can't tell you how much it comes up in every cocktail session or dinner party I go to.
Speaker Change: And everyone's debating climate right now, including President Trump.
Speaker Change: But I'm not sure anyone's really debating plastic waste, so I'm not seeing that.
Speaker Change: And it's an issue.
Speaker Change: People feel like they can do something about now that doesn't have a big sacrifice for them and what products they want to support.
Speaker Change: Compared to some of their climate implied choices they have to make and is bipartisan I mean as I said, you know president Trump even signed.
Speaker Change: <unk>. So I think that there is economic reasons brands are moving a bit slower.
Speaker Change: But I'm not sure the.
Speaker Change: I don't think its a lack of issue the Ngos the media are still very much going after plastic waste I'd say.
Speaker Change: And the <unk>.
Speaker Change: In many states.
Speaker Change: They're more committed post election to driving this agenda with what choices they can make at the state level.
Speaker Change: And regulations are certainly coming out in Europe that are driving enforcing change as well as in multiple states in the U S.
Don't think that context is changing I think it's moderated.
Speaker Change: To be reasonable in the economic environment, we're in.
Speaker Change: And if I can just follow up separately.
Speaker Change: The prepared remarks talked about there being some some volume in the fourth quarter that is customers sort of prepay.
Speaker Change: Preparing around tariffs and things like that.
Speaker Change: But it doesn't look like that's coming out of your first quarter or is having a negative impact on your on your guidance. So was that was that particularly material in any of the segments.
Speaker Change: Loading and I guess sort of correlated to that question is just if it's not coming back.
Speaker Change: Out in the first quarter is that just a function of customers just they just don't have a lot of inventory.
Speaker Change: Thanks for the question and yes, definitely agree with them modest impact on our volume mix.
Speaker Change: Here in Q4, and we're entering the year with.
Speaker Change: Order books that are strong that fully support the year over year growth that we see in Q1.
Speaker Change: We're expecting.
Speaker Change: Volume mix growth as well as price cost in the specialties.
Speaker Change: In Q1 and.
Speaker Change: Along with the absence of the startup cost.
Speaker Change: That's going to be more than offsetting the fibers inventory destock.
Speaker Change: Right now we're good visibility.
Speaker Change: Okay.
Speaker Change: Thank you and the next question will be from the line of Frank Mitsch with Fermium Research. Please go ahead. Your line is open.
Speaker Change: Hey, guys. Good morning, it's aziza on for Frank.
Speaker Change: My first question was on the $50 million net cost reduction for 2025 can.
Speaker Change: Can you elaborate on the regions or segments, where the majority of that is expected to occur.
Speaker Change: Thanks Anita.
Speaker Change: We are definitely focused on improving our cost structure and this is to compete in the challenging environment.
Speaker Change: Our comprehensive plan to improve operating cost.
Speaker Change: It goes beyond our usual focus on offsetting inflation.
Speaker Change: I would highlight that success and innovation has driven complexity in our operation and we are optimizing our products and operations to maximize gross margin realization and that's key to success long term.
Speaker Change: It's going to be meaningful yield improvements optimizing our <unk>.
Speaker Change: Contractors and the usage of those and right now also theres significant MRO purchasing opportunities in this weak manufacturing environment.
Speaker Change: We also have some opportunities to optimize our global asset base and we did some of that in 2024 with the shutdown of our inner layers resin operations line and with rising natural gas prices as you would expect the.
Speaker Change: The drive on energy efficiency will be key.
Speaker Change: As we think about the operating segments.
Speaker Change: It will be across all four operating segments.
Speaker Change: To stay competitive in this global environment that $50 million will be key.
Speaker Change: And we're not standing still we're moving forward aggressively on this plan.
Anne: Thank you Anne.
Speaker Change: In your conversations.
Speaker Change: Your auto customers I'm, just curious what are their expectations in terms of a recovery on auto builds in the U S.
Speaker Change: So on the auto sector I think our expectations are pretty in line with what I've been hearing in the marketplace, So far where automotive demand in the 2020 versus 24 are probably going to be.
Speaker Change: Globally sort of slightly down I think it's.
Speaker Change: Likely that Europe might be up a bit.
Speaker Change: Given how low it already is north America, and being more flattish in China may be being a bit lower given especially given the strong sales ahead into Q4.
Speaker Change: I would note that this business is.
Speaker Change: <unk> been.
Speaker Change: <unk> been very successful in creating its own growth right. So if you look at 2024.
Speaker Change: We did delivered high single digit growth in a market that was slightly down.
Speaker Change: Largely for mix improvement as opposed to just absolute volume.
Speaker Change: We have a quite a wide range of products here from our standard inner layers to our acoustic inter layers for heads up display or color and special gradient.
Speaker Change: Solar rejection all kinds of different features the price points are quite vastly different.
Speaker Change: Well as margins.
Speaker Change: Across the product slate, so as were dramatically growing.
Speaker Change: The upper end of the market.
Speaker Change: And this functionality theres a huge mix lift from these sales.
Speaker Change: And.
Speaker Change: Our addressable market.
Speaker Change: Is actually growing before you even layer on that Mexico. So theres a lot of things, where we're seeing more territory growth per car right. So theyre moving from windshields decide lamination with Evs even.
Speaker Change: <unk> has to be laminate, because the sunroof is so big.
Speaker Change: To help to the drivers not feel so claustrophobic as they're sitting on six inches of battery.
Speaker Change: So there's a lot of territory, we're getting and it is not limited to evs, including ice cars that are moving to the side lamps and bigger centers.
Speaker Change: We also just getting more value per product as I said, you know what these higher value products are being installed in these windows. So you've got less.
Speaker Change: <unk> volume growth.
Speaker Change: As well as mix upgrade.
Speaker Change: Associated with basically a flat market. So we continue finding ways to serve.
Speaker Change: Create our own growth.
Speaker Change: Thank you.
Speaker Change: The next question will be from the line of Jeff Zekauskas with J P. Morgan. Please go ahead. Your line is open.
Speaker Change: Okay.
Speaker Change: Alright, thanks very much.
Speaker Change: Thank you our forecast for operating cash flow in $2025, one 3 billion, which is flat with 24 operating cash flow growing.
Speaker Change: Yeah.
Jeff Zekauskas: Good morning, Jeff Thanks for the question.
Jeff Zekauskas: Obviously, the largest driver for operating cash improvement this year and EBITDA growth.
Jeff Zekauskas: That's largely being offset in our base plan due to higher cash taxes.
Jeff Zekauskas: Right now our baseline expectation is that our cash conversion cycle for working capital will stay flat with the last couple of years, which is around 85 days.
Jeff Zekauskas: Obviously at Eastman the entire global team is focused on.
Jeff Zekauskas: Delivering cash and cash flow.
Jeff Zekauskas: Our challenges to do.
Jeff Zekauskas: Oliver that and then.
Jeff Zekauskas: As the environment unfolds deliver as much upside to that as possible. So we're focused on cash there's no change in that commitment, but there will be higher cash taxes.
Jeff Zekauskas: 2025.
Jeff Zekauskas: Okay.
Jeff Zekauskas: Secondly, historically.
Jeff Zekauskas: Chemical intermediates tended to move in operating income with advanced materials and AFP in other words.
Jeff Zekauskas: He would make a lot in chemical intermediates and then you would make a lot in advanced materials and AFP and then Conversely.
Jeff Zekauskas: Move together not perfectly but in general.
Jeff Zekauskas: Yes.
Jeff Zekauskas: 2024.
Jeff Zekauskas: Chemical intermediates went down in the other two businesses went up and you see that in the fourth quarter and I get it terrapin divestitures in chemical intermediates.
Jeff Zekauskas: In general.
Jeff Zekauskas: Income levels the correlated.
Jeff Zekauskas: Should we expect the three convictions to move in the same direction or something changed back east meant that they don't move in the sector.
Jeff Zekauskas: Hey, Jeff good to hear from you.
Speaker Change: No its actually the opposite so.
Speaker Change: They tend to move in opposite directions. So if you look at if you go back to 'twenty, one 'twenty, two and inflation was really tight.
Speaker Change: Demand was really high.
Speaker Change: You saw.
Speaker Change: A blowout in commodity margins in the hole.
Speaker Change: The industry, including Us where those earnings went up pretty dramatically.
Speaker Change: We were certainly benefiting the specialties by strong volume mix growth in that timeframe, but a lot of that value was being offset by prices chasing the increasing pace of raw materials.
Speaker Change: Going up.
Speaker Change: And so when.
Speaker Change: When you when you have very strong demand you certainly have the volume growth, but you don't but it's mitigated bye bye.
Speaker Change: By sort of chasing the prices. So there is actually a bit of a natural.
Speaker Change: Hedge.
Speaker Change: Between how the Ci segment operates versus the specialties.
Speaker Change: And in addition to innovation being the center of our strategy and how we create a lot of growth and stability in our portfolio.
Speaker Change: Compared to the market this portfolio diversity does the same thing.
Speaker Change: We're a small part of chemical intermediates relative to a big part of especially.
Speaker Change: Products actually sort of balances.
Speaker Change: Out.
Speaker Change: Some of the volatility.
Speaker Change: Great. Thanks, so much.
Speaker Change: Okay.
Speaker Change: The next question today will be from the line of Patrick <unk> with Citigroup. Please go ahead. Your line is open.
Speaker Change: Hi, Good morning, this is Eric on for Patrick.
Speaker Change: And the prepared remarks mentioned, a higher R&M cost based on four key life of inventory benefit.
Speaker Change: <unk> 25 guidance for higher raw material and energy costs.
Speaker Change: Which raw materials do you anticipate to be inflationary in <unk>.
Speaker Change: Now, let's say as we think about transitioning between years, obviously we've had.
Speaker Change: The Ngls.
Speaker Change: Propane has been higher also.
Speaker Change: The forecast for natural gas those are the key things as it relates to Q4. It was primarily the benefit of para xylene that declined as we went through the quarter and that decline was.
Speaker Change: A little bit.
Speaker Change: Better than we expected.
Speaker Change: Got it. Thank you and then in a in SP. The prepared comments you mentioned your new business wins and cost reductions mitigated a project.
Speaker Change: Dollar headwind.
Speaker Change: Could you provide some more in.
Speaker Change: On the strategy and execution.
Speaker Change: Sure so on the gross side.
Speaker Change: The great thing about the AFP businesses. It serves a lot of very stable markets.
Speaker Change: I went back to sort of having a modest growth last year versus 23, and expected that sort of stable modest growth to continue this year.
Speaker Change: That gives us a nice core foundation, when you're you've got AG.
Speaker Change: Got pharma applications water treatment aviation Theres, a certain amount of stability that you get that you've seen in that.
Speaker Change: The volume growth that she was going to moderate relative to last year, because we don't have the end of Destocking, but you know those those drivers will continue and then on top of that.
Speaker Change: They have innovation driving their own growth too. So we've got some great.
Speaker Change: <unk> high purity solvents that are experiencing growth in semiconductors for example.
Speaker Change: The progress we're making.
Speaker Change: And winning a whole new set of applications.
Speaker Change: In LNG.
That helps provide some stability for heat transfer fluids, which is more of a 'twenty six benefit in 'twenty five but you know we continue to make some sort of wins on that front.
Speaker Change: Series, a cellulosic products that were driving.
Speaker Change: Driving forward that we talked to you about it the deep dive. So theres innovation, there is not quite as big as advanced materials.
Speaker Change: But.
Speaker Change: It has the benefit of not facing as much discretionary market exposure that advanced materials.
Speaker Change: Advanced material has.
Speaker Change: We've also just done a phenomenally good job of managing commercial excellence and pricing the value of the products in and benefiting from some spread expansion last year and I'd say more stability. This year as we go we go into this year and of course, they get the benefit of the cost reduction program.
Speaker Change: That we're rolling across the segment. That's also helping us so that's why you get that.
Speaker Change: Continued earnings improvement this year on top of.
Speaker Change: What was an extraordinary performance last year.
Speaker Change: Thank you.
Speaker Change: The next question today will be from the line of Salvator Tiano with Bank of America. Please go ahead. Your line is now open.
Speaker Change: Okay.
Salvator Tiano: Good morning.
Salvator Tiano: So firstly I wanted to go back it will be too Kingsport Methanolic Susan.
Salvator Tiano: You didn't mention that most of the improvement in <unk>.
Salvator Tiano: AAM earnings will come in the second half, but I'm wondering how much of that is something that's already happening and you already have already nine side meeting that.
Salvator Tiano: You have already found the customers that they just may not they may need the volume the same house or.
Salvator Tiano: How much of your targeted operating rates have you reached right now as of January so essentially once.
What's already in the books of that size.
Salvator Tiano: <unk>.
Salvator Tiano: Yes, so there's a lot of detail that we provide and the deep dive that you can reference in answering this question and it's still pretty pretty much. The same view today as it was back then.
But there is quite a bit as youll see in those charts.
Salvator Tiano: <unk> business that 100, plus customers I mentioned that.
Salvator Tiano: Continuing to grow and launch products this year.
Salvator Tiano: And so that's a good portion of the of the demand.
Salvator Tiano: And then there is.
Salvator Tiano: A lot of business, we're still closing it's what we do every year, it's not just unique to to a to the circular platform of closing business through the year and getting orders. The good news about this business as the order show up pretty fast.
Salvator Tiano: And a lot of these applications where.
Salvator Tiano: Where the product is already well established and how to use it.
Salvator Tiano: And so call it half half in.
Salvator Tiano: What is building on existing business versus businesses business that we're closing.
Salvator Tiano: Okay. Thank you and.
Salvator Tiano: Just wanted to.
Salvator Tiano: A little bit to capital allocation.
Salvator Tiano: Out of the 700 800 meter count.
Salvator Tiano: Capex.
Salvator Tiano: How much is the long view expansion and with regard to the buybacks that you mentioned.
Salvator Tiano: Despite making more money you are spending you are allocating less so is this a number that has upside are you thinking about leaving some capital strength more bolt on M&A or is there no way that you will go above $200 million in 2025 buybacks.
Salvator Tiano: And what I would say on Capex first.
Salvator Tiano: Just as a reminder, our base capex is around that 350, Mark So as you think about.
Salvator Tiano: Ultimately, keeping our plants running and running reliably.
Salvator Tiano: As we think about growth programs, yes, you would expect.
Salvator Tiano: Our our commitments.
Salvator Tiano: And Texas to ramp up through the year, but there's also other growth projects like our Titan expansions et cetera that we will be.
Salvator Tiano: Including as well I would expect that.
Longview, Texas site to be the single largest growth project for the year in that $7 million to $800 million range and that's <unk>.
Salvator Tiano: Range is net of our expected.
Salvator Tiano: Grant receipts.
Salvator Tiano: On the capital allocation front as I think about.
Salvator Tiano: Again, we've increased our dividend for the 15th year on top of that.
Salvator Tiano: We went to the high end of share repurchases.
Salvator Tiano: 2024, and what I would say is we're not going to let cash sit idle. So we're going to use cash and our net debt to EBITDA is in a great situation. So we have financial flexibility and we'll leverage that to maximize value for shareholders.
Salvator Tiano: Okay.
Salvator Tiano: Just mentioned the Doe grant.
Salvator Tiano: And Thats essentially included in Capex, how much is that thank you very much.
Salvator Tiano: We're not going to be specific to the amount, but I will just highlight that we received $10 million.
Salvator Tiano: In 2024.
Salvator Tiano: Thank you.
Speaker Change: The next questioner today will be from the line of Michael <unk> with Barclays. Please go ahead. Your line is open.
Speaker Change: Great. Thank you good morning, guys.
Speaker Change: First in fiber as it seems like you had.
Speaker Change: A fairly profitable product or some EBIT, you're now not selling in 25. So can you just provide a bit more context there.
Speaker Change: So we.
Speaker Change: In this particular case, we can't cut and they've talked about this customer's products into the details of what it is but.
Speaker Change: It was a good high value product.
Speaker Change: Made a design change in there and there are 10 of their offering to the marketplace.
You know the need for this it was discontinued.
Speaker Change: We just provide that detail. So you understand there are multiple drivers of how we are normalizing part of it is destocking part of it is just product part of its energy being a headwind in this segment cpt's catch up and part of it is currency right. So there's multiple levels of sort of what's in that guide from what was a very strong performer.
Speaker Change: In 2020 forward to a very very good performance in 'twenty five.
Speaker Change: Great. That's helpful and then Mark post election, it seems like there's been a bit of a pause to review on a lot of the green spending I know you mentioned earlier your comfort and receiving your Doe funding, but just as the broader regulatory and funding uncertainty created any pause or delay just in your broader customer converse.
Speaker Change: Patients about taking recycled product or committing to such a contract.
Speaker Change: We've not seen any impact at this stage as I said it we're certainly seeing an impact of a weak economic environment and inflation.
Speaker Change: Causing companies to be.
Speaker Change: Careful in what they spend money on it.
Speaker Change: Everyone is trying to.
Speaker Change: Drive cost reduction programs to improve earnings in a weak environment right. So that's just sort of natural economic behavior, but I don't see any sort of change with customers, where they're like we don't think plastic waste is something I need to manage and my consumer packaging.
Speaker Change: That's just no longer matters.
Speaker Change: Climate is.
Speaker Change: <unk> is a very different topic.
Speaker Change: Then.
Speaker Change: Everyone doesn't like waste in their environment.
Speaker Change: And the impact it's having.
Speaker Change: So I don't think that we've seen any sort of significant shift on that front I mean I do think.
Speaker Change: There's a lot of confusion right now with all the different activity going on in the administration and everyone's trying to interpret what it means but.
Speaker Change: We feel good about the long term value of secure platform.
Speaker Change: Okay. Thank you.
Speaker Change: The next question will be from the line of Mr. Nathan with RBC. Please go ahead. Your line is now open.
Speaker Change: Arun, we can't hear you rune.
Speaker Change: Arun Viswanathan of our Pascal.
Speaker Change: You'd like to check my apologies. Please go ahead.
Speaker Change: Great. Thanks, Thanks for taking my question congrats on the.
Speaker Change: The results here, so I guess, maybe just two questions. So first off.
Speaker Change: What are you hearing from your customers as far as the circular efforts go.
Speaker Change: Now that you've had maybe some.
Speaker Change: Yeah.
Speaker Change: Still some higher cost there and maybe some.
Speaker Change: Diminished interest.
Speaker Change: And then secondly.
Speaker Change: He won it doesn't seem like you are being impacted as much by the slowdown in our winter weather or anything like that but.
Speaker Change: You know your outlook appears a little bit stronger than some of your peers. So maybe you can just comment on those two items.
Speaker Change: Sure. So I think I've already addressed the first question.
Speaker Change: No.
Speaker Change: All of other answers, where we're seeing economic moderation of.
Pace of volume build but not a lack of engagement.
Speaker Change: When it comes to the second question around sort of chemical intermediates, I think is where you're going with that question.
Speaker Change: We certainly.
Speaker Change: See you know the challenges and the competitive environment right now in chemical intermediates in both asset deals and olefin products.
Speaker Change: Feel some of that competitive pressure.
Speaker Change: Our outlook for the year on that front.
Speaker Change: Is relative stability, because while we recognize that going to impact our business we have.
Speaker Change: Made a lot of great reliability investments in our facilities last year. So we're on track to have a lot more volume to sell this year.
Speaker Change: A lot of that will be export sales. So it's moderate in its value because we're still waiting for local markets to grow.
Speaker Change: But certainly helping offset the spread.
Speaker Change: And again, they get a slice of the cost benefits.
Speaker Change: And the <unk>.
Speaker Change: Cost reduction plan that we have in place and they don't have much currency exposure at all and Ci that's more.
Speaker Change: AAM and fibers is where all the currency exposure sits so that's a headwind here or in AFP for that matter.
Speaker Change: So that helps it have some stability and how it moves forward as having that additional volume and the cost actions.
Great question listen I, just wanted to clarify.
Speaker Change: If I missed this before but was there a pull forward in Q4.
Speaker Change: And does that kind of impact your Q1 outlook as well.
Speaker Change: As it relates to whether pre buying ahead of tariffs or any other dynamics. Thanks.
Speaker Change: Yes, we addressed that question earlier and it was modest part of the volume be.
Speaker Change: Thanks.
Speaker Change: The next question is our last please.
Speaker Change: Yes of course. The next question is from the line of John Roberts with Mizuho. Please go ahead. Your line is open.
Speaker Change: Thank you.
Speaker Change: Solar heat transfer fluids thermal fluid opportunity now dead.
Speaker Change: We've had several delays on projects and I would guess the current administration is not helpful to that business.
Speaker Change: Hey, John how are you doing.
Speaker Change: I haven't I didn't I didn't see the solar question coming so we don't do that much in the solar business anymore to your to your point, John We've actually made a phenomenally.
Speaker Change: Good progress on <unk>.
Speaker Change: Diversifying our application base in heat transfer fluids. So it used to be very tied to PT in solar.
Speaker Change: As two businesses, which.
Speaker Change: In today's current economic environment are pretty challenged especially P T.
Speaker Change: Although we've really diversified pretty significantly into energy, especially LNG. So these LNG.
Speaker Change: Facilities actually require quite a bit of heat transfer fluids and in many cases, it's a very high value version of heat transfer fluid for those facilities.
Speaker Change: And that's been a great diversification and as we because of capital delays were not expecting much of a tailwind this year relative to last year and feels because projects are just getting delayed.
Speaker Change: But.
Speaker Change: Certainly in 2006 and beyond there's a number of these big sort of LNG fills that we've won that will help build earnings growth as we go forward.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you again, everyone for joining us we appreciate your interest in Eastman and I hope everybody has a great weekend. Thanks again.
This concludes today's call. Thank you for your participation you may now disconnect.
Speaker Change: [music].