Q1 2025 Eastman Chemical Co Earnings Call
Good day everyone and welcome to the first quarter, 2025 Eastman Conference School. Today's conference is being recorded.
Speaker Change: This call is being broadcast live on the Eastman website www.isman.com. We'll now turn the call over to Mr. Greg Riddle, Eastman at Investor Relations. Please go ahead, sir.
Speaker Change: Thank you very much, Becky, and good morning everyone, and thanks very much for joining us today. On the call with me are Mark Costa, Bored Chair, and CEO , Willie McLain, Executive
Speaker Change: Yesterday after market closed, we posted our first quarter, 2025 financial results news release, and SEC 8K filing, our slides and the related prepared remarks in the investor section of our website, Eastman.com Before we begin, I'll cover two items.
Speaker Change: First, during this presentation, you will hear certain forward-looking statements concerning our plans and expectations.
Attrial events or results could differ materially. [inaudible]
Speaker Change: Certain factors related to future expectations are or will be detailed in our first quarter or 2025 financial results news release.
Speaker Change: Second, earnings reference in this presentation excludes certain non-core items. Reconciliation to the most directly comparable GAAP financial measures and other associated disclosures, including a description of the excluded and adjusted items are available in the first quarter of 2025 financial results news release.
Becky: As we posted the slides and accompanying them prepared remarks on our website last night, we will now go straight into Q&A. Becky, please let's start with our first question.
Speaker Change: Thank you. If you wish to ask a question, please press star followed by one on your telephone keypad now. If you are unsure if you have registered, please press star followed by one again to confirm your place in the key.
Becky: If there's any reason you want to remove your question, please press Star Follow by 2.
Becky: When preparing to ask your question, please introduce your device is unmuted locally. [inaudible]
Speaker Change: Our first question comes from Patrick Cunningham from City Group. The line is now open, please go ahead.
Patrick Cunningham: Hi, good morning. First, just on the lower sales guide for Renew, I guess first, what has been the sales and EBITDA contribution in the first quarter? And I'm just curious on the level of confidence in the low end of the sales guide. How much visibility do you have into order books? I don't know, I don't know. I don't know. I don't know. I don't know.
Speaker Change: and is there floor for that EBITDAQ contribution just based on cost performance and volume authority contracted?
Patrick Cunningham: Certainly in the morning, Patrick. When it comes to the overall methanol systems program with Kingsport, things are actually going...
Patrick Cunningham: Feet Stocks from the harder cycle stream or finding ways to use even cheaper versions of Feet Stocks, so operations are really good.
If you hadn't noticed...
Patrick Cunningham: It's sort of the production rate that we had in the first quarter, we're very much on track for that two and a half greater production volumes. So we put that together with the absence of the startup costs.
Patrick Cunningham: Cost Program, we're on for a poolier basis, we're very much on track to get our $50 million EBITDA from the manufacturing cost side of the equation out of the original $75 to $100 million guy. So I'd say on the operational side that $50 million
Patrick Cunningham: Certainly showed up in the first quarter as expected, and we expect we'll continue to show up through the year. But it comes through a new side of things.
Patrick Cunningham: on the revenue side. You know, we originally had given you a guide back to the deep to high of a $7500 million or renew revenue, and that was based on the assumption around the economy.
Patrick Cunningham: being relatively stable, I think consumer durables, stable modest growth and packaging for food applications, etc. So, basically continuation of the dynamics we had for 24 would continue into 25.
Patrick Cunningham: and that was for sure true through the first quarter, but what happened is with the trade dispute tensions developing and the discussions of tariffs, especially the tensions between China and the US and where the tariffs have now gone.
Patrick Cunningham: So the revision that we've given you from $50 to $75 million of revenue now versus the higher rate is purely in market estimation of the impact of tariffs.
Patrick Cunningham: Has nothing to do with the engagement we're seeing in the marketplace but we certainly don't expect the same kind of growth in those kind of products for the year when it comes to engagement.
Patrick Cunningham: So that reduces the rate at which the new product watches with the new content can be brought to market.
Patrick Cunningham: So, that factor is being managed. We've only had a few customers revert back to normal frightened because of the premium that they're trying to avoid in this economic time. So, I would say the market engagement there is still good. It's just a question of where these tear. [inaudible]
Patrick Cunningham: Disputes go if the resolved soon, this quarter, then things would start recovering, get back to normal, they'll actually have to restock because they're pulling him and doing down below normal levels right now to avoid paying the tariff. So.
Patrick Cunningham: I'm certainly not sitting on a big amount of finished good inventory on the point of given we've been in in a recession for a while.
Patrick Cunningham: And then I would say on the food packaging side, on our pet the engagement is also good. The brands are really facing some significant limitations on mechanical recycling and a variety of applications and are very much engaged in trying to find ways to buy some our pet for us and applications where there's
Patrick Cunningham: High quality aesthetics required or certain technical performance requirements and mechanical can't meet so we're still making good progress to be able to sell our pet the back after the years we convert that frightened line over to making BET that we discussed before so we'll run so we're in good shape and it's just a market question around Paris. [inaudible]
Speaker Change: Very helpful, Mark. And then maybe just on fibers, it seems to be getting a double hit on some tear-affrelated impacts and persistent destacking. How long do you anticipate this destacking that persists, and how should we think about contract performance in the next couple of years and get potential further normalization from here?
Speaker Change: So, certainly the overall fibrous business has some challenges to it. As you said, there's sort of two separate challenges I'll start with.
Speaker Change: The de-stocking one first. First, there's no change we've seen in the in-market growth rates.
Speaker Change: So that is not part of what's going on as far as we can tell. So.
Speaker Change: Market growth rates are still modest and the 1-2% rate is the traditional cigarette markets declining in the 2-3% range but they heat not burn cigarettes offsetting it. We've talked about that in the past.
Speaker Change: So that part is actually quite stable, you know, our contract rate for the year of this year is around 90% which has put the prices in place for the year, so we're in very solid shape on a pricing point.
Speaker Change: So as you said, it's really a question of what's driving the volume decline, what the markets are stabled and by definition, it's a dynamic around customer destocking as the principal driver of what's going on. [inaudible]
Speaker Change: You know, as I said before, toes incredibly small, percent of the final price of a cigarette, about 2%. So the cost of it is not a high priority when you're selling cigarettes, they're greater than 60% gross margins. You know, the focus always starts with security supply and when the market got incredibly tight. [inaudible]
Speaker Change: No one wants to tell you how much inventory they have because they're afraid you will not supply material to them [inaudible]
and so the destocking is going.
A bit longer than we expected. [inaudible]
Speaker Change: of the ex-China market. So the capacializations have now moved down into that lower, you know, 90% range, a 90, 95% range.
and with that rune the customer's field safe in D-stocking.
And that's what we see going on.
Speaker Change: What we're going to see in the second quarter is something similar to the first quarter. I've learned my lesson around predicting how long destocking is going to last. Certainly we expect some of it to continue in the back half of the year. And we're still working with our customers to truly understand exactly where this all sits. We're still working with our customers. We're still working with our customers. We're still working with our customers.
Speaker Change: But the good news is the fundamentals are their capacitalization is still in the 90s. The markets are not declining in some significant way. And I think that gives us stability. The contracts as you asked.
Speaker Change: Generally includes pricing a lot of it's CPT pricing that actually gives customer protection.
Speaker Change: on making sure the margins are tracking with raw materials. [inaudible]
Speaker Change: So, overall I'd say we feel like the market, you know, is certainly facing that challenge and it's going to continue a bit more than we expected.
Speaker Change: It's good to remember there are a couple other dynamics driving earnings down, and we had to just continue product from customers with about $10 million dollars [inaudible]
Speaker Change: Energy is a bit of a headwind this year relative to the last year, and how it flows in. [inaudible]
Speaker Change: We do have two products that go into China. One is the textiles, the NIA product, which has been a great, gross story for us, and half of the...
Speaker Change: Nye that we sell is in China, the other house outside of China, it's a huge market, so it's a time-based issue for us to give these tariffs last for a period of time.
Speaker Change: When it comes to the flake, this is, you know, Cerro's flake that you spin into fiber, and we do this with Chinese National tobacco company.
Speaker Change: Obviously the rates are pretty high there and so we'll have to see how those tariffs evolve over time. So that's a more specific thing around what's going on with the tariffs.
Speaker Change: and left us just to see how long the tariffs last with China.
Speaker Change: We put them together, obviously, creates a bit of more challenge for this year. It's still extraordinary earnings compared to our past and great cash flow that comes out of this business.
Michael Pope, thank you.
Speaker Change: Thank you. Our next question comes from David Begleiter from Deutsche Bank. If the line is not open, please go ahead.
David Begleiter: Thank you, good morning. And first, congrats on being recognized for your support of veterans and active duty service members. Very well done.
Thank you. Mark, on your chin. Thank you.
David Begleiter: Thank you. On your China sales of the portion roughly 60% supplied from the U.S.
Speaker Change: If these tariffs stay in place, how much is there risk you think of perhaps just going away? I know you trust fibers, but have out AM and AFMP. Thank you.
Thank you.
Yeah.
Speaker Change: David, a lot of these questions are really sort of situational specific to this segment, so I just suggest that we address the Fibers part, we're half way very much adjustable to move out of the country, rather mitigating actions, we're pursuing around the flake supply, so I think there's lots of different ways over time to manage the Fibers side of the equation. The Fibers side of the world, the Fibers side of the world.
Speaker Change: You know, when it comes to CI, just to be clear, no exposure, so in the thing to worry about there, Frank would probably upside in CI, which is primarily selling in North America and the tariffs.
Speaker Change: That we have come in this country from products around the world that sort of set the price on the marketplace, you know, over time we'll give us some, some lift there, but in the short term pretty modest just because of the, you know, competitive situation. [inaudible]
Speaker Change: When it comes to AFP, the exposure in AFP is more limited, you know, similar to Fibers, it's around $200 million
Cars, the farm does too. [inaudible]
Speaker Change: Short-term, it's hitting us in Q2 because our customers are well-stocked on inventory because it's so important they carry a lot of inventory and inventory.
Speaker Change: in their formulations. And so we certainly see them not buying this quarter, we're hoping for a resolution between the US and China.
discussions.
But it's a very...
Important functional product where there really isn't a substitute.
Speaker Change: and then so we have an ability to pass on some of that duty costs if we need to and find ways to work with our customers, you know, when they get back to ordering after they've used up their their. [inaudible] I'm sorry, I'm sorry, I'm sorry
Speaker Change: Stock. So I think that one is also the category of manageable overtime.
In Advanced Materials, which is obviously the largest...
Makes the products in China so no issue there. [inaudible]
Speaker Change: performance films manufacturing capability in China. We also did an expansion of our capability in Germany. And so those two assets are in the middle of ramping up for this specific reason of being more local and diversified how to serve the market.
Speaker Change: and so we're not thinking about how much impact this quarter because of the inventory in place for performance films. Well, some impact, as we balance out the ramp up of these assets relatively making the US, but we can supply that market long term from other locations in the US. We're not thinking about how much impact this quarter, but we're not thinking about how much impact this quarter.
Speaker Change: to China. On that front, we're also not getting that much of an impact this quarter.
Speaker Change: because the customers are sitting on inventory. And the real question, and especially plastic, is a lot of what we sell into China, especially Triton, is then re-exported back to the US and Europe and other markets, and a lot of it to the US. So the main issue is how long do the tear of stay in place?
Speaker Change: that make it very expensive to buy an appliance or water bottle or whatever else in the US that's made in China.
Speaker Change: There's a huge amount of effort going on around the world right now to find ways to source and make these products, you know, ramp up production and we'll follow the customers wherever they move around the planet. You know, because Frank is a unique product.
Speaker Change: There is no easy substitute for Triton. There are different plastics you can use but they all come with significant compromise.
Speaker Change: Either if you go to Pollock Propline, it's very cloudy and not clear. If you go to a variety of different styrenics.
Speaker Change: The toughness or the chemical resistance from other products all create failure modes and how well the product performs in the market. So you can go if you want to compromise your product on the shelf, but otherwise you really want to keep using Franklin.
Speaker Change: and so we'll certainly feel some of that risk and an impact if these tariffs stay in place through the back half of the year as you play a chance move around and
Speaker Change: You know, we've told you there's about a $30 million impact in Q2. It's honestly with all these uncertainties around tariffs and where they may negotiate. It's hard to predict what this impact is in the back after the year. [inaudible]
Speaker Change: Very good. And just lastly, on Longview and the DOE funding, I know you've been getting some funding every quarter, the last couple of quarters.
Speaker Change: What's your level of confidence in this funding continuing under the current administration?
We feel good about the Executive Order, you know.
Bye! Bye!
Speaker Change: Sorry, I just lost my track. I thought, we feel very good about where we are with, um…
Speaker Change: Dewey. They have been highly engaged with us. We think that we've got a good relationship there, and we think that our project actually holds up well in the way President Trump thinks about US manufacturing. Thank you very much.
Speaker Change: You know, when you look at it, you know, we're focused on growing you just manufacturing. It is a serious issue.
Speaker Change: Manufacturing hasn't grown here in this country. It's been growing around the world. And the vertical integration and all the products that go into manufacturing of finished products is equally important if you want to have national and economic security.
Speaker Change: So there's actions that I think we should be taking. Strategic trade actions are focused on specific issues around this topic make a lot of sense. We need a lot of regulation. We need a lot of regulation.
Speaker Change: that reduces, you know, the difficulty in cost of building here, you know, tax and other incentive policy workforces. A variety of things I think we're very aligned with.
Poo Packaging Medical, etc. [inaudible]
Speaker Change: It's Enchoring Job from Asia because most of all the PT business have now gone to China. And you're creating revenue way beyond just our facility and supporting it through the growth of recycling infrastructure behind us.
Speaker Change: and being a better supplier to local manufacturing and plastic-related products in the market. [inaudible]
Speaker Change: So he tricks all the boxes on that front. It also is a version of, you know, energy independence, plastic waste, basically some oil sitting above ground, you know, and you're reusing it instead of throwing it away.
Speaker Change: And, you know, this process is advantage, you know, relative to fellow Paris Isling, you know, at any oil price about $60. So, economically advantage as well. Let's go.
Speaker Change: And from a voter point of view, there's a lot of debate on climate, but there's no debate that people don't like plastic waste in their environment, no matter which side of the aisle they sit on. So, we think we're in really good shape on this. So far, everything I just said seems to be aligned.
Speaker Change: with the DOE's looking for the conversations we've had with them. We've been receiving our funds in Q4 and Q1. There's a lot of staff change we're not on the DOE right now, so we're moving a little slow and how we finalize the next phases of the contract. All right.
Speaker Change: But we're not getting any indication that the project's at risk.
Thank you very much.
Speaker Change: Thank you. Our next question comes from Aleksey Yefremov from Key Court. The line is not open. Please go ahead.
Alexey Yefremov: Thank you, good morning. I want to ask you, there's a lot of concern about consumer health in the businesses where your products end up in consumer, I guess, such as auto films. Are you seeing any, any full slowdown or in demand? Yes, I am.
On auto demand?
Just consumer discretionary demand across the board.
Right, yes.
Alexey Yefremov: You know, look at our Q2 guide, we basically called out two dynamics that took us from where we were originally to now, both of which are
Alexey Yefremov: seasonal growth is typically really strong for our portfolio when you go from Q1 to Q2. [inaudible]
Alexey Yefremov: and that is what drives Senior going from $1.91 to some higher EPS in a normal situation.
Alexey Yefremov: We still see seasonal growth now, but we don't expect it to be as strong as what would have been normal, and that is very much related to consumers.
Alexey Yefremov: being concerned about the world and what's going on. You can see the confidence decline. You can certainly see...
Alexey Yefremov: Consumer purchases on discretion are items right now increasing, right? People are buying cars, people are buying blenders, whatever else because they're worried about tariffs coming. So the consumer data would lead you to believe that there's a certain amount of.
Growth going on.
Alexey Yefremov: and there's people worried and being cautious about what they want to spend in general.
Alexey Yefremov: That's creating a lot of fog in what's really going on. But as a company, whether it's us or our customers, you have to be considering multiple scenarios right now, one of which is breakage, resolve, quickly and everything's okay, but you also have to prepare the more difficult scenario where [inaudible]
Alexey Yefremov: These tariffs stay in place for a longer period of time in fact demand. And so we can see customers being a little bit more cautious on just how much inventory they want to build. [inaudible]
Alexey Yefremov: and that's sort of dynamic we're looking at here in the second quarter is not seeing as much growth. I mean, there is a risk.
Alexey Yefremov: We don't make much progress on some of these trade issues, and you start getting people more nervous about when this is going to get resolved and you can see some more destocking towards the back end of the quarter. But we just have to see how that all plays out.
Speaker Change: Thanks, Mark. And just listening to your remarks about how terrorists are impacting your businesses, it seems like. Thanks.
Speaker Change: Initially, you maybe had some inventory in China that allowed you to mitigate it. Is it fair to say that if this tariff does not change?
Speaker Change: In the second half you may see a larger negative impact, direct negative impact from the tariff, or that it's not the case because you have some other mediating measures. I just couldn't quite understand the result of these two. Thank you.
Speaker Change: Same is really true of AFP. I think there may be some modifications or mitigations there but where things are a bit better in the back half of the year versus where we are now where the customers are buying it all. [inaudible]
and then...
and then when it comes to... [inaudible]
to the advance material segment.
Speaker Change: You know, that's a little bit more complicated, right? Again, interlars fine, performance films, you know, does have inventory of the marketplace right now, so that will run out at some point as you go in the back half of the year.
Speaker Change: But they're ramping up plants to replace the inventory from being made in China or in Europe . So, hard to say exactly how that balances out, but I'd say the headwind the back half is a little bit more than the first half on PF, and especially plastics.
Speaker Change: You know, the headwind there would be more than where we are now, you know, with the second quarter, you know, people stop buying, you know, all these appliances and consumer durables.
Speaker Change: We'll have, you know, downside on the verbal side and we'll have upside on selling more PT in the back half versus the first half as we start taking that to market. Obviously that's lower margins, so it's not going to be a total offset. So some more exposure on SP in the back half versus the first. [inaudible]
Speaker Change: Thanks a lot Lauren. I wouldn't know if there are, I wouldn't know there are mitigating actions you know that we're taking that are a lot broader across.
Speaker Change: you know just you know inventory so we certainly have done that we're ramping up plans
Speaker Change: We're definitely working with a lot of customers around how they're moving to other parts of the world to make products so there's a lot of that going on right now.
Speaker Change: You know, if we're under pressure, imagine what it's like being someone forcing a blunder, you know, from China right now, you know, they're highly motivated to find solutions and will follow them where they go. There's going to be pricing opportunities.
Speaker Change: that we're going to find across the portfolio. There's going to be volume growth opportunities that we can realize here in the U.S. We've got opportunities when it comes to direct competition being more expensive as it's being imported, so we're going to see some benefits. We're going to see some benefits.
You know, in those kind of areas.
For example, especially plastics, we'll see some of those benefits.
Speaker Change: where there will be some growth we should realize in the US. We are the ultimate company with a low cost structure to serve the North American market across all these different products that we make.
Let's go to the next question, please.
Speaker Change: Thank you. Yes, our next question is from Vincent Andrews, from Morgan Stanley . Your line is not open. Please go ahead.
Vincent Andrews: Thank you, and good morning. Mark, could you talk a little bit about the cat-backed reduction and sort of what triggered the decision you made on, I guess, sort of deferring that cat-backed long view, and are there any sort of cost associated with doing that in terms of the overall cost of the plant seems like timing is not changing, but just...
Curious there.
Good morning, Vincent. Thanks for the question.
Speaker Change: So as we're looking across the scenarios that Mark is outlined, obviously being prepared for the potential downside of an extended trade dispute.
Speaker Change: We looked at now as the right time to optimize both efficiency and effectiveness of a cat-x reduction, obviously we're in the engineering phase of the Longview Texas project.
Speaker Change: and we can go through that detailed engineering and basically get more complete before we start to solidify the commitments without affecting the timelines of the completion of the project.
Speaker Change: So as you think about them at this point, we reduced our capital from roughly 750 to 550. I would again note that our-
Speaker Change: Pat Bex from a maintenance standpoint is about 350 million and we're still investing in this environment, you know, slightly above our DNA.
Speaker Change: The Texas project is the largest project but it's still a little bit less than half of the reduction and most of that is the remainder is across a combination of other business growth and timing the key maintenance.
Speaker Change: Okay, and then if I could ask you, I know in the sort of large conference season, you had some concern over Mark's orders in a minute.
Speaker Change: sort of turned out that they were better than feared or better than expected, I'm not sure which it is, but I'm just curious what happened there because usually when there starts to be hiccups in the order book they don't reverse, so what any color there.
Speaker Change: We were reading into that as we were getting into March and then frankly just surprised and how people sort of bought more I think.
Speaker Change: It wasn't really a lot of pre-tariff buying, I'm sure there was a little bit of that at the end of March, but what's comforting around that question is April orders are similar to March.
Speaker Change: So if they were really pre-bying, you know, you would have seen a drop-off in April as you've gone from March, we've seen that before in our passing, right now we're not seeing that [inaudible]
Speaker Change: So that's encouraging. And the workbooks are holding up in April . May looks okay, you know, June is just too far away for us to really assess when it comes to sort of our order of visibility.
Discussions around the world, go.
Let's have the next question, please.
Speaker Change: Thank you. Our next question comes from Jeff Zekauskas from JP Morgan. Your line is not open, please go ahead.
Thanks very much.
You abandons your annual earnings guidance.
Speaker Change: But you didn't, but you're still guiding for annual cash flow? Why is that? Why would the cash flow for the year be more forecastable than the earnings? Or why do you have more certainty around the cash flow?
Speaker Change: Head of a potential recession. As I think through the levers that we have, whether it be in the cash earnings obviously,
Speaker Change: but we have a broader set of working capital and operating set of solutions and also how we manage to enable resources across our global asset base.
Speaker Change: and in that we've got flexibility that I think gives us a narrower range on the cash outcomes, versus all the accounting ramifications that comes in with an earning estimate when you're trying to deal with these choices. [inaudible]
Speaker Change: As we've highlighted, you know, if the trade disputes is resolved in the short term, ultimately we'll have higher cash earnings and less working capital action.
Speaker Change: then ultimately it could cause a recession. But the dynamic between Evidah and the OCS that we're going to deliver ultimately will be based on that trade scenario but we do have higher confidence and I think we've done that across multiple economic environments in the past.
Speaker Change: Yeah, I think that we're really proud of the fact that we try and look forward and see what's coming and be prepared to take whatever actions are necessary to weather storms. I mean, this industry has been. [inaudible]
Speaker Change: Facing a lot of storms over the last seven years, and it's well-owned machine on how to react to it at Eastman, you know, the reality is different.
If the focus on cash is...
Macro Economy, and Sir Crater-Layton Matters, sort of a vault. [inaudible]
Speaker Change: And then secondly, what you did is you estimated the tariff impact at 30 million in the second quarter.
Speaker Change: Is that tariffs that you're paying? Could you describe where it seems that you're paying the tariffs or whether you're being reimbursed for your customers? Where are the tariffs actually touching you? [inaudible]
Speaker Change: and is it China, mainly? Or is it other, you know, regions as well? Can you, you know, sort of get to the bottom of this 30 million number, you know, what it might be in the third quarter, if things continue? Thank you.
Speaker Change: So Jeff, when it comes to the impacts on the tariffs in the second quarter, it is an impact on volume as opposed to an impact on duty, right? So when you have a 125% duty into China, and there's a hope that the trade is...
Who will get settled? [inaudible]
Speaker Change: between the two countries, customers, you know don't want to buy a lot with that adder so that's [inaudible]
the impact you're seeing in fibers where we're projecting less.
Stale of, you know, [inaudible]
Speaker Change: of Flake, for the Toe JV, Les Nia textile fibers being purchased by people way to see what plays out in this.
Speaker Change: You know, they're not going to take any risk and so they have inventory months of it and so they can you know through this quarter just not order. [inaudible]
Speaker Change: Right? And then it's the same dynamic in Advanced Materials, but just less because we had a lot of imagery.
Speaker Change: Available in that marketplace, you know, for we make it in interlayers there, we, you know, already explained everything around PF and SP.
Speaker Change: The real risk there is ability to sell what they make as a finished product back to China and I think people are everyone and that whole supply chain is trying to figure out what they're going to do on that dynamic [inaudible]
Speaker Change: So it's a volume hit as opposed to a tariff hit.
I mean what I'd also notice. [inaudible]
Speaker Change: Well, we have this exposure because we make a lot of product here in the U.S. and we export it around the world. We're also vertically integrated, and this is a very unique advantage for us on that integration, which is most of the material raw materials that we use across the company are sourced in North America. [inaudible]
Speaker Change: So we're not facing much tariff risk of what we have to pay for on the raw material side of things. Even PX would be by around the world, we have sourcing from all countries around the world that we can flex on where we get our PX and obviously PX prices are very low right now.
Speaker Change: So, you know, we don't like a lot of companies who buy a lot of raw materials, but may not have as much exports of China where they're having that problem they have to manage or you're providing auto parts in the auto industry or whatever else, you know, we don't have that issue our issue is
Speaker Change: You know, this primarily China-related matter right now as far as the second quarter is concerned. And I think I already addressed, you know, how it trends, you know, into the back half of the year and my answer ahead of you. Thank you very much.
Okay, great. Thank you so much.
Speaker Change: Yes, thank you and good morning. Mark, I wanted to come back to the discussion around the fiber's segment and the issue of destocking.
Speaker Change: I think what you've said in the past and you alluded to again this morning is that you know high percentage of the volume is under contract . . .
Speaker Change: Here, so on the volume side of the equation, price by way is just pretty predictable locked in, so this is really a volume question for this year, then a price question.
Speaker Change: with these contracts. But on the volume, there's always a band of volume. [inaudible]
Speaker Change: That customers can buy within from a low to high range, you know, typically the middle ranges what they're aiming to do.
Speaker Change: customer base. What's changed, I'd say, from December and early January to now, is it's a broader set of customers who are now destocking than what we are.
Speaker Change: Originally had expected in January to where we are today. So no one's sort of violating contract but there's just more customers moving to do some destocking and move to lower into their band. Then we were.
Speaker Change: We're really notified, if you will, in January as we built the forecast in versus where we are now.
Speaker Change: So as you think about it and you're going back in the second half, this just comes a question with each customer and just how much inventory do they really have to destock and where they would then start moving back up into the band?
Speaker Change: to normal or staying at the lower level. I think that it's going to be a challenging year. I would expect maybe it gets modestly better in the back half first of the first half as some customers address their immature issues, but we're just going to have to see how it evolves.
Okay, then secondly, if I may, on...
Speaker Change: on the subject of tariffs, I appreciate that the various headwinds that you articulated.
Speaker Change: Certainly so I would say the opportunities are still emerging so it's early days to sort of have a definitive view on this.
as these tariffs are still being debated and implemented.
Speaker Change: Performance Films, for example, does have upside in North America. We are by far the largest player in the performance films business, but we still have a lot of different competitors out there. All of our product is made in the US, so we are advantaged in the heavy largest scale, US manufacturing base. [inaudible]
Speaker Change: Our competitors are sourcing. Some film domestically, but a lot of it is being sourced abroad, including places like China, etc We're up, we're up, we're up,
Speaker Change: where they're facing tariffs. So we think there's going to be opportunities there to win some share, but it sort of depends on where the how the market sales are going and how those met together in the short term, but certainly a place where you know relative to the market, we will do better. [inaudible]
in especially plastics, there are definitely opportunities. [inaudible]
Speaker Change: where we have, you know, important approach so we have to compete against so... [inaudible]
Speaker Change: The shrink labels around the packaging for beverage bottles as an example, even some of the consumer durables, there are manufacturing capabilities in the US that some of our customers have and they're ramping that up and we're going to sort of see growth there.
Speaker Change: and in volume that they have that could be advantageous for us. The ag space is another place where we're going to have opportunity. Our ag customers were facing a lot of...
Speaker Change: So the the tariff's are going to create some relief for them and ability to sort of regain some market share. So that's another place where I think we'll see some benefits about our customers growing relative to. Thank you.
Exports at a time in some other countries.
Speaker Change: Even in building construction, there are opportunities like floor tiles, which use our plasticizers, a lot of that got off toward the China and supplied by Chinese manufacturers that make DOTP. [inaudible]
Speaker Change: and we have a number of customers who are now looking to bring in that production back here. This is a place where capacity does exist. [inaudible]
Speaker Change: to ramp up in U.S. manufacturing. So there's a bunch of places. It's not uniform across the portfolio. [inaudible]
and I think ultimately there'll be price benefits across the CI portfolio when you get some
Speaker Change: Additional, you know, settlement of just the competitive dynamics we're going on right now so. Thank you.
Speaker Change: C.I.'s little cupcake because you have a lot of companies that were exporting chemicals and now they can't export them as easily.
Speaker Change: and so there's a dynamic there that's settling itself out, but over time there should be upset.
Perfect, thanks, Mark.
Speaker Change: Thank you. Our next question comes from Frank Mitsch from Fermi and Research. Your line is not open, please go ahead.
Speaker Change: Sorry, Frank's line has just been closed, let me just reopen it for him.
Hello
Hello, can you hear me? David?
Speaker Change: Yeah, yeah, good morning. Hey, good morning. Sorry about that. Not know what happened, but given the number of ways things can go, certainly can't fault
Speaker Change: The Pulling of Annual Guidance. I want to focus on the second quarter.
Speaker Change: That range of $1.70 to $1.90 is rather large. So can you talk about the kind of the puts and takes to hit the low end and the high end? What are you embedding in terms of that wide range? [inaudible]
Speaker Change: Put it simply, it's a question around the man in June , and you know, to some degree May, but with the uncertainty of everything we've discussed on this call.
Speaker Change: You know, how orders trend with customers is just heavily connected to that. I mean, we're very encouraged that April's holding up, which is great. So, you know, we're off to, you know, a solid start to the quarter. And, um,
But, you know...
Speaker Change: How customers behave and how many orders get placed creates the range on that uncertainty. I mean, there are other smaller things around, depends on, you know, natural gas prices and currency and this, that, and the other, but the principal question is just a demand question in the back half of the quarter.
Speaker Change: Interesting. I want to drill into that the positive take on April trending in line with March.
Speaker Change: As I might have thought that historically April I don't want to be too granular but I would have thought that April would have been a little bit better than March, given building and construction, etc. But it seems like it's kind of one for one and is that is that typically the norm at Eastman?
Speaker Change: Every quarter typically starts out where the beginning is weak and it gets stronger through the quarter. So the last quarter, March, June , September , all tend to be the stronger month of the year, of the quarter.
Speaker Change: and so the fact that April's similar to March, which is a strong month.
Speaker Change: It is good, right? So you're building off of that performance because March was better than January and April . I'm sort of January and February . But you know, so I would put this in sort of a normal start to a cue too, as opposed to good or bad. [inaudible]
Okay, gotcha, gotcha, it! [inaudible]
Speaker Change: or Conversely, if you're having to eat some of the tariff or what would prevent you from raising price given how small it is as a percent of the total.
Speaker Change: The conversation, so the joint venture between Chinese Asher, the back of the company and us.
But they can jointly decide with us. [inaudible]
Speaker Change: that they can, they will reduce production, you know, if it's not economic at that price to sell the top. And so that is where the volume risk comes, you know, with the flakes sales is that price.
Speaker Change: He's much higher than the other plants that the CNTC has, right? Remember they have a spectrum of joint ventures making toe. [inaudible]
Speaker Change: So we're the only ones importing flake into China. So they can flex up the run rate of those other assets and reduce the run rate of this asset if our flake is too expensive.
Speaker Change: Okay, gotcha. Fingers crossed that 90 days from now on your next call. This whole conversation will have been moot and we'll be back to normal, but thanks so much.
Speaker Change: More rational levels than let's just say 10 to 20% range versus where we're at now. I don't think we should fantasize about everything going to zero. I do think things can normalize and get a lot better and we would be able to snap back towards. George.
Speaker Change: Arringo Forecast for the back after the year from January . But you do need to get some of this extreme tension taken out of the system. [inaudible]
Let's go to the next question please.
Speaker Change: Thank you. Our next question comes from Mike Sison from Wells Fargo. Your line is not open. Please go ahead.
Hey, good morning. Mark, you sort of gave a soft recession.
sort of outlook I guess. Um, um,
Speaker Change: in your prepared remarks. How do you think the Eastman portfolio should hold up or perform if the US does go into recession? You know, 23 year volumes took a pretty big hit for Vance materials and AFP, but a lot of defocking there.
Yeah, where do you think volumes would sort of? [inaudible]
Speaker Change: Mirror, and if we do, go that route, unfortunately, don't share. [inaudible]
That's a good question Mike and I think there's there's [inaudible]
Speaker Change: A lot of mitigating actions we're taking, but to answer your question first, I think that the demand situation this year will be considerably different and less [inaudible]
Speaker Change: and then what happened in the 22-time frame. So we've been in a manufacturing recession.
Speaker Change: Sent to Summer of 2022, and we have not come out of it, right? I mean, demand has been challenged as we all know with the inflation and the interest rate hikes, et cetera, that especially on the consumer discretionary demand side of the equation.
Speaker Change: Cars, Homes, Autos, we're still below 2019 levels.
Speaker Change: At the same time, there's been no driver for restocking in these markets. We'll see you guys next time.
Speaker Change: So the inventory levels that are sitting around the planet right now are not that high, right? They're at appropriate levels for this low-demand scenario and people have only had a couple months to react to this tariff risk. So there's not a lot of time to sort of build inventory ahead of...
Speaker Change: Head of, you know, this tariff risk, you know, through the first quarter, and you're worried about recession. So everyone's trying to balance.
Speaker Change: He's just how much inventory do I want to have? What's happened is the geographic location in the inventory has changed a lot, right? So anyone had blunders and TVs and China got them in less, but it doesn't mean they made twice as much.
Speaker Change: And same thing, we got materials into China, so materials have moved around, but I don't think we're sitting
Speaker Change: on a huge amount of inventory right now for a destocking event. And I don't think, you know, demand has a big step down because we're already at a relatively low level demand.
Speaker Change: Compar to a normal recession. So, you know, there are extreme differences, you know, obviously between the U.S. and China economies being dislocated at these terraform rates that you got to then factor in. So, hard to put it all together. Thank you, everybody.
Speaker Change: There will be a tailwind on the price cost relationship if you go into recession. Similar to the demand situation, I don't think the tailwind will be as significant because we've already been at stress levels in pricing with raw materials but I do think you'll have a tailwind there to offset. Thank you.
Speaker Change: You know that demand dynamic and there's just a lot you can do to manage you know through this in the actions you take right so as we've said we've already focused on making sure we're we're going to be sort of.
Speaker Change: Cash, Generative in Hollywood performing. There's a whole list of mitigating actions around paraplegs we've already mentioned.
Speaker Change: There is still innovation that's allowing us to grow above markets. The commercial excellence of our teams is phenomenal and defending pricing and value of our products, which we've demonstrated over the last three years and will continue to do.
Speaker Change: and Methanolosis is a unique upside to Eastman where we've got that $75 million EBITDA as a way to offset some of all these challenges we've been talking about.
Speaker Change: Of course, we'll be prudent on the capex front so that from a free casual point of view we're in good shape. So a lot of things that we're doing to manage through it.
Speaker Change: I think, you know, I would not recommend just running a proxy analysis on demand for 22, you know, in 23 relative to this scenario for the reasons I just mentioned.
Speaker Change: Got it. And as a quick follow-up, if the tariff's are resolved and we get back to that 8-875 run rate for the second half, what was the volume assumptions that AFP and AM could do?
Speaker Change: Like Low, Mid-Single Digits, is that sort of what we were hoping for initially? Okay.
That's about right, Mike. I think that the, you know...
Speaker Change: People are really draining stock right now to avoid the tariffs, which means, you know, inventory is going to be a lot lower.
Speaker Change: You know, you would hope end markets continue to come back to some stability.
Speaker Change: There's going to be friction from all these tariffs. So, you know, we're at 10 to 20% tariff, you know, there is going to be some consumer friction around that and what people can afford to pay or people managing headcount costs.
Speaker Change: If there are companies who are absorbing the hit that will have an impact on the economy, but you'll have a restocking of bringing them forward back to more normal levels that will certainly help volumes the second half be better.
Let's make the next question the last one please.
Josh Spector: Of course, our next question is from Josh Spector from UBS. Your line is not open, please go ahead.
Speaker Change: Hey guys, this is James Cannon on Pradrash, thanks for taking my question! [inaudible]
Speaker Change: Just give it all the uncertainty in the market. I just wanted to focus on some of the more controllable items.
Speaker Change: and looking at the guidance that baked in the 20 million headwind from turnarounds. Could you just help level set how the turnaround schedule is expected to look into the back half?
Speaker Change: Yes, so what I would highlight, it is unique for us to have the schedule turnaround here in the first half.
Thank you. Did you have a follow-up question? Sorry.
Speaker Change: Okay, thanks everyone for joining us. Okay, yeah, yeah, appreciate it. Yeah, thanks everyone for joining us. I appreciate you joining this call. Hope you have a great rest of your day. Yeah, yeah, yeah, yeah, yeah.
Speaker Change: This concludes today's call. Thank you for your participation. You may now disconnect.