Q2 2025 Eastman Chemical Co Earnings Call

Becky: Good day, everyone, and welcome to the second quarter 2025 Eastman Chemical Company conference call. Today's conference is being recorded. This call is being broadcast live on the Eastman Chemical Company website www.eastman.com. We will now turn the call over to Mr. Greg Riddle, Eastman Chemical Company Investor Relations. Please go ahead, sir.

Good day, everyone. And welcome to the second quarter 2025 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. Gregory Riddle, Eastman Investor Relations. Please go ahead, sir.

Greg Riddle: Thank you, Becky, and good morning, everyone, and thanks for joining us. On the call with me today are Mark Costa, Board Chair and CEO; Willie McLain, Executive Vice President and CFO; and Jake Burrow and Emily Alexander from the Investor Relations team. Yesterday, after market close, we posted our second quarter 2025 financial results news release and SEC 8-K filing, our slides, and the related prepared remarks in the Investor section of our website, eastman.com. Before we begin, I will cover two items. First, during this presentation, you will hear certain forward-looking statements concerning our plans and expectations. Actual events or results could differ materially.

Thank you, Becky, and good morning, everyone. Thanks for joining us on the call. With me today are Mark Costa, Board Chair and CEO; Willie Mlan, Executive Vice President and CFO; and Jake Lo and Emily Alexander from the investor relations team.

Yesterday, after market closed, we posted our second quarter 2025 financial results news release and SEC K filing, our slides, and the related prepared remarks in the investor section of our website, eastman.com.

Before we begin, I'll cover 2 items.

First during this presentation, you will hear certain forward-looking statements concerning our plans and expectations.

Greg Riddle: Certain factors related to future expectations are or will be detailed in our second quarter 2025 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 2024 and the Form 10-Q to be filed for second quarter 2025. Second, earnings referenced in this presentation exclude certain non-core 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 second quarter 2025 financial results news release. As we posted the slides and accompanying prepared remarks on our website last night, we will now go straight into Q&A. Becky, let us go ahead and start with our first question, please.

Actual events or results could differ materially.

Certain factors related to future expectations are or will be detailed in our second quarter 2025 results news release.

During this call.

In the preceding slides, prepared remarks, and our filings with the Securities and Exchange Commission, including the Form 10-K filed for the full year 2024 and the Form 10-Q to be filed for the second quarter of 2025.

Second earnings referenced 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 second quarter, 2025 Financial results news release.

As we posted the slides and accompanying prepared remarks on our website. Last night, we will now go straight into Q&A.

Becky. Let's go ahead and start with our first question, please.

Becky: Thank you. As a reminder as well, if you did want to ask a question, that is star followed by one on your telephone keypad now. When preparing to ask your question, please ensure your device is unmuted locally. Our first question comes from Patrick Cunningham from Citigroup. Your line is now open. Please go ahead.

Thank you for the reminder as well. If you did want to ask a question, that is star followed by 1 on a telephone keypad now.

Um, when preparing to ask your question, please, ensure a device is unmuted locally.

Our first question comes from Patrick Cunningham from City Group. Your line is now open. Please go ahead.

Patrick Cunningham: Hi, good morning. Thanks for taking my question. Look, you are reducing capital spend in 2026, now targeting pretty significant cost saves on top of that even larger in 2025. This does not necessarily signal a stable to modestly improving macro in 2026. Could you help us understand how representative the second half should be when we are thinking about trough earnings levels? With growth projects deferred and lower for longer macro, has your thinking on mid-cycle earnings power changed at all?

Hi, good morning. Thanks for taking my question. Um look

Power changed at all.

Mark Costa: Yeah, that's a great question and a large one. Good morning. First of all, when you think about the back half of this year, it's heavily impacted in the decline by the trade situation that we face. That's creating a lot of challenges for this industry and especially for the consumer discretionary side of the house. I do not think that the back half is really a relevant measurement for how the company is doing in total because you've got a lot of situations around what's going on with the tariff. When you think about us and the tariff and the exposure we have in the back half of the year, there are really three impacts that it could potentially have on any company. The biggest for us is by far what happens with demand. That was also true in 2019.

Yeah, that's a great question. Uh, in a large 1, um, and good morning. Um, so first of all, when you think about the back after this year, you know, it's heavily impacted, um, in the decline by the trade situation that we face, and that's creating a lot of, uh, you know, challenges, uh, for this industry and, and especially for the sort of consumer discretionary side of the house.

Um, so I don't think that the back half is is really relevant um, measurement for, you know, how the company's doing in total. Because you've got a lot of situations around what's going on with the Tariff. I mean, when you think about us and the tariffs and the exposure we have in the back half of the year. Um,

Mark Costa: The second factor, of course, is retaliation that happens in other countries and how you work your way through that. We do have some high U.S. asset exposure when it comes to that equation. Then the third is direct tariff impacts around raw materials and things like that, which we have very little exposure on because North America is, all of our vertical integration and scale in North America is connected back to local raw materials. It really is a big demand question about what's going on in this year and what that then indicates for next year as we think about this whole thing. The trade war is by far the driver of the demand dynamics in the second quarter as well as the back half.

You know, there's sort of really sort of 3 impacts that it could potentially have on any company but the biggest for us is by far, you know, what happens with demand. Um and uh and that was also true in 2019. You know, the second factor of course, is retaliation that happens in other countries and how you work your way through that and we do have some high us asset exposure. Uh when it comes to that uh a question, you know equation. Um, and then the third is direct tariff and backs around raw materials, um, and things like that. Um, which we have very little exposure on because

North America is.

Um, you know, all of our vertical integration and scale in North America is connected back to local raw materials.

Mark Costa: As we look at that and think about trade, the first thing I want to say is, there are unfair trade practices around the world and there is aggressive dumping by some countries, especially the overcapacity out of China and transshipping to avoid tariffs. There are real issues here for this industry that need to be addressed. Those, while very serious, need a strategic approach. The challenge that we're having broadly right now is that that trade strategy applying to all countries of the world at the same time may create more economic harm than what's necessary as you try and focus on what the real sources of the trade issues are in the country. We sit here now where there's a lot of uncertainty.

So it really is a big demand question about what's going on this year. Um, and what that then sort of indicates for next year as we think about this whole thing. Um, and the trade war is by far, you know, the driver of the demand dynamics in the second quarter, as well as the back half.

Um, and as we look at that, you know, and and think about trade the first thing I want to say is, you know, there are unfair Trade Practices around the world, and there are, there is aggressive dumping by uh, some countries, especially the over capacity out of China, um, and trans shipping to avoid tariffs. So there are real issues here for this industry that need to be addressed.

Um, but you know, those well, very serious need a strategic approach, um, and the challenge that we're having broadly right now, is that that trade strategy of wanting to all countries of the world at the same time.

Um, may create more economic harm than what's necessary. As you try and focus on what the real sources of the trade issues are in the country.

Mark Costa: What you have had happen in the even in the GDP data you saw in Q2, a lot of volatility of imports going up, private inventories dropping. People are moving product all over the world to try and get ahead of tariffs, whether it is retailers or the brands or all the supply chain manufacturers that support them to avoid tariffs, to buy time to see how things are going to get sorted out, take advantage of pauses that happen in the second quarter, et cetera. It is really chaotic to try and understand what is really going on in market demand. Same question you have around consumers. How much do they buy ahead of tariffs potentially impacting prices in the first half of the year, which is probably why consumer consumption was up versus them being conservative about worries about what they can afford for the year.

And and we sit here now where there's a lot of uncertainty what what you had happen in in the even in the GDP data you saw.

Thank you, too. A lot of, you know, volatility of imports. Going up, private in inventories dropping and their people are moving product all over the world to try and get ahead of tariffs. Whether it's retailers or the brands or all the supply chain manufacturers, that support them to avoid tariffs to buy time to see how things are going to get.

Uh, sorted out. Take advantage of pauses that happen in the second quarter, etc. So it's really chaotic to try and understand what's really going on in market demand. Same question you have around consumers: how much do they buy ahead of tariffs potentially impacting prices, you know, in the first half of the year, which is probably why consumer consumption is up.

Mark Costa: Same with customers, what do they think about demand? There is a huge amount of chaos that goes into this whole situation that causes some challenges and complexity in Q2 and certainly is why we expect a sort of mid-single-digit drop in demand for the back half of the year, which is also representing some normal seasonality as well as some of the pre-buy as well as customers being very cautious for everything I just said. You have got all that complexity, right? A 15% plus or 15% to 40% tariffs as of last night on countries is a big impact to the market. There are reasons to be cautious and careful about the back half of the year.

Um, versus them being conservative about worries about, you know, what they can afford for the year same with customers what they think about demand. So, there's a huge amount of chaos that goes into this whole situation that causes um,

You know, some challenges and complexity in Q2, and certainly, this is why we expect a sort of mid-single-digit drop.

In the man, um, for the back half of the year, which um, is also representing some normal seasonality, as well as some of the pre-buy, as well as, you know, customers um, being very cautious for everything I just said.

Mark Costa: With that, and with what our customers are doing and being cautious in July, we sort of built this forecast and staying focused just on Q3 as well as not really trying to forecast the full back half of the year. That is a distortion to try and think about what is going on in demand in general. The second is in that chaos, we have very much decided to focus on cash generation, as we told you we would in April. We are taking all the actions we can to pull inventory down, generate cash, which unfortunately, when you do this from an accounting point of view, ends up in a utilization headwind. It is not a cash headwind. It is actually generating cash, but utilization headwind is somewhere around $75 million to $100 million in the back half of the year. That distorts the back half as well.

So you've got all that complexity, right? I mean, a 15 plus or 15 to 40% terrorists as of last night on countries is a big impact to the market. So there's reasons to be cautious and careful about the back half of the year. Um, so with that

Here's what our customers are doing and being cautious about. And there's a lie, um, you know, we sort of built this forecast and this, you know, staying focused just on Q3, as well as, you know, not really trying to forecast the full back half of the year.

Um, so that is a distortion to try and think about what's going on in demand in general. The second is in that chaos, we've very much decided to focus on cash generation as we told you we would in April and so we're taking all the actions we can to pull inventory, down generate cash. Which unfortunately when you do this from an accounting point of view ends up in a utilization headwind. It's not a cash headwind. It's actually generating cash but utilization headwind of some somewhere around 75 to 100 million dollars in the back half of the year.

Mark Costa: You have got the normal seasonality, you have got all this trade dynamics, and you have got the utilization headwind. The back half of the year is by no means something you can annualize and think about as representing what 2026 looks like. Your question is, what do we think about 2026 and where demand could go there? The answer is, with the current chaos we are in, no one knows where demand is going to go next year. What we can do is, with all the trade deals settling in one way or fashion, at least we are going to start getting some certainty that is always better than uncertainty to calm everyone down and everyone starts focusing on what they need to do in this context. That will help stabilize things. You have the other things that are very pro-growth in the U.S.

You've got all this trade dynamics. And you've got, um,

The utilization headwind. So, the back of the ear is, by no means. Something you can annualize and think about as representing, you know, you know what, what 2026 looks like.

Um, so your question is, what do we think about 26 and where demand could go there? I mean, the answer is, you know, with the, with the current chaos where No 1 know where demand's going to go next year. Um, but what we can do is with all the trade deals settling and 1 way or fashion, at least, we're going to start getting some certainty. That, that is, always better than uncertainty to calm. Everyone down and everyone starts focusing on what they need to do in this context.

Mark Costa: administration from the tax bill to less regulation, et cetera. There are lots of other things that I think are pro-growth outside of this trade disruption that are going to help stabilize things. Our view is, especially with how challenged demand is this year on top of what was already a bad situation from 2022 to now, there is reason to expect stability in the back half. Stability as you go into 2026, which would be equal to or certainly more likely better than where demand is now. In this context, we have to manage our cost. We have to be aggressive in how we manage inventory because we do not know where things are going to go. We are going to take every action we can.

Um, so that will help stabilize things. You've got the, you know, other things that are very Pro growth in the in the US Administration from

The tax bill to less regulation, Etc. Is there are lots of other things that I think are pro growth outside of this trade disruption. Um, that's going to help stabilize things. Um, so I, you know, our view is especially with our challenge demand is this year on top of what was already a bad situation from 22 to now. Um, there's there's the reason to expect stability in the back half. Um, I mean, so as stability, as you go into 2026, um, which would be equal to, or certainly more likely better than where demand is now,

But in this context, we have to manage our costs. We have to be, you know, aggressive in how we manage inventory, um, because we don't know where things are going to go. And so, we're going to take every action we can.

Patrick Cunningham: Great. I appreciate the detailed response. I guess just a quick one on the methodics of the unit. How far are you along with that investment and what gives you confidence on a pretty healthy step up in profitability there?

Great. I appreciate the detailed response. You know I I guess just a quick 1 on the metaphysis unit, you know? How far are you along with that investment? And and what gives you confidence on those pretty healthy step up and profitability there?

Mark Costa: am sorry, you broke up for a second. Were you asking about E2P or methanolysis? I just could not hear what you were asking there.

Patrick Cunningham: Yeah, yeah. E2P.

I'm sorry, you broke up for a second. Were you asking about ETP or methanolysis? I just couldn't hear what you were asking us.

Mark Costa: Which one?

Patrick Cunningham: E2P. Yeah.

Mark Costa: Okay, sure. So obviously, got it. The chemical intermediates business obviously is facing some pretty significant challenges. They are the classic example, along with the entire commodity chemical industry, of the impact overcapacity coming out of China and other countries, impacting businesses. We certainly see the industry right now at cash cost, and frankly, there is indication some of the products being exported to the world are below cash costs. We feel like we are probably at the bottom of the market. We are also constantly looking at how we improve the structural strength of every business we have. We have done a lot of things to improve the CI business over time. We made the RGP investment. We shut our Singapore plant down.

Which 1? Yeah.

Okay, sure. So obviously can

Yeah. Got it. Um, so the chemical remedies business obviously is facing some pretty significant challenges the

You know, they're they're the classic example. Along with the entire, you know, commodity chemical industry of the impact over capacity coming out of China and other countries, um, impacting businesses. Um, and

We certainly you know see the industry right now at Cash cost and frankly. There there's indication some of the products being exported to the world are low cash costs. So you know we feel like we're probably at the bottom of the market.

Mark Costa: We are constantly looking at how to value up our mix in North America where our margins are much better than export markets, which at the moment is a challenge because of demand being off, but always looking for every opportunity. We told you all the way back in 2021, we had an idea of doing an ethylene to propylene investment to convert one of our existing crackers of the three that are at the site to going from ethylene to propylene. For those who are not familiar with EASTMAN, we make a lot of ethylene to propylene because that is what crackers do. If we had PDH four decades ago, that is what we would have built. The propylene is where we make all of our specialties. That is where our value sits. We are left with a bunch of excess ethylene just to run the crackers.

Um, but we're also constantly looking at how do we improve the structural strength of every business? We have, we've done a lot of things to improve the CI business over time, we made the rgp investment, we shut our Singapore plant, down constantly looking at how to Value up our mix in North America, where our margins are much better than export markets.

Mark Costa: We have always been trying to reduce that. That is why we made the RGP flexibility investment to increase propylene. We still have a bunch of ethylene. What we can do with this investment, we have come up with a lot of insights since 2021 to scale it up to a bigger capability. That allows us to convert ethylene to propylene. When you do that and optimize the asset configuration of the site around that investment, you can dramatically improve the earnings by $50 million to $100 million in EBIT over the cycle. It also really reduces volatility because a lot of the volatility comes out of the ethylene side of the equation. It is a great investment and it is a great payback. It is a very short payback for building this capability because we are leveraging an existing cracker to do it.

Um, you know, which the moments of challenge because of demand being off, but always looking for every opportunity. Um, and we told you all the way back in 2021, we had an idea of doing an ethylene propylene investment to convert one of our existing crackers of the three that are at the site. Um, to, uh, going from ethylene to propylene. Um, for those who are not familiar with Eastman, we make, you know, a lot of ethylene and propane because that's what crackers do. But if we had PDH, you know, four decades ago, that's what we're going to build the propylene, is where we make all of our specialties. That's where our value sits. And then we're left with a bunch of excess ethylene just to run the crackers. Um, so we've always been trying to reduce that. That's why we made the RGP flexibility investment to increase propane, but we still have a bunch of that propylene. Um, and, uh, and so what we can do with this investment, and we've come up with a lot of insights since 2021 to scale it up to a bigger capability, and that allows us to convert definitely to propylene. Um, and.

When you do that, and optimize the asset configuration of a site around that, uh, investment. Um, you can dramatically improve the earnings by 50 to 100 million dollars in ebit over the cycle. Um, and it also really reduces volatility, because that's a lot of volatility comes out of the ethylene side of the equation. So, it's a great investment, and it's a great payback. It's a very short payback for building this capability because we're leveraging an existing cracker to do it.

Patrick Cunningham: Great. Thank you so much.

Great, thank you so much.

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

Thank you.

On the next question, comes from Josh Spectre from UBS. Your line is now open. Please go ahead.

Josh Spector: Yeah, hi. Good morning. I wanted to ask on the methanolysis investments and some of the comments you made about it. It seemed like you were thinking about you would delay a decision on Longview by maybe two years now, and you are thinking about expanding Kingsport at some point in the future. So one, I am just curious if you could expand on if that is right in terms of how you are thinking about it. Then two, what does that mean for Pepsi offtake that you have at the Longview facility? Does that move to Kingsport? Does that get pushed out? How should we think about that? Thank you.

Future. So, I am just curious if you could expand on if that's right in terms of how you're thinking about it. And then, what does that mean for Pepsi offtake that you have at the Long View facility? Does that move to Kingsport? Does that get pushed out? How should we think about that? Thank you.

Mark Costa: First of all, we're incredibly excited about how well the methanolysis plant is running. It's been a long journey from the beginning of this project to getting it built, to getting the startup and working through a lot of construction issues. It's great to see the plant run well. Incredibly excited to see the rate test the plant could get up to 105% as it is. All of that is working really well, which also means our cost benefits this year relative to last year are on track to get that additional $15 million of improvement for the corporation. It also, when we started rate testing it and learning more and more about the facility with its better operational performance, we've come across a variety of insights with some very targeted debottlenecking investments that are very manageable.

So um so first of all, we're we're incredibly excited about how well the methanolysis plants running. It's been a long journey from uh the beginning of this project to getting a bill to

Mark Costa: We can debottleneck the plant and have a line of sight to get into the plant to 130%, and we have some ideas to get beyond that. That's fantastic in this environment, right? In this environment where we're trying to always improve our capital, lower our capital intensity in everything we do, this is a capital-intensive project. If I can now get 30% or maybe even more than that, I've improved the ROIC efficiency. That is exciting. The second is that additional capability, especially right now, allows us to continue to grow the EBITDA to that $200 million that we've told you about and keep going from this facility and have more continuous growth than when we cap out on the capacity at this plant in the original plan and wait for the next plant to start. We can sort of keep the continuous growth going.

You know, getting the startup, uh, and working through a lot of construction issues. Um, so it's great to see the plant run, well crowd excited to see the, you know, rate test. The plant could get up to 105% as it is. Um, and uh, and all of that is, is, is working really well, which also means our cost benefits this year relative to last year are, uh, on track to get that additional 50 million dollars of improvement for the corporation. Um, it also when we sort of rate, testing it, and learning more and more about the facility with its better operational performance, we had we come across a variety of insights with some very targeted debt necking Investments that are that are, you know, very manageable,

Um, we can, uh, divide next to plan and have a line of sight to get into plan to 130%, and we have some ideas to get, you know, beyond that. Um, and so that's fantastic in this environment, right? In this environment where we're trying to always improve our C, you know, lower our capital intensity in everything we do, and this is, you know, our capital intensive project.

Mark Costa: That also allows us to, in some sense, pull EBITDA forward from the second plant into the first plant as we sort of continue to fill it out. That allows us to also have time to look at different options. We're certainly not happy about losing the DOE grant, and we're highly engaged to try and get it back. That's a highly uncertain process. We're focusing on what else can we do. This ability to debottleneck gives us the time to work on alternative ideas. We have a lot of creative ideas about how to take scope out of the project. We have creative ideas of not just looking at how to do it at Longview, but looking at three other sites where we might have some better advantages and how to be efficient. There is a lot of things going on.

If I can now, get 30%, or maybe even more than that, you know. I, I've improved, you know, the roic efficiency. Um, so that is is exciting. The second is that additional capabilities especially right now, um, allows us to continue to, you know, grow the IBA data, that 200 million that we've told you about and keep going from this facility and have more continuous growth than when we cap out on the capacity at this plant and the original plan, and wait for the next plan to start, so we can sort of keep the continuous growth going. Um, and that also allows us to, in some sense, pull ibaa forward from the second plant into the first plant.

Um as we sort of continue to fill it out, so that that allows us to also have time to look at different options. So we are certainly not happy about losing the doe Grant and we're highly engaged to try and get it back.

Um, that's a highly uncertain process, and so we're focusing on what else we can do. Um, and so this ability to bond gives us the time to work on alternative ideas, and we have a lot of creative ideas about how to take scope out of the project. We have creative ideas of...

Mark Costa: We cannot talk about the details of all that right now because we are in the middle of doing some of it. We are pretty excited about the potential to sort of optimize the footprint and find ways to actually pull forward some benefits that we would have had to wait for the second plant. When it comes to contracts and Pepsi, our contract with Pepsi is still intact, and we are still confident that they are committed to working with us as we sort of pursue all these different options. We feel sort of good about that. The other thing I would note is we are seeing accelerated demand in some cases with some of our customers who are finding mechanical recycling is not working well on the ARPET side for food-grade packaging applications. We are getting more and more confident about that fill-out.

Not just looking how to do it at Long View, but looking at 3, other sites, um, where we might, uh, have uh, some of the better advantages, um, and how to be efficient. Um, and so there's a lot of things going on. We can't talk to about the details of all that right now because we're in the middle of doing some of it. Um, but we're pretty excited about, you know, the potential to sort of optimize the footprint and find ways to actually pull forward. Some benefits uh, that we would have had to wait for the second plan. Um,

When it comes to contracts and Pepsi um, you know, our our our contractor Pepsi is still intact. Um, and and we're still confident that they're committed uh, to working with us, um, you know, as we sort of pursue all these different options. So, you know, we feel sort of good about that. Um, and uh, and we and the other thing I noted is we're seeing

Accelerated demand in some cases um with some of our customers who are flying, the mechanical recycling isn't working. Well on the arpad side for food, great packaging applications. And so we're um, we're we're, we're getting more and more. Confident about that. Fill out.

Josh Spector: Okay. Thank you. I'll leave it there.

Okay, thank you. I'll leave it there.

Becky: Thank you. Our next question comes from Vincent Andrews from Morgan Stanley. Your line is now open. Please go ahead.

Thank you. Our next question comes from Vincent. Andrews from Morgan Stanley. Your line is now open. Please go ahead.

Vincent Andrews: Thank you and good morning. Mark, was there a particular trigger? It sounds like in July, all of a sudden, the customer dialogue flipped. Is there something in particular that happened, or is it something that they were hearing from their customers, or just how do you sort of deconstruct exactly what happened when it happened? As you look forward into the balance of the year and into next year, what's the catalyst path or what are the events that are going to need to happen for your customers to start feeling differently about their business and about purchasing? Is it just the end of the trade war uncertainty? Is it lower interest rates? What's really changed and what's the path from here?

Thank you. Uh, and and good morning, um, Mark, was there a particular trigger? Uh, it sounds like in July, uh, all of a sudden the customer dialogue flipped and so, is there something in particular that happened? Or is it something that they were hearing from their customers or just how do you sort of deconstruct? Um, exactly what happened when it happened. And as you look forward into the into the balance of the year and, and into next year, um, you know what's, what's the Catalyst path or what are the events that that are, that are going to need to happen for your customers? Um, you know, to to, to start feeling differently. Um,

About their business and about purchasing, um, is it just the end of the trade war uncertainty? Is it lower interest rates? But what's really changed, and what's the path from here?

Mark Costa: That's a great question. So, I would say that the insights developed through the month of June into July as we were working with our customers and trying to understand what their views were. The market that is most impacted is consumer durables, which you can imagine are caught up in the trade war since the vast majority of them are made in places like China or Southeast Asia and imported here. Our supply chain in serving that market is incredibly long as we make a lot of the products that go into those applications here in the U.S., send them to Asia, they get made in the product, and come back. So, you have a 9, 12-month supply chain on top of this that you are trying to manage.

Mark Costa: I think that the trade pause allowed everyone in the second quarter to move material around ahead of potential escalation on July 9th. Everyone did that. Every company, like I said earlier, from retailers to brands and manufacturers to people like ourselves. Because of North America, we had to move things to different places like Asia when we are making it here. That sort of factored into our supply chain being a bit longer and our need to move things being a bit higher because of where we were making it in the U.S. and the risk of retaliation. You are working through all those dynamics with your customers. I think that as they look to the back half of the year, they became cautious. I think the words were holding orders as opposed to canceling.

Insights developed, you know, through the month of June into July as we were working with our customers. Um, and trying to understand what what their views were. Um, the market that's most impacted is consumer durables, um, which you can imagine are caught up in the trade War since the vast majority of ever made in places like China or southeast Asia and imported here. Um, and our supply chain in serving that markets, incredibly long. Um, as we make a lot of make the products that go into those, uh, applications here in the US. Send them to Asia, they get made into product come back. So you've got a 9 12 month supply chain on top of this that you're trying to manage. Um, and so I think that, you know, that the the freight pause, um, allowed everyone in the in the second quarter to move material around ahead of potential escalation on July 9th. And so, you know, everyone did that. Um, I mean every company, you know, like I said earlier from retailers to Brands and manufacturers to

People like ourselves, um, because of of North America, you know, we had to move things to different places, like Asia when we're making it here. You know? That sort of factored into our supply chain.

Mark Costa: I think it is important to say as a way to sort of wait and see how all the trade situation was going to resolve itself one way or another. Then they have to naturally factor that into where they think consumer demand is going to go and how they sort of either serve those markets or not. While people are moving inventory around all over the planet, they are also trying not to increase inventory too much in total because they are unsure about the back half economy when the consumer is more likely to be impacted. These tariffs at these rates are likely to show up in inflation. I know there is a lot of debate about that, but the margins, at least in the consumer durable industry, are pretty thin when it comes to the manufacturers in Asia, the retailers here.

Being a bit longer and our need to move things being a bit higher, you know, because of where we were making it in the U.S. and the risk of retaliation. So, you know, you're working through all those dynamics with your customers. Um, and I think that as they look to the back half of the year, they became cautious. You know, I think the words "we're holding orders" as opposed to "cancelling" I think is important to say, um, as a way to sort of wait and see how all the trade situation was going to resolve itself, one way or another. Um, and then they have to, you know, naturally factor that into, uh, you know, where they think consumer demand is going to go.

And and uh how they sort of either serve those markets or not because while people are moving inventory around all over the planet. They're also trying not to increase inventory too much in total.

Because they, you know, are unsure about the back half of the economy when, um, the consumer is more likely to be impacted. Right? I mean these tariffs, that these rates...

Are likely to show up in inflation. Um, I know there's a lot of debate about that, but you know, the margins at least in the consumer durable industry.

Mark Costa: Some portion of this has to get passed on. It cannot be absorbed. If even if it is absorbed, people are going to have to lay off people, which impacts the economy somewhere in the world. This dynamic is going on there. I think it is very much going on in the auto industry. Plenty of news to flow on that, but probably likely some pre-buy there that, you know, the auto companies have to think about as far as what they think demand is going to do in the back half for them. The building construction segment, same dynamics. Obviously, half of our revenue is where we are seeing these impacts. Customers are working with us.

You know, it's pretty thin when it comes to the manufacturers in Asia and the retailers here.

So, you know, some portion of this has to get passed on. Um, it can't be absorbed. And even if it's absorbed, people are going to have to lay off people, which impacts the economy. So,

Somewhere in the world. Um, so this Dynamic is going on there. I think it's very much going on in the Auto industry, plenty of abusive flow on that but probably likely some prey there that, you know, the auto companies have to think about as far as what they think demand is going to do in the

back half.

Uh, for them and neither building construction, segments, same Dynamics, you know, obviously, you know, weak and Challenge and that half of our revenue is sort of where we're seeing these in these impacts.

Mark Costa: I think what we have got in our forecast represents their caution in July. We are assuming things get a little bit better in August and September, with some of this trade certainty coming into place. We are just going to have to see how it goes. The key for us is focus on what you can control: cost, cash, driving methanolysis forward, finding capital efficiency, keeping our CapEx low, et cetera, and positioning us, I think, reasonably well for earnings to be materially better next year versus this year on the actions that we are controlling and taking.

Um, customers you know, are working with us. Um, and I think, uh, you know, what we've gotten our forecast represents their caution in July. Um, we're assuming things get a little bit better in August and September, you know, with some of this trade certainly coming into place, and we're just going to have to see how it goes. But, you know, the key for us is focus on what you can control: cost to cash, you know, driving methanolysis forward, finding capital efficiency, keeping our capex low, etc. You know, and positioning us, I think, reasonably well for earnings to be materially better next year versus this year on the options that we're controlling and taking.

Greg Riddle: Thanks very much. I'll pass it along.

Thanks very much. I'll pass it along.

Becky: Thank you. Our next question comes from Salvator Tiano from Bank of America. Your line is now open. Please go ahead.

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

Salvator Tiano: Yes, thank you very much. I wanted to check on the autos and markets. You and some other chemical companies today and yesterday did flag that they were weak in Q2 and Q3 could also remain weak. That seems to be in contrast with both trade consultants and what some of the auto suppliers are saying so far this earnings season. Can you provide a little bit more color on where you are seeing the weakness? Specifically, in the case of Eastman Chemical Company, is it more on the aftermarket window film products or more, for example, on the interlayers or any other products?

Yes, thank you very much. Uh, so um, I wanted to check on the autos and markets. I mean, you and some of the, uh, some other chemical companies today and yesterday did flag that uh, they, they were weak in Q2 and 23, could also remain weak, but that seems to be in contrast with both trade consultants and what some of the, uh, Auto suppliers are saying so far this earnings season. So can you provide a little bit more color on what on where you're seeing the weakness and specifically, you know, in the case of Eastman of course, is it more on the aftermarket fields or more, for example, on the inter layers, or any other products?

Mark Costa: Yeah, good question. On the aftermarket side, Q2 was a solid quarter. We saw good performance in North America, a little bit more challenge in China. But overall, the aftermarket held up reasonably well in Q2 for the interlayer business or the aftermarket, or the sort of automotive coating business. We saw some challenges as producers around the world, given the tariff announcements, were moderating production rates in preparation for where demand may go. There is a big question on, once again, how much of this tariff is going to get passed on to consumers and inflation and impact demand in the back half of the year. So you are trying to worry about how much cars you are producing for the back half of the year. So you have got to be a little careful on that front.

You know, held up reasonably well, in in Q2 where the, the, uh, inner layer business or the aftermarket, you know, or the sort of, Automotive coding business. Um, you know, saw some challenges as

Producers around the world, given the tariff announcements.

Were moderating production rates? He knew in preparation for where demand may go. Right? There's a big question on.

once again, you know how much of this uh tariff is going to get passed on to Consumers and inflation um and uh impact Demand on the back half of the year so you're trying to worry about how much

Mark Costa: Then you have got the dynamic of the pull forward of people buying cars ahead of the potential tariff increases. I think, from what we are seeing, we started the year expecting the auto market to be sort of flat relative to last year, where now our view is sort of most single digits down, which is principally in the back half of the year as opposed to the first half. So I am not sure we are that different from what I have seen from other car companies in sort of the underlying market assumptions. If it turns out to be flat in production in the back half of the year, it is going to be upside for us relative to what is in the forecast. So, I hope those people that are sort of predicting that are correct.

You know, cars you're producing for the back half of the year. So you got to be a little careful on that front.

Um and then you've got the dynamic of the pull forward uh of people buying cars, you know, ahead of the potential tariff increases. So I I think, you know, from what we're seeing, you know, we we started the year expecting the auto market to be sort of flat relative to last year. Where now now our view is sort of low single digits down, um, which is principally in the back half of the year as opposed to the first half. So I'm not sure where that different from what I've seen from other car companies, um, in sort of the underlying Market assumptions. Uh, if it turns out to be flat in production in the back, half of the year, it's going to be upside for us relative to what's in the forecast. So um you know I I hope those people that are sort of predicting that are correct.

Salvator Tiano: Perfect. Thank you very much.

Perfect, thank you very much.

Becky: Thank you. Our next question comes from Josh Spector from JPMorgan. Your line is now open. Please go ahead.

Thank you. Our next question, comes from Jessica from JP Morgan. Your line is now open. Please go ahead.

Kevin Mccarthy: Thanks very much. In your AFP business, your prices were up 4% year over year. Where did that pricing strength come from, either by sector or by product line? In your fibers business, can you discuss the current state of tariffs and whether that is an ongoing impediment to your business or whether it is not?

Thanks very much.

Um,

In your AFP business, your prices were up 4% year-over-year. Where did that pricing strength come from, either by sector or by product line?

And in.

Your fibers business, C. Can you discuss the current state of tariffs and whether that's an ongoing impediment to your business or whether it is?

Mark Costa: Sure, Jeff. Most of the increase in price was driven by our cost pass-through contracts in our chemicals business where we buy some raw materials that just have a lot of volatility to them that go into the product. We have very steady margins in supplying our customers in that space. But the fatty alcohols that we buy sort of bounce up and down, and that's really what that 4% is primarily driven by. One of the great things about the AFP business that has continued to be proven and valued deeply by us is the stability of the price-cost relationship in that business across the portfolio. Quite a bit of it is in cost pass-through contracts, keeping that stable, which is great, by the way, in removing a lot of debate and tension with your customers in procurement, which is let's just focus on how we grow together.

Sure. Uh, Jeff, so on the AFP question, most of the increase in price was driven by our cost path through contracts and our care chemicals business, where.

We buy some raw materials. Um, that just have a lot of volatility to them and they'll go into the product. So we have very steady margins and supplying our customers in that space, um, with the fetty alcohols that we buy, is, are bounced up and down. And, and that's really what that 4% is primarily driven by, um, 1 of the great things about the AFP business, um, that has continued to be proven and and value deeply by us.

Is the stability of uh the price cost relationship in that business across the portfolio. Um, quite a bit of it is you can cost faster contracts, keeping, you know that stable which takes to which is great, by the way, in removing a lot of debate intention with your with your customers in procurement, which is

Mark Costa: We don't need to continue debating how raw materials go up and down. It's part of why you see AFP performing well. When it comes to the fibers business and tariffs, the principal impact of tariffs inside the fibers business on a full-year basis is certainly the Naya textile business, right? Those have always been expected to decline to some degree with market and capacity being added in China, et cetera. But the textile business was a source of growth, and the margins were pretty good. That offset some of the dynamics in the tow business. It's been extremely helpful in the last four years in improving that segment. What's unusual about this year is, we're obviously dealing with some issues in tow, but the textile business was impacted. Most of that sold in China and then made in textiles that served the world.

Uh, the principal impact of tariffs in the inside the fibers business, um, on a full year basis.

Um is certainly um the uh Nia textile business, right? So those always been expected to decline to some degree with market and pass the, you know, being added in China, Etc. Um, but the textile business was a source of growth in the margins were pretty good. Um and so that, you know, offset some of the Dynamics, um, and the toe business, uh, and it's been extremely helpful, you know, in the last 4 years in, in proving that, that segment, um,

Mark Costa: We saw the overall textile market slow down dramatically from tariffs because of the cost of selling fashion goods in the U.S. against those tariffs. That industry was already weak last year, but weakened further. In-market demand has come off. Customers that we have in China have become more cautious. That's translated to about a $20 million problem, we think, for the year that's spread across Q2 through Q4 in impacting the fibers business on the tariff side. On a short-term basis, there are some dynamics of some tow being pulled forward into Q2 in Europe to get ahead of potential tariff risks that will sort of level out. It's not a full-year impact, but it's just a timing impact.

So it's unusual about this year is, you know, we're obviously dealing with some, some issues in toe. Um, but the uh, the textile business was impacted most of that sold in China. Um, and then made into textiles that, you know, serve the world. Um, and uh and we saw the the overall textile Market slowed down dramatically from tariffs because of

The cost of selling fashion goods in the U.S., you know, against those tariffs, so that industry was already weak last year; but, you know, we can further... So, market demand has come off.

Customers that we have in China have become more cautious, and that's translated.

To about a $20 million problem that we think for the year. Um, that spread across Q2 through Q4. Um,

In the impacting, uh, in the fibers business, on the tariff side, on a short-term basis, there are some dynamics of some tone being pulled forward into Q2 in Europe to get ahead of potential tariff risks.

That will sort of level out. So it's not a full year impact, but it's just the timing impact.

Kevin Mccarthy: Okay. Then, you describe in your remarks trying to lower working capital by $400 million from where we are at mid-year. You talk about the earnings penalties this year for changing your operating rate. As a base case, I get it. Earnings should rise next year as you move up to more normal operating rates. Is it also true that what should happen is that cash flow next year should decrease? That is, if you are pulling the cash flow forward into this year, does that mean that as a base case, your free cash flow next year will be, or I am sorry, your cash flow from operations will be less than $1 billion if there is no change in the business condition?

and then, um,

you know, you describe

in your remarks, trying to

um, lower working capital by 400 million from where we are uh at midyear

and you talk about the earnings penalties. Um,

This year for changing your operating rate.

So, as a base case, I get it. You know, earnings should rise next year as you move up to more normal operating rates.

Um, but is it also true that what should happen is that cash flow? Next year should decrease, you know, that is if you're pulling the cash flow forward into this year, does that mean that as the base case

Your free cash flow next year will be uh, or I'm sorry your cash flow from operations will be less than a billion.

If there's no change in the

Business conditions.

Salvator Tiano: Jeff, thanks for the question. Obviously, to your point, I think the last statement that you just made, it depends on your outlook and the assumption. I think as Mark Costa has described, both from the economic lens as well as our assumption is that we actually think that you can get to a more stable environment as we see tariffs, et cetera, unfold. With the actions that we're taking in the first half and the timing, obviously, being here at mid-year, we can't fully optimize our working capital scenario. Actually, working capital is a net headwind this year as we look at it overall compared to what we build in the first half and what we're taking out in the second half.

So, Jeff, thanks for the question. Um, obviously, uh,

Salvator Tiano: My belief is the $1 billion is the platform at which we'll be able to build off of with higher cash earnings and the potential to still build and optimize our working capital.

To your point. I think the last statement that you just made, it depends on your your outlook and the Assumption I think as Mark has described both from the economic lens as well as uh, our assumptions is that we actually think that you can get to a more stable environment as we see tariffs, Etc unfold with the actions that we're taking in the first half and the timing, uh, obviously, you know, being here at mid year, we can't uh, fully uh, optimize our working capital scenario and actually work in capitalism that headwind this year. Uh, as we look at it overall, uh, compared to what we build in the first half and what we're taking out in the second half. So, my belief is, uh, you know, the billion dollars is, is the the platform at which we'll be able to build off of with higher cash earnings and the potential to still build uh, an optimized, our working capital.

Kevin Mccarthy: Great. Thank you so much.

Becky: Thank you. Our next question comes from David Begleiter from Deutsche Bank. Your line is now open. Please go ahead.

Okay, our next question comes from David bugla from Deutsche Bank, your line is now open. Please go ahead.

Vincent Andrews: Thank you. Good morning. Mark, just on Q4, reading your prepared comments, it sounds like you are guiding to similar to Q3 of around a buck 25. Is that fair?

Thank you. Good morning.

Mark, just on Q4, reading your prepared comments, it sounds like you got into similar to Q3 of around $1.255. Is that fair?

Mark Costa: Hey, David. I think that is directionally correct. I mean, normally we have seasonality, as you all know, from Q3 to Q4 because Q3 is normally a strong quarter. Obviously, it is not with all the factors that I have described on the decline in expected demand and the asset utilization. When you get to Q4, we are very aggressive in our asset management in Q3. So you are going to get a utilization tailwind because it will not be as aggressive in Q4. The seasonality that normally occurs has already been put into Q3 effectively. So I, you know, we expect things to be somewhat similar. We have got to get through Q3 to be perfectly honest, David, with all the volatility with the trade and see how it all sort of settles out and impacts the markets. But our current expectation is what you said.

Hey, David. Um, I think that's directionally correct. I mean, the normally we have seasonality is, is as you all know, um, from Q3 to Q4.

Because Q3 is normally a strong quarter. Um, obviously, it's not with all the factors that I described on.

on the decline in, in, in expected demand in the acid, utilization

So when you get to Q4, um, we're very aggressive in our asset management in Q3. Um, so you're going to get a utilization Tailwind because it won't be as aggressive in Q4. Um, you know, the seasonality that normally occurs has already been, you know, put into Q3 effectively. Um, and so I, you know, we we expect, um, things to be somewhat similar, you know?

We got to get through Q3 to be perfectly honest. David, you know, with all the volatility, um, with the with the trade and see how it all sort of settles out and impacts the markets. But, you know, our current expectation is is what you said.

Greg Riddle: Got it. Understood. And Mark, your volume outlook is a little more severe than what we've heard from some of your peers this earnings season. Do you think that's due to your business mix, your conservatism, or maybe something else? Thank you.

Got it. Understood and Mark your your your volume Outlook is a little more severe than what we, what we then, what we prefer from other from some of your peers, this earning season.

Do you think that's due to your your business, mix, your conservatism or or or maybe something else? Thank you.

Mark Costa: I think that when you think about what is going on in the dynamic of Q2 to Q3 in the mid-single digits, there are multiple components, and it depends on the business that you are looking at. It is important to actually sort of frame it correctly. So if you look at Q2 to Q3 and add back the utilization headwind for a $50 million, we are basically flat sequentially from Q2 to Q3 when you back out the utilization headwind. Then you are, okay, what is going on underneath the surface of that? There are two moving parts, right? Chemical intermediates is getting better by greater than $30 million, which means specialty fibers is going to be down by $30 million within the guide that we are talking about.

um, I I think that, uh,

When you think about, you know, what's going on in the dynamic of Q2 to Q3.

In the mid-single digits, uh, you know, there are multiple components, and it depends on the business that you're looking at. And it's important to actually sort of...

frame it um, you know, correctly. So if you look at Q2 to Q3 and add back utilization headwind

Um, for a $50 million. You know, we're basically flat sequentially from Q Q2 to Q3 when when you back out the utilization headwind.

Mark Costa: So when you think about advanced materials and the mid-single digit decline we are expecting there, what I would say about half of that is expected market decline. The other half is this sort of pre-buy dynamic of some materials in Trident performance films, some other polyesters being pulled ahead of tariff risk into Q2. So when you have it there and then the orders do not occur in July for that, you have got that decline. So I would say it is about half and half, market decline, which I think is more in line with what we are hearing from specialty peers or the market participants. The other half is this pre-buy thing. I would also note that in this segment, especially when you think about it, two-thirds of this is consumer discretionary, right, between autos, consumer durables, and B&C.

And then you're okay. What's going on underneath the surface of that? Well there, there there are 2, moving parts, right, chemical immediate is getting better by greater than 30 million, which means specialist in fibers is going to be down by 30 million dollars. You know, within the guide that we're talking about,

Um, so when you think about

About half of that is expected market, decline. And the other half, is this sort of Prebiotic pre of of some materials and Triton performance films. Some other Co polyester is being pulled, you know, ahead of tariff risk into Q2.

So when you have it there, and then the orders, you know, don't occur in July for that, you know, you've got that decline. So I'd say it's about half and half, you know, market decline, which I think is more in line with what we're hearing from specialists.

Mark Costa: Those are the most impacted markets. They are incredibly valuable markets to us. So as the volume comes off, it hurts. But when the volume comes back, it is incredibly compelling. So that is how I think about the AM part. The fibers part, I would pretty much say is all pre-buy in the moderation we are expecting from Q2 to Q3. AFP, this is sort of more normal for its decline. So normal ag seasonality coming off, timing of HTF projects that got completed in Q2 instead of Q3, and a little bit of pre-buy in some places is what is behind their mid-single digit. So again, you back out the pre-buy and the HTF timing and the markets moderating in a very normal way.

Um, you know other Market, participants. Um, and then the other half is, is this Prebiotic thing. I'd also note that, you know, in this segment, um, especially when you think about it, you know, 2/3 of this is consumer discretionary right between Autos, uh, consumer durables and BNC. And those are the most impacted markets. Uh, they're incredibly valuable markets to us, so as you know, as as the volume comes off, it hurts. Um, but when the volume comes back, you know, it's incredibly compelling. Um, so that's how I think about the am part. The fibers part is, I would pretty much say, is all Prebiotic in the, in the moderation, or expended expecting from Q2 to Q3

An AFP. This is sort of more normal, um, for its decline. So, normal seasonality is coming off the timing of HTF projects that got completed in Q2 instead of Q3. And

a little bit of pre buying some places.

Mark Costa: So I think that when we look at it, I do not think we are, from an in-market point of view, sort of misaligned too much. But we do have exposure, especially in advanced materials, to these sort of very sensitive markets to what is going on in the trade environment.

Is what's behind their mid? Single digits. So, again you back out the pre V and the hdf timing and the the markets, you know, moderating in a very normal normal way

um, so I think that, you know, when when we look at, I don't think we're from an in Market point of view, sort of misaligned too much, but we do, you know, have

You know, exposure especially in Advanced Materials to these sort of very sensitive markets to what's going on in the trade environment.

Greg Riddle: Very helpful. Thank you.

Very helpful. Thank you.

Becky: Thank you. Our next question is from Frank Mitsch from Fermium Research. Your line is now open. Please go ahead.

Vincent Andrews: Good morning. If I could just follow up on that, are you sizing the pre-buy at around $20 million or so benefit Q2 versus Q3? Any color there would be helpful. Thank you.

Thank you. Our next question, is from Frank, Mitch from Furman and research. Your line is now open. Please go ahead.

Uh, good morning. If I could just follow up on that. Are you sizing the pre-B buy at around $20 million or so benefit, Q2 versus Q3? Any color would be helpful. Thank you.

Mark Costa: Hey, Frank. That is probably directionally correct. When you follow the math of what I just put out there between fibers and AM, that is going to get you to sort of that number.

Vincent Andrews: All right, great. On this $1.25 point estimate for Q3, you guys put out a $0.20 range for Q2. Clearly, the commentary based on tariffs, et cetera, is that there's a wide range of outcomes for Q3. This $1.25, is that kind of at the low end of the range that you're thinking, mid-end of the range you're thinking? How much of a range in your mind do you have in terms of how Q3 can play out?

Hey Frank. That's that's probably directionally. Correct. Um, you know, when I when you follow the math of what, I just put out there between fibers and mmm. That's, that's going to get you to sort of that number.

All right, great. And, um, you know, uh, on this dollar, 25 Point estimate for 3 Q. Now, you, you, you guys, put out a 20 cent range for 2q.

And uh and you know it and clearly the commentary based on tariffs Etc is that there's a wide range.

Of outcomes for 3Q. Uh, this dollar 255, uh, is that, you know, is that kind of at the low end of the range that you're thinking, um, midman the range, you're thinking how, how much of a, how much of a range in your mind? Do you have in terms of how 3Q can play out?

Mark Costa: is a great question, Frank. We put the word around before $1.25. We see upside and risk to that number based on all the trade dynamics that we have in here. Some parts of the bridge, I would say, are pretty predictable. The asset utilization is in our control. We are pretty clear on what that is going to be. Our cost reductions are in our control, clear what that is going to be. We have had phenomenal commercial excellence over the last four years in defending our price costs and our specialties and our market share being held incredibly well over the last four years. We certainly expect to continue that excellence in the back half of this year and into 2026.

That's a great question, Frank. Um, you know, we put the word around before 2025, so we see upside and risk, you know, to that number based on all the trade dynamics that we have in here. Some parts of the bridge I'd say are pretty predictable. So, that's utilization, which is in our control. We're pretty clear on what that's going to be, our cost reductions and our control, clear what that's going to be.

Mark Costa: When I look at all those things that are to some degree in our control, methanolysis running better, et cetera, we feel pretty good about the quality of our guidance. But to your point that we just mentioned in the comments I have made in this call, predicting demand and customer and consumer behavior in this world right now, there is no predicting it. We did not put a range on it, but there is certainly uncertainty in either direction. If people really calm down, we could be up in volume. If these higher trade announcements and rates that just got announced through this week have an impact on the market, it could on people's behavior, then it could be down. We just do not know. Frankly, no one does. There is no way to predict it.

We've had phenomenal commercial Excellence over the last 4 years, in defending our price costs and our Specialties um, and and our market share uh, being being held incredibly well um, over the last 4 years. And you know, we certainly expect to continue that Excellence. Um, in the back half of this year and into 2026,

so when when I look at all those things that are, you know, to some degree in our control,

Methanolysis is running better, etc. Um, you know, we feel pretty good about the quality of our guidance. But to your point, as mentioned in the comments I've made in this call, you know, predicting demand and customer and consumer behavior in this world right now...

There's no predicting it. Um, and so we didn't put a range on it. Um, but you know, there is certainly, you know, uncertainty um, on in either direction, right? If people really calm down, you know, we could be up

um, in volume, you know, if these higher trade announcements and rates that just got announced through this week,

Vincent Andrews: All right. So a wide range around, best guess today is $1.25, but there's probably a bigger range around it than there was the range around the Q2 is kind of what I'm hearing right now.

have a impact on the market, you know, um, you know, it could, you know, on people's behavior. Then it it could be down, you know, we just don't know. And frankly, No 1 does, there's no way to predict it.

All right, so a wide range around uh, best guest. Today is a 125 but there's a, there's a there's probably a bigger range around than there was the range around. The 2q is is kind of what I'm hearing right now.

Mark Costa: I don't know if it's bigger than that range, but I really think we need to get through this next month. Obviously, if we see things really changing in either direction, we will update people at a conference somewhere along the way. But right now, we are in the middle of trying to digest all these announcements that happened last week and this week. It is not just every customer we have, every retailer, every consumer, are trying to figure out what does this mean for me right now? And what am I going to do in this context? We just got to see how it plays out.

I don't know if it's bigger than that range but you know, I I mean, I really think we need to get through this next month.

obviously, if we see, you know, things really changing, you know, in either direction, you know, we'll update people, um, at a conference somewhere along the way, but, um,

Right now, you know, we're in the middle of trying to digest all these announcements that happened last week and this week, you know. So every customer we have every retailer. Every consumer, you know, are trying to figure out what does this mean for me right now? And and what am I going to do in this context?

Vincent Andrews: Okay. Gotcha. All right. Thanks so much.

So, we just got to see how it plays out.

Okay, gotcha. All right, thanks, thanks so much.

Becky: Thank you. Our next question comes from Aleksey Yefremov from KeyCorp. Your line is now open. Please go ahead.

Thank you.

Our next question comes from Alexi. Yeah. From from keyop, your line is now open. Please go ahead.

Patrick Cunningham: Good morning. Mark Costa, to me, you sound less optimistic about methanolysis sales this year and at the same time more optimistic about next year. Could you maybe talk about this contrast, why there is this difference, and any sort of signs of confidence you have into this ramp in methanolysis next year?

Uh, good morning, uh, Mark uh, to me you sound uh, less optimistic about methanolysis sales this year and at the same time, more optimistic about next year, do you maybe talk about?

this contrasts why uh, there's this difference and any um sort of

Find the confidence you have into this ramp and methanolysis next year.

Mark Costa: Sure. So, it is a great question. Obviously, in our prepared remarks, we have acknowledged that things are going a bit slower. The interest in renew, I think, and recycled content is still very much there from an in-market point of view, both in the specialties, which is what the purpose of this current plant is aimed at serving, as well as ARPET, which is partially going to be served off of this facility as a way to fill the assets. Then as we migrate and upgrade specialties, we will move that PET to the second plant. But when I look at the overall underlying dynamics about demand, you are attached to the underlying market, right?

Sure. Um, so you know, it's a great question. Obviously, in the prepared remarks, we've acknowledged that things are going a bit slower.

You know, the the interest in renew I think in recycle content is still very much there from an in Market point of view, both in the Specialties, which is what what the purpose of this current plant is is is aimed at serving as well as, you know, you know, our pet. Um, you know, which is, you know, partially going to be served off of this facility as a way to fill the assets and then you know as we migrate and upgrade Specialties will you know move that Peak plan.

um,

Mark Costa: So we have proven in Triton over more than a decade that we can grow well above the market by being BPA-free and substituting out of other materials and making market share and growing incredibly well. That is true, but there is still some connection you have to the market. So if the market is incredibly challenged, it is going to moderate the rate at which your customers launch new products that have your renewed content in it, which we have talked about. So that is the short-term dynamic of everything we have been talking about in this call. When it creates that challenge in durables, it slows down the rate at which people are adopting new features and launching new products in that space. Even true in luxury cosmetics, that market is also a bit challenged and moving a little bit slower as another key market.

but when I, when I look at the, the, the, the overall underlying Dynamics about demand, um, you know, you are attached to the underlying market, right? So we've proven and right, and over the last

You know, over more than a decade that we can grow, well, above the market by, you know, being BPA free and subsequent to that of the materials. And if they can market share and growing incredibly well, and that's true, but there's still some connection you have to the market. So if the Market's incredibly challenged it's going to moderate the rate at which your customers launching your products, that have your renewed content in it, which we've, we've talked about. So, that's the short-term dynamic.

Of everything we've been talking about in this call.

You know, when it creates that challenge and durables it slows down the rate at which, you know, people are adopting new features, and launching new products in, in that space.

Mark Costa: What I would say is we are not seeing any signs where suddenly people think plastic waste is good, right? A lot of people are debating climate, but I have not seen anyone debating plastic waste and wanting it out of their environment and not impacting their lives. That is not going away. The rate at which customers want to solve this problem when they are incredibly economically challenged this year from tariffs for raw materials they are buying or market demand that is not that strong, the rate at which they adopt is slowing down.

Even proven luxury Cosmetics, you know that markets also a bit challenged and moving a little bit slower um as another key market. So, you know, but what I would say is I don't we're not seeing any signs or any people think plastic waste is good, right. You know, a lot of people are demanding debating climate. Um,

Mark Costa: But as you get to economic stability, I am pretty confident that this issue is going to be important and the responsibility that brands have to address their plastic waste in the environment is going to be there. There is going to be continued pressure, and there is lots of regulation that is still happening in Europe and the U.S. driving it. So, in this context, we still have over 100 customers on the specialty side committed and buying and paying premiums. We are just not ramping up orders as fast. We are not seeing a bunch of order cancellations. We are just not seeing the ramp-up as fast as we would like. As I mentioned on the ARPET side earlier, we are picking up more interest in demand for next year.

But I haven't seen anyone debating, you know, plastic waste, you know, and wanting it out of their environment and not impacting uh their lives. And so you know, that's not going away. Um you know, the rate at which customers want to solve this problem when they're incredibly economically challenged, you know this year um from tariffs for raw materials are buying or market demand. That's not that strong um you know the rate at which they adopt is slowing down. Um but as you get to economic stability and I'm pretty confident that, you know, this issue is going to be important and the responsibility of brands have to address their plastic waste in the environment. It's going to be there, there's going to be continued pressure and there's lots of Regulation that's still happening in Europe.

In the U.S. driving it, so in this context, you know, we still have.

You know, over 100 customers on the specially side committed, um, and buying and paying premiums. They're just not ramping up orders as fast. Um,

We're not seeing, you know, a bunch of order cancellations. We're just not seeing the ramp up.

Mark Costa: We do not have it available this year because we are still in the middle of switching our Triton line over to making PET, where we would be selling it now. But as we bring that on in the fall, and those two of our largest brands, in fact, on the ARPET side, committing to meaningful volume next year. What is most interesting about that is it is because mechanical ARPET is not working in some of their applications. They are having performance issues, color issues, integrity issues around the product on the mechanical side. So they need chemical recycled product, which is identical to virgin, to have recycled contents for it not to be brown or yellow relative to other products on the shelf or not being able to make bottles quickly enough because of integrity issues, et cetera.

Um, as fast as we'd like, um, and as I mentioned on the rpet side earlier, we're picking up more interest in demand for next year. We don't have it available this year because we're still in the middle of switching, our Triton line over to making pet, where we'd be selling it now. Um, but as we bring that on, in the fall, you know, and and those, uh, 2 of our largest brands, in fact, um, on the r bed, side committing to meaningful, meaning, meaningful volume next year. Um,

Mark Costa: So, that confirmation that we have a differentiated value proposition in ARPET with chemical recycling and we are the only player in the world that can do it effectively, I still think it is going to be a big competitive advantage for us and create a lot of value in the future.

Performance issues, color issues, Integrity issues around the product, um, the the on the mechanical side. Um, and and so they need, you know, chemical recycled product, which is identical Divergent uh to have recycled content for it not to be brown or yellow relative to other products on the shelf or not, you know, being able to make bottles quickly enough because of Integrity issues, ETC. So you know that confirmation that we have a differentiated value proposition in our pet with chemical Recycling and we're the only player in the world that can do it effectively. Um well um, I think still think it's going to be a big competitive Advantage for us and create a lot of value in the future.

Patrick Cunningham: Thanks, Mark. If you had to guess next year, fibers flat, up, or down in terms of earnings?

Thanks, Mark. And, um, if you had to guess, next year Fibers and Flats—up or down in terms of earnings?

Mark Costa: Great question. Thank you for it. It is one we are spending a lot of time on and focusing on. The fibers business and the decline we are seeing this year is certainly more than we expected at the beginning of the year. To frame the fibers conversation, I want to unpack what is going on within the segment. One question already came up, which is, what is going on in the segment? I highlighted textiles as a $20 million headwind within the segment. In addition to that, there is about a $20 million asset utilization headwind as we are pulling inventory down here to free up cash, just like we are doing in AM and other parts of the portfolio. I would say the utilization impact here is meaningful for the segment at $20 million.

Uh great question. Um thank you for it uh it's 1. We're spending a lot of time on and focusing on. Um,

You know, the fibrous business and the decline we're seeing this year is certainly more than we expected.

Um, at the beginning of the year and um, to sort of frame the, the fibers conversation. I want to sort of unpack. What's going on within the segment? Uh, 1 question already came up, um, which is, uh, you know, what's going on in, in, in the segment and I highlighted textiles as a 20 million dollar headwind within within the segment, um, in addition to that, uh, um, there's about a 20 million dollar asset utilization headwind. As we're pulling inventory.

Mark Costa: There is about $10 million to $15 million of higher energy cost that is not covered by the cost pass-through contracts. When you look at that, put those all together, that is about 40% roughly of where the decline is headed, roughly. That gets you to thinking about those businesses. Both the asset utilization comes back as a tailwind next year, as long as we have growth in textiles and other things. The vast majority of that utilization headwind is before you get to spinning tow. It is in the making of the plastic and the stream that feeds into it. Any growth anywhere in the portfolio on cellulosic plastic will actually turn that $20 million into a tailwind for fibers.

Down here to free up cash just like we're doing in mm and other parts of the portfolio. Um, and uh, yeah, I would say the utilization impact, um, here is is, is, is, you know, meaningful for the segment and 20 million. And then there's about 10 to 15 million dollars of higher energy cost.

uh that's not covered by the cost passive contracts so when you look at that you put those, you know, all together um you know that's about 40% roughly of of you sort of where the declines headed um

You know, roughly, um, and that gets you to, um,

You know, thinking about those businesses, both the asset utilization comes back as a tailwind next year.

Mark Costa: Then you have recovery in the Naya textile business that we are moving with our customers outside of China as they are trying to manage their tariff exposures, as well as winning business in new accounts around the world and finding ways to get some of our Chinese business back as tariffs have settled a bit. All that becomes an offset relative to whatever happens in the remainder of the decline this year, which is tow. On the tow side, what I would say is we do not see a shift in market. It is still declining 1% to 2%. We always expected losing some volume as the Chinese capacity came online and everyone had to adjust their market shares to make room for that capacity.

Um, as long as as as we have growth in textiles and event, and other things. Um, so the vast majority of that utilization headwind is before you get to spinning toe. It's in the making of the plastic and the stream that feeds into it. So any growth anywhere in the portfolio on cellulosic plastic, uh, you know, we'll actually sort of turn that 20 million dollars into a Tailwind for fibers. Um, and then you've got, you know, recovery in the Nia textile business. That we are, you know, moving with our customers outside of China. Uh, as they're trying to manage the Tariff exposures, as well as you know, winning business in new accounts around the world and finding ways to get some of our Chinese business back is sort of tariffs that settled a bit. Um,

So all that sort of becomes an offset relative to whatever happens in the in the remainder of the decline this year, which is toe.

Um, on the toe side, what I'd say is we don't see a shift in the market, still declining 1% to 2%. You know, we always expected to lose some volume as the Chinese capacity came online and everyone had to adjust.

Mark Costa: The volume is turning out to be worse than that because there is a bunch of destocking going on, as we talked about in prior calls where people were holding a lot of safety stock and now are feeling a little more safe about not needing as much safety stock and destocking. They were clearly holding a lot more inventory than we expected. There is another dynamic going on as well, which is we had some medium-sized customers that were very aggressive in wanting to grow their market share in the cigarette industry. We are adding capacity for that and building inventory to fill that capacity and signing contracts that committed them to grow that volume with us and have our support.

Uh, their market shares to sort of make room for that capacity. Um, but the volume, you know, is turning out to be worse than that because there's a bunch of these stocking going on, um, as we talked about in Prior calls where people are holding a lot of Safety stock and now are

Feeling a little more safe about not needing as much Safety stock and D stocking and and and they were clearly holding a lot more inventory than than we expected. Um, but there's another Dynamic going on as well, which is

Mark Costa: Unfortunately, these customers were not successful in growing their share and actually ended up losing a little bit of share so far. They are obviously not happy about that. They are trying to take their share back. In this current situation, they are trying to destock the inventory that they built for that growth that is not playing out. For us, when we had that expectation of that growth and we had sort of given up some share with our price discipline in a few other places in this market context, we had an expectation of how volume would net out that is not playing out the way we expected. There is a range of actions we are planning to take right now to address this situation and be very focused on maintaining stability for us in this market.

We had some, uh, medium-sized customers um, that uh, were very aggressive and wanting to grow their market share in the, in the, in the cigarette industry, and we're adding capacity, um, for that and building inventory to fill that capacity and signing contracts, that committed them to, you know, grow that volume with us and having our support. Um, but unfortunately, these customers were not successful in growing their share and actually ended up losing a little bit of share so far. Uh, they're obviously not happy about that. Um, and they're trying to take their share back, but in this current situation, they're trying to destock the inventory that they built for that that growth that's not playing out.

And for us, you know, when we had that expectation of that growth and we had sort of given up some share with our price discipline and a few other places in this market context. We, you know, we had an expectation of how volume would net out that isn't? You know playing out the way we expected. There's a range of actions we're planning to take right now to address this you know situation. Um

Mark Costa: That, I think, is sort of where we how we got here. We did not really get some of these insights from these medium customers until Q2, which is what we are adjusting to now. From a destocking point of view, while there is a lot of destocking certainly going on this year, it is reasonable to expect next year it will be less than this year from what we can tell. We have got all these offsets of things like utilization and textiles, et cetera, being an offset to this Estron acetate tow dynamic. If you put it all together, we think we can stabilize the situation as we go into next year.

Is sort of where we, how we got here. We didn't really get some of these insights from these medium customers, until the second quarter, which is, you know, what, we're adjusting to now, you know, from a decocking point of view, whether it's a lot of you stocking, certainly going on this year, it's reasonable expect next year. Uh, it will be less than this year from what we can from what we can tell. Um, and we've got all these, you know, offsets of things like utilization and textiles Etc, you know, being an offset to this toe Dynamic. So you put it all together. We think we can stabilize the situation as we go into next year.

Patrick Cunningham: Thanks, Mark.

Thanks Mark.

Becky: Thank you. Our next question comes from Kevin McCarthy from Vertical Research Partners. Your line is now open. Please go ahead.

Thank you on. Next question. Comes from Kevin McCarthy, from vrp. Your line is not open. Please go ahead.

Kevin Mccarthy: Thank you. Good morning. Mark, in the prepared remarks that you released last night, I think you mentioned that you are now targeting additional cost cuts of $75 million to $100 million. Can you maybe elaborate on the actions that you are taking and how those savings might flow through the financials over the next, I do not know, several quarters here?

Thank you and good morning, Mark in the prepared remarks that you released last night I think you mentioned that Youre now targeting additional cost cuts of $75 million to $100 million. So can you maybe elaborate on the actions that you're taking and how those savings might.

Flow through the financials over the next I don't know if.

Several quarters here.

Mark Costa: Well, Ed, we'll look at the cost reduction targets, and then I'll add a couple of comments to that.

Well it really hit the cost reduction targets and then I'll add a couple of comments to that.

Salvator Tiano: Thanks, Kevin. Good morning. Obviously, in this environment, we're focused on building on the improvements that we've made here in 2025 as we enter 2026. We've got detailed plans that we'll be pulling together in the back half of the year that enable us to again deliver another $75 million to $100 million as long as the environment continues to persist. I would say also just highlight that our actions do not reflect a change in our strategy. As we think about innovation and excellence in how we execute, having an efficient and effective cost structure goes hand in hand with achieving that and generating returns over the long term. Our actions range from optimizing our contract partners and then the overall usage of that. I think we've shown in multiple economic environments that we ultimately take structure that looks fixed and make it bearable.

Thanks, Kevin Good morning.

Obviously in this environment, we're focused on.

Building on the improvements that we've made here in 2025 and as we enter 2006 and we've got detailed plans that we'll be.

Pulling together in the back half of the year that enable us to again deliver another $75 million to $100 million.

Sure.

As long as the environment continues to persist.

Also just highlight that our actions do not reflect a change in our strategy and as we think about innovation and excellence in how we execute.

Having an efficient and effective cost structure.

It goes hand in hand, with achieving that and generating returns over the long term.

Our actions range from optimizing our contract partners and then the overall usage of that I think we've shown in multiple economic environments that we ultimately take structure that looks fixed and make it bearable.

Salvator Tiano: As we think about reliability and maintenance execution, that is a focus as we continue to enhance and deliver reliability over the long term and reduce overall maintenance. As we think about purchasing an MRO for in this environment, as we're going through tariffs right now, we're looking at how do we optimize that supply chain and ultimately overall mitigate and reduce that cost structure. Energy efficiency, as Mark has highlighted, energy is a headwind this year, and that's core, and we have opportunities on that front. Obviously, in this type of environment, it will also result in reduced labor costs as we think about year-over-year performance.

As we think about reliability and maintenance execution that is our focus as we continue to enhance.

And deliver reliability over the long term and reduce overall maintenance.

As we think about purchasing.

Moro burner.

In this environment as we're going through tariffs right now we're looking at how do we optimize that supply chain and ultimately overhaul mitigate and reduce that cost structure energy efficiency as mark has highlighted.

Energy is a headwind this year and.

That's core and we have opportunities on that front and obviously in this type of environment.

<unk> also moved at all and reduced labor cost as we think about the year over year performance.

Mark Costa: Yeah. What I would just sort of like to add to this is, you know, it came up earlier, where do we view the world next year, and are we really worried about it getting worse? First of all, to be clear, you cannot annualize the back half of this year, you know, with what we are going through. You cannot, you have got all this asset utilization headwind that is distorting. You have got normal seasonality that you would always have to correct for, where we are more 55%, 45% first half to back half normally. And you have got the sort of pre-buy dynamic and just the absolute chaos of tariffs and how it is impacting demand behavior in the marketplace. So you cannot do that.

What I would I'd just like to add to this is <unk>.

Came up earlier.

Where do we view the world next year, and we really worried about getting worse.

First of all to be clear you can't annualize the back half of this year with what we're going through you can't you've got all this asset utilization headwind. That's distorting you've got normal seasonality that you would always have to correct for where we're more 50, 545% first half to back half normally.

And then you've got the sort of pre buy dynamic and just the absolute chaos of tariffs and how it is impacting demand behavior in the marketplace. So can't do that so.

Mark Costa: When we think about cost structures and what we are trying to do going into next year and really think about on a full-year basis, how do we go from this year to next year, which I think is a better way to think about it, these cost actions are incredibly important. But what you did not hear Willie say is we are shutting down a bunch of plants and rationalizing them. A lot of the industry right now is going, both on the specialty and the commodity side are rationalizing plants, entirely because if they are doing that, they do not see that demand coming back in the future.

When we think about cost structures and what we're trying to do going into next year and really think about on a full year basis. How do we go from this year to next year, which I think is a better way to think about it.

These cost actions are incredibly important but what you didn't hear Willie say, because we're shutting down a bunch of plants.

And rationalizing that.

A lot of the industry right now both on the especially on the commodity side of rationalizing plants entirely.

Because if they're doing that they don't see that demand coming back in the future.

Mark Costa: And we are not doing that. We are actually confident with our innovation and the way we, you know, find ways to value up our facilities and grow and leverage them efficiently, like we did from PET to copolyesters to Triton or standard interlayers to acoustic interlayers to HUD. We believe that our asset base, outside of some tweaks here and there, is well positioned for the growth that we would expect to have in 2026 and 2027 and beyond. So that is, when you think about that $100 million that helps improve earnings next year to this year, when you think about the asset utilization, once again, focused on cash and discipline, that $75 million to $100 million headwind becomes a tailwind.

And we're not doing that we're actually confident with our innovation.

And the way, we find ways to value up our facilities and grow.

And leverage them efficiently like we did from <unk> to co polyesters, So Triton, our standard inner layers to acoustic inter layers to HUD.

We believe that our asset base, you know outside of some tweaks here and there.

Is well positioned for the growth that we would expect to have in 'twenty six 'twenty seven and beyond so.

So we think about that $100 million that that helps.

Prove earnings next year to this year.

And when you think about the asset utilization once again focus on cash and discipline.

You know that $75 million to $100 million headwind becomes a tailwind and the way to think about that as a tailwind.

Mark Costa: And the way to think about that as a tailwind, if the demand is really as bad as the back half of this year, it is a $50 million tailwind in utilization next year. If it gets back to the front half of this year, it is a $100 million tailwind relative to this year. And just how those utilization numbers work. And to be clear, the demand was not strong in the first half of this year with all the dynamics that we are facing. We feel good about that being a tailwind for next year. We have all the innovation going on across the portfolio, growing, of course, the revenue on the Kingsport plant as we talked about. There is growth that we have and can see in new HUD interlayers on the Aventa products gaining traction and being key to driving that utilization in the cellulosic stream.

The demand is really as bad as the back half of this year, it's a $50 million tailwind in utilization next year. If it gets back to the front half of this year to $100 million tailwind relative to this year.

Just how those that those utilization numbers work.

And to be clear the demand was not strong in the first half of this year.

With all the dynamics that we are facing so we feel good about that being a tailwind for next year.

We've got all the innovation going on across the portfolio growing of course, the revenue on it on the Kingsport plan as we talked about.

<unk>.

<unk> growth that we have and can see in new HUD. The inner layers on the event of products, gaining traction and being key to driving that utilization in the St. Louis extreme.

Mark Costa: New products in cosmetics and specialty plastics, et cetera, recovering Naya. We do think we will continue to have great discipline on managing our price cost. That will not be a headwind or a tailwind, but good to defend and manage and prove about the value of our products by doing that four years into a difficult world. Regional spectrum, some recovery in CI. Of course, with our cash discipline and improving operating cash flow next year versus this year, more cash to return to shareholders, especially since we are able to delay the step-up of the next methanolysis plant due to the advantages we have in the bottleneck in the current one. I think we are well positioned to recover next year, but as I said earlier, no one can predict where the absolute economy is going to go at this stage.

New products, and cosmetics and specialty classics et cetera recovering.

We do think.

We'll continue to have great discipline on managing our price cost.

And so that won't be a headwind or tailwind that you could do to defend and manage and proof about the value of our products by doing that for years into a difficult world.

Regional expect some recovery in Ci.

And of course, with our cash discipline and improving operating cash flow next year versus this year more cash to return to shareholders, especially since we're able to delay the step up over the next methanol plant.

Due to the the advantages we have in the bottleneck in the current one so yes.

I think we're well positioned to recover next year, but as I said earlier no one can predict where the absolute economy is going to go at this stage.

Kevin Mccarthy: Appreciate all the color there. Just to follow up on your add-on comment, Mark Costa, and listening to you, is it fair to say that as the U.S. moves into this new tariff regime, you do not anticipate any large changes in terms of portfolio composition? The reason I ask is in the second to last paragraph of the remarks, there was some commentary about addressing underperforming parts of the portfolio and a reminder that you have divested certain businesses in the past. But it does not sound like you have anything larger than a breadbox under consideration right now. Is that fair?

I appreciate all the color there just to follow up on your add on comment Mark in listening to you is it fair to say that as the U S moves into this new cherish tariff regime, you do not anticipate any.

Large changes.

Terms of portfolio composition. The reason I ask is in the second to last paragraph of the remarks, you know there.

There was some commentary about addressing underperforming parts of the portfolio and a reminder, that you've divested certain businesses in the past, but it doesn't sound like you have anything.

Larger than a bread box under consideration right now is that fair.

Mark Costa: In the short term, I think that's fair, Kevin. I think that, just to be clear, there's optimizing capacity, and then there's thinking about what businesses belong in the portfolio, which are two very different questions. On the first question around optimizing capacity, we've done things like optimize some production inside our Massachusetts site and interlayers. We're shutting the Singapore plant down and optimizing some capacity and heat transfer fluids to align with market conditions. None of those are big, significant cost cut steps, but it's just being conscious of managing cost structure. We'll continue doing things like that across the portfolio. That's part of what Willie McLain's talking about when we have network asset optimization. The E2P investment in CI is a structural investment to improve that site's performance.

In the short term I think that's fair Kevin I mean, I think that are you know and just to be clear, there's optimizing capacity and then there is thinking about what businesses belong in the portfolio, which are two very different questions.

On the first question around optimizing capacity, we've done things like optimizing production inside our Massachusetts site in inner layers or shut the Singapore plant down and optimize some capacity in heat transfer fluids.

In line with with market conditions.

None of those are big significant cost cutting steps, but it's just being conscious of managing cost structure.

And we will continue doing things like that across the portfolio. That's part of what will he is talking about we have network asset optimization.

The Edp investment in and she is a structural investments or improve that.

That site's performance.

Mark Costa: As we are more prepared to get into the details of that, we'll give you more insight on what that means. Again, we're not shutting the entire site down. In Europe, there's just major sites all being shut down by companies left and right. We're probably going to be to 30% shut down by the end of the year over the last four years. We're not seeing that. When it comes to portfolio, we're always disciplined. I think we've proven that. We've proven it with adhesives and tires and the Cetic asset plan. If you want to go back far enough in history, we've proved it from 2006 to 2012 in divesting a lot of underperforming businesses. We'll always keep an eye on that and look at what belongs in our portfolio and be open-minded to things that can be segregated and separated from the company.

And so there.

<unk> are more prepared to get into details of that.

We'll give you more insight on what that means but again, we're not shutting the entire site down like.

Like in Europe, Theres, just major sites, you saw being shut down by companies left and right and we're probably going to be 30% shut down by the end of the year.

Over the last four.

Years.

So we're not seeing that when it comes to portfolio. We're always disciplined I think we've proven that we've proven it with adhesives and tires in the seat and gas supply and if you want to go back far enough in history approved it from 2006 to 2012 and divesting a lot of underperforming businesses.

And we will always keep an eye on that and look at what belongs in our portfolio and be open minded to.

Things that can be segregated and separated from the company integration does create constraints on that.

Mark Costa: Integration does create constraints on that. Certainly, right now, the bottom of the market is not a time where you look at doing things like that.

But certainly right now at the bottom of the market is not a time when you look at doing things like that.

Yeah.

Greg Riddle: Perfect. Thank you. Let's make the next question the last one, please.

Perfect. Thank you.

Let's make the next question the last one please.

Becky: The next question is from Laurence Alexander from Jefferies. Your line is now open. Please go ahead.

The next question is from Laurence Alexander from Jefferies. Your line is now open. Please go ahead.

Vincent Andrews: Sorry, just to follow up on the innovation points you brought up, what are you seeing in terms of customers delaying versus canceling or accelerating their investments in evaluating new alternatives or innovative products? You know, is the uncertainty leading to a freeze in activity, or is it helping you on that front?

Sorry, just to follow up on the innovation points you brought up what are you seeing in terms of customers.

Delaying versus canceling.

Or accelerating their investments in evaluating new alternatives or innovative products.

Is the uncertainty leading to a freeze in activity or is it helping you on that front.

Mark Costa: That's great, but you're talking about across the portfolio because I think I've already hit it.

Oh, that's great, but you're talking about across the portfolio, because I think I've already hit across the portfolio and just what are your customers because that's always been one of your differentiation just curious.

Vincent Andrews: Yeah, across the portfolio just for your customers, but that has always been one of your differentiations. I was curious, is it becoming a demand pull for 2027, 2028, 2029, or is it becoming more of a concern?

Is it becoming a demand pool for.

27, 28, 29 or is that becoming more of a concern.

Mark Costa: is interesting across the portfolio, I would say, is customers are still highly engaged. You know, they like us realize that to get out of a weak environment, you have to create your own growth. You cannot just sit there and wait for things to get better. You also want to maintain your differentiation against competition. So whether it is next-generation HUD and different versions of that, we are seeing very strong engagement in the auto industry as well as specialized products necessary for the EVs, which are still growing in lots of parts of the market. You know, you see a lot of engagement there, a lot of engagement around Aventa as a solution. Polystyrene is being banned in a lot of food tray, protein tray applications or straws and this, that, and the other.

And what's interesting across our portfolio I would say is customers are still highly engaged.

They like us realize that to get out of a weak environment, you've got to create your own growth you can't just sit there.

And wait for things to get better.

And you also want to maintain your differentiation against competition. So whether it's next generation HUD and different versions of that we're seeing very strong engagement in the auto industry as well as spec.

Specialized products necessary for the Evs.

Which are still growing in lots of parts of the market.

You see a lot of engagement there a lot of engagement around events.

As a solution of polystyrene as being banned in a lot of food tray protein tree applications are straws and this that and the other in.

Mark Costa: The retailers or the food service companies need products to sort of solve those problems. So the engagement there has been very good, along with new products we are always launching, and especially plastics. We have a product that replaces polyethylene coatings for paper cups and other sort of paper food applications that have strong engagement. So across the circular platforms, across the automotive space, personal care space, et cetera, we are definitely seeing engagement. But the rate at which they are adopting is still constrained about economic reality here in the short term. With all this, everyone is just focused on how do you manage costs and get through these tariffs. But the great news is it has not resulted in a pause on engagement on innovation.

The retailers or the foodservice companies.

You know need products to sort of solve those problems of engagement there has been <unk> been very good.

Along with new products, we're always launching in especially plastics.

So we have a product that replaces polyethylene coatings for paper cups, and other sort of paper food applications that has strong engagement.

Across the circular platforms across the automotive space.

Personal care space et cetera, we're definitely seeing engagement, but you know the rate at which they are adopting.

It was still constrained about economic reality here in the short term.

With all this everyone's just focused on how do you manage costs and get through these tariffs.

But the great news is it has not resulted in a pause on engagement on innovation.

Vincent Andrews: Thank you.

Thank you.

Greg Riddle: Thank you very much, everyone, for joining us today. We appreciate your time. I hope you have a great rest of the day and a great weekend. Thanks again.

Thank you very much everyone for joining us today. We appreciate your time and hope you have a great rest of the day and a great weekend. Thanks again.

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

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

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