Good day, everyone, and welcome to the First Quarter 2024 Eastman Conference Call. Today's conference is being recorded. This call is being broadcast live on the Eastman website, www.eastman.com. I will now turn the call over to Mr. Greg Riddle of Eastman, Investor Relations. Please go ahead, sir. Okay. Thank you, Lydia, and good morning, everyone, and thank you 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 LaRoe, Manager, Investor Relations. Yesterday after market close, we posted our first quarter 2024 financial release and SEC 8-K filing. Our slides and the related prepared remarks in the Investors section of our website, www.eastman.com. Before we begin, I'll cover two items. First, during this presentation, you will hear some forward-looking statements concerning our plans and expectations. Actual events or results could differ materially. Certain factors related to future expectations are or will be detailed in our first quarter 2024 financial results news release, during this call, in the preceding slides and prepared remarks and in our filings with the SEC, including the Form 10-K filed for the full year 2023 and the Form 10-Q to be filed for the first quarter of 2024. Second, earnings reference presentation excludes certain non-core and unusual items. Reconciliations to the most directly comparable GAAP financial measures and other associated disclosures, including a description of the excluded and adjusted items, are available in the first quarter 2024 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. Lydia, please let's start with our first question.

Our first question today comes from Vincent Andrews of Morgan Stanley.

Mark, if I could ask you on the France project, could you talk a little bit about what you think the scope of the timing delay might be? It sounds like they're still committed to going forward there, but have some issues to iron out on the customer and the cost side. So what type of timing delay are we talking about? And what's your confidence that both of those issues will be resolved?

Thank you for the question. We are very enthusiastic about our circular platform and pleased with the functioning of our first plant, which demonstrates that our technology is effective. We have many engaged customers and are optimistic about the long-term prospects, particularly with the support from the DOE grant and our contract with Pepsi, which bolsters our confidence. We believe the European market will be highly appealing in the long run. However, we are facing two main challenges, as mentioned in our prepared remarks: regulatory uncertainty and the ongoing work needed to manage inflation and position our capital expenditures effectively for good investment returns. We feel confident in our ability to handle capex effectively. Ultimately, it hinges on customer contracts and EU policy. It's worth noting that the European Union is ahead of the rest of the world in addressing carbon and climate change issues through aggressive policies and is also acknowledging their packaging waste dilemma. They want to implement strategies that compel brands and suppliers to tackle packaging waste, which often contributes to carbon emissions. The EU is finalizing a comprehensive policy that includes goals for reducing and reusing materials, aiming to significantly increase recycling rates. However, a recent change has introduced uncertainty regarding how brands will meet recycled content targets. Currently, only about 12% of PET is recycled back to food-grade bottles, but the target is to reach 25% next year, making it a daunting challenge. Additionally, there are WTO concerns regarding imports. The policy shift from requiring local materials to allowing imports has complicated the situation due to strict sustainability standards. This complexity makes it challenging for many countries to meet equivalency requirements. It also affects consumer brand equity because using imported materials can undermine local recycling efforts, increasing incineration rates and conflicting with EU carbon goals. The recyclability criteria demand high recycling rates in the EU, complicating matters further. Consumers prefer policies that enhance local recycling rather than addressing waste from abroad. This uncertainty reinforces our commitment to our circular contracting model, emphasizing our role as a service provider for brands in solving their plastic waste challenges rather than re-entering the commodity market. We remain dedicated to pursuing long-term take-or-pay contracts that ensure stable margins. We are actively engaging with customers, though the current environment is slowing our discussions about contract structuring. Additionally, we are focusing on applications that cannot utilize mechanically recycled materials due to performance needs, and we believe that long-term, mechanical recycling is unsustainable without complementary chemical recycling to rejuvenate the materials. We remain confident in the long-term market structure and are committed to building this facility, but we must adhere to our milestones and secure contracts as planned.

Okay. And what about on the cost side of the equation? It seems like you're still working on that as well.

I mean inflation, I think, has been an issue for every project out there that I've seen in our industry. The supply chain crisis has driven up the cost of everything from labor to equipment, etc. So all projects have had some amount of escalation to it. We have a good plan to get the capital to where it needs to be on the Longview plant, and we have developed a plan on how to get the capital down on the French plant. But it's going to take a little more work on some of the elements of doing that. And so while we're working on getting these contracts, we're taking that extra time to continue working on reducing the CapEx. But we feel that we have a pathway to manage that issue.

Our next question comes from Aleksey Yefremov of KeyBanc.

Mark, just to follow up on this, do you have any idea to what degree this delay in France could maybe help you load the Kingsport facility for specialty applications?

So we have a lot of different flexibility. That's the beauty of how we manage all of our polymer lines in how we optimize value. Today, we do it from Tritan to copolyesters to medical PET. And every line we have built, the ones in France as well as the Texas project, will have the flexibility to make both PET and specialty products. So we're always going to optimize value and mix. That's the heart of our business model, and we're very good at doing it. So in that sense, it doesn't really matter which project gets built first. We'll sort of optimize value between specialty and PET as we sort of build out our sort of our global position. The first plant is already very much focused on specialty applications. So we'll be driving into Tritan, into cosmetic packaging, into shrink packaging, into a variety of different applications and leveraging that up. And there's things we're working on to expand and extend the capacity on the first plant as we get it up and running while we sort of work on building the second and third plants. And so whichever plant gets built first between Texas and France, we'll optimize value between PET, which we have the contract with Pepsi on and specialty to maximize value as we build out the portfolio.

And on the annual guidance, a nice beat in Q1. You have a lot of details in the press release. But in general, a strong start of the year, why not raise the full year? Did anything change in the rest of the year to keep the guidance the same? Or is it more conservatism than anything else?

It's more of the latter. We're very proud of the beat we had in Q1 and the fact that it was volume-driven, which is key considering the challenges we faced last year, something the whole industry dealt with. To see that volume return better than expected gives us confidence, especially since it has returned in the specialties, where we generate the highest value for our portfolio. We feel good about that. Looking at our guidance, we clearly have confidence in AM and AFP, and we expect Fibers to perform better. CI is always a bit uncertain. The main reason we didn't upgrade the range is that it's the first quarter. There is considerable macroeconomic and geopolitical uncertainty that we all face daily. We wanted to adhere to our approach from January, which is that this is an economy-neutral forecast. We are not projecting improvements in fundamentals for the latter half of the year to achieve this range, nor are we forecasting a decline in underlying demand for that period. We're stating it as neutral. We believe fundamentals will improve in the latter half, which could provide upside to our forecast. If there are concerns about geopolitics, there may be risks to the midpoint of our forecast. But at this point, it seems prudent to be cautious until we see how things develop.

The next question comes from Duffy Fischer of Goldman Sachs.

Can you just give us some more details around the methanolysis plant that's been running, let's say, for a month now? I'm sure some stuff you can't. But things like what's the premium looking like? What's the breadth of feedstock that you've been able to run through? Maybe just kind of an update on how the plant's running and how you would expect it to ramp from here over the next couple of quarters?

Sure, Duffy. We're thrilled to have this first plant operational. It will be the largest chemical recycling facility in the world, and we are eager to demonstrate its potential not only in terms of generating earnings and growth for our stakeholders but also in addressing significant environmental issues. It's remarkable to see waste entering the plant and coming out as high-quality material. The technology is complex, making the startup more challenging compared to building a standard commodity asset. The positive news is that we have confirmed the process chemistry works, which was the main concern for many. All components are functioning as designed, and the plant can operate continuously. We feel confident about the design and structural integrity of the plant. However, we are about four weeks behind schedule, as mentioned earlier, and our primary focus remains on ensuring reliability. We have not yet expanded our feedstock slate or significantly increased capacity until we resolve mechanical issues. The issues we are encountering are solely mechanical and not related to the process chemistry, and we've addressed most, if not all, of the initial construction errors, leaks, and equipment installation problems. We have also experienced higher than usual early failures in certain equipment like instruments and valves, which is a challenge faced by many in our industry due to the recent supply chain crisis. These issues are straightforward to fix but can slow us down as they require our attention. We've also faced reliability concerns with rotating machinery, particularly pumps, which involves a mix of assembly quality, design issues, and operational learning. We have conducted a thorough root cause analysis and feel confident in our understanding of the issues. We're close to completing the necessary corrective actions. Overall, mechanically, we feel positive about our progress. The plant is operational and our current priority is serving our customers, and we are in the process of ramping up production and expanding our feedstock slate. The majority of our operations involve a monomer called DMT, which consistently meets our quality standards. The main concern regarding impurities is linked to EG, which represents a smaller portion of the plant. As we ramp up production and test additional materials, we are optimistic about meeting customer demand this year, which is below the plant's capacity. We are still focused on achieving the projected $75 million in EBITDA, even though the slower start presents challenges. Our approach remains to maintain steady operations to ensure mechanical stability before we ramp up and widen our feedstock sources, which will occur over the next quarter. We will have more updates during our second quarter call.

Great. And then in the market, it seems like there's been an inordinate number of PDH unit issues over the last couple of quarters. Maybe just bigger picture, how has that impacted your business? You obviously take a lot of propylene and make derivatives. But do you see that as a positive or a negative across your whole portfolio?

Well, first and foremost, the kind of propylene derivatives are predominantly going to show up in CI as far as the value goes, but there are propylene derivatives that go into AFP as well as AM. So there's parts of the propylene stream that goes across a whole integrated complex. When the outages occur, and the price of PGP goes up, that's good for us, obviously. But it's always a question of how does PGP move relative to the price of propane that gets us to that spread. And through the first quarter, we certainly saw PGP move up, but we also saw propane prices come in much higher than expected. So those sort of netted out to some degree. And as we go into this quarter, those spreads look like they're going to contract a bit from the first quarter with the way PGP prices have come off as outages have been resolved. So it's the nature of these olefin businesses where there's a certain amount of up and down in spreads and that's just factored into our guidance.

Our next question comes from Frank Mitsch of Fermium Research.

Mark, I appreciate your insights on the situation in France. I'm trying to understand how consumer brand companies are making claims about their recycled content goals for the coming years, while many believe they won’t meet these targets. It appears they are hesitant to engage with recycled materials unless there are government incentives or regulations in place, which seems somewhat contradictory. This raises concerns about their genuine commitment to recycled content. Given the current circumstances, what are your thoughts on the possibility of abandoning the France project if things do not go as expected?

Every customer we meet with is highly dedicated to addressing the issue of recycled content and ensuring their packaging contains higher rates of it. Many top brands aim for 100% recycled content in their packaging, exceeding current regulatory standards. This shows a strong commitment to sustainability. However, there is a significant shortage of recycling infrastructure globally, particularly in mechanical recycling, and many brands recognize that their mechanical recycling efforts may not function effectively. Therefore, chemical recycling will be essential in the long run. So far, I've encountered no one who believes that both mechanical and chemical recycling are not needed. The demand is clear, but the challenge is how to fulfill that demand. Presently, data shows a rise in affordable imports of PET into the U.S. and Europe, which helps brands manage costs and meet short-term targets. However, this approach does not genuinely resolve the underlying issue: consumers in Europe want waste removed from their surroundings and do not want to contribute to other countries' waste problems. Hence, brands must navigate the balance between economic considerations and the real goal of improving local recycling. As current PET prices are relatively low and imports are accessible, brands face decisions that impact the future, especially as regulations will likely require higher recycling rates in the U.S. and Europe. This situation has extended the time needed to finalize contracts, but I believe these brands will ultimately do what is right for addressing waste issues in the U.S. and Europe, even though negotiating these contracts is taking longer than we anticipated.

I appreciate that. It seems like a clear opportunity. You appear to be the best option for them to engage in chemical recycling, which is more effective than mechanical recycling, although progress is a bit slower. I have one more question. In your prepared remarks, you mentioned a partnership with Patagonia involving the recycling of unusable apparel. What exactly do you mean by unusable apparel? Is it related to off-spec products? Can you share more details on that? Are you planning to expand this initiative with other consumer brands?

It's a great story. Patagonia is a leader in Europe when it comes to recycling. They have a take-back program that encourages customers to return items like fleece vests instead of discarding them, preventing them from ending up in landfills. This program genuinely promotes a circular approach to textiles, tackling a significant problem since textiles are the second largest source of plastic waste in landfills and incineration, following packaging. Patagonia is at the forefront of environmental efforts, thoroughly researching their initiatives. They take back garments, shred them, and recycle them into fibers such as Naia fibers for some of their products, creating a real circular economy in the textile industry. We are keen to expand this program and collaborate with other companies, especially fast fashion brands that traditionally focus on a business model of creating waste. With upcoming regulations in Europe concerning waste and existing consumer pressure, this circular initiative is increasingly relevant. We can integrate these materials back into our CRT process to produce Naia fibers or into the polyester plant to create polyester chips, offering us numerous opportunities. Although we don't anticipate high volumes immediately, developing this model is crucial for achieving a future with minimized waste. Furthermore, the new technology, like our Texas project, aims for a 90% lower carbon footprint and is extremely compelling in terms of addressing waste and decarbonization. We are very excited about the prospects this brings to the marketplace.

Our next question comes from David Begleiter of Deutsche Bank.

Mark, on the Longview project, if you could reach FID in Q3, what's the timeline from there for construction and start-up?

Yes, that would have a plant sort of coming online in the second half of 2027.

And would the cost compare to Kingsport?

The capital costs vary. The methanolysis unit will be significantly less expensive to construct than the Kingsport plant due to the lessons we've learned in previous projects, which we've discussed in earlier calls about improving plant construction efficiency. We aim to avoid the construction challenges we faced before, and our experience in both building and operating plants has provided us with better insights for enhancements that will reduce overall costs. Therefore, we are optimistic about the methanolysis plant being cheaper to build than Kingsport by a substantial margin. However, Kingsport benefited from extensive polyester lines and existing infrastructure for material handling and energy supply, which we could utilize without needing to invest in additional energy or steam setups. For the Longview plant and the France project, while the methanolysis component is less costly, we will need to establish additional polymer lines and build various infrastructure that is not present in those locations, resulting in higher total capital costs. Thankfully, we have strong support from the DOE grant of $375 million that significantly helps with the project's economics, offsetting inflation and covering the extra scope we added for the thermal battery and solar facility, which enables us to achieve a 90% reduction in carbon footprint as mentioned. Similarly, for the French plant located in a cornfield, we need to add infrastructure, and we are building a biomass steam plant instead of leveraging existing energy setups like we did at the Tennessee site. Each project has unique requirements and both enjoy various supportive incentives. We haven't disclosed the total amount of support from France yet, but it is substantial. I must emphasize the French government's incredible support regarding incentives, permitting, and ensuring that the policy framework is favorable in Europe, for which we are truly grateful.

And Mark, if I could ask just on Fibers. And obviously, strong top line driven by Naia. I read your prepared comments. How should the top line trend in Fibers as you move through the rest of the year?

I think that the Fibers trend from a volume point of view is a bit less in the back half of the year than the first half. So volume and earnings will be a little bit less in the back half of the year. And it's just timing of customer orders. It's sort of normal. We've always talked about this business. The order pattern of the customers is a little bit unpredictable across the year. So it's just that. But the textile side will continue to grow and provide earnings growth. The tow volume obviously, as I just said, will come off a bit, and the back half will be a little bit lower in the first half.

Our next question comes from Jeff Zekauskas of JPMorgan.

What's the depreciable life of the Kingsport methanolysis plant?

The depreciable life, you can just think about around 20 years for the Kingsport facility. And honestly, that would be true for each of the large circular recycling plants that we're building.

Great. And in terms of the volume growth in the quarter, Additives & Functional Products shrank 1%. Which of the subcategories declined in volume in the quarter? And in Advanced Materials, where you were up 4%, how would you compare what happens in Specialty Plastics to interlayers to performance films? Did they all grow? Did some of them shrink?

Sure, Jeff, that's a great question. For Additives & Functional Products, we saw a net decrease of 1%, which is largely flat. There were significant factors at play. Coatings and care chemicals experienced strong growth in the first quarter. However, we also faced reduced demand for specialty fluids and heat transfer fluids, which balanced each other out. In Agriculture, there are unique factors at work; year-over-year, we are still seeing destocking from last year, leading to decreased demand. Nevertheless, we observed greater-than-expected improvement in agriculture demand from Q4 to Q1, as it turned out that less destocking was necessary than initially anticipated. Confidence in this year's agriculture season is higher. In North America, destocking appears to be complete, although there are still some residual effects and competitive pressures affecting our customers in Latin America. Most of our business is centered in North America, so we feel positive about the agricultural segment's performance. In Advanced Materials, we experienced a strong recovery in the durable goods sector, with a sequential increase of 15% from Q4 and significant growth compared to last year. We also saw a 15% increase in shrink films, while the cosmetics sector showed good sequential growth. However, some of this growth in medical is being offset by ongoing destocking. Additionally, we are facing a tough comparison in performance films, as last year experienced a strong influx of orders from China. With the global automotive market being flat and down in China, demand for performance films this year is not as strong as it was last year against that challenging comparison. The interlayer segment remained relatively stable with flat inventory levels.

Our next question comes from John Roberts of Mizuho.

Sounds like the new Kingsport plant at the EBIT level will be modestly above breakeven in the second half. Do you still expect to get to corporate average or higher EBIT margins for that facility? And what happens with the other segment here as Kingsport moves out of other and you begin spending on Longview?

Thanks for the question. Just as a reminder, as we've highlighted earlier, we're on a pathway to the $75 million in incremental EBITDA. I would point out, obviously, in 2023, we had a net investment in the other and an expense of roughly about $25 million. So you can think about EBITDA growing from roughly consuming 25 to about 50 positive for the year. As we've highlighted, it took us a little longer to start up here in Q1, and that's the reason that other ran over on the EBIT view. As we transition into the second half, we expect mostly all of the EBITDA growth to occur in the second half, and that would be primarily within Advanced Materials, and that's also why you see our confidence in the range that we provided for AM overall. As I look at it in total, basically, the EBITDA is still about 2/3 Advanced Materials, 1/3 in other for the full year. On the margin basis question, I would say it's above segment average margins on both EBITDA and EBIT basis in Advanced Materials.

Our next question comes from Kevin McCarthy of Vertical Research Partners.

Just a follow-up on Advanced Materials. Mark, it was nice to see your quarterly results. And I guess, if I look at the annual guide, you're looking for a 40% growth rate at the midpoint versus 2023 annual EBIT for AM. So maybe just if we zoom out the lens, your last couple of years have been kind of dislocated for that business. You're now seemingly coming back and regaining traction into a better place. What is your view of the likely growth rate? Or how do you see the puts and takes for that segment over the next couple of years? You had a few years where you did north of $500 million. Now you've got some methanolysis-related earnings flowing into the segment as was just discussed. So how do you see the glide path for AM in '25 and '26? Maybe some color there would be helpful.

We are very pleased to see Advanced Materials recovering from a challenging demand environment and returning to a path of strong growth and margins for our shareholders. The end of 2022 and 2023 marked a particularly difficult period for demand, with over five quarters of destocking and low activity across various discretionary markets, including B&C, durable goods, and even in robust sectors like medical. Most markets experienced destocking last year, except for automotive, which contributed to significant volume/mix challenges, particularly because these markets typically offer higher value. This year, we're focused on recovering volume from this destocking, not anticipating any improvements in market growth for discretionary segments in our forecasts. However, we plan to substantially recover earnings compared to last year. Looking ahead to 2025 and 2026, we expect to surpass our 2021 performance and continue growing from there. The current outlook does not factor in any market growth, which presents additional upside as those markets stabilize and recover. We are also beginning operations at the Kingsport methanolysis plant, which currently has low asset utilization and modest volume this year. As we maximize the plant’s potential, there is significant value to be unlocked, contributing an estimated $75 million to $150 million in EBITDA, with further upside projected for 2025. Our traditional innovation model is yielding positive results in other areas of Specialty Plastics, including growth driven by the circular economy in eyewear with our renew recycled loop initiative. The automotive sector continues to innovate and grow beyond market expectations, a trend that we anticipate will persist. With these diverse sources of volume growth, we are positioned to exceed 2021 levels and continue advancing. We expect asset utilization improvements, particularly from the methanolysis plant, which represents a considerable cost shift compared to last year. Regarding spreads, we expect them to remain largely neutral; we have successfully achieved attractive margins that can sustain investment in the business after facing inflation pressures. Prices may slightly decrease over time as raw material and energy costs decline, so in your modeling, I recommend not to assume changes in spread levels. Instead, recognize our solid margins and the opportunity to leverage volume against those margins for substantial earnings growth.

And then just as a brief follow-up, I think your commentary cited some new application wins in Advanced Materials. What are those? And do you see yourself as gaining share relative to competitors' broader market growth rates?

The model of this business has always been outpacing end markets because we are succeeding in applications compared to other materials. This has consistently been the case for Tritan and our copolyesters. For instance, we are experiencing significant growth in hydration bottles in China, a market we previously did not serve. They are using Tritan, and we are seeing an increase in those types of products. Additionally, we're expanding our reach with Black & Decker on their tools. Their first product launch using Tritan was a success, and they are now broadening their range of tools. We have also developed a patented new product for shrink packaging, which is a recycled code 1 item, making it fully recyclable, whereas previous products were not. This new product is gaining traction for us in terms of both volume and margin as we offer a more recyclable option. Naturally, incorporating recycled content enhances its value. Overall, we have numerous successes across our portfolio that have enabled us to achieve strong growth. While we are excited about methanolysis, which involves significant capital investment and innovation, we want to remind investors that our core model remains active, continuously winning business, and we are enhancing it with methanolysis as well.

The next question comes from Patrick Cunningham of Citi.

You seem confident that we're reconnecting with primary demand levels. Did you notice if any of the volume improvement in the first quarter resulted from some modest restocking? I've heard that might be occurring among paints and coatings producers or that some are building safety stocks in anticipation of geopolitical disruptions. I'm curious if you've observed any of that in the first quarter and what the expectations are for the second quarter.

I think there might be some restocking happening, but it's difficult to provide a definitive answer. When it comes to destocking and restocking, customers often aren't very clear about their intentions. However, there are instances where concerns about logistics at Red Sea have led some customers to purchase in advance as a precaution. That said, it’s challenging to determine if there’s a lack of destocking, slight restocking, or even some market growth. We really can't know for sure right now. What I can say is that this isn't a significant factor impacting our earnings based on what we've learned from customers. We're not observing any substantial orders indicating noticeable restocking.

Got it. That's helpful. And then just on the expanded scope for the Longview facility, is the funding you're receiving there from the DOE simply just offsetting that expanded scope? And how should we think about economic returns given this expanded scoping? And would you expect additional premiums? Or maybe are we reliant on some price for carbon abatement in the future?

Thank you for your question, Patrick. The Department of Energy program is structured to provide cash payments based on our negotiations, which serve as an investment offset to our capital expenditures throughout the construction period. Essentially, this acts as a direct offset to our capital costs. We anticipate receiving these payments as progress installments over almost three years of construction, with a potential total of up to $375 million. Currently, we are in discussions to finalize the terms of the award, and we expect to have clearer insights in the next three to six months. This funding will help alleviate not only the costs associated with thermal batteries but also account for additional inflationary pressures. We are optimistic about achieving returns greater than 12% on this project.

I think it's too early to determine the premiums related to decarbonization. It's evident that consumers are willing to pay extra for recycled content. Issues like product safety and plastic waste are very emotional for people, and they are unhappy about it. This dissatisfaction towards brands is leading them to pressure politicians for action. However, it's still unclear what premiums consumers will accept solely for decarbonization. I believe there is potential for growth as carbon becomes a cost due to new policies, but we are not factoring in any premiums from carbon in our core financials. As we advance with this compelling project, we will assess the value perceived by consumers in this area, particularly concerning the brands.

The next question comes from Josh Spector of UBS.

I had two questions regarding volumes. Looking at the first quarter, when comparing volumes to 2019, it seems to be your easiest comparison, as you were up 3% year-on-year. My first question is, how do you see the year-on-year comparisons on volumes progressing throughout the year? Do you expect to perform better or worse compared to the 2019 baseline? Additionally, I’ve noticed some fluctuations in the numbers. Where do you estimate your core volumes will be this year compared to 2019? How do you view the potential advantage if demand significantly improves or if there is a full reconnection, compared to just a general improvement?

Sure. It's easiest to break down our revenue portfolio into stable and discretionary end markets. The stable end markets, like medical and personal care, have seen consistent modest growth, about 2% to 3%, since 2019. However, there was a dislocation last year that led to destocking in these markets, which took 1 to 3 quarters to resolve. They have since reconnect with demand and are growing again, particularly medical and agricultural markets that faced the most significant destocking due to inventory fears in 2021 and 2022. On the other hand, discretionary markets, such as housing and automotive, are showing weaker demand compared to 2019, with existing home sales in the U.S. hitting a 28-year low and construction in China and Europe declining dramatically. For us, the existing home sales market is more relevant than new homes because of the demand for appliances and electronics. This market is currently very challenged but is expected to recover, though not this year. There is considerable potential for growth from current levels. The automotive sector is also facing issues, primarily due to semiconductor shortages and rising interest rates affecting car buying. Nevertheless, demand is set to rebound significantly. The durable goods sector has shifted towards services post-COVID, but at some point, consumers will likely return to a balanced approach between material purchases and discretionary spending. Currently, many of these metrics remain below 2019 levels. For this year, our guidance reflects a lack of destocking, some innovation-driven growth from methanolysis, and stable markets performing adequately. All the recovery I mentioned is potential upside for 2025 and 2026. I can’t predict exactly when it will happen, but there’s significant upside in our highest margin markets that are currently the most challenged. As those markets recover, we expect a strong tailwind for our performance.

I appreciate that. I guess if I try to wrap that all together, I mean, I struggle with if your volumes for 2019 versus 2018, are you flat? Are you down high single digits just considering the two offtakes? Is there a way to quantify that at all?

I don't have that answer for you. We evaluate everything on a market-by-market basis. What I've shared is how to think about it. Half of our revenue is very stable and growing, while the other half has significant upside potential at a high value. I'm not going to quantify that on a weighted average basis.

Our next question comes from Laurence Alexander of Jefferies.

Given the feedback from customers regarding the recycling plans you've initiated and your progress on the next two, along with the increasing awareness among consumers about available alternatives, is this influencing your approach to managing the balance sheet and the timing of projects over the next five to seven years?

I want to ensure I understand the question before answering. Our core business involves maintenance, which typically requires around $350 million in capital expenditures. Additionally, we make specialty investments to expand our capacity for various markets, bringing our total CapEx to between $500 million and $600 million with maintenance included. Beyond that amount, we have to make decisions regarding share repurchase versus investing in the circular economy. We currently have one plant operational, and we need to consider how to sequence the construction of our facilities in France and Texas. It's important to evaluate how the capital expenditures for these two projects, net of incentives, will fit together. We believe our balance sheet and cash flow are sufficient to fund these projects without incurring debt. Naturally, these projects will likely be staggered due to the permitting and contracting processes involved. It would be highly unusual for them to commence simultaneously. This staggered timeline is part of our planning as we navigate through 2025 and 2026.

Yes. So what I would just say is we're confident that we can keep a strong investment grade balance sheet through that. You're seeing that as we updated our guidance on capital this year of being $700 million to $750 million, and expecting share repurchases of $200 million to $300 million. And as Mark has outlined, we've always been agile between our growth investments and then using any excess cash for bolt-ons, and then returning cash to shareholders. We will continue to be disciplined in that capital allocation, and we expect to generate the cash flow to fund our strategy.

Our next question comes from Mike Sison of Wells Fargo.

It's a nice start to the year. Mark, looking ahead to '26 or '27, your methanolysis facility in the U.S. appears to be ramping up effectively. Considering that potential scale-up and volume, do you see a possibility for EBITDA to reach or exceed the levels you achieved in '21, which was around $2.2 billion? I'm trying to understand the earnings potential if volume recovers over the next few years.

Mike, let me start with last year, we had $1.6 billion of EBITDA. This year, our guidance is at $1.8 billion. And what I would say, as we've talked about normalized, that's going to be north of $2 billion. As we think about adding $150 million to $200 million for the Kingsport plant, that puts us in that $2.4 billion range. And then there's upside as we think about adding the Longview project and the France project on top of that. But we're obviously highly focused right now on delivering the growth in Advanced Materials and Additives & Functional Products with the investments we've done to date. As Mark just highlighted, from an end market, ultimately, we're leveraged to a recovery in the economy now that the destocking is substantially behind us. And that's what we're focused on delivering.

If you do look at it on a historical comp basis, it's more compelling because we sold off $175 million of EBITDA in adhesives and tires and used the proceeds of that to reduce share count, basically neutralizing what we sold off in the EBITDA. So when you get to an EPS level, the leverage of that EBITDA number that Willie just told you is much more significant on the EPS and stock price basis.

Our next question comes from Arun Viswanathan of RBC.

I had a question similar to Mike's. If you consider your forecast for earnings per share, it seems like you're on track for about $3.60 in the first half, which suggests roughly $4 to $4.40 for the second half, depending on where you fall within that range. Annualizing that for next year would put you at around $8 to $8.80, aligning with your target of approximately 10% growth in earnings per share, or 8% to 12%. Is that how you are viewing your progress from this point? If so, will that mainly come from volume recovery and possibly some methanolysis? How do you feel about your position regarding returns, primary demand, and volume growth? Do you still see the target of 8% to 12% growth in earnings per share as attainable?

Yes. I think you framed it well, and I think it fits into the end market lens and the leverage to the volume growth that we've seen since 2019, which is it's basically been roughly flat to slightly negative since that timeline at the corporate level and the volume/mix line. With the combination of Advanced Materials and the leverage, we talked about how that volume/mix drops to the bottom line with the fixed cost structure that we've had in combination with the growth. In the back half of this year, we see that leverage for the application growth as well as the back half EBITDA growth for the methanolysis facility. When we look into growth in 2025, we've talked about another $75 million of EBITDA growth from methanolysis and the application wins that we'll have there as well as we're solidifying our contract structure on Fibers. So you can consider that stable in this period. And we will have growth as ag recovers, as building and construction recovers and AFP. And I would say we're at sort of trough levels in the intermediate space. So 10% growth at the midpoint is reasonable as we go forward.

I'd just add, AFP also has growth. We're an exceptionally low level of heat transfer fluid fills this year. We have a clear order book to that $30 million drop from '23 to '24 to recover that as we go into '25, not to mention B&C having any kind of market recovery would be upside. So there's upside in AFP, there's a lot of upside in AM, stability in Fibers, CI's at the bottom of the market. So at some point, start coming off of that and recovering from a spread point of view. So there's multiple ways you sort of combine that together to get to growth next year versus this year.

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

So our final question comes from Salvator Tiano of Bank of America.

I would like to ask about the France project, excluding CapEx and regulations. What is your outlook on the operational expenses there? I know you recently signed an agreement with a recycling company to import PET waste from Italy and Spain, which could lead to higher feedstock costs. Does this suggest that the France project might have higher operational expenses because of this? Additionally, why haven't you secured agreements for more domestic supply, considering that the single-stream PET recycling in Europe would make it an ideal location? It seems you still need to source feedstock from as far as France and Italy.

So this is a large-scale project and aggregating feedstock from a wider range than just France, given the state of the current infrastructure in Europe for collection and sortation, is the appropriate thing to do, right? France is a huge opportunity to improve in collections and sortation. It's part of why they want to really support this project. Currently, we have about 70% of our feedstock under contract, which is a mixture of France, Germany, at least Spain, as you noted. The logistics costs were always factored into our economics for this approach to the marketplace, so that's all built in. But the last 30% is not signed because we want to work with the French government and the local municipalities across France to sort of get that feedstock closer in as they develop that infrastructure. So that's sort of where we want to go. That's why we're not signing up for any more from other places, because we're focusing on how to get more out of France for that last remainder. But that's all built in, and the actual logistics cost per kg is not significant in the economics for this plant.

Okay. Perfect. Then the other thing I want to clarify is about what do we expect for this year, Fibers volumes, because Q1 was down 7% sequentially. You talked about Q2 being similar to Q1 and then another step down in the second half. So that pretty much seems to imply a very big annual decline, which I don't think is what we were expecting.

On the volume, I would say that we've discussed Naia's growth, and we anticipate it will continue to grow, while we expect the date front to remain flat to modestly decline. However, we also supply intermediates and flake, and we believe that this is where we will see some volume decline.

On a full-year basis, it becomes a bit complex when analyzing sequential and year-over-year figures. The volume is relatively unchanged compared to last year when viewed on a full-year basis.

Okay. Thank you, everyone, for joining us today. I really hope you have a great day and a great weekend. Thank you.

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