Good day, everyone, and welcome to the Second Quarter 2024 Eastman Conference Call. Today's conference is being recorded. This call is being broadcast live on the Eastman website, www.eastman.com. We will now turn the call over to Mr. Greg Riddle of Eastman Investor Relations. Please go ahead, sir.

Okay, thank you, Chach. 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; Jake LaRoe, Manager, Investor Relations; and the new member of our IR team, Emily Edwards. Yesterday after market closed, we posted our second quarter 2024 financial results news release and SEC 8-K filing, our slides and the related prepared remarks in the Investors section of our website, eastman.com. Before we begin, I'll cover three items. First, during this presentation you will hear certain forward-looking statements concerning our plans and expectations. Actual events or results could differ materially. Certain factors related to future expectations are or will be detailed in our second quarter 2024 financial results news release, during this call, in the preceding slides and prepared remarks and in our filings with the Securities and Exchange Commission, including the Form 10-K filed for full year 2023, and the form 10-Q to be filed for second quarter 2024. Second, earnings referenced in this presentation exclude certain non-core and unusual items. Reconciliations to the most directly comparable GAAP financial measures and other associated disclosures, including a description of the excluded and adjusted items are available in the second quarter 2024 financial results news release. And one more item. After we posted our materials last night, I became aware that there is a conflict on the date we chose, Tuesday, November 19th for our circular economy deep dive here in Kingsport, Tennessee. We are currently working through alternatives and we'll let you know when we've decided on a path forward. With that, we are now ready for questions. Chach, please start with our first question.

Thank you. We'll now take our first question from Patrick Cunningham of Citigroup. Please go ahead.

Hi, good morning. Thanks for taking my question. Maybe just with some questions on methanolysis. Maybe first, just clarification on the feedstock preparation issues. Can you give a little more detail there? What sort of equipment modifications did you have to take? And how much downtime was there in 2Q, and any expected downtime in 3Q?

Sure, and good morning, everyone. I'd love to talk about where we are with the methanolysis plant. I'm going to give a little context of the journey we've been on and then answer that specific feedstock question. We're very excited to be operational with the world's largest chemical recycling facility and we've made tremendous progress on this project and really showing what's possible in the world when it comes to recycled content and dealing with this challenge that we face. We are very excited that we're making on spec plastic from the output of this facility. We've actually produced on spec food-grade Tritan with 75% rDMT and that's the most difficult product we have to make, the highest standards on clarity, a wide range of performance specs, and we're making these products with no materials of concern getting through the purification process. So a very safe product from waste, and that's an incredible accomplishment and a great job by our team in operating this plant and overcoming a series of challenges. We have had a lot of successes. As I said, we're making on-spec product now. We are doing all of this with hard-to-recycle waste. Mechanical recyclers can't take back the food grades and send to landfill. We validated all of the unit operations and they can run at very high rates. We've had sustained rates in our prepared remarks of around 70% when you're running all the units together. There's been one small mechanical issue limiting us from getting to 100%, and we just recently made the change this week in fixing that one mechanical issue and we're ramping up to full rates. We have made a lot of progress on improving the mechanical reliability issues that we were facing in the startup of the process that we shared with you in the first quarter call. So we took a variety of corrective actions on the early failures around instrumentation, valves, routine equipment, especially pumps, that has been effective, and we've seen much higher reliability across the plant. To be clear, from the beginning of this process, we've been using hard-to-recycle material that can't be made back into food-grade bottles mechanically. True to our strategy of dealing with this waste that doesn't have an alternative use, we've been broadening that spectrum of different types of hard-to-recycle recently, and we've encountered some plugging issues. I want to clarify that this is not about chemical impurities; it's not about processed chemistry. It took us a few weeks to really understand what was going on, but we realized that it was in the feedstock preparation and some of the fitness for use aspects of a few sources of material. Fortunately, the issues were relatively straightforward to address once we understood them, which just involved optimizing the feedstock form that we're using and dealing with some of the non-polymer waste that was in a few select sources of feedstock. So we're now implementing all those changes. We're ramping up toward full rates and are confident all these changes will be effective and we'll be running very hard with the facility as we go through Q3 and Q4. This has been a journey. This is an incredibly complex plant to take waste and turn it into clear, on-spec polymer that doesn't have any materials of concern in the waste feedstock. We have made a lot of investments in purification and how to manage all these different feedstocks. We learned a lot over the last five months, six months of startup, which I think is a huge competitive advantage for us. Frankly, there's a lot of strategic intellectual property we're gathering through this process. I want to give a huge shout-out to our team for their efforts in overcoming these challenges. We're feeling very good about how we're moving forward and excited to serve customers as we ramp up volumes in the back half of the year.

Great. Thank you so much for the detail there. And then maybe just one quick one. Just squaring the current macro environment and maybe some of the comments you made on inflationary pressures leading to slower ramp-up of Renew. Why is now the right time to move forward with the Tritan expansion?

Yes, good question. So when you look at where we are with the Tritan market, a lot of that goes into consumer durables. As everyone in the industry has called out, that market's been weak and continues to be weak. However, we did see a significant return in volume with the end of destocking. A huge amount of the hit that we took in 2023 was associated with destocking. That volume has come back, and the very high margins that go with it are certainly very helpful this year and will be going forward. We also continue to have a lot of wins just on the traditional value proposition of Tritan. When you look at the compelling attributes of its heat resistance, chemical resistance, clarity, and its being a safe product that's BPA-free, we have always had a lot of volume wins in applications that have driven tremendous growth in this product area for over a decade. That engine's back in gear this year. We're winning on those value propositions in a variety of places on top of the end of destocking that's giving us good momentum. Then, on top of that, we're layering on recycled content. For a lot of brands, this is really important. We have a lot of customers that have been with us for a long time that are using this recycled content claim as a way to enhance their product offering or drive new volume growth, like P&G, NowGene, and L'Oreal, Estee Lauder, etc. You've seen the icon chart of all the customers we've had who are using it in one form or another. What's really exciting is also opening up new markets for us that wouldn't have originally been available for our value proposition. This is not a cheap polymer, so you really need to have a compelling value proposition. We have customers like Black & Decker doing trial runs for tools and seeing that go very well with recycled content and expanding to a broader product line. We've had other customers in the foodservice space also moving to this product with the recycled content claim. So lots of volume engagement. Customers are paying the premiums that we expect to make a return on this investment that we've made here in Kingsport. As we looked at the volume build this year and as we go into next year, we see the need for this additional capacity so we don't short the market. We're moving to get that product line online in the sort of third quarter of next year to keep on growing that business. We feel good about it. Certainly, it's a tough economic time, but when the market recovers, that will just be additional volume we have to serve. So, we feel like this is the right time.

Great. Thank you so much, Mark.

Thank you. The next question is from Josh Spector of UBS. Please go ahead.

Hey, good morning. Quick follow-up on the prior set of questions. Did you say that you're now running back at higher rates at methanolysis? So the issue is resolved, or is that yet to be determined?

We're actually in the process of ramping back up to higher rates. The small mechanical change we made in the middle of the plant that was limiting rates, we just implemented, and we're ramping up towards those higher rates right now. So we're not there yet.

Okay, thanks for that. And just another point around methanolysis, specifically your comment around Tritan and Renew and some slower adoption. You referred to inflation being a factor. I was curious, is that at the customer level when you're talking about consumer buying of higher-priced goods, or is that on their spending and perhaps any comments or read through on willingness to buy a higher price feedstock for their applications?

Yes. I'm not going to repeat all the answer I just gave you, but we have a lot of customers obviously out there in the durable space as well as packaging cosmetics that are very interested and committed to using Tritan. Maybe they were buying it last year at certain premiums or continuing to buy it this year, and we're accessing new markets. So the demand out there is real. The issue we face is that it's a really tough economic environment. We have some version of stagflation. We have inflation still impacting consumers and demand being quite weak in many discretionary markets. Durables are very connected to the building and construction markets, so when you see all that challenge, that's very real. Its duration is also a concern; it's not just that demand is weak, but it's been weak for over two years now. This weighs on companies and their economics. While they are still very committed, we haven't seen anyone cancel a program. They are also focused on managing their cost structure like everyone is right now. The rate at which they are ramping up volume on some of the programs we have won is going a bit slower than we thought. This is a modest part of the overall adjustment that we made in the $75 million of EBITDA, which has been reduced to $50 million. More than two-thirds of that adjustment is the cost conversation we discussed earlier around run rates in the second quarter as we worked through various issues. However, there is a modest adjustment we've made in our expectations around volume ramp. I don't think it has any impact on next year. When we look at the number of wins we are achieving in different applications, the fact that at least the end market is now stable and destocking is behind us means companies are looking for ways to grow and create their growth, just like we are trying to create our growth with better value propositions in the marketplace. The brands are now considering how they can do that as well. We still feel like we're on track to go from our incremental $50 million of EBITDA this year to a run rate of $150 million of EBITDA by the end of next year. Otherwise, we wouldn't begin completing the Tritan line if we didn't see that volume coming.

Understood. Thank you, Mark.

Thank you. The next question is from Frank Mitsch from Fermium Research. Please go ahead.

Good morning and congrats on the quarter. Which Mark does beg the question, you narrowed the range for 2024, but maintained the midpoint of the guide. I was just curious, given the upside in 2Q, was there a thought to possibly raising the midpoint and what may have been arguing against that? Thank you.

Yes, Frank, good morning and thank you. As we think about the guidance, obviously, we focused on keeping the midpoint at the guide of where we had it to start the year. Also, at the segment level, you saw some modest improvements in the AFP midpoint, as well as a midpoint decline in AM as Mark highlighted around our view of the benefits of methanolysis and the ramp there. So as we think about it, we're driving strong growth year over year, 20%, narrowing the range we think was appropriate at this point in time. As we started the year, there's no significant primary demand increasing in the second year. We're doing well with driving our own growth. We think, again, as we enter the second half, we're doing it from a strong position. The factors of the $0.15 beat in Q2 were offset by the reduction in our methanolysis expectations.

Thanks so much for that, Willie. Can you talk about the factors that will drive you towards the low end versus the high end of the full year guide?

Yes, when you think about the variables, the biggest factor is demand. That's true for the impacts we had last year through how we had good results in 2021 and 2022. It's a macroeconomic question around where demand trends. We went out at the beginning of the year with a very neutral approach about end markets being similar to last year, from an end market point of view, but benefiting from de-stocking. That seems to be playing out as we expected at this stage. If the economy gets better, that will be upside. If it gets worse, there will obviously be some risk within the range we've given you. But I think that's the main factor. We feel good about our price management and are confident in our commercial excellence to maintain our price-cost relationships across our specialties. There is some predictability in olefins and acetyls where you can get some volatility in the CI sector. Regarding cost structure, we're very much on track to manage our costs. So the material element is really about the economy. We feel good about how we're creating a lot of our own growth this year with all the application wins we have in the traditional specialty model plus the growth we expect in the circuit platform.

Great. So just to be clear, the midpoint of the guide assumes absolutely no change from the economic activity as we stand here today.

That's correct. We're assuming, to be clear, in consumer discretionary markets, whether it's autos, building and construction, or durables, there's no improvement in end market demand compared to last year. This has been the basis for how we've structured our forecasts each quarter. In stable markets, we anticipate modest growth of about 2% to 3%, which we've already observed in the first half of the year and expect to continue in the second half. These markets resemble agriculture in their typical cycles and patterns. Sectors like personal care and water treatment, which are part of more stable markets, contribute to about half of our revenue; this portion shows modest growth, while the other half experiences no end market growth. Nonetheless, we have confirmed that a lack of de-stocking contributes significantly to increased volume. We previously mentioned a $450 million decrease in variable margin from 2022 to 2023 due to declines in volume and mix. Our guidance indicated that about $150 million of that, roughly a third, would return due to the absence of de-stocking, and we've seen evidence of this in the first half and in our order books for Q3. This rationale informs the midpoint of our guidance.

Terrific. Thank you so much.

The next question is from Jeff Zekauskas from JP Morgan. Please go ahead.

Thanks very much. I was hoping you could clarify what's going on in the acetyl chain. In that you talked about higher plant maintenance of $50 million related to a shutdown in the acetyl chain and half of that is the acetyl which is $25 million. Is that in the third quarter or the fourth quarter? You talked about unfavorable price-cost in acetyls; what's that about? Does that have to do with the divestiture or not? And forgive me, is the divestiture already done or when does the divestiture close?

Yes, Jeff, happy to clarify. So, as we think about the second half versus the first half higher plant shutdowns, Q3 is primarily our acetyl cellulose extreme, which is about half, and then in Q3, and then in Q4 would be our polymer turnaround. Again, that represents about half. Yes, the transaction has closed last year, so that impact is not in our guidance. That's a headwind as we think about our chemical intermediates business. The combination of, I'll call it, the Texas City divestiture as well as the key customer shutdown that we've highlighted was roughly a $30 million headwind on a year-over-year basis.

So that's on the cost side and the investor side, Jeff. On the market side, there are two dynamics. The first is the acetyl margins are just lower this year and continue to be challenged from a market point of view. The second part is, as we divested the acetyl business, we had to shift our business model in how we were taking our acetyl product to market. So there are some readjustments in logistics costs and how we manage our acetyl output out of Kingsport when we no longer have that plant down in Texas. Those two factors are some hits to the economics. The spread will obviously return one day and many of these one-time logistics costs and reconfiguring supply chains to serve customers will also be a modest tailwind for next year as we line them out. These are the combined factors occurring in our acetyl business. I would note that we are predominantly acetic anhydride in our production. That's the market you should be paying more attention to for us in relation to others that produce similarly. We feel good about how that market will sort of be a tailwind next year relative to this year.

Okay. You have another segment that's now losing a couple of hundred million a year, roughly, and that line used to lose $50 million a year. Can you talk about the difference between $50 million in the old days and $200 million in the new days? And does that just extend out in time as the normal run rate, $200 million? And then going back to acetyls, what's the total acetyl year-over-year penalty?

On your question of 'other,' obviously, as we talked about in 2022-2023, one of the major resets was with regard to pension, and that being roughly a $100 million headwind. I would highlight that as one of the accounting outcomes of higher interest rates. Also, as we increased in the back half of 2023, the pre-production and startup costs regarding our methanolysis and circular platforms, you saw a reduction of about $30 million in expenditures in 'other' and that is with our Kingsport methanolysis plant coming online and going from pre-production into producing inventory. So, regarding the future, it will depend on several factors, and as we see interest rates decline, that could be a tailwind into the future. I wouldn’t say $200 million is the run rate. It's just with the current macro situation and our successful progression through the pipeline, now we should see those results in advanced materials as well. If we continue to invest there, these will turn into the businesses in the future, about, say, $200 million or less in the current macro environment.

In addition to the pre-production expense and efforts around the first plant, the engineering expense and project development expense around the France project and Texas project, these costs are in that segment. That’s sort of been driving it. We would also note that pension costs are non-cash, so it's a headwind, but it's not a cash headwind. Jeff, I didn’t understand your acetyl question. Could you expand on your question just a bit?

In other words, you've got some pressure in unfavorable price costs, you've got some shutdown costs. So if you look at the year-over-year penalty that you're experiencing from the acetyl business and you've summed it all up, what would that penalty be if you can do that this year?

Jeff, I would highlight as we think about asset sales in whole, I think it's the $30 million plus the increased logistics cost that Mark has highlighted. We're not going to be more specific on that at this point.

Thank you. The next question is from Aleksey Yefremov from KeyCorp. Please go ahead.

Good morning, everyone. In prepared remarks, you're saying that you demonstrated the ability to run methanolysis at around 70% using a diverse feedstock slate. I wanted to ask what your expectations are for operating rates on average for the second half of this year? And also, that 70% utilization, was it achieved on a feedstock slate that's representative of what you're going to be using for this plant in the long run?

Yes, great questions. So we're not going to get into our specific operating strategy, but we intend to run above 70%. This is a new plant and technology, and we are using a new set of feedstocks that vary significantly from one source to another. That's the significant difference in the circular economy versus the linear economy that involves making products out of very consistent feedstock, like fossil feedstocks. We have been using a wide range of different sources of hard-to-recycle material. Some are better quality than others. When I talked about the 70%, that was running representative feedstock in what we call HTR, hard-to-recycle material. The limitations in run rate through the first half of the year have been more mechanically related or feedstock processing related issues about what we put in the plant. When the plant is having some mechanical issues that we had to resolve, it does run really stably. We had some issues about how to move some of the product from the middle of the plant to the back that took several improvements to address, the last final improvement we implemented this week, and that should get us into the 90% range in terms of how we can run the plant. But there will be times it's down for normal maintenance. We forecast that we would be running much better in the back half than the first half, well in excess of customer demand. We feel confident we can serve customers with the ramp-up in the volumes with the actions that we've taken.

Thanks, Mark. On the marketing side, have you been selling Tritan Renew mostly to customers who are already buying Tritan, or has this broadened your customer base for Tritan using the recycled version?

Yes, it's a mix of both. We certainly have loyal customers who've been buying Tritan for a long time who see much value in the recycled content value proposition. We have also been surprised by the number of application wins we're having with new customers and new end markets. If you ask me, from where our plan was in January to where we are today, we're actually growing volume in new wins and new customers more than I thought. The upgrade of recycled content for some existing volumes is a bit slower for the economic reasons I mentioned. We feel good about how we're broadening our customer base and our actual market base as we go into next year.

Thanks a lot, Mark.

The next question is from David Begleiter from Deutsche Bank. Please go ahead.

Thank you. Good morning. And Mark, just on the maintenance, can you remind us if this is a normal year for planned maintenance and how does it look for 2025? Could 2025 be lower maintenance expenses versus 2024?

Good morning, David. Yes, I would say that this year is a normal level of maintenance. Obviously, we go through each of our streams. We talked about the polymers turnaround, the acetyls, and in the next year we will have an olefins turnaround, in addition to that with our crackers. But at an overall expense level, I would say this year is normal. There could be a little bit of favorability on a year-over-year basis. Additionally, in the fourth quarter, as we have the polymer shutdown here in Q4, we have something additional.

David, as you think about methanolysis, the cost this year from a maintenance point of view is extraordinarily high as we're starting up the plant. So I'd say in the normal assets, maintenance will be similar next year to this year. However, with regard to methanolysis, we will have a tailwind next year because we won't have all the extraordinary pre-production expenses and maintenance as we're starting it up. All of that is embedded in our incremental EBITDA conversation when we talk about circular, but that part will definitely contribute to tailwinds next year. The rest I'd call neutral.

Got it. And just two things, Mark. In methanolysis, the $50 million this year of EBITDA, can you break out between advanced materials and other? And just in the France project, reading the prepared comments doesn't seem like there was much progress in the last three months. Can you provide any more color on what's happening with that project?

David, on the $50 million of incremental EBITDA, what I would say is in Q1 we saw that we missed our guidance by about $10 million. So the $10 million decline was in other, and then the $15 million, the remainder was in advanced materials.

Regarding the next two projects, first, we feel great about the Texas project. We're proud to have Pepsi as such a large contracted partner with that project. That, combined with the DOE grant, helps offset capital inflation, making us feel good about that project. We believe it will be a great example of scalability of this platform where we can solve a plastic waste problem while using green technologies to reduce the carbon footprint by up to 90%. We are really helping customers with Scope 3 as well as on their mission to reduce plastic waste. The French project, as we stated before in the first quarter call, is moving along a bit slower than we originally expected. This delay is predominantly due to the customer contract discussions that have taken longer than we expected. We are also working on lowering the capital costs of that project. We do have incentives in Europe, but they are not as substantial as the IRA incentives. It mainly focuses on these customer contract discussions. All the brands are committed to the recycling content goal of dealing with the plastic waste crisis. Helping them lower their Scope 3 carbon emissions is equally, if not more, important in these discussions. This all remains very much intact, and we don’t see anyone dropping engagement with us; the discussions have just become slower in finalizing the contracts.

Thank you.

The next question is from Michael Leithead from Barclays. Please go ahead.

Great. Thanks. Good morning, guys. Can you just speak to the reduction of CapEx a bit? I would have thought directionally that's still ramping up, not coming down as you move forward with Tritan and the Texas project. So is it a timing dynamic? Or can you just help refine that a bit?

Yes, Mike. As Mark just highlighted, we're still working towards milestones on our circular projects, both in Longview and France. Specifically, that’s pushing timelines out. So as we think about the CapEx required to achieve the growth, we've got the Kingsport project behind us here in the first quarter of the year. As we have highlighted, we're starting some of our other growth projects back up as we see the end of destocking and look forward with our innovation wins. So as we balance both of those out, $650 million to $700 million we think is appropriate to achieve what we need to this year. Obviously, with that, we're not going to let cash sit on our balance sheet, and we increased our expectations for share repurchases for the full year to $300 million.

Great. That's helpful. And then can you speak more to what you're seeing in advanced interlayers today? I think you highlighted in the prepared remarks and the slides a bit. Just remind us how big that is relative to advanced materials, how you think about the growth rate there? And is it fair to assume that this business is on average a bit higher margin than the overall segment there?

The interlayers business is having a good year and delivering meaningful earnings growth relative to last year in a flat to slightly down auto market. This is a testament to our innovation strategy, delivering results, and operational excellence in running our plants well. This business represents about a third of the revenue of the segment. It's predominantly focused on auto, but it also has building and construction segments which are flat relative to last year. On the auto side, we're seeing a lot of earnings growth as we're creating our growth. We're very much leveraged to two end markets: the luxury end market and the EV market is still growing better than the overall average auto build. So we're getting leverage out of that by being in those right market segments. Within that, we are selling more and more premium products. As we highlighted in the prepared remarks, we've had a great story about HUD and multiple generations of that product offered to the marketplace. The adoption of HUD is increasing due to better security and safety driving reasons. This has a lot of market upside. Also, for EVs, as we said, there are about three times as many square meters of interlayer laminated glass in an EV than in an ICE car, and they are purchasing very high-performance products. They want HUD; they need solar control. All of this is driving high value with more square meters. Even though EVs are not growing as much as I believe many people expected, they are still growing better than the ICE market and giving us leverage. On the HUD side, for example, volume is up 20% year-over-year at very high margins. We have seen solar control increase about 12% year-over-year. These markets are growing fast in a challenging market environment. It's a great story.

Thank you. The next question is from Duffy Fischer from Goldman Sachs. Please go ahead.

Good morning, everyone. My first question is about methanolysis. I understand that the main challenge has always been the cleanup process and removing impurities. When you were operating at 70%, were you able to validate that technology so that this issue is resolved? Or do you still need to push harder or increase the complexity of the HTR feedstock before you can confidently say it's a done deal?

Yes, Duffy, that's been the major pleasant surprise of this whole project. You are correct. Unzipping the polymer is straightforward on the front end, but purification of this variable set of impurities from garbage to ensure we get high purity DMT output on the back end has a lot of complexity. This has worked incredibly well from the beginning in separating and isolating all the monomers we want to use again, stripping out impurities across all different HTR. The frustrating part has been many construction areas and vendor equipment quality problems that caused significant mechanical startup delays that had nothing to do with the process chemistry, which were easy to fix once we addressed the equipment issues. The recent issues with feedstock were once again about form factor, with a couple of suppliers having impurities that we now identified. But the broad spectrum of feedstocks we intend to use and the changes made to prepare that material before it enters the plant have addressed the plugging issues. We feel great about the process chemistry and just need to line out the mechanical operation of the plant, which, given its size and complexity, we probably should have expected more of these challenges. We've built our guide as we work through these challenges in this construction environment.

Great. Thanks. On the base business, two end markets you called out as doing better are coatings and agriculture. So on agriculture, where are you now kind of on a run rate relative to when it started to fall off? Are you still well below kind of that normalized level? And on coatings, what are you seeing there in volumes because your customers still seem to be putting up pretty weak numbers, but your volumes seem to be stronger than that?

I don't believe our volumes are significantly stronger than that. You've got to remember there's two components. There's end-market demand and we see the end market demand situation similar to our customers in coatings, but we saw a lot of destocking from those coatings customers, which they completed. We benefited from that volume recovery in coatings, just like durables and everything else. When you look at that, we are probably up in high single digits in volume in building and construction. I attribute most of that to just a lack of destocking relative to last year. The agriculture sector, I would say, experienced a significant amount of destocking that was well documented by all the ag companies, which had an impact on us throughout last year. They resolved most of that destocking by the first quarter. By Q2, we were back to normal demand conditions and more connected to demand. I think that sort of summarizes our ag season this year so far. Q2 was good, while Q3 will be softer. We do not expect much inventory building in Q4 from our customers. They remain cautious in how they manage their inventories. So, we expect to see a substantial build of ag demand for us in the first quarter of next year, which will be a nice tailwind for next year compared to this year.

Great. Thank you, guys.

The next question is from Vincent Andrews from Morgan Stanley. Please go ahead.

Thank you. Mark, is there a go/no-go date in terms of France? Or is there a plan B in case we're sitting here a couple of quarters from now and you still haven't made any progress on either of the gating issues to move forward?

When it comes to the French project, Vince, I hope we have clear insights by the end of the year about where that project is headed. I wouldn't say it's necessarily a formal go/no-go decision, but we should have much better clarity as we proceed through the fall with customer contract discussions and finish the engineering work. The reality is, we have a lot of portfolio options in how we manage these three plants and what products we put into each and what pace we build them. We’re very excited about the first plant and getting Texas built. Texas will have the capability to produce specialty products as well as PET. You've got flexibility to optimize value across specialty and PET growth between the Texas project and the French project. Hopefully, we will sort this out. We still think that the $450 million of EBITDA across these three projects is intact as a long-term value creation target across these projects. Depending on the path taken, we can still capture a lot of that value by shifting production of specialties to the first two projects. There is a lot of robustness in this plan, and we are committed to building all three projects, but to be clear, we abide by our PET model: if we do not get these long-term take-or-pay contracts as we did with Pepsi, we will not build the French project. We have been clear with customers that to produce the product they need to meet their high recycling content targets in Europe, they have to support these investments.

Okay. Good to hear. Could you share your thoughts on the potential return of tariffs with the upcoming election? What did Eastman learn from the original tariff period of 2017-2018, and how could that influence the situation this time?

I'm glad you didn't ask me who's going to win the election in November, but tariffs are an issue, no matter which individual becomes President. The Chinese government has a public policy of exporting their excess capacity to the world, which will have an impact on markets. They are essentially exporting unemployment globally. Fortunately, we aren't exposed to those exports from China. Though we do have some risk in our CI business, most exports from China will primarily impact Europe and Latin America. We do not have that many sales globally; over 70% of our sales are in North America with CI, so our exposure there is somewhat limited. The downside is that there will be reactions in Europe and the U.S. putting tariffs in place for products exported at exceptional costs from China, which will provoke responses from China. We do expect some level of tariff tension that's likely coming our way. This isn't a new issue for us. China represents about 10% of our revenue. About half of that is exported from China after being made into something, while the other half is locally consumed. We have a playbook for managing through that which we developed during the 2018-2019 timeframe, and it proved to be quite effective. We're simply updating it and preparing for this potential scenario.

Thanks so much.

We are ready for the next question.

Thank you. The next question is from John Roberts from Mizuho. Please go ahead.

Thank you. Mark, in Fibers, could you provide some color on the sigto versus textile fiber? Now that textile is as profitable as sigto, what's the constraint on how quickly you could shift volume from sigto to textile fibers?

So 80% of our revenue comes from tow. Obviously, that market has changed significantly over the last two years as the utilization rates have soared and customers have been focused on security of supply. We expect that market to remain stable. As we've mentioned, we have 100% of the business contracted this year, 90% next year, and 70% in 2026. We feel pretty good about the contracts in place. There are provisions for natural market decline in the volume of those contracts, as it is still a modestly declining industry. This provides stability to both our customers and ourselves. On the textile side, however, we've seen tremendous growth in that market. This is also another very challenged end market. The fashion industry isn't exactly growing. Yet our volumes have grown significantly compared to that underlying market. The Naia fabric is a great story. It's half bio content, and we're now replacing coal with waste plastic to make the other half of the product from wood pulp. This provides a strong narrative of beginning of life. What will become increasingly important is the microfibers that break off of clothing in the washing machine; these end up in the ocean as microplastics, but ours will fully biodegrade. We have certifications that prove that our fibers decompose at the same rate as cotton with no lasting effects in the environment. This is going to be a critical value proposition as textiles are the major source of microplastics in oceans and waterways. We feel great about that business and expect continued growth.

Let’s move to the next question, please.

Thank you. The next question is from Kevin McCarthy from VRP. Please go ahead.

Yes. Thank you, and good morning. Mark, maybe sticking with microplastics in a sense, could you provide an update on the Aventa business? How are the early days going there with Sealed Air and any other customers that you may be working with? More broadly, can you talk about things like market opportunity, growth rate, margin profile there? Do you think it could be bigger than Naia over time or smaller than Naia? How would you frame that out?

Aventa is going really well. We've had a great and successful launch with Sealed Air in the marketplace. We're now in a large grocery store doing numerous trials of the product performance. Aventa can replace expanded polystyrene trays or clam shells, which are used for proteins like chicken and pork in grocery stores. It serves as a drop-in replacement for existing polystyrene equipment, while offering full biodegradability options in home composting and industrial composting. Even if it ends up in a landfill, it biodegrades similarly to paper. This story of end-of-life solutions and product performance is very appealing. Several states are now banning polystyrene, and other states or companies are also looking for natural alternatives. It also makes an excellent straw, which is currently being rolled out in some major food chains. Our program is going well and expected volumes will ramp up significantly next year as we validate this value proposition through early trials. To address your question about size, Aventa can definitely become larger than the Naia business. There is a significant volume potential and growth opportunity in this space, and its margins are higher than the company average. As Aventa expands, it's an upgrade for our corporate earnings. It's an alternative market because it can be made from the same raw materials used to create tow and Naia, optimizing value across all three products. We believe that growth in this area will support the expansion of our flake business over time. We look forward to providing more insights during the circular day that Greg is scheduling. We’re eager to show you all these products and assets in action when you’re down in Kingsport.

Great. And then as a follow-up, if I may, Mark. Could you speak to the forward volume trajectory in advanced materials? You posted 12% there. If I look at the two-year stack, it's still down. Do you see additional runway to grow at double-digit pace in the third quarter, for example? Maybe you could kind of talk through what you're baking into the guide there.

Our guidance is quite similar, predicting a comparable quarter in Q3 to Q2. The methanolysis will begin operations, increasing volume in Q3 and Q4. We expect ongoing innovation to drive growth beyond the underlying markets in the automotive sector, securing applications across our portfolio as we have each year in the past. This volume will assist us as we move through the latter half of the year. There will inevitably be some typical seasonal decline in demand in Q4, but we anticipate this will be less than usual due to the ramp-up in methanolysis and continuous innovation. We expect the fourth quarter to exceed ordinary expectations because of methanolysis and increased sales from other market innovations. Additionally, we are seeing favorable trends in energy costs, with the lower energy costs from earlier this year impacting our inventory. The PX price is also lower compared to the first half of this year, providing beneficial momentum. However, we do anticipate around $25 million in increased shutdown costs during the second half of the year, primarily in Q4 rather than the first half. This will offset some of the volume growth.

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

Thank you. The final question we have today is from Laurence Alexander from Jefferies. Please go ahead.

Good morning. Two quick ones. Just on heat transfer fluids. Is that $30 million expected to recur in the first half of 2025? And secondly, the $50 million increase in your new projects and growth project investments, is that new platforms you're working on? Or is that just inflation in your cost base? And how should we think about that going forward?

On heat transfer fluids, timing is everything in that business, and it's very hard to predict by quarter. We've had a great year last year, $30 million lower this year. A lot of that $30 million will come back next year, specifically in the LNG space, which represents high-value fills for us. However, I would think about it on an annual basis, as it's very challenging to predict by quarter. For your second question, I apologize, but...

Yes, Laurence, I think you're referring to our growth and the increase in spending on capabilities across various projects, including the Aventa product line. We continue to invest to build these capabilities and expect to see revenue ramp up, as I mentioned earlier regarding Aventa and our increased expenditures there, which we've also referenced in our other segment.

Thank you.

Thanks, everyone, for joining us. We appreciate you being on this call with us. As Mark mentioned, we look forward to also having you in Kingsport later this year as we do a deep dive on our circular economy platform. Everybody have a great day.

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