Good day, everyone, and welcome to the First 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. Greg Riddle, Eastman at Investor Relations. Please go ahead, sir. Thank you very much, Becky, and good morning, everyone, and thanks very much for joining us today. On the call with me are Mark Costa, Board Chair and CEO, Willie McClain, Executive Vice President and CFO, and Jake LaRoe and Emily Alexander from the Investor Relations team. Yesterday after the market closed, we posted our first quarter 2025 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 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. Certain factors related to future expectations are or will be detailed in our first quarter 2025 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 full year 2024 and the Form 10-Q to be filed for first 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 first 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, please let's start with our first question. Star followed by one again to confirm your place in the queue. 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.

Hi. Good morning. First, just on the lower sales guide for renew, I guess first, what has been the sales and EBITDA contribution in the first quarter? I'm just curious on the level of confidence in the low end of the sales guide. How much visibility do you have into order books? Is there a floor for that EBITDA contribution just based on cost performance and volume that's already contracted? Certainly. And good morning, Patrick.

When it comes to the overall method analysis program at Kingsport, things are actually going quite well on the operational side. We've had a very successful quarter of running the facility at high rates. We've maintained an 85% yield on the DMT feedstock, you know, from the hardware cycle stream or come or we're finding ways to use even cheaper versions of feedstock. So operations are really good. If you analyze sort of the production rate that we had in the first quarter, we're very much on track for that two and a half greater production volumes. So when you put that together, you know, with the absence of the startup costs, in the first quarter, you know, it's generated a considerable amount of earnings, you know, in the corporate other area around $25 million with that absence. When you look at the overall cost program we're on for a full year basis, we're very much on track to get our $50 million of EBITDA from the manufacturing cost side of the equation out of the original $75 to $100 million guide. I'd say on the operational side, that $50 million certainly showed up in the first quarter as expected, and we expect will continue to show up through the year. When it comes to renew side of things, on the revenue side, you know, we originally had given you a guide back to the deep dive of $75 to $100 million of renew revenue, and that was based on assumption around the economy being, you know, relatively stable and consumer durables, you know, stable, modest growth in packaging for food applications, etcetera. So, you know, but basically, a continuation of the dynamics we had for 2024 would continue into 2025. And that was for sure true through the first quarter. But what's happened is with the trade dispute tensions developing, and the discussions of tariffs, especially the tensions between China and the US and where the tariffs have, you know, now gone. The, you know, rate and growth of the consumer durable market that is largely made in China and shipped to the US is now in question about how that market's gonna hold up, right, with the level of tariffs that we currently have, it's not economic to import those kinds of products. So the revision that we've given you from $50 to $75 million of revenue now versus the higher rate is purely an end market estimation of the impact of tariffs. It has nothing to do with the engagement we're seeing in the marketplace, but we certainly don't expect the same kind of growth in those kinds of products for the year. When it comes to engagement, you know, customers are still very much engaged as we said on the durable side. We have over a hundred customers. The economic tensions are certainly slowing the rate of product launches. If you can't import a product from China, you can't launch a new product. So that reduces the rate at which, you know, these new product launches or the new content can be brought to market. So that factor is being managed. We've only had a few customers revert back to normal freight because of the premium that they're trying to avoid in this economic time. So I would say market engagement there is still good. It's just a question of where these tariff disputes go if they're resolved. Soon, you know, this quarter, then things would start to, you know, recover and get back to normal. They'll actually have to restock because pulling inventory down below normal levels right now. To avoid paying the tariffs. So we certainly aren't sitting on a big amount of finished good inventory in the plan to give it we've been in a recession for a while. And then what I say on the food packaging side, on our path, engagement is also good. The brands are really facing some significant limitations on mechanical recycling in a variety of applications. And are very much engaged in trying to find ways to buy smart fit for us and applications where there's high quality aesthetics required or certain technical performance requirements and mechanical can't meet. So we're still making good progress to be able to sell our pet in the back half of the year as we convert. That freight line over to making PET that we discussed before. So I'd say we're in good shape, and it's just a market question around tariffs.

Very helpful, Mark. And then maybe just on fibers, you know, it seems to be getting double hit on some tariff-related impact in persistent destocking. How long do you anticipate this destocking to persist? And how should we think about contract performance, you know, next couple of years and, you know, potential further normalization from here?

Yeah. So, you know, certainly the, you know, overall Fibers business has some challenges to it. As you said, there's sort of two separate challenges. I'll start with the destocking one first. First, there's no change we've seen in the in-market growth rates. So that is not part of what's going on as far as we can tell. So market growth rates are still modest, and the one to two percent rate is as traditional cigarette markets are declining in the two to three percent range but the heat not burn cigarettes offsetting it. We've talked about that in the past. So that part is actually quite stable. You know, our contract rate for the year of this year is around 90%. Has put the prices in place for the year. So we're in very solid shape on a pricing point. As you said, you know, it's really a question of, you know, what's driving the volume decline, markets are stable, then by definition, you know, it's a dynamic around customer destocking. As the principal driver of what's going on. You know, as I said before, TOW is incredibly small. Percent of the final price of a cigarette about 2%. So the cost of it is not a high priority when you're selling cigarettes that are greater than 60% gross margins. You know, the focus always starts with security of supply. And when the market got incredibly tight, in that 2021, 2022 time frame, customers were building inventory. And as we've now discovered, building a lot more inventory than we fully understood. One of the challenges with customers when you're in situations like a very tight market is no one wants to tell you how much inventory they have because they're afraid you will not supply material to them. You know, as much as they might need going forward. So you get this dislocation of, you know, inventory. And we certainly lived through that in the 2022, 2023 time frame. Where we discovered just how much inventory people had built over time. And so the destocking is going a bit longer than we expected. And the reason the destocking started, I should have mentioned, is the market has loosened up a little bit. So there's some capacity that's been added in China. If you look at it from a 2023 to 2025 point of view, that capacity is around 5%. Of the, you know, ex-China market. So the capacity utilizations have now moved down into that lower, you know, 90% range. 90, 95% range. And with that room, the customers feel safe destocking. And that's what we see going on in what we're gonna see in the second quarter is something similar to the first quarter. I've learned my lesson around predicting how long destocking is gonna last. Certainly, we expect some of it to continue in the back half of the year. And we're still working with our customers to truly understand exactly where, you know, where this all sits. But the good news is the fundamentals are there. The capacity utilization is still, you know, in the 90s. You know, the markets are not declining in some significant way. And I think that gives us stability. The contracts, as you asked, are about 80% for next year. You know, most of those are multiyear contracts, some are annual. They generally include pricing. A lot of it's CPT pricing that actually gives customer protection on, you know, making sure the margins are tracking with, you know, raw materials. So overall, I'd say we feel like the market is certainly facing that challenge, and it's gonna continue a bit more than we expected. It's good to remember there are a couple other dynamics driving earnings down. We had a discontinue product from customers with about $10 million and energy is a bit of a headwind this year relative to last year and how it flows in. The second part of this discussion, of course, is around the impact on the tariffs with China. We do have two products that go into China. One is the textiles, the Naya product, which has been a great growth story for us and half of the Naya that we sell is in China, the other half's outside of China. It's a huge market. So it's a time-based issue for us to if these tariffs last for a period of time, of just winning market share in mills outside of China to replace do in China. So that one is manageable and we have some inventory in place. I'm gonna get some of those issues now. When it comes to the flake, this is, you know, cellulose flake that you spin into fiber, and we do this with the Chinese national tobacco company. Obviously, the rates are, you know, pretty high. There, and so we'll have to just see how those tariffs evolve over time. So that's a more specific thing around, you know, what's going on with the tariffs. And what is to see how long the tariffs last with this China. When you put them together, obviously, creates a bit of more challenge for this year. It's still extraordinary earnings compared to our past. And great cash flow that comes out of this business.

Very helpful. Thank you.

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

Thank you. Good morning. And first, congrats on being recognized for your support of veteran and active duty service members. Very well done.

Thank you.

Mark, on your China sales of the portion roughly 60% supplied from the US, if these tariffs stay in place, how much is at risk do you think of perhaps just going away? I know you addressed fibers, but how about AM and AFMP? Thank you.

Yeah. David, a lot of these questions are really sort of situational specific to this segment. So I just suggest that address the fiber's part. Your pathway is very much adjustable to move out of the country. Rather mitigating actions we're pursuing around the flake supply. So I think there's lots of different ways over time to manage the fiber side of the equation. You know, when it comes to CI, just to be clear, no exposure. So in the to worry about there. Frankly, probably upside in CI. Which is primarily selling in North America and the tariffs. That we have coming in this country from products around the world that sort of set the price in the marketplace, you know, over time will give us some lift there. But in the short term, pretty modest just because of the, you know, competitive situation. When it comes to AFP, the exposure in AFP is more limited. You know, similar to fibers, it's around $200 million of revenue. 2024. But a lot of the segment does not have exposure to China from a US production point of view. So especially fluids business, we have production outside Europe. When it comes to all of our means business and care and ag, we've got assets in the US, but know, our largest assets in Europe. So we have and assets in China. So we have lots of different ways to serve those markets locally around the world. And a lot of the coating related products, we don't really sell into China. But there are a couple of very high value specialty products like our cellulose additives that go into a wide range of coatings from, you know, cars to farmers to some other packaging applications. And that that is exposed. It is a proprietary product that only we make. The margins on this business are pretty high. So short term, it's hitting us in Q2 because our customers are well stocked on inventory because it's so important to carry a lot of inventory. In their formulations. And so we certainly, you know, see them not buying this quarter, hoping for a resolution between the US and China. Discussions. But it's a very important functional product where there really isn't a substitute. And then so we have an ability to pass on some of that duty cost if we need to and find ways to work with our customers when they get back to, you know, ordering after they've used up their time. Stock. So I think that one is also the category of manageable over. In advanced materials, which is obviously the largest segment from a revenue point of view in China, there are really three businesses that have different stories. Inner layers makes the products in China, so no issue there. Performance films, historically, has used a lot of product made in the US. But that's why we did the acquisition of Dylon to have our own performance films manufacturing capability in China. We also did an expansion of our capability in Germany. And so those two assets are in the middle of ramping up for this specific reason of being more local and diversified how to serve the market. And so, you know, we'll have some that we're not gonna have that much impact quarter because of the inventory in place for performance films. We'll have some impact, you know, as we balance out the ramp up of these assets relative to what we make in the US. But we can supply that market long term from other locations in the US. And then especially plastics, you know, clearly has exposure when it when they're made here in the US. And then those products are sent to China. On that front, we're also not getting that much of an impact this quarter. Because the customers are sitting on inventory. And the real question in specialty plastics is a lot of what we sell into China's especially Triton, is then reexported back to the US and Europe and other markets. And a lot of it into the US. So the main issue is how long do the tariffs stay in place that know, make it very expensive to buy an appliance or water bottle or whatever else in the US. That's made in China. So there's some uncertainty and risk around how those supply chains adjust to that. All these companies that make all these appliances have to get the product from somewhere. The retail appliance need products from somewhere. There's a huge amount of effort and, you know, ramp up production. We'll follow the customers wherever they move around the planet. You know, because Triton is a unique product. There is no easy substitute for Triton. There are different plastics you can use, but they all come with significant compromise. You either if you go to polypropylene, it's very cloudy and not clear. If you go to a variety of different styrenics, the toughness or the chemical resistance, you know, from other products, all create failure modes and how well the product performs in the market. So you can go if you wanna compromise your product on the shelf. But otherwise, you really wanna keep using Triton. And so we'll certainly feel some of that risk and impact if these tariffs stay in place through the back half of the year. Your supply chains move around and, you know, the market here in the US has been impacted. So overall, that's sort of where we stand. And when you put it all together, you know, we've told you there's about a $30 million impact in Q2. It's honestly with all these uncertainties around tariffs, and where they may negotiate, it's hard to predict what this impact is in the back half of the year.

Very good. And just lastly, on Longview and the DOE funding, I know you've been getting some funding every quarter the last couple of quarters. Your level of confidence in this funding continuing under the current administration?

We feel good about the executive order. You know, Sorry. I just lost my track of thought. We feel very good about where we are with the DOE. They have been highly engaged with us. We think that we've got a good relationship there, and we think that our project actually holds up well in the way President Trump thinks about, you know, US manufacturing. You know, when you look at it, you know, we're focused on growing US manufacturing. It is a serious issue. You know, manufacturing hasn't grown here in this country. It's been growing around the world. And the vertical integration and all the products that go into manufacturing of finished products is equally important if you wanna have national economic security. So there's actions that I think we should be taking. Strategic transactions that are focused on specific issues around this topic make a lot of sense. We need a lot of regulation. That reduces, you know, the difficulty and cost of building here, you know, tax and other incentive policy workforce. Variety of things I think we're very aligned with. You know, the current administration is important, and this project fits all of these criteria. When you look at these circular investments, we're building infrastructure to deal with plastic waste. Right? It's a and it's also a natural security way to make materials for packaging, medical, etcetera. It's on touring jobs from Asia because most of all the PT business has now gone to China. And you're creating revenue way beyond just our facility and supporting the growth of recycling infrastructure behind us. Being a better supplier to local manufacturing or plastic-related products in the market. So checks all the boxes on that front. It also is a version of, you know, energy independence, plastic waste, basically is oil sitting above ground, you know, and you're reusing it instead of throwing it away. And, you know, this process is advantage, you know, relative to pellet parasailing, you know, at any oil price above $60. So economically advantage as well. And, you know, from a voter point of view, there's no one a lot of debate on climate, but there's no debate that people don't like plastic waste in their environment. No matter which side of the aisle they sit on. So think we're in really good shape on this. So far, every I just said seems to be aligned with what the DOE is looking for and the conversations, you know, we've had with them. We've been receiving our funds in Q4 and Q1. There's a lot of staff change going on the DOE. Right now. So, you know, we're moving a little slow in how we sort of finalize the next phases of the contract. But we're not getting an indication that the project's at risk.

Thank you very much.

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

Thank you. Good morning. I wanted to ask you, there's a lot of concern about consumer health in the businesses where your products end up in consumer, I guess, such as auto films. Are you seeing any meaningful slowdown in demand?

On auto demand?

Mhmm.

Just consumer discretionary demand across the board. Related demand.

Right. Yes.

So

you know, look at our Q2 guide, we basically called out two dynamics that took us from where we were originally to now. Of which are trade-related. So I already covered the impacts the direct impacts of trade, which is at $30 million. But the other impact, as we tried to explain in our prepared remarks, is seasonal growth is typically really strong for our portfolio when you go from Q1 to Q2. And that is what drives, you know, going for a dollar ninety-one to some higher EPS in a normal situation. We still see seasonal growth now but we don't expect it to be as strong as what would have been normal. And that is very much related to, you know, consumers, you know, being concerned about the world and what's going on, you can see the confidence decline. You can certainly see consumer purchases on discretionary, you know, items right now increasing. Right? You know, people are buying cars, people are buying, you know, blenders, whatever else because they're worried about tariffs coming. So the consumer data would lead you to believe that there's a certain amount of growth going on. But in some sense, what you're is you're pulling forward consumer demand from the second half into now. And there's people worried in being cautious about what they wanna spend in general. That's creating a lot of fog in what's really going on. But as a company, whether it's us or our customers, you have to be considering multiple scenarios right now. One of which is break gets resolved quickly and everything's okay. You also have to prepare the more difficult scenario where these tariffs stay in place for a longer period of time and impact demand. And so we could see customers being a little bit more cautious on just how much inventory they wanna build. And that's sort of the dynamic we're looking at here in the second quarter is not seeing as much growth. I mean, there is a risk where we don't make much progress on some of these trade issues and you start getting people more nervous about when this is gonna get resolved and you could see some more destocking, you know, towards the back end. Of the quarter. We'll just have to see how that all plays out.

Thanks, Mark. And just listening to your remarks about how tariffs are impacting your businesses, it seems like initially, you maybe have some inventory in China that allowed you to mitigate it. Is it fair to say that if this tariff does not change in the second half, you may see a larger negative impact direct negative impact from the tariffs or that is not the case because you have some other mitigating measures? I just couldn't quite understand. The net result of these two.

Sure. So, hey, again, sorry, guys, but I gotta go segment by segment because it's different story. So I don't think there's any additional risk in the fibers business. With the mitigating actions we have in place, I would expect that number to be relatively steady as you go through the rest of the year if things are not resolved. Same is really true of AFP. I think there may be some modifications or mitigations there, but where things are a bit better in the back half of the year versus where we are now where the customers aren't buying at all. And then so it's got probably some moderate upside. And then when it comes to the advanced materials segment, you know, that's a little bit more complicated. Right? Again, interwear is fine. Performance films, you know, does have inventory in the marketplace right now, so that will run out at some point as you go in the back of the year. But they're ramping up plants to replace, you know, a bunch of inventory. From being made in China or in Europe. So hard to say exactly how that balances out, but I'd say that the headwind in the back half is a little bit more than the first half. On And then on specialty plastics, you know, the headwind there would be more than where we are now, you know, with the second quarter. Know, stop buying, you know, all these appliances and consumer durables, we'll have, you know, downside on the durable side, and then we'll have upside on selling more PT in the back half versus the first half that we as we start taking that to market. Obviously, that's lower margin, so it's not gonna be a total offset. So some more exposure on SP in the back half. Versus the first.

Thanks a lot, Art. I would note there are

I would note there are mitigating actions, you know, that we're taking that are a lot broader across, you know, just, you know, inventory. So we certainly have done that. We're ramping up plans. We're definitely working with a lot of customers around how they're moving to other parts of the world to make products. So there's a lot of that going on right now. We're under pressure. Imagine what it's like. Being someone sourcing a blender, you know, from China right now. There's gonna be pricing opportunities that we're gonna find across the portfolio. There's gonna be volume growth opportunities that we've, you know, built we can realize here in the US. We've got opportunities when it comes to, you know, direct competition being, bit more expensive as it's being imported, you know, so we're gonna see some benefits, you know, in those kind of areas. You know, for example, in specialty plastics, we'll see some of those benefits. When it comes to, you know, thinking about parts of the portfolio in AFP, we'll see some benefits around Ag and even things in CI will see benefits like floor tiles. So there's a bunch of different examples moving around where there'll be some, you know, growth we should realize in the US. I mean, we are the ultimate company with a low-cost structure to serve the North American market across all different products that we make.

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

Thank you, and good morning. Mark, could you talk a little bit about the CapEx reduction and sort of what triggered the decision you made on I guess, sort of deferring that CapEx at Longview? And are there any sort of costs associated with doing that in terms of the overall cost of the plant? Seems like timing's not changing, but just curious there.

Good morning, Vincent. For the question. As we're looking across the scenarios that Mark has outlined, obviously, being for the potential downside of an extended trade dispute. We looked at, you know, now is the right time to optimize both efficiency and effectiveness of a CapEx reduction. Obviously, we're in the engineering phase of the Longview, Texas project. And, you know, we can go through that detailed engineering and basically get more complete before we start, you know, to solidify the commitments without affecting the timelines of the completion of the project. So as you think about the midpoint, we reduced our capital from roughly $750 to $550. I would again note that our CapEx from a maintenance standpoint is about $350 million. And we're still investing in this environment, you know, solidly above our DNA. So we're confident in our strategy, but we want to make sure that we're also prepared for those downside scenarios. And making sure we deploy it efficiently. I would also highlight that, you know, the Texas project is the largest project, but it's still a little bit less than half of the reduction. And most of that is the remainder is across a combination of other business growth. And I mean, the key maintenance.

Okay. And then if I could ask you, I know in the sort of March conference season, you had you had some concern over March orders, and then it sort of turned out that that they were better than feared or a bit better than expected. I'm not sure which it is. But just curious what happened there because usually usually when when there's starts to be hiccups in the order book, they they don't reverse. So what what any any color there?

Yes. So we are certainly with all the trade talk even in the first quarter, you have to remember, we still had 20% tariffs being put on in China, etcetera. There was a lot of caution that developed around customers and what they wanted to order. And so we're reading into that, you know, as we were getting into March, and then frankly, just surprised in how people sort of bought more. I think it wasn't really a lot of pre-tariff buying. I'm sure there was a little bit of that at the end of March. But what's comforting around that question is April orders are similar to March. So if they were really pre-buying, you know, you would have seen a drop off in May in April as you as you as you've gone from March. We've seen that before in our past. And right now, we're not seeing that. So that's encouraging. And the new workbooks are holding up in April. May looks okay. You know, June two is just too far away for us to really assess when it comes to sort of our order of visibility. I do think, you know, we're in solid shape, but there is, you know, uncertainty risk, obviously, in June with how all these discussions around the world go.

Let's have the next question, please. Thank you. Our next question comes from Jeff Zekauskas from JPMorgan. Your line is now open. Please go ahead.

Thanks very much.

You abandoned your annual earnings guidance but but you but you didn't but you're still guiding for annual cash flow? Why is that? Why would the cash flow for the year be more forecastable than the earnings? Or why do you have more certainty around the cash flow? Yeah. Good morning, Jeff. Thanks for the question. Obviously, as we've highlighted in our prepared remarks and even in the Q&A this morning, it is highly uncertain and we pivoted to an emphasis on cash generation ahead of a potential recession. As I think through the levers that we have, you know, whether it be, you know, the cash earnings obviously, but we have a broader set of working capital and operating set of solutions and also how we manage variable resources, across our global asset base. And in that, we've got flexibility that I think gives us a narrower range on the cash out versus all the accounting ramifications that comes in with an earnings estimate when you're trying to deal with these choices. As we've highlighted, you know, if the trade dispute is resolved in the short term, ultimately, we'll have higher cash earnings and less working capital actions. If it's drawn out, then you ultimately, it could cause a recession. But the dynamic between EBITDA and the OCF that we're gonna deliver, you know, ultimately, will be based on that trade scenario. But we do have higher confidence, and I think we've done that across multiple economic environments in the past.

Yeah. I think that we're really proud of the fact that, you know, we try and look forward and see what's coming and be prepared to take whatever actions are necessary to serve weather storms. I mean, this industry has been, you know, facing a lot of storms over the last, you know, seven years. And it's well over machine on how to react to it at Eastman. You know, the reality is if the focus on cash is not needed because the economy is snapping back and recovering, then that's upside. It's easy to run the plants, you know, harder in the back half of the year. And catch up. We have the excess capacity at this point. So, you know, I think this is the prudent way to approach things, and we'll, you know, obviously adjust as the macro economy and sort of create a related matter sort of evolve.

K.

And then secondly, what you did is you estimated the tariff impact at $30 million in the second quarter. How do you calculate that? Is that lost sales? Is that tariffs that you're paying? You know, what and could you describe where it seems that you're paying the tariffs or whether you're being reimbursed for your customers. Where are the tariffs actually touching you? And is it China mainly? Or is it other, you know, regions as well? Can you sort of get to the bottom of this? Thirty million number you know, what it might be in the third quarter if things continued. Mark Costa: So, Jeff, it comes to the impacts on the tariffs in the second quarter, it is an impact on volume as opposed to an impact on duty. Right? So when you have a 125% duty into China, and there's a hope that the trade it will get settled, in between the two countries. Customers, you know, don't wanna buy a lot. With that adder. So that's the impact you're seeing in fibers where we're projecting less sale of, you know, a flake for the Toe JV, less NIA textile fibers being purchased, you know, while people wait to see what plays out. In this. Quarter. So that's what happened there. Same thing I said in AFP, the high-value cellulose stick additives that go in all these coatings and pharma applications, some other applications. Those customers carry a huge amount of inventory because it is such an important product for them for them the product they make, and it's such a small percentage. Of the total cost of these products in these cellulose additives and a and p, that you know, they're not gonna take any risk. And so they had inventory, months of it, and so can, you know, through this quarter, just not order. So they, you know, are pulling inventory down. Right? And then it's the same dynamic in advanced materials, but just less because we had a lot of imagery available in that marketplace, you know, for we make it in inner layers there. We, you know, already explained everything around d f and s p. The real risk there is the ability to sell what they make as a finished product back to China, and I think people are everyone in that whole supply chain sort of trying to figure out what they're gonna do on that dynamic. So it's a volume hit as opposed to a tariff hit. I mean, what I'd also notice Yeah. While we have this exposure because we make a lot of product here in the US and we export around the world. We're also vertically integrated, and this is a very unique competitive advantage for us on that integration, which is most of the material raw materials that we use across the company are sourced in North America. So we're not facing much tariff risk of what we have to pay for on the raw material side of things. Even PX, which we buy around the world, we have sourcing from all countries around the world so that we can flex on where we get our PX and obviously, PX prices are very low right now. So, you know, we don't like, a lot of companies who buy a lot of raw materials, that may not have much exports to China where they're having that problem they have to manage or, you know, for buying auto parts the auto industry or whatever else. You know, we don't have that issue. Our issue is, you know, this, primarily China-related matter right now as far as the second quarter is concerned. And I think I already addressed, you know, how it trends, you know, into the back half of the year in my answer ahead of you.

Okay. Great. Thank you so much.

Thank you. Our next question comes from Kevin McCarthy from VRP. Your line is now open. Please go ahead.

Yes. Thank you, and good morning. Mark, I wanted to come back to the discussion around the fiber segment and the issue of destocking. I think what you said in the past and you alluded to again this morning is that, you know, a high percentage of the volume is under contract. And, obviously, the implication of that is that, you know, the business should be relatively stable. Volumetrically. So I'm trying to weigh those two things, you know, more severe destocking and contractual protection. And so maybe you can kinda talk through the first quarter volume was down 12%. Do you think that could be indicative of the year or do you have sort of take or pay provisions in some of these contracts whereby maybe they'll be destocking in the first half, but then customers become obligated. To meet minimum volume requirements as the year progresses. Any thoughts along those lines to, you know, frame out or bracket that the volume risk would be? Much appreciated.

Sure. So on the volume side of the equation, price, by the way, is just pretty predictable and locked in. So this is really a volume question for this year than a price question. With these contracts. But on the volume, there's always a band of volume that customers can buy within from a low to high range. You know, typically, the middle range is what they're aiming to do. And we have customers, you know, buying, you know, in the first and second quarter at the low end of the volume range. So they're not violating the contract. They're just at the low end of the band. Across, you know, the customer base. What's changed, I'd say, from December and early January to now is it's a broader set of customers who are now destocking than what we originally had expected in January to where we are today. So no one sort of violating contract, but there's just more customers moving to do some destocking and move to lower end of their band. Then we were originally notified, if you will, in January about the forecast in versus where we are now. So as you think about it and you're going back in the second half, this just comes to question with each customer, just how much inventory do they really have to do stock and where they would then start moving back up into the band to normal. Or staying, you know, at the lower level. And I think that it's gonna be a challenging year. I would expect maybe it gets modest in the back half versus the first half as some customers address their inventory issues. But we're just gonna have to see how it evolves.

Okay. And then secondly, if I may, on the subject to tariffs, I appreciate the very headwinds that you articulated. I'm curious, though. Are there examples of product lines within Eastman's portfolio where the tariffs may be helping you in chemical intermediates, for example, or otherwise? Or is that just simply not the case and, you know, the overall economic environment impact is sort of overwhelming, any such benefits.

Certainly. So I would say the opportunities are still emerging. So it's early days to sort of have a definitive view on this. As these tariffs are still being debated and implemented. Performance films, for example, does have upside in North America. We are by far the largest player in the performance films business, but we still have a lot of different competitors out there. All of our product is made in the US, so we are advantage in having a larger scale, you know, US manufacturing base. Our competitors are sourcing some filament domestically, but a lot of it is being sourced abroad, including places like China, etcetera. Where they're facing tariffs. So we think there's gonna be opportunities there to win some share, but it sort of depends on where the auto market sales are going and how those net together in the short term. But certainly a place where relative to the market, we will do better. And especially plastics, there are definitely opportunities where we have, you know, imported products that we have to compete against. So the shrink labels around the packaging for beverage bottles as an example, even some of the consumer durables. There are manufacturing capabilities in the US that some of our customers have, and they're ramping that up. And we're gonna sort of see, you know, growth there in volume that they have, you know, that could be advantageous for us. The ag space is another place where we're gonna have opportunity. Our ag customers were facing a lot of downs, you know, competition with formulated ag, you know, crop protection products being imported in and really frankly dumped in America at very low prices. So the tariffs are gonna create some relief for them and ability to sort of regain some market share. So that's another place where I think we'll see some benefits about our customers growing relative to exports out of China and some other countries. Even in building construction, there are opportunities like floor tiles. You know, which use our plasticizers. A lot of that got offshore to China and supplied by Chinese manufacturers. Know, that make DOTP. And we have a number of customers who are now looking to bring that production back here. This is a place where capacity does exist. To ramp up in US manufacturing. So there's a bunch of places. You know, it's not uniform across the portfolio. And I think, ultimately, there'll be price benefits across the CI portfolio. When you get some additional, you know, settlement of just the competitive dynamics are going on right now. So the CI is a little complicated because you have a lot of companies were exporting chemicals, and now they can't export them as easily. And so there's a dynamic there that's settling itself out. But over time, there should be upside.

Perfect. Thanks, Mark.

Thank you. Our next question comes from Frank Mitsch from Fermium Research. Sorry. Frank's line has just been closed. Let me just reopen it for him.

Hello? Thanks.

Hello? Can you hear me? Hey, Frank. Yes. Yep. Hey. Good morning.

Hey. Good morning. Sorry about that. I don't know what happened. But given the number of ways things can go, certainly can't fault the pulling of annual guidance. I wanna focus on the second quarter. As I think about Eastman, you know, more of a less of a cold than most companies that I follow. That range of a dollar seventy to a dollar ninety is rather large. So can you talk about the, you know, kind of the puts and takes to hit the low end and the high end? What's what what are you embedding in terms of that wide range?

To put it simply, it's a question around demand in June. And, you know, to some degree, May. But with the uncertainty of everything we've discussed on this call, you know, how orders trend with customers is just heavily connected to that. We're very encouraged that April's holding up, which is great. So, you know, we're off to, you know, a solid start the quarter. But, you know, how customers behave and how many orders get placed creates the range on that end uncertainty. I mean, there are other smaller things around depends on, you know, natural gas prices and currency and this, that, and the other. But the principal question is just a demand question. In the back half of the quarter.

Interesting. Yeah. I don't I wanna drill into that, the positive take on April trending in line with March. As I might have thought that historically, April I don't wanna be too granular, but I would have thought that April would have been a little bit better than March given building and construction, etcetera. But it seems like it's kind of one for one. And is that is that typically the norm at Eastman?

It is typical for April to be similar to March in a good year. Or a solid year. I mean, not a great year or a bad year. What happens you gotta remember, you know, the result of a quarter is three months. Right? So every quarter typically starts out where the beginning is weak and it gets stronger through the quarter. So the last quarter March, June, September, all tend to be the stronger month of the year of the quarter. And so the fact that April saw, you know, similar to March, which is a strong month, is good. Right? So you're building off of that. Performance because March was better than January and April. I'm sorry, January and February. But, you know, so I would put this in sort of normal start to a Q2. As opposed to or bad.

Gotcha. Gotcha. Gotcha. And then and then just following up on a lot of discussion on volumes in tow, obviously. But back to your earlier point about how small toe is as a percent of the cigarette, and so, you know, raising, you know, tariffs, raising the price by a hundred and forty-five percent or something like that. Who is you know, when you sell to CNTC, do are they paying or will they be paying that tariff and you're maintaining price? Or conversely, if you're having to eat some of the tariff or what have you, we would prevent you from raising price given how small it is as a percent of the total?

That's a great question. So technically, you know, when you're going into a country, you see that you're the one paying the duty and you have to decide to raise the price to cover the duty or not. In the way that that works. The conversations of the joint venture between Chinese Ashford Tobacco Company and us, you know, has obligation to buy Flake from us. But they can jointly decide with us that if the price is too high for the flake, that they can they will reduce production. If it's not economic at that price to sell the tub. And so that is where the volume risk comes, you know, with this plate sales is that price much higher than the other plants that the CNTC has. Right? Remember they have a spectrum of joint ventures making tow. All joint ventures with us or, you know, a lot with Saloneys and some other players. Those are making both the flake and the tow in China. So we're the only ones importing flake into China. So they can flex up, you know, the run rate of those other assets and reduce the run rate of this asset if our flake is too expensive.

Okay. Gotcha. Fingers crossed that's ninety days from now on your next call, this whole conversation will have been moot. And we'll be back to normal. But thanks so much.

Thank you, Frank. And it's a good point, Frank. I mean, if we get these things all this tariff to moderate back to sort of more rational levels and let's just say ten to twenty percent range versus, you know, where we're at now. I don't think we should fantasize about everything going to zero. You know, I do think things can normalize and get a lot better and, you know, we would be able to snap back towards our original forecast for the back half of the year from January. You do need to get some of this extreme tension taken out of the system.

Let's go to the next question, please.

Thank you. Our next question comes from Mike Sison from Wells Fargo. Your line is now open. Please go ahead.

Hey, good morning.

Mark, you sort of gave a soft recession sort of outlook, I guess. In your prepared remarks, how do you think the, you know, Eastman portfolio should hold up or perform if the US does go into recession. You know, in 2023, your volumes took a pretty big hit for advanced materials and AFP, but you know, a lot of destocking there. So just yeah. Where do you think volumes would sort of mirror in if we do go that route, unfortunately, this year?

Yeah. It's a good question, Mike. And I think there's a lot of mitigating actions we're taking. But to answer your question first, I think that the demand situation this year will be considerably different and less potentially than what happened in the 2022 time frame. So we've been in a manufacturing recession since the summer of 2022, and we have not come out of it. Right? I mean, demand has been challenged as we all know with the inflation and the interest rate hikes, etcetera. Especially on the consumer discretionary demand side of the equation. You know, cars, homes, autos, you know, we're still below 2019. And at the same time, there's been no driver for restocking in these markets. So inventory levels that are sitting around the planet right now are not that high. Right? They're at appropriate levels for this low demand scenario. And people have only had a couple of months to react to this tariff risk. There's not a lot of time to sort of build inventory ahead of, you know, this tariff risk, you know, through the first quarter, and you're worried about recession. So everyone's trying to balance just how much inventory you wanna have. What's happened is the geographical location and inventory has changed a lot. Right? So anyone had blenders in TVs in China got them in the west. But that doesn't mean they, you know, made twice as much. And same thing. We got materials into China. So, you know, materials have moved around, but I don't think we're sitting on a huge amount of inventory right now. For a destocking event, and I don't think, you know, demand has a big step down because we're already at a relatively low level of demand. Compared to a normal recession. So, you know, there are extreme differences, you know, obviously, between the US and China economies being dislocated at these tariff rates that you gotta then factor in. So hard to put it all together, but you just don't have that sort of mountain of risk, you know, in absolute volumes, I think, this time relative to where we were in 2022. So I think that's important to keep in mind. The second thing I'd say is, you know, there will be a tailwind, you know, on the price cost relationship if you go in a recession. Similar to the demand situation, I don't think the tailwind will be as significant. Because, you know, we've already been at, you know, sort of stress levels in pricing. With raw materials. But I do think, you know, you'll have a tailwind there to offset, you know, that demand dynamic. And there's just a lot you can do to manage, you know, through this. In the actions you take. Right? So as we've said, we've already focused on making sure we're gonna be sort of cash generative in how we're performing. There's a whole list of mitigating actions tariffs I've already mentioned. You know, there is still innovation that's allowing us to grow above markets. You know, the commercial excellence of our teams is phenomenal in defending pricing and value per products, which we demonstrated over the last three years and we'll continue to do. And method analysis is a unique upside to Eastman. Where we've got, you know, that $75 million of EBITDA as a way to offset some of all these challenges we've been talking about. And, of course, we'll be, you know, prudent on the capex front so that, you know, from a free cash flow point of view, we're in good shape. So a lot of things that we're doing to manage through it, I think, you know, I would not recommend just running a proxy analysis on demand for 2022, you know, and 2023 relative to this scenario. For the reasons I just mentioned.

Got it. And as a quick follow-up, if the tariffs were resolved, and we get back to that eight eighty-five run rate for the second half, what was the volume assumptions that AFP and AM could do? Like, low, mid-single digits, is that sort of what we're hoping for initially?

Yeah. That's about right, Mike. I think that the, you know, people are really draining stock right now to avoid the tariffs, which means, you know, inventory is gonna be a lot lower. Than what is normally if we're going back to a normal economy. So, you know, you would hope end markets continue to, you know, come back to some stability. There's gonna be friction from all these tariffs. So, you know, if we're at ten to twenty percent tariff, know, there is gonna be some consumer friction around that and what people can afford to pay or people managing headcount costs. If there are, you know, companies are absorbing the, you know, the hit. That will have an impact on the economy. You know, But you'll have a restocking, you know, bringing forward back to more normal levels. That, you know, will certainly help volumes in the second half, you know, be better.

Thank you. Let's make the next question the last one, please. Of course. Our next question is from Josh Spector from UBS. Your line is now open. Please go ahead.

Hey, guys. This is James Cannon on for Josh. Thanks for taking my question. Just given all the uncertainty in the market, just wanted to focus on some of more controlled controllable items. And looking at the guidance that baked in the $20 million headwind from turnarounds. Could you just help level set how the turnaround schedule is expected to look in the back half?

Yeah. So what I would highlight, it is unique for us to have the scheduled turnarounds here in the first half. In Q2 specifically. So we've got the sequential $20 million headwind. I would say, you know, sequentially into Q3 will be at similar levels. And then Q4 would actually be an improvement. So we're basically two versus Q4. Obviously, in this uncertain environment, that also helps us get ahead as we look at inventory and generating cash flow because taking actions here in Q2 and Q3 ultimately defines the year in cash.

Thank you.

Did you have a follow-up question? Sorry.

Okay. Now I Thanks, everyone, for joining us.

Okay. Yeah. Yeah. Appreciate it. Yep. Thanks, everyone, for joining us. We appreciate you joining this call. Hope have a great rest of your day.

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