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

Thank you, Becky, and good morning, everyone, and thanks for joining us. On the call with me today are Mark Costa, Board Chair and CEO, Willie McLean, Executive Vice President and CFO, and Jake Leroux and Emily Alexander from the Investor Relations team. Yesterday, after market close, we posted our second quarter 2025 financial results news release and SEC 8K filing, our slides, and the related prepared remarks in the Investor section of our website, eastman.com. Before we begin, I'll cover two items. 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 2025 results news release. During this call, in the preceding slides and prepared remarks, and in our filings with the Securities and Exchange Commission, including the Form 10-K filed for full year 2024, and form 10-Q to be filed for second quarter 2025. Second, earnings referenced in this presentation excludes certain non-core items. Reconciliations to the most directly comparable GAAP financial measures and other associated disclosures, including a description of the excluded and adjusted items, are available in the second quarter 2025 financial results news release.

As we posted the slides and accompanying prepared remarks on our website last night, we will now go straight into q a becky let's go ahead and start with our first question please thank you as a reminder as well if you did want to ask a question that is star followed by one on your telephone keypad now um when preparing to ask your question please ensure your device is unmuted locally our first question comes from patrick cunningham from city group your line is now open please go ahead hi good morning thanks for taking my question um look You're reducing capital spend in 2026, now targeting pretty significant cost saves on

top of that, even larger in 2025. And this doesn't necessarily signal a stable to modestly improving macro in 2026. So could you help us understand how representative of the second half should be when we're thinking about trough earnings levels? And with growth projects deferred and lower for longer macro, has your thinking on mid-cycle earnings power changed at all?

That's a great question and a large one. um and good morning um so first of all when you think about the back half of this year you know it's heavily impacted um in the decline by the trade situation that we face and that's creating a lot of uh you know challenges uh for this industry and especially for the sort of consumer discretionary side of the house um so i don't think that the back half is is really a relevant measurement for, you know, how the company is doing in total because you've got a lot of situations around what's going on with the tariff. I mean, when you think about us and the tariff and the exposure we have in the back half of the year, you know, there's sort of really sort of three impacts that it could potentially have on any company. But the biggest for us is by far, you know, what happens with demand. And that was also true in 2019. You know, the second factor, of course, is retaliation that happens in other countries and how you work your way through that. And we do have some high U.S. asset exposure when it comes to that, you know, equation. And then third is direct tariff impacts around raw materials and things like that, which we have very little exposure on because North America is, you know, all of our vertical integration and scale in North America is connected back to local raw materials. So it really is a big demand question about what's going on in this year and what that then sort of indicates for next year as we think about this whole thing. And the trade war is by far the driver of the demand dynamics in the second quarter as well as the back half. And as we look at that and think about trade, the first thing I want to say is there are unfair trade practices around the world, And there is aggressive dumping by some countries, especially the overcapacity out of China, and transshipping to avoid tariffs. So there are real issues here for this industry that need to be addressed. But, you know, those, while very serious, need a strategic approach. And the challenge that we're having broadly right now is that that trade strategy, applying to all countries of the world at the same time may create more economic harm than what's necessary as you try and focus on what the real sources of the trade issues are in the country. And we sit here now where there's a lot of uncertainty. What you had happen even in the GDP data you saw in Q2, a lot of volatility of imports going up, private inventories dropping. People are moving product all over the world to try and get ahead of tariffs, whether it's retailers or the brands or all the supply chain manufacturers that support them to avoid tariffs, to buy time, to see how things are going to get sorted out, take advantage of pauses that happen in the second quarter, et cetera. So it's really chaotic to try and understand what's really going on in in-market demand. Same question you have around consumers. How much do they buy ahead of tariffs potentially impacting prices in the first half of the year, which is probably why consumption was up, versus them being conservative about worries about what they can afford for the year. Same with customers, what they think about demand. So there's a huge amount of chaos that goes into this whole situation that causes some challenges and complexity in Q2 and certainly is why we expect a sort of mid-single digit drop in demand for the back half of the year which is also representing some normal normal seasonality as well as some of the pre-buy as well as you know customers being very cautious for everything I just said so you've got all that complexity right I mean a 15 plus or 15 to 40 percent tariffs as of last night on countries is a big impact to the market so there's reasons to be cautious and careful about the back half of the year so with that it was what our customers are doing and being cautious in july um you know we sort of built this forecast and this you know and staying focused just on q3 as well as you know not really trying to forecast the full back half of the year um so that is a distortion to try and think about what's going on in demand in general the second is in that chaos we've very much decided to focus on cash generation as we told you we would in april and so we're taking all the actions we can to pull inventory down, generate cash, which unfortunately when you do this from an accounting point of view ends up in a utilization headwind. It's not a cash headwind, it's actually generating cash, but utilization headwind is somewhere around 75 to $100 million in the back half of the year. So that distorts the back half as well. So you've got the normal seasonality, you've got all this trade dynamics, and you've got the utilization So the back of the year is by no means something you can annualize and think about as representing, you know, what 2026 looks like. So your question is, what do we think about 2026 and where demand could go there? I mean, the answer is, you know, with the current chaos, no one knows where demand is going to go next year. But what we can do is, with all the trade deals settling in one way or fashion, at least we're going to start getting some certainty that is always better than uncertainty to calm everyone down and everyone starts focusing on what they need to do in this context. So that will help stabilize things. You've got the other things that are very pro-growth in the U.S. administration from the tax bill to less regulation, et cetera. So there are lots of other things that I think are pro-growth outside of this trade disruption that are going to help stabilize things. So, you know, our view is, especially with how challenged demand is this year on top of what was already a bad situation from 22 to now, there's the reason to expect stability in the back half. I mean, sorry, stability as you go into 2026, which would be equal to or certainly more likely better than where demand is now. But in this context, we have to manage our cost.

We have to be, you know, aggressive and how we manage inventory because we don't know where things are going to go. so we're going to take every action we can appreciate the detailed response you know i i guess just a quick one on the metathesis unit you know how far are you along with that investment and what gives you confidence on those pretty healthy step up and profitability there i'm sorry you broke up for a second were you asking about etp or methanolysis i just couldn't hear what you're asking yes yeah which one yeah okay sure so obviously can yeah got it um so the chemical remedies business obviously is facing some pretty significant

challenges you know they're they're the classic example along with the entire you know commodity chemical industry of the impact over capacity coming out of china and other countries um impacting businesses um and we certainly you know see the industry right now at cash cost and frankly there there's indication some of the products being exported to the world are below cash costs. So, you know, we feel like we're probably at the bottom of the market. But we're also constantly looking at how do we improve the structural strength of every business we have. We've done a lot of things to improve the CI business over time. We made the RGP investment. We shut our Singapore plant down, constantly looking at how to value up our mix in North America where our margins are much better than export markets, you know, which at the moment is a challenge because of demand being off, but always looking for every opportunity. And we told you all the way back in 2021, we had an idea of doing an ethylene to propylene investment to convert one of our existing crackers of the three that are at the site to going from ethylene to propylene. For those who are not familiar with Eastman, we make a lot of ethylene and propylene because that's what crackers do. But if we had PDH four decades ago, that's what we're going to build. The propylene is where we make all of our specialties. That's where our value sits. and then we're left with a bunch of excess ethylene just to run the crackers. So we've always been trying to reduce that. That's why we made the RGP flexibility investment to increase propylene. But we still have a bunch of ethylene. And so what we can do with this investment, we've come up with a lot of insights since 21 to scale it up to a bigger capability, and that allows us to convert ethylene to propylene. And when you do that and optimize the asset configuration of the site around that investment, you can dramatically improve the earnings by 50 to 100 million dollars in EBIT over the cycle. And it also really reduces volatility because a lot of the volatility comes out of the ethylene side of the equation. So it's a great investment and it's a great payback. It's a very short payback for building this capability because we're leveraging an existing cracker to do it.

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

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

So first of all, we're incredibly excited about how well the methanolysis plant is running. It's been a long journey from the beginning of this project to getting it built to you know getting the startup and working through a lot of construction issues so it's great to see the plant run well incredibly excited to see the you know rate test the plant to get up to 105% as it is and and all of that is working really well which also means our cost benefits this year relative to last year are on track to get that additional 50 million dollars of improvement for the corporation. It also, when we started rate testing it and learning more and more about the facility with its better operational performance, we had, we've come across a variety of insights with some very targeted de-balled necking investments that are, you know, very manageable. We can de-balled neck the plant and have a line of sight to get in the plant to 130 percent and we have some ideas to get, you know, beyond that. And so that's fantastic in this environment, right? In this environment where we're trying to always improve our cap, you know, lower our capital intensity in everything we do, and this is, you know, our capital intensive project. If I can now get 30% or maybe even more than that, you know, I've improved, you know, the ROIC efficiency. So that is exciting. The second is that additional capability, especially right now, allows us to continue to, you know, grow the EBITDA to that 200 million that we've told you about and keep going from this facility and have more continuous growth than when we cap out on the capacity of this plant in the original plan and wait for the next plant to start. So we can sort of keep the continuous growth going. And that also allows us to, in some sense, pull EBITDA forward from the second plant into the first plant as we sort of continue to fill it out. So that allows us to also have time to look at different options. So we're certainly not happy about losing the DOE grant and we're highly engaged to try and get it back that's a highly uncertain process and so we're focusing on what else can we do and so this ability to bottleneck gives us the time to work on alternative ideas and we have a lot of creative ideas about how to take scope out of the project we have creative ideas of not just looking how to do it at long view but looking at three other sites where we might have some better advantages and how to be efficient and so there's a lot of things going on we can't talk about the details of all that right now because we're in the middle of doing some of it but we're pretty excited about you know the potential to sort of optimize the footprint and find ways to actually pull forward some benefits that we would have had to wait for the second plant when it comes to contracts and pepsi You know, our contract with Pepsi is still intact, and we're still confident that they're committed to working with us, you know, as we sort of pursue all these different options. So, you know, we feel sort of good about that. And the other thing I'd note is we're seeing accelerated demand in some cases with some of our customers who are finding mechanical recycling isn't working well on the RPET side for food grade packaging applications. And so we're getting more and more confident about that fill-out.

Okay. Thank you. I'll leave it there.

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

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

Yeah, that's a great question. So, you know, I'd say that the insights developed, you know, through the month of June into July as we were working with our customers and trying to understand what their views were. The market that's most impacted is consumer durables, which you can imagine are caught up in the trade war since the vast majority were made in places like China or Southeast Asia and imported here. And our supply chain in serving that market is incredibly long as we make the products that go into those applications here in the U.S., send them to Asia, they get made into product, come back. So you've got a nine, 12-month supply chain on top of this that you're trying to manage. And so I think that, you know, the trade pause allowed everyone in the second quarter to move material around ahead of potential escalation on July 9th. And so, you know, everyone did that. I mean, every company, you know, like I said earlier, from retailers to brands and manufacturers to people like ourselves. Because of North America, you know, we had to move things to different places like Asia when we're making it here. in that sort of factor into our supply chain being a bit longer and our need to move things being a bit higher, you know, because of where we were making it in the U.S. and the risk of retaliation. So, you know, you're working through all those dynamics with your customers. And I think that as they looked to the back half of the year, they became cautious. You know, I think the words were holding orders as opposed to canceling, I think is important to say, as a way to sort of wait and see how all the trade situation was going to resolve itself one way or another. And then they have to, you know, naturally factor that into, you know, where they think consumer demand is going to go and how they sort of either serve those markets or not. Because while people are moving inventory around all over the planet, they're also trying not to increase inventory too much in total because they, you know, are unsure about the back half economy mean when the consumer is more likely to be impacted, right? I mean, these tariffs at these rates are likely to show up in inflation. I know there's a lot of debate about that, but the margins, at least in the consumer durable industry, you know, pretty thin, you know, when it comes to the manufacturers in Asia or the retailers here. So, you know, some portion of this has to get passed on. It can't be absorbed. And if even it's absorbed, people are going to have to lay off people which impacts the economy so somewhere in the world um so this dynamic is going on there i think it's very much going on in the auto industry plenty of news to flow on that but probably likely some pre-buy there that you know the auto companies have to think about as far as what they think demand is going to do in the back half uh for them and in the building construction segment same dynamics you know obviously you know we can challenge and that half of our revenue is sort of where we're seeing these impacts, customers, you know, are working with us. And I think, you know, what we've got in our forecast represents our caution in July. We're assuming things get a little bit better in August and September, you know, with some of this trade certainty coming into place. And we're just going to have to see how it goes. But, you know, the key for us is focus on what you can control, cost, cash, you know, driving methanolysis forward, finding capital efficiency, keeping our capex low, et cetera, and positioning us, I think, reasonably well for earnings to be materially better next year versus this year on the actions that we're controlling and taking.

Thanks very much. I'll pass it along.

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

Yes, thank you very much. So So I wanted to check on the autos and markets. I mean, you and some other chemical companies today and yesterday did flag that they were weak in Q2 and Q3 could also remain weak. But that seems to be in contrast with both trade consultants and what some of the auto suppliers are saying so far this earnings season. So can you provide a little bit more color on where you're seeing the weakness? And specifically, you know, in the case of Eastman, of course, is it more on the aftermarket films or more, for example, on the interlayers or any other products?

Yeah, good question. So on the aftermarket side, Q2 was a solid quarter. We saw good performance in North America, a little bit more challenge in China, but overall, the aftermarket held up reasonably well in Q2, where the interlayer business or the automotive coding business saw some challenges as producers around the world, given the tariff announcements, were moderating production rates in preparation for where demand may go. Right. There's a big question on, once again, you know, how much of this tariff is going to get passed on to consumers and inflation and impact demand in the back half of the year. So you're trying to worry about how much, you know, cars you're producing for the back half of the year. So you've got to be a little careful on that front. And then you've got the dynamic of the pull forward of people buying cars, you know, ahead of the potential tariff increases. So I think, you know, from what we're seeing, you know, we started the year expecting the auto market to be sort of flat relative to last year, where now our view is sort of most single digits down, which is principally in the back half of the year as opposed to the first half. So I'm not sure we're that different from what I've seen from other car companies in sort of the underlying market assumptions. If it turns out to be flat in production in the back half of the year, it's going to be upside for us relative to what's in the forecast. So, you know, I hope those people that are sort of predicting that are correct. Perfect. Thank you very much.

Thank you. Our next question comes from Jeff Sikowskis from JPMorgan. Your line is now open. Please go ahead.

Thanks very much. In your AFP business, your prices were up 4% year over year. where did that pricing strength come from, either by sector or by product line? And in your fibers business, can you discuss the current state of tariffs and whether that's an ongoing impediment to your business or whether it isn't?

Jeff, so on the AFP question, most of the increase in price was driven by our cost path through contracts in our care chemicals business where we buy some raw materials um that just have a lot of volatility to them that go into the product so we have very steady margins in supplying our customers in that space but the fatty alcohols that we buy sort of bounce up and down and and that's really what that four percent is primarily driven by one of the great things about the afp business um that has continues to be proved and valued deeply by us is the stability of uh the price cost relationship in that business across the portfolio um quite a bit of it is in cost passenger contracts keeping you know that stable which takes to which is great by the way in removing a lot of debate and tension with your with your customers in procurement which is let's just focus on how we grow together we don't need to continue to debating how problem drills go up and down um and so it's part of why you see afp performing well when it comes to the fibers business and and tariffs uh the principal impact of tariffs in the inside the fibers business um on a full year basis um is certainly um the naya textile business right so toe's always been expected to decline to some degree with market and pass the you know being added in china etc um but the textile business was a source of growth and the margins were pretty good and so that you know offset some of the dynamics um in the tow business and it's been extremely helpful you know in the last four years in improving that that segment um so what's unusual about this year is you know we're obviously dealing with some some issues in tow um but the textile business was impacted. Most of that sold in China and then made in textiles that served the world. And we saw the overall textile market slow down dramatically from tariffs because of the cost of selling fashion goods in the U.S. against those tariffs. So that industry was already weak last year, but weakened further. So in-market demand has come off. Customers that we have in China has become more cautious, and that's translated to about a $20 million problem, we think, for the year that's spread across 2Q through 4Q in impacting the fiber's business on the tariff side. On a short-term basis, there is some dynamics of some toe being pulled forward into Q2 in Europe to get ahead of potential tariff risks that will sort of level out. So it's not a full-year impact, but it's just a timing impact.

And then, you know, you described in your remarks trying to lower working capital by $400 million from where we are at mid-year. And you talk about the earnings penalties this year for changing your operating rates. So as a base case, I get it. you know earnings should rise next year as you move up to more normal operating rates but is it also true that what should happen is that cash flow next year should decrease you know that is if you're pulling the cash flow forward into this year does that mean that as the base case your free cash flow next year will be or i'm sorry your cash flow from operations will be less than a billion if there's no change in the business condition so Jeff thanks for the question obviously to your point I think the last statement

that you just made it depends on your your outlook and the assumption I think as mark has described both from the economic lens as well as our assumptions is that we actually think that you can get to a more stable environment as we see tariffs etc unfold with the actions that we're taking in the first half and the timing obviously you being here at mid-year we can't fully optimize our working capital scenario and actually working capital is in that headwind this year as we look at it overall compared to what we built in the first half and what we're taking out in the second half so my belief is you know the billion is the platform at which we'll be able to build off of with higher cash earnings and the potential to still build and optimize our working capital.

Thank you so much.

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

Thank you. Good morning. Mark, just on Q4, reading your prepared comments, it sounds like you're going to similar to Q3 of around $1.25. Is that fair?

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

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

I think that when you think about, you know, what's going on in the dynamic of Q2 to Q3 and the mid-signal digits, you know, there are multiple components and it depends on the business that you're looking at. And it's important to actually sort of frame it, you know, correctly. So if you look at Q2 to Q3 and add back the utilization headwind for $50 million, you know, we're basically flat sequentially from Q2 to Q3 when you back out the utilization headwind. And then you're, okay, what's going on underneath the surface of that? Well, there are two moving parts, right? chemical remediates is getting better by greater than 30 million dollars which means especially some fibers is going to be down by 30 million dollars you know within the guide that we're talking about so when you think about advanced materials and the mid single-digit decline we're expecting there what I'd say about half of that is expected market decline and the other half is this sort of pre biodynamic of some materials in Triton performance films Some other polyester is being pulled, you know, ahead of tariff risk into Q2. So when you have it there and then the orders, you know, don't occur in July for that, you know, you've got that decline. So I'd say it's about half and half, you know, market decline, which I think is more in line with what we're hearing from specialty peers, you know, or the market participants. And then the other half is this pre-buy thing. I'd also note that, you know, in this segment, especially when you think about it, you know, two-thirds of this is consumer discretionary, right, between autos, consumer durables, and B&C, and those are the most impacted markets. They're incredibly valuable markets to us, so as, you know, as the volume comes off, it hurts, but when the volume comes back, you know, it's incredibly compelling. So that's how I think about the AM part. The fibers part is, I would pretty much say, is all pre-buy and the moderation we're expecting from Q2 to Q3. And AFP, this is sort of more normal for its decline. So normal ag seasonality coming off, timing of HTF projects that got completed in Q2 instead of Q3 and a little bit of pre-buy in some places is what's behind their mid-signal So, again, you back out the pre-buy and the HDF timing and the markets, you know, moderating in a very normal way. So I think that, you know, when we look at it, I don't think we're, you know, from an in-market point of view, sort of misaligned too much. But we do, you know, have, you know, exposure, especially in advanced materials, to these sort of very sensitive markets to what's going on in the trade environment.

Thank you.

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

If I could just follow up on that. Are you sizing the pre-buy at around 20 million or so, benefit 2Q versus 3Q? Any color there would be helpful.

Hey, Frank, that's probably directionally correct. You know, when you follow the math of what I just put out there between fibers and AM, And that's going to get you to sort of that number.

All right, great. And, you know, on this $1.25 point estimate for 3Q, now you guys put out a 20-cent range for 2Q. And, you know, and clearly the commentary based on tariffs, et cetera, is that there's a wide range of outcomes for 3Q. This $1.25, is that, you know, is that kind of at the low end of the range that you're thinking, mid-end of the range you're thinking? How much of a range in your mind do you have in terms of how 3Q can play out?

That's a great question, Frank. We put the word around before $1.25. So we see upside and risk to that number based on all the trade dynamics that we have in here. Some parts of the bridge, I'd say are pretty predictable. So the asset utilization is in our control. We're pretty clear on what that's going to be. Our cost reductions in our control, clear what that's going to be. We've had phenomenal commercial excellence over the last four years in defending our price costs and our specialties and our market share being held incredibly well over the last four years. And we certainly expect to continue that excellence in the back half of this year and into 2026 so when i look at all those things that are you know to some degree in our control methanol is running better etc um you know we feel pretty good about the quality of our guidance but to your point that we just mentioned in the comments i've made in this call you know predicting demand and customer consumer behavior um in in this world right now There's no predicting it. And so we didn't put a range on it, but, you know, there is certainly, you know, uncertainty in either direction, right? If people really calm down, you know, we could be up in volume. You know, if these higher trade announcements and rates that just got announced through this week have an impact on the market, you know, on people's behavior, then it could be down. You know, we just don't know, and frankly, no one does. There's no way to predict it.

So a wide range around – best guess today is $1.25, but there's probably a bigger range around it than there was the range around the 2Q is kind of what I'm hearing right now.

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

Okay, gotcha. Thanks so much.

Thank you. Our next question comes from Alexey Yefimov from KeyCorp. Your line is not open. Please go ahead.

Good morning. Mark, to me you sound less optimistic about methanolysis sales this year and at the same time more optimistic about next year.

Could you maybe talk about this contrast, why there's this difference, and any sort of signs of confidence you have into this ramp in methanolysis next year? sure um so you know it's a great question obviously in our prepared remarks we've acknowledged that things are going a bit slower uh you know the the interest in renew i think and recycle content is still very much there from an in-market point of view both in the specialties which is what the purpose of this current plant is is is aimed at serving as well as you know you know, our pet, you know, which is, you know, partially going to be served off of this facility as a way to fill the assets. And then, you know, as we migrate and upgrade specialties, we'll, you know, move that PET to the second plant. But when I look at the overall underlying dynamics about demand, you know, you are attached to the underlying market, right? So we've proven in drayton over the last you know over more than a decade that we can grow well above the market by being bpa free and substitute out of other materials and making market share and growing incredibly well and that's true but there's still some connection you have to the market so if the market's incredibly challenged it's going to moderate the rate at which your customers launch new products that have your renew content in it which we've we've talked about so that's the short-term dynamic of everything we've been talking about in this call you know when it creates that challenge and durables it slows down the rate at which you know people are adopting new features and launching new products in in that space even through in luxury cosmetics you know that market's also a bit challenged and moving a little bit slower um as another key market so you know but what i would say is i don't we're not seeing any signs where suddenly people think plastic waste is good right you know a lot of people are debating climate, but I haven't seen anyone debating, you know, plastic waste, you know, and wanting it out of their environment and not impacting their lives. And so, you know, that's not going away. You know, the rate at which customers want to solve this problem when they're incredibly economically challenged, you know, this year from tariffs for raw materials are buying or market demand that's not that strong um you know the rate at which they adopt is slowing down um but as you get to economic stability i'm pretty confident that you know this issue is going to be important and the responsibility of brands have to address their plastic waste and the environment is going to be there there's going to be continued pressure and there's lots of regulation that's still happening in europe and the u.s driving it so in this context You know, we still have, you know, over 100 customers on the specialty side committed and buying and paying premiums. We're just not ramping up orders as fast. We're not seeing, you know, a bunch of order cancellations. We're just not seeing the ramp up as fast as we'd like. And as I mentioned on the RPET side earlier, we're picking up more interest in demand for next year. We don't have it available this year because we're still in the middle of switching our Triton line over to making PET, where we'd be selling it now. But as we bring that on in the fall, and those two of our largest brands, in fact, on the RPET side committing to meaningful volume next year. And what's most interesting about that is it's because mechanical RPET is not working in some of their applications. They're having performance issues, color issues, integrity issues around the product. the on the mechanical side and and so they need you know chemical recycled product which is identical to virgin to have recycled contents for it not to be brown or yellow relative to other products on the shelf or not you know being able to make bottles quickly enough because of integrity issues etc so you know that confirmation that we have a differentiated value proposition in our pet with chemical recycling and we're the only player in the world that and do it effectively, well, I still think it's going to be a big competitive advantage for us and create a lot of value in the future.

Thanks, Mark. And if you had to guess next year, fibers, flat, up or down in terms of earnings?

Great question. Thank you for it. It's one we're spending a lot of time on and focusing on. The fibers business and the decline we're seeing this year, certainly more than we expected at the beginning of the year. And to sort of frame the Fiverr's conversation, I want to sort of unpack what's going on within the segment. One question already came up, which is, you know, what's going on in the segment? And I highlighted textiles as a $20 million headwind within the segment. In addition to that, there's about a 20 million dollar asset utilization headwind as we're pulling inventory down here to free up cash just like we're doing in am and other parts of the portfolio and i would say the utilization impact um here is is is you know meaningful for the segment at 20 million dollars and then there's about 10 to 15 million dollars of higher energy cost that's not covered by the costs pass their contracts. So when you look at that, you know, put those, you know, all together, you know, that's about 40% roughly of, you know, sort of where the decline's headed, you know, roughly. And that gets you to, you know, thinking about those businesses. And both the asset utilization comes back as a tailwind next year, as long as we have growth in textiles and event and other things. So the vast majority of that utilization headwind is before you get to spinning toe, it's in the making of the plastic and the stream that feeds into it. So any growth anywhere in the portfolio on cellulosic plastic, you know, will actually sort of turn that $20 million into a tailwind for fibers. And then you've got, you know, recovery in the Naya textile business that we are, you know, moving with our customers outside of China as they're trying to manage their tariff exposures as well as winning business in new accounts around the world and finding ways to get some of our Chinese business back as tariffs have settled a bit. So all that sort of becomes an offset relative to whatever happens in the remainder of the decline this year, which is tow. And on the tow side, what I'd say is we don't see a shift in market still declining one to two percent um you know we always expected losing some volume as the chinese capacity came online and everyone had to adjust uh their market shares to sort of make room for that capacity um but the volume you know is turning out to be worse than that because there's a bunch of destocking going on as we talked about in prior calls where people are holding a lot of safety stock and now are feeling a little more safe about not needing as much safety de-stock and de-stocking, and they were clearly holding a lot more inventory than we expected. But there's another dynamic going on as well, which is we had some medium-sized customers that were very aggressive in wanting to grow their market share in the cigarette industry, and were adding capacity for that and building inventory to fill that capacity and signing contracts that committed them to you know grow that volume with us and having our support but unfortunately these customers were not successful in growing their share and actually ended up losing a little bit of share so far they're obviously not happy about that and they're trying to take their share back but in this current situation they're trying to destock the inventory that they built for that growth that's not playing out and for us you know when we had that expectation of that growth and we had sort of given up some share with our price discipline and a few other places in this market context we you know we had an expectation of how volume would net out that isn't you know playing out the way we expected there's a range of actions we're planning to take right now to address this you know situation um and and and and be very focused on maintaining stability uh for us you know in this market um and so that i think is is sort of where we how we got here we didn't really get some of these insights from these medium customers until the second quarter which is you know what we're adjusting to now you know from a de-stocking point of view while there's a lot of de-stocking certainly going on this year it's reasonable expect next year it will be less than this year from what we can from what we can tell we got all these you know offsets of things like utilization and textiles etc you know being an offset to this tow dynamic so you put it all together we think we can stabilize the situation as go into next year thanks mark thank you our next question comes from kevin mccarthy from vrp your line is not open please go ahead thank you and good morning uh mark in the prepared remarks that you released last night i think you mentioned that you're now targeting additional cost cuts

of 75 to 100 million dollars so can you maybe elaborate on on the actions that you're taking and how those savings might flow through the financials over the next, I don't know, several quarters here.

We'll let Willie hit the cost reduction targets, and then I'll add a couple of comments to that.

Thanks, Kevin. Good morning. Obviously, in this environment, we're focused on building on the improvements that we've made here in 2025 as we enter 26, and we've got detailed plans that we'll be pulling together in the back half of the year that enable us to again deliver another 75 to 100 million as long as the environment continues to persist I would say also just highlight that our actions do not reflect a change in our strategy as we think about innovation and excellence and how we execute having an efficient and effective cost structure goes hand-in-hand with achieving that and generating returns over the long term so our actions range from optimizing our contract partners and then the overall usage of that I think we've shown in multiple economic environments that we you know ultimately take structure that looks fixed and make it variable as we think about reliability and maintenance execution that is a focus as we continue to enhance and deliver reliability over the long term and reduce overall maintenance. As we think about purchasing an MRO in this environment as we're going through tariffs right now, we're looking at how do we optimize that supply chain and ultimately overall mitigate and reduce that cost structure. Energy efficiency, as Mark has highlighted, energy is a headwind this year, and that's core, and we have opportunities on that front. And obviously, in this type of environment, it will also result in reduced labor cost as we think about year-over-year performance.

Yeah, what I'd sort of like to add to this is, you know, you came up earlier, where do we view the world next year, and are we really worried about getting worse? You know, first of all, to be clear, you can't annualize the back half of this year, you know, with what we're going through. You know, you can't, you've got all this asset utilization headwind that's distorting. You've got normal seasonality that you'd always have to correct for where we're more 55, 45% first half to back half normally. And you've got this sort of pre-biodynamic and just the absolute chaos of tariffs and how it's impacting demand behavior in the marketplace. So, can't do that. So, you know, when we think about cost structures and what we're trying to do going into next year and really think about on a full year basis, how do we go from this year to next year, which I think is a better way to think about it. these cost actions are incredibly important. But what you didn't hear Willie say is we're shutting down a bunch of plants and rationalizing them. A lot of the industry right now is both on the specialty and the commodity side are rationalizing plants entirely because if they're doing that, they don't see that demand coming back in the future. We're not doing that. We're actually confident with our innovation and the way we find ways to value up our facilities and grow and leverage them efficiently like we did from PT to copolyester so Triton or standard interlayers to acoustic interlayers to HUD you know we believe that you know our asset base you know outside of some tweaks here and there is well positioned for the growth that we would expect to have in 26 and 27 and beyond so that's you know so we think about that hundred million dollars that that helps improve earnings next year to this year. When you think about the asset utilization, once again, focused on cash and discipline, that $75 to $100 million headwind becomes a tailwind. The way to think about that as a tailwind, if the demand is really as bad as the back half of this year, it's a $50 million tailwind in utilization next year. If it gets back to the front half of this year, it's a $100 million tailwind relative to this year and just how those utilization numbers work. To be clear, The demand was not strong in the first half of this year with all the dynamics that we're facing. So we feel good about that being a tailwind for next year. We've got all the innovation going on across the portfolio, growing, of course, the revenue on the Kingsport plan, as we talked about. There's growth that we have and can see in new inner layers on the Aventa products, gaining traction and being key to driving that utilization in the cellulose extreme. new products and cosmetics and especially plastics etc recovering naya um we do think you know we'll continue to have great discipline on managing our price cost um and so that won't be a headwind or a tailwind but you know good to to defend and manage and prove about the value of our products by doing that four years into a difficult world um regionally expected some recovery in ci um and of course with our cash discipline and improving uh operating cash flow next year versus this year, more cash to return to shareholders, especially since we're able to delay the step up of the next methanolysis plant due to the advantages we have in the bottleneck in the current one. So I think we're well positioned to recover next year. But as I said earlier, no one can predict where the absolute economy is going to go at this stage.

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

In the short term, I think that's fair, Kevin. I mean, I think that, you know, just to be clear, there's optimizing capacity and then there's thinking about what businesses belong in the portfolio, which are two very different questions. On the first question around optimizing capacity, you know, we've done things like optimize some production inside our Massachusetts side in interlayer. or shut the Singapore plant down and optimize some capacity and heat transfer fluids to align with market conditions. And none of those are big, significant cost-cut steps, but it's just being conscious of managing cost structure. And we'll continue doing things like that across the portfolio. That's part of what Willie's talking about when we have network asset optimization. The E2P investment in CI is a structural investment to improve that site's performance. And so as we are more prepared to get into the details of that, we'll give you more insight on what that means. But again, we're not shutting the entire site down like in Europe. There's just major sites just all being shut down by companies left and right. We're probably going to be 30% shut down by the end of the year over the last four years. So we're not seeing that. When it comes to portfolio, we're always disciplined. I think we've proven that. We've proven it with adhesives and tires and the CEDIC asset plan. If you want to go back far enough in history, we've proved it from 2006 to 2012 and divesting a lot of underperforming businesses. And, you know, we'll always keep an eye on that and look at what belongs in our portfolio and be open-minded to things that can be segregated and separated from the company. You know, integration does create constraints on that. But certainly right now at the bottom of the market is not a time where you look at doing things like that.

Perfect. Thank you.

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

No worries. The next question is from Lawrence Alexander from Jefferies. Your line is now open. Please go ahead.

So just to follow up on the innovation points you brought up, what are you seeing in terms of customers delaying versus canceling or accelerating their investments in evaluating new alternatives or innovative products? Is the uncertainty leading to a freeze in activity or is it helping you on that front? quick you're talking about across the portfolio because i think i've already hit yes across the portfolio just for your customers but that's always been one of your differentiations just curious is it becoming a demand pull for 27 28 29 or is that becoming more of a concern what's interesting across the portfolio i'd say is customers are still highly engaged you know they like us realize that you know to get out of a weak environment you got to create your own growth.

You can't just sit there and wait for things to get better. And you also want to maintain your differentiation against competition. So whether it's next generation HUD and different versions of that, we're seeing very strong engagement in the auto industry, as well as, you know, specialized products necessary for the EVs, you know, which are still growing in lots of parts of the market. You know, you see a lot of engagement there a lot of engagement um around the venta um as a solution you know polystyrene is being banned in a lot of food tray protein tray applications or straws and this and the other and you know the retailers or the food service companies um you know need products uh to sort of solve those problems so the engagement there has been been very good um along with new products we're always launching and especially plastics uh you know so those we have a product that replaces polyethylene coatings for paper cups and other sort of paper food applications that has strong engagement. So across the circular platforms, across, you know, the automotive space, you know, personal care space, et cetera, we're definitely seeing engagement. But, you know, the rate at which they're adopting, you know, is still constrained about economic reality here in the short term. You know, with all this, everyone's just focused on how you manage costs and get through these But the great news is it has not resulted in a pause on engagement on innovation.

Thank you.

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

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