Eastman Chemical Co Q1 FY2026 Earnings Call

Good day, everyone, and welcome to the First Quarter 2026 Eastman Conference Call. Today's conference is being recorded. This call is being broadcast live on the Eastman website at www.eastman.com. I 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 McClain, Executive Vice President and CFO, and Jake LaRoe, Senior Manager, Corporate Analysis and Invest Relations. Yesterday after market closed, we posted our first quarter 2026 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 first quarter 2026 financial results news release during this call in the preceding slides and prepared remarks and in our filings with the securities exchange commission including the form 10q to be filed for first quarter 2026 and the form 10k filed for full year 2025 second earnings earnings referenced in this presentation excludes certain non-core and unusual items reconciliations to the most directly comparable gap financial measures and other associated disclosures including a description of the excluded adjusted items are available in the first quarter 2026 financial results news release as we posted the slides and the company prepared remarks on our website last night. We'll now go straight into questions. Becky, please, let's start with our first question.

Thank you. We'll now take our first question from Vincent Andrews from Morgan Stanley. Your line is now open. Please go ahead.

Thank you, and good morning. Mark, I'm wondering in methanolysis, given what's going on, the run-up in crude oil prices and and virgin plastic price is running beyond that. If in methanolysis, this is providing an opportunity for more customer trial or adaptation, whether it's in the U.S., potentially some export opportunities. Because I seem to remember over the last year or so we've been talking about, you know, customers not wanting to spend or try things that are different, but it would seem to me now your product probably offers some significant relative value beyond just its, you know, recycled nature. So if you could comment on that, that'd be really interesting.

Good morning, Vincent. So we certainly are very excited about the strength of revenue growth associated with the Renew platform around Nuff Nolitus, both on the specialty side as well as the RFET side. We need to keep in mind that the in-markets here, even though there's a lot of stress in the marketplace right now with Mithy's conflict, The in-market demand situation hasn't really changed dramatically. Consumer discretionary on durables is still relatively challenged, or cosmetics, et cetera. So we're not seeing an uptick in in-market demand in this concept. And the customers are still, fortunately, very focused on the value of renewed content and interested in buying it. So on the specialty side, I don't think anything's really changed. We are getting a bunch of wins. We're seeing a great build, and especially customers. You saw some of that volume growth happen in Q1. It will continue into Q2 and into the back end of the year. And it's happening with Triton sales and cosmetic packaging where we're seeing the most adoption. On the RPET side, I think there is more of a question around just relative value of our RPET relative to where Virgin PET prices are going with the increase in oil. And certainly that improves the price position of our material relative to those materials that are going up in a considerable way. And so we see strong demand there. But honestly, the demand was strong before oil went up, and we're running our capacity to serve that. And so that 4% to 5% revenue growth that we've talked about in January, we still think that's probably accurate. There may be some upside. You know, the real upside, I think, sits, you know, relative to the underlying market, sits more in the Middle East-related issue than it is just on the renew value proposition across the portfolio. But in particular, especially plastics, since we're talking about advanced materials right now, you know, has some upside there. You know, as our competitors in Asia principally, you know, are facing a much higher oil cost, a much higher, you know, natural gas cost. They're, you know, they're having to raise prices like we are aggressively in this context. But they're also facing, you know, security supply issues. There are shortages out there that's driving all this price increase. You know, so people are going to start running into the inability to actually make product polymers, whether it's direct competition or indirect polymer competition. So we're just seeing signs of it, but we expect to see more potential volume upside driven by that operational constraint that's going to be occurring in Asia in particular. So there's a combination of renew growth for sure. What's impressive in this entire environment is even with the challenges that our customers are facing economically, we're still building, they're still paying premiums for these products, which is a really impressive test of the value proposition.

Thank you. Our next question comes from Patrick Cunningham from Citigroup. Your line is now open. Please go ahead.

Hi, good morning. Thanks for taking my question. Sort of a related question just on the volume upside, you know, as being a reliable supplier here. Have you seen tangible market share gains, particularly in CI at this point? And then you kind of touched on this, but, you know, how would you sort of handicap the potential for share upside, you know, in other parts of the specialty business as a result of the conflict?

Yes, that's a great question. We're certainly paying a lot of attention to this issue, as I just mentioned. So on the chemical immediate side, certainly we can sell everything that we can make. And the good news about this year, because we had such large cracker turnarounds last year, is we have a lot more volume to sell this year than last year. So we have more volume to sell. Remember, we sell a good amount of that in North America, where we have good margins always. And then we had the export market, you know, that we would send material into from chemical intermediates to run the assets full. But those margins had been significantly compressed last year. So those margins now with the shortage out of the Middle East have gone up significantly. And so we're going to see the benefit of that. So we see the benefit of a lot more volume than we expected in North America with the tightness in the overall markets from the imports that would have come from Asia that are not coming as much, as well as, you know, the spreads expanding and a lot more volume to sell. So we're definitely seeing share benefits, as well as being out-exported to higher-value markets like Europe than Asia, where markets are being shorted by material that's not coming from Asia as readily. So lots of different benefits going on there. When it comes to the specialty side, I already hit the point, I think, But we definitely see the potential for a volume and market drop side in AFP and advanced materials. But we haven't seen any significant amount of improvement yet. So we think that's still to come. A lot of people are very focused on the price of oil or the price of global natural gas, which is certainly, you know, raising the cost structure of our competitors around the world much higher than us. But the quantity shortage, I think, is an impact to the world that we haven't actually seen yet. You know, people are living off of a certain amount of inventory, whether it's customers or competitors, and serving the market, but, you know, that's going to start running out, and they're going to start seeing more shortages impacting the markets in addition to just the sort of direct oil or natural gas dynamic.

Understood. Very helpful. And then just on fibers, you specifically called out reduced customer shipments and some forward-looking volume risk. Can you elaborate what you're seeing there and why the implied, you know, second half earnings run rate should, you know, still show some improvement year on year?

Sure. So just to sort of go back just a moment to sort of what we're dealing with in fibers, when the earnings came off last year relative to 24, it was really multiple components. The tow volume is part of the story, but it's important to remember that about 30 million of the decline was textiles, 20 million was sort of stream mass utilization due to weak demand across the company and about 15 in energy. So when you move to this year, what we told you in January was we thought that the tow volume would be moderately up relative to last year, which was a combination of, you know, locking in our contract business with everyone. So we had a modest price decline to lock in our contracts. But our Middle East customers were expected to grow a bit because they were the ones that were missing their contract commitments last year due to the issues we explained about them not realizing markets are growth in their markets. And so we were expecting some, you know, modest growth, you know, in tow from that. Obviously, while the Middle East were happening, those customers, you know, have been impacted. We actually have tow there to serve their demand in some warehouses. So, you know, it's not an issue of us getting material to them. It's an issue of their ability to operate in this environment and be able to export their cigarettes to other markets because a good portion of their production isn't just for the Mideast. It's for exports to other markets. And so how they get that material out is a bit of a constraint. So Q1 was fine. We see a little bit of risk in Q2, you know, where they're not going to buy quite as much in that quarter as we expected. And the real question is, how do they come back in the back half of the year to meet their contract commitments? You know, when it comes to your back half question, the other thing that's going a little bit slower and why we lowered earnings about $20 million in our guide here is the yarn business is not growing as fast in this market context. So we don't see that volume pick up. And as a result, we're not getting as much of an asset utilization tailwind as we expected. So when you think about that, you know, we still feel really good about how the business is doing. And then when you look at it from a second-half point of view, you have several drivers, you know, that will make the second half much better than the first half. First is these contract commitments. So even with our large customers who have signed annual contracts that hold its toe relatively constant until last year, the contracts allow flexibility in how and when they buy it. and a number of them have chosen, you know, to buy less in the first half and buy more in the second half. So you have a pretty significant ramp-up in volume with our core customers around the world, just meeting their contract minimums, which is sort of, you know, what we have in this outlook. So that's happening. The second is, you know, you've got some continued build in the Naya yarn and film side of things. you will have a little bit of energy tailwind as the energy gets cheaper from a flow-through basis, from the, you know, winter storm, you know, in Q1 to lower natural gas prices going forward. So a number of these factors come together to, you know, enable this. And, of course, our cost reductions, you know, sort of back-end loaded as well across the company and some of that flows in here.

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

Thank you. Good morning. Mark, on CI, if you were to hold spreads steady at today's rates and layer in that $15 million of maintenance tailwind for Q3 EBIT, do we see EBIT $100 million in CI in Q3, or is that too?

I think, Dave, we sort of guide you that in Q2 would be around $50 million in EBIT with a pretty tight market situation that's going on, obviously, right now. As we look at Q3 and what the trends could be, you know, I would think it's going to be more similar than to be substantially up. I mean, without a doubt, you know, the margins are tight right now, and there will be a tailwind from Q2 to Q3 on the shutdown side. But it then comes to your assumptions around, you know, when the straight's going to get open. You know, if the straight gets open in the next month, obviously some pressure is going to come off in the marketplace, and you'll have, you know, spreads moderate a bit. So that, you know, makes it a little more complicated to sort of say it's going to be up. I think, you know, it being similar is a reasonable expectation. But it really comes down to, you know, how this whole straight situation plays out and how long the market tightness goes. You know, when you think about it, you know, the price of oil, the price of global natural gas are, you know, obviously incredibly high right now, and that gives us, you know, a very significant advantage in how we make a lot of products, not just olefins, but everything, because a lot of our customers are also – our competitors are based on natural gas, not just for energy, but for feedstock. But, you know, if you think about just the cracker side of things on olefins, which is the vast majority of the improvement for us. You know, you've got NAPS that are offline, and you've got methanol offline. That's 15%, 20%, you know, of that, not just the oil, but, you know, these derived products. A lot of time for these refineries to restart. Then you've got to get the derivatives to restart. Then you've got to fix the logistics questions. And then you've got, you know, damage in places that have to be repaired. All of this says, you know, the moderation isn't going to go all the way back to pre-conflict. in our minds on oil or the derivatives. But certainly, you know, when it's great open, some of that pressure will come off, you know, and factor into sort of how the margins trend in the back half of the year. But we feel great about how the business has improved. We're happy to have the cash flow that comes from this business. And, you know, we certainly think that it lets us to reset, you know, better.

And just on the potential volume upside and specialties from these disruptions in Asia, How do you go about making these permanent rather than just temporary?

That's a great question. So, I mean, I think it's going to, you know, it's unfortunately a dependent answer, David, on where we pick up the volume. In some places where it's a like competitor, you know, the shares may normalize back a bit. But customers are learning painful lessons about exposure and reliable suppliers. And I think one thing to keep in mind is this is an excellent proof point about the advantages of being a North American chemical company. And in particular, being a very vertically integrated chemical company with 80% of our assets in the U.S. gives us, you know, a huge cost advantage, but it also gives us a huge security supply advantage to our customers, and there is value to that. And certainly one we intend to take full advantage of in supplying our existing customers, but also picking up new ones that we will, you know, intend to hold on to. When we pick up customers, by the way, from other materials, you know, then the chances are, you know, we can hold on to them because the value proposition of our product is better once they start using it. You know, typically they're using some cheaper polymer like polycarbonate or SAN that doesn't perform as well, but it's cheap. When they switch over to our polymer, they're going to see it perform far better, you know, with their consumers, and then that should provide some stickiness in how we hold on to that share, you know, once they've realized it. So, you know, we're going to be doing everything we can, and, of course, we're going to be trying to lock the business in on contracts, you know, for a longer-term commitment where we can as well in this environment to sort of give us resilience on the volume and the price side.

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

Yeah, hi. Just curious around your visibility around any pull forward or not. I mean, I think in your prepared remarks you said it's not pull forward, but how are you validating that? I guess all the conversation around potential supply risks with some of your competitors probably makes your customers a bit more nervous and probably build a little bit of inventory. So curious there. And then related with that, just, you know, how does this impact your production plans? I think you kept your asset utilization tailwind kind of the same. I would think if you're anticipating demand, maybe there could be some upside there. So, curious if you could talk about that as well.

So, you know, when you think about the demand pull forward, you know, we're operating with the underlying assumption that in-market demand this year is going to be similar to last year, which is the same assumption we gave you at the beginning of the year. And it's, you know, the same thing we're using for how we think about planning and assessing what's going on. And in that context, you know, what we're seeing in volume growth in the second quarter sequentially is strength in growth in the AM business, really especially plastics, you know, which is associated with all the methanolysis wins, which is associated with, you know, clear wins of new applications and market share we're getting in our port and triton business, our cosmetic business, that doesn't have anything to do with pull forward. We don't see a big spike in demand like last year where people are just trying to buy stuff ahead of, you know, tariff risk. I think part of what's going on is, you know, customers, you know, see the risks and want to get ahead of price increases or want to have secure supply, but they're also being cautious about what they do when it comes to building too much demand with, you know, market uncertainty that we all can recognize in the back half of the year in this context. And, you know, the other factor in this, too, is the inventories were really low at the end of last year, so you also have to keep that in mind. That's part of the strength of recovery you saw from Q4 to Q1, so people just started to rebuild some inventories or, you know, if you will, end of the stocking that was going on in Q4. But we don't see a lot of inventory out there in the supply chains at this stage. It's always difficult to see it, to be clear. We certainly, along with the entire industry, have not been experts to understand supply chain inventory. But, you know, we don't see a lot of build of that, certainly not in March. And as we go through this quarter, our order books are really strong. So we had a good March, a strong March. And we see that continuing April and May. But June's a wild card in this market context. You know, we don't see any problems, but we still have that much visibility all the way out to June. But overall, you know, there's just no sign of, you know, skimming market pull through in the specialties. As I said, in CI, we can sell what we want to make, you know, and probably can do that through the end of the year.

Thank you.

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

Thank you so much. I was struck by the $500 million of price increases that you have started to implement. I'm wondering if you could talk about, you know, how you see that phasing in, what has been the initial reactions from your customer base, and how does that match up in terms of your expected inflation in raw materials?

Frank, good morning. You know, what I would say is, as Mark's already highlighted, in chemical intermediates, we were reacting in the moment and driving price increases and volume growth as we think about what's required to supply. In the specialties, obviously our pricing philosophy has been around the value of our products, and as we pace that with our partners over time, what we expect sequentially is in our specialties, mid-single-digit price increases from Q1 to Q2. When you think about our chemical intermediates, those are phasing in. I would say they're in the high teams or approaching 20% as we see that sequential momentum. So our teams across the world reacted in the moment in Q1 when March occurred.

Yeah, so just to answer the question around the sort of market competitive dynamics around this, clearly everyone is responsible across the entire industry. So you have that momentum to leverage. Being cautious on price increases will accomplish nothing when you're trying to worry, you know, think about consumer demand. If you're missing out on margin, I think everyone understands that. So that's point one. Number two is, you know, the competitors we have, especially in the specialties, especially in advanced materials, are Asian-based. They've got significant increase in oil, and they have significant increase in natural gas. So their energy cost structure has gone up more than us. And so, they're filling a lot of prices, and we're seeing the price increases from our competitors similar to us across the markets. So in this context, we feel pretty good that we can get the price up, hold our volumes. And, you know, we've got great commercial teams. We've shown the value of innovation by holding on the price incredibly well in 24 and 25 in very weak market conditions, and now we're in a hyperinflated market condition, and we're showing we can increase our prices, especially to keep track with our raw material and distribution costs, which is just further proof that we have a specialty business that has differentiated value propositions. And, you know, but we'll always be keeping an eye on competitive activity and, you know, make adjustments if we have to, but we're not seeing the need to do that at this stage.

And if I could come back and get a clarification, you know, when talking about Fiverr is getting better in the second half of the year, part of that is you have contract commitments from Middle East customers that you're anticipating, you know, they're going to meet their contract minimums, et cetera, et cetera, but wouldn't this qualify as force majeure? I mean, wouldn't they be able to say, hey, look, I mean, you know, to me this seems like the very definition of force majeure. How should we think about that?

The Middle East customers are about 10% of our revenue in this segment. So the other 90%, you know, is predominantly tow as well as some yarn customers, and in And that 90%, the real dynamic here is just they all have contracts. They all have, you know, volume commitments. Our forecast is based on them buying at the bottom, you know, end of the volume range in those contract commitments. And so that's global. It has nothing to do with the Middle East. And they bought less in the first half of the year and going to buy more in the back half of the year. And that is the principal driver of the increase in earnings in the second half, relative to the first half. And when you get down to the Mideast part, these customers have made a lot of investments in new capacity and were winning in the marketplace, but not quite as fast as they wanted. And that's where sort of their volume draw last year sort of came up short. You know, they had taken a bunch of actions and started gaining market share this year and are very focused on doing it. They just have a logistics issue of getting it out. And so we have, you know, adjusted our expectations, you know, for the risk of that challenge, you know, by sort of lowering the earnings expectation segment, you know, to this 210 to 240 range, which is about a $20 million drop. And part of it is just a bit less volume from them, a bit less yarn growth, and a bit less asset utilization benefit. And put those three together, and that's how you get to that 20 versus where we were originally. And that's really sort of the dynamic. So it's about customers meeting their contracts. Those customers historically have always met their contracts under any situation, and they don't have a force majeure excuse on that 90%.

Thank you. Our next question comes from Matthew Dio from Bank of America. Your line is not open. Please go ahead.

I can't remember right now if it was the slide or the release, but you talked a little bit about the IEPA tariff refunds. Wondering if that was a tailwind to 1Q or if that's more 2Q. If it was, how much are you expecting to get back there?

Good morning, Matt. On the IEPA tariffs, obviously with the Supreme Court ruling and the Court of International Trade, we recognized about $20 million within Q1. That wasn't a tailwind. The IEPA recognition of the refund was basically in line with the winter storm impact. So you can think about those two as being neutralized in Q1. Also, that is the recognition. There's no further IEPA refunds to recognize, and we would expect to get the cash related to that sometime in the second half of the year.

Just to clarify, that's been, like, included in the one key result then?

Yeah, both the norm and IEPA are in the Q1. Okay.

So if you think about it, you plug each other out. So when we gave you our guide, when we gave you our guide in January, we said, you know, this is our outlook, excluding the winter storm, in fact, that we were in the middle of. But by the time we got to the end of the quarter, the hypo tariffs neutralized the winter storm. It turned out to be about the same. So it was just a clean quarter relative to how we guided in January.

That's helpful. And jumping back in, so context is helpful for me. And then on methanolysis, right, I just wanted to kind of square some of the commentary because you talk a bit about new wins, and at the other side you're saying, you know, demand hasn't really changed much. So can you just kind of refresh where we are on kind of the upscaling here?

So when it comes to the, you know, revenue of Circular, there are two components to it, right? there's the core business we have where we're adding recycled content to our Triton products, our cosmetic products, and our specialty businesses and growing, you know, those businesses. Obviously, those in-market businesses have been very challenged economically, you know, from 22 through 25, you know, as a discretionary spend where consumers have, you know, pulled back. So the rate of growth we've seen on the specialty side has not been as good as we would have expected in the last couple of years in 24 and 25, in particular as we were ramping up this plant. The good news is we've been winning some more applications through the back half of last year that are showing up as additional revenue that you saw some of the benefit in Q1. You'll see it built in Q2 and even more so in the back half on that specialty side with those wins. So to be clear, we're not saying the end market is improving. We're just picking up more market share in durables or in cosmetic packaging with our value proposition.

So that's happening.

Then on top of that, you know, we swung a line that could make Triton back to making PET that we explained to you guys, you know, a year ago, so that we could make PET and serve that our pet market. Pepsi and some others wanted to start buying sooner than their original contract obligations because they saw the value proposition we have with our renewed products. So, you know, our superior clarity, our superior quality, our superior performance, you know, and how the product actually performs was recognized, and they wanted, you know, to start building and using that material this year. So when you put those two together of selling more RPET with Pepsi and with some other packaging companies, brands, you get that 4% to 5% revenue growth that we talked about in January. And when I was answering Vincent's call, I'm just confirming we still see that 4% to 5% growth. But the Middle East conflict hasn't yet significantly increased that to be more than 4% to 5% growth. We're going to pick up volume for other reasons, as I described, you know, due to sort of impact on competitors. But in this case, you know, we're going to sell what we can make, and we're ramping up our PET capability to sell even more, but it takes a bit of time to do that on the capacity side to continue supporting that growth, not just this year but also additional growth next year on the RPAT side.

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

Thanks very much. You talked about earning $50 million, perhaps, in the second quarter intermediates. But propane prices have really been pretty volatile. Sometimes they're $0.75 a gallon, and sometimes they're $0.90 a gallon. How are you handling your propane values? Can you reach these numbers that you're talking about if propane is at $0.90 a gallon?

Jeff, obviously we're buying propane at the market prices that you're referencing. We do believe here in Q2 that we believe that we've appropriately taken that into consideration as we look at the supply-demand balances and how we've priced into the market with our pricing. So, yes, there's some range of, as we say, approaching $50 million for the quarter, but we think we've taken that into the appropriately context for $0.75 to $0.90 range.

You talked about, for the year, perhaps approaching the cash flow that you generated last year. What are the parts of working capital that are sort of holding your operating cash flow back? Are they payables or receivables or something?

Jeff, what I would say is, as always, the Eastman team does a great job of generating and managing our cash flows, and that was demonstrated again here in Q1 as we think about the level of consumption of cash actually being lower than the prior year. So for Q1 out of the gate, I believe that we've got things well-managed and under control. You know, as we think about sequentially, we know that we built some inventory in Q1 for our large turnarounds, and we expect to deplete that. That's going to be offset with some of the inflation that we've described and have been talking about through the call. At the end of the day, the pressure will come as you think about, you know, there's pressure on the inventory and on the receivables accounts, but we also think that that'll be mitigated by a higher account payable year-end. And we're just trying to look and see, you know, what's the second-half scenario when we get to mid-year as we then think about managing, you know, all the various levers. So under control, the range is narrow because of the level and magnitude of inflation overall. And as you think about net working capital, you've got two-thirds in your assets and a third in payables. So, net tension on that front. That's all we're highlighting at this point.

This question comes from Kevin McCarthy from VRP. Your line is now open. Please go ahead.

Thank you, and good morning. Mark, can you speak to the expected quarterly earnings cadence and advanced materials? It seems like we have a fair number of moving parts there. I'm curious about, you know, how you're dealing with paraxylene inflation here and whether you think you can recover or possibly over-recover those sorts of input costs, you know, whether there are any lag effects we should be keeping in mind. And, you know, I think you called out some auto production variances there. So maybe you can kind of just kind of walk us through some of those moving parts and think about, you know, whether you would expect earnings to do better in the back half versus the second quarter and that sort of thing.

Sure, Kevin. So when you think about advanced materials, there's a pain, as you said. So first of all, it was great recovery out of Q4 into Q1. Obviously, we had some mass utilization headwinds with some pushes we made there. So as you go into Q2, you've got the benefit of, you know, seasonal increase in volumes. these application wins we've talked about, starting with, you know, RPET and renew specialty product selling, but other products, you know, growing, that's going to give us a lift into Q2. The automotive market, you know, relative on a year-over-year basis, you know, for the year we're expecting to be sort of down sort of low single digits. So that's on a year-over-year basis, it's a bit of a headwind. You know, on a sequential basis, it's a tailwind because the performance film business always has a big ramp up in volume from Q1 to Q2 that, you know, we'll also see helping us on that front. So you have all those factors coming together on the volume side. And then you've got, you know, actions we're taking on price, as you mentioned. So teams have moved incredibly quickly to start implementing prices on either April 1 or May 1 to cover the the expected increase in raw material costs of paraxilin, FAM, you know, the key raw materials that go into this segment. And we believe, you know, we're very much on track, you know, to sort of keep pace with those as we go through the quarter. And then you've got utilization benefits coming in the, you know, underneath of this that also start to help out. So a number of reasons why, you know, we'll certainly have a better sequential quarter in Q2. And then as you look forward into the back half of the year, what you'd expect to see here is, you know, continued volume growth, because a lot of the build in the, you know, circular side is back half loaded. You're going to see, you know, continued improvement and just, you know, wind in general. So the back half won't have a normal seasonal decline in volume because of all those winds that will offset, you know, what is still a normal seasonal decline, so you get volumes that could be flat a bit better in the back half, which would be, you know, not normal, but, you know, makes sense with all the innovation we have in this market context. So you've got that happening. You've got the prices having fully caught up, so you've got, you know, a first half to second half sequential tailwind and price cost as that plays out as well as energy coming off of it. And then you have the cost savings and a lot of the utilization benefits going to be in the back half too. So a number of reasons where AEM will be stronger than normal in the back half of the year, which is also true of the fibers business being stronger than normal. And just to finish out the strength, since we're on the topic, you know, AFP would be normal, right? So it'd be normal seasonality in the back half of the year. And then as we just talked about chemical intermediates margins are going to be better in the back half of the year relative to the first happening, especially on a Q1 basis, you know, relative to the back half. So, you know, when you put all that together, you know, that definitely drives earnings to be very attractive in AM to, you know, be as we expected, you know, as well, holding similar in AFP-CI a lot better this year, fiber's a bit off. So the overall number, you know, means that our earnings per share, you know, should be above $6 a share.

Very helpful. And then secondly, with regard to your chemical intermediates segment, how much harder can you run your assets in the second quarter and moving forward relative to the first quarter? Is there a meaningful uplift from utilization, or is it really all about the more favorable spreads there?

I would just highlight, obviously, we were impacted by some of the winter storm on operations as well. So as we think about going from Q1 to Q2, we'll definitely have that as a tailwind. And, you know, also as we look at our olefins and the oxos from that perspective, I would highlight that we did build some inventory in Q1 for our planned acetyl turnaround. So our acetyl, I'll call it upside here in Q2, is limited. But for us, we see most of that, you know, margin growth coming in our whole at this stage.

Thank you. Our next question comes from John Roberts from the ZUHO. Your line is now open. Please go ahead.

Thank you. Within the automotive weakness, are you seeing better performance in your coatings ingredients than you're seeing in the films area?

Good morning, John. So, no, we're not really seeing a difference. You have to remember a lot of our demand is driven by the refinish market as opposed to the OEM market on the coding side. Obviously, that market has been a bit challenged, just like the performance films. The aftermarket in general is more discretionary in consumer's behavior, and that's been true in 24-25, and we expect that to continue here. And the overall auto market, you know, as I said earlier, is expected to be a little bit soft. and I'd say our demand will be in line with the market on the coding side. And certainly I think that's, you know, not true in the AM side. So we'll continue to do a little bit better in the market with our innovations like HUD and even EVs, you know, still take three times as much material per, you know, car versus ICE, you know, where there is growth in EVs. And I think some growth in EVs will certainly come back with the, you know, especially in places like Europe and China with the high price of gasoline, you're going to see some people, you know, moving back EVs for economic reasons, maybe even the U.S., but I would focus more on Europe and China for that. So I think that there – you know, there's – those kind of advantages will help us do a little bit better on the interlayer side, performance film side. We'll be like coding is more in line with where – Was the winter storm impact and the tariff refund benefit largely booked in the same segments?

Highlight is obviously those aren't going to be uniform, but I would say if there's not a material difference that I would highlight for you.

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

Hey, good morning. For chemical intermediates, can you give us some thoughts what pricing needs to be year-over-year in 2Q to get to the $50 million? And I'm just curious on the delta there in terms of the improvement year-over-year.

Yeah, Mike, what I highlighted earlier is you can think about the sequential price increases approaching 20% for chemical intermediates overall.

And while we're at it, the specialties is about mid-single-digit price increases going on on the specialties side that gets you to that price.

Got it. And then it seems like advanced materials margins are going to continue to improve sequentially in 2Q. This is a segment that I recall used to be at 20%. Is that still the potential for that segment longer term?

Absolutely. You know, the business is a great business. The main issue that's affecting the margins and advanced materials is volume relative to fixed cost. It's not a price, you know, variable cost issue. The price of variable cost has been good, held up, and been incredibly stable, frankly, from, you know, 2022 to now. And even now with incredible inflation that we're facing in the business and across the company, we're implementing prices to keep up with it. So this really, when you think about AM, is more of a utilization-based issue, right? So you've got the underlying cost structure. Then we added $100 million of the cost structure for the methanolysis plant. And you've been stuck in a really weak economic environment that hasn't improved since 2022, where volumes of housing, consumer durables are still well below 2019 levels. and even autos now dropping probably below 2019 levels with the trend this year. We sort of got back to 2019 last year. So, you know, a lot of opportunity and a lot of pent-up demand with cars 15 years old, you know, appliances, you know, getting to their end of life that's in our future. So we feel very good about demand coming back when we get past one crisis after another and driving utilization benefits. And we're creating our own growth and filling out the methanolysis plan in a weak environment Improving innovation is a critical part of our company and how to win in this industry. And we're holding our price costs stable, you know, through all that. So that starts translating into, you know, materially improving margins as well as, you know, past utilization better than last year without the inventory management of last year. And, you know, cost reduction activities have been pretty significant in 25 and 26. So, no, we feel that we can get the margins back. We just need a stable economy.

Thank you. Our next question comes from Aaron Visvanathan from RBC Capital Markets. Your line is now open. Please go ahead.

Thanks for taking the question. I guess a few questions. So first off, just on the spreads environment in CI, you noted some strength, and I guess obviously that should continue into Q2. I guess, are you seeing any supply issues for your, you know, your competitors or, you know, anything out there that could lead to maybe some permanent rationalization of capacity? And, yeah, I guess what are you seeing on the supply-demand side for some of the markets in CI?

It's a great question. I mean, under this sort of economic stress, there was a lot of assets in Europe, in the chemical and immediate world that were, you know, on the edge of being rationalized in a shutdown for economic reasons. And obviously the economic situation has gotten worse for them. And I think that's also true of some assets in Japan and South Korea where there was a lot of discussion around rationalizations. So I think it's reasonable to expect that some people are going to look at the current situation and say, if I was complaining on shutting that asset down two years, maybe I should do it now in this context. I don't have a lot of evidence of that because, you know, we're 60 days into a crisis. So, you know, everyone's just managing their way through this dynamic, and we don't even know how long the straight will stay closed. So a lot, you know, that will factor into that. But I do think, you know, global natural gas prices, for example, will likely stay higher for some period of time because even when the straight opens, Qatar's got to repair all the damage that was done to their fields and their processing capability. You know, you've got oil fields that could get permanently shut in in Iran right now. This goes on much longer. A lot of debate around that. You've got just – it's hard to imagine oil production globally and natural gas production globally suddenly coming back to pre-conflict levels. not to mention turning oil and natural gas into methanol and nafta and ammonia and everything else. It's just, you know, it would be very surprising for it just to snap back to those low levels. So I think all of that then just creates more economic pressure on the people on the far right side of the cost curve, you know, those locations that I just mentioned. We're going to have to start considering some rationalization. For sure, we're the low-cost winner, you know, in this kind of a context. You know, China's got its own dynamics where, you know, we'll probably be fine. So I wouldn't expect, you know, a lot of rationalizations there except for maybe their old assets. We expect to see it, but I can't quote you a bunch of plans that have announced.

Okay, I appreciate that. And then just as a quick follow-up, obviously, you know, historically, your spreads have expanded after inflationary cycles like this. Maybe you can just contextualize the magnitude that we should expect on maybe AM and AFP spread expansion in Q3 and the durability of that. I guess just wondering if you think that these heat stock levels will allow for some, you know, more durable pricing power as you move through the year.

I think we've talked previously around high oil environments being positive for Eastman, and as Mark has just highlighted, you know, cost curves over time. You know, in our specialty businesses, obviously we price off of the value and the relative value, and Mark has highlighted, you know, the tension of our price increases and lower-value products within the polyester business and how ultimately that can lead to share and other opportunities as we continue to grow. As we think about the momentum, obviously we're making the price increases so that we're pricing through the quarter to ensure that our margins are stable. And we'll look to continue to do that in the Q3.

One thing you have to watch out, we run our business on a dollar per kg basis, not a percent basis. So when you get these kind of significant increases, It's like 21. You also have a denominator math problem. So the prices go up a lot. You know, that goes in the denominator, not just the numerator when you're calculating margins. So you've got to watch out for that. But we'll be very clear about, you know, friends. Our percentage is going in our margins.

Our next question comes from Lawrence Alexander from Jefferies. Your line is now open. Please go ahead.

So good morning. A short-term and a long-term. In the near term, how are you thinking about the rough magnitude of working capital as an impact on your free cash flow conversion this year? And secondly, you mentioned kind of the sort of hitting the quantity limits or the outright shortages. Do you have a sense from your customers where kind of they are expecting or kind of where everybody's waiting to see this actually crack in terms of which end markets feel the outright shortages first and then which ones, if shortages do develop, take the longest to fix?

Working capital front, you know, as we think about, you know, the four-year impacts, obviously we built some here in Q1. A lot of that was around planned turnaround. But just as a proxy, I would use, you know, the $500 million increase in revenue. And you can take a third of that, you know, as I think about how things could balance out. And that could be, you know, the full-year headwind. And obviously that could go up or down depending on, you know, the timing of this freight opening, et cetera. But I think, you know, $150 million, $200 million roughly.

Can you repeat the second question, please?

Sure. When you think about where shortages are likely to develop first, you know, when you speak with your customers and they say kind of where the most – where they're warning you or if they do warn you about potential plant shutdowns, where they're flagging kind of that may happen first or which end markets are – I mean, obviously, Southeast Asia seems most likely. And then kind of which ones are saying, well, if we shut down, It's going to take us a long time to come back up and fix things because it snarls up the downstream chain too much.

Yeah, so those are great questions. I mean, you know, there's a question about our competitors, and then there's a question about our customers, and then, you know, the whole supply chain. We're not seeing any disruption yet at the customer level where they can't get something to finish making the products. It's like the semiconductors back in the auto situation back in the 2021 timeframe. And, you know, we are keeping an eye on that, but we haven't had any customers come to us with that problem yet. You know, so, you know, it will be sporadic and it will be, you know, customer-specific. It won't be something you can really foresee, is my guess, and how that plays out. But, you know, we're keeping a very close eye on it. And, you know, I think that the, you know, dynamics around this is obviously pretty volatile, which is why we're not giving, you know, full-year cashences. You've got a lot of potential upsides, as we've been talking about. There's obviously, you know, in-market risk with inflation that has to be all sort of weighed together. But, you know, what I'd say overall is, you know, we feel really good about our team and how well they've performed. when you think about all the dynamics turn around all the way back to COVID to, you know, this inflationary environment to total collapse and sort of discretionary demand in 22 that's stayed with us until now. And then, you know, a Mideast crisis, and it's a lot to manage. So I'm incredibly, incredibly proud of how our team manages through all this and finds a way to defend our value propositions. I think the innovation strategy is one that is being proven out to have been a very good choice been made over a decade ago to have ways to defend our value to grow in markets where they're flat or challenged and defend our value in weak times or supply shock times. And it's creating a lot of, you know, strength in this company. And the circular platform certainly is turning out to be a very good choice that's delivering a lot of growth in this market context. And then, of course, translating all that into cash flow and having a strong balance So we feel good about how we're navigating with this. We think, you know, we have a very meaningful improvement in earnings this year relative to last year. And, you know, we're going to focus on what we can control in this chaos.

As that was the last question, I'll say thanks again for joining us. We appreciate you spending time with Eastman. I hope everybody has a great day.

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