Good day, everyone, and welcome to the second 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, Lucy, 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. Yesterday after market close, we posted our second quarter 2026 financial results news release and SEC 8K filing, our slides, and the related prepared remarks in the investor section of our website, eSpin.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 2026 financial results news release during this call in the preceding slides and prepared remarks and in our filings with the sec including the form 10q to be filed for second quarter 2026 and the form 10-k filed for full year 2025. second 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 and adjusted items are available in the second quarter 2026 financial results news release as we posted the slides and accompanying prepared remarks on our website last night we will go now

straight into q a lucy please let's get started with our first question of course the first question is from patrick cunningham of citigroup your line is now open please go ahead well good morning um still advanced materials you know pretty solid volume and mixed growth in the second quarter and you mentioned some offsets from lower oem production week aftermarket durables i guess how should we think about the recovery trajectory of these weaker end markets heading into 26 and the sustainability of this volume growth and confidence in a ultimately a stronger second half sure patrick good morning and i have to say i'm really incredibly excited to be talking about the

company today and the tremendous execution our teams are doing across all businesses has really been a great result in Q2. And now we're looking at how we move forward in Q3 in the back half, I think is an important conversation. What I say, when you think about the back half of the year, we're not expecting any improvement in the end markets when it comes to sort of the weak discretionary markets, you know, auto, BNC, consumer durables. We're certainly benefiting from modest growth in what we call our stable markets across the entire portfolio. And so we're not really seeing any sort of changes there. And we're not seeing any impact in the Mideast War yet on sort of hurting in market demand in a material way across the world as far as we can see it right now. So in that context, I think we're really well positioned to grow earnings, not just for advanced materials, but for the corporation as we look at the back half of the year. You know, starting, you know, with advanced materials, you know, what you can certainly see is, you know, the volume growth has been, you know, strong into Q2, which is driven by a lot of wins in the marketplace, innovation-driven wins, and the growth that we're having in the circular business is still somewhat modest and will ramp up into the back half of the year. So you'll see the renewed volumes continue to ramp up. You'll see we'll continue to win in marketplaces through innovation, which would offset what is a normal volume decline in the back half for AM. We won't see that. Volumes are more likely to be similar to the first half. So that's actually a good solid base to build from. And then on top of that, with advanced materials, you've got asset utilization and tailwinds that are coming from all the actions we took. And we mentioned the prepared remarks where we reduced finished goods in the front half to offset some of the raw materials we were buying, like paraxylene, to make sure we had security supply. That created a bit of a utilization headwind in the first half. That will sort of flip around to being a tailwind as these markets remain solid. and we have to ramp up production. In fact, we're really excited that the Triton line is coming online now because we're pretty limited on capacity with the volumes we had in Q2 and how we've switched one of our Triton lines to serve the PET growth. So that's coming on just at the right time, and now we're taking our paraxylene that we bought in advance for supply reasons and converting it to finished goods in the back half of the year. so it gives you a tailwind on utilization but not a not a headwind on cash so that's all going well and then on the price cost side team's done a phenomenal job of getting prices up with raw materials and as they've caught up that will now flip into a tailwind in the back half of the year also helping am have you know solid earnings growth into the back half of the year which is not our typical pattern so that's great to see that strength build the second driver i just mentioned to finish off the story is fibers uh you know the toe volumes will increase in the back half of the year materially as con customers are increasing their orders to meet their annual minimum volume commitments with us so that's coming through and there'll be some textile recovery we see as well because bonds are quite low in the first half of the year and some of the winds we're having will start you know bringing us back to sort of full volumes relative to last year um there'll be some offsets obviously in chemical intermediates and how those margins may moderate with uh the state you know the state of the mid-east uh conflict what i'd say on that front though is it's pretty uncertain what's what's going to play out right now but right now we're expecting some moderation and then as the future products have some seasonal decline like normal so when you put it all together um we're really in a good position uh to deliver you know a good strong earnings improvement relative to last year you know we we basically had a strong beaten q2 we're talking about a very solid q3 and so when i think about our view on earnings for the full year today i would say that it's better than where we were in april and certainly feel like we're on a good track to you know very strong earnings growth in this context got it thank you so much and then maybe just a follow-up on chemical intermediates you I think the direction and magnitude of spread change is anyone's guess at this point, but you

had a pretty robust volume increase in the quarter. I guess, you know, what sort of dynamics drove this volume surge and how much of it was realizing some of those durable share games you alluded to last quarter versus maybe some temporary pull forward there?

Yeah, so on chemical intermediates and volumes, the vast majority of the volume increase was driven by, you know, on a year-over-year basis a lack of uh significant shutdowns this year relative to what we had last year last year we had planned shutdowns and some unplanned shutdowns and so we lost a lot of capacity uh to sell the market this year uh you know the volumes are you know running at normal capacity which is a lot better than where we were um that does include some pickup in in share due to the supply tightness in the marketplace that's a quality of earnings comment which is we're always going to sell the volume. It's just where do we sell and what the margins are. In North America, we picked up some share where the margins are much more attractive than the export markets. Obviously, at the moment, the export markets are also very attractive. We picked up some volumes in some attractive spots around the world where we saw opportunity to capture that value given the disruptions in the marketplace. So the volumes were very good, but it's more about mixed quality and the tightness and the spreads that, you know, stacked on top of that. We also, you know, emptied out the cavern on ethylene at very attractive prices. So we had some stored up ethylene that we, you know, sold off in the marketplace.

The next question comes from Josh Spector of UBS. Your line is now open. Please go ahead.

Yeah, hey, good morning. I wanted to follow up on advanced materials volumes. So, I mean, obviously a solid quarter this quarter with the 5% growth you had. I'm wondering, can you split that between what you call the base business versus the methanolysis PRT contribution? And then in your comments on 3Q, it seems like you're talking about volume flat, but the comp is really easy. So I'm not sure what you're baking in there versus a year ago and why volumes wouldn't be up. I'm obviously missing something, so if you can help me there. Thanks.

Let me just start clarifying what I said. Volume flat is a sequential comment, Josh. it'll be substantially higher than last year. So we're just talking about volumes will be similar to Q2 in Q3. So in that context, which is much higher than last year, the volumes, a lot of it is wins we've had. On the renew side, it's important to note that the growth we're seeing is greater than $100 million, which is incredibly strong in the first half, double revenue compared to last year, is evenly split, roughly, between specialty growth and RPET. So we are seeing, you know, continued wins and growth in the specialty side of the house. And we are also seeing, you know, the PT wins happening as well and ramping up. And I would say more of the front half is on the specialty side. The back half is more on the PT side as we're ramping up those capacities to serve the market. We've been a bit challenged on some of the production capability and getting it fully lined out, which is part of why we reduced the revenue outlook is past constraints and a little bit of slowness in the market, but still incredibly strong growth relative to last year. So we don't really break out in detail by quarter, you know, what is going to be renew versus, you know, the rest of our business. But what I can tell you is when you look at the full year, about half the revenue growth in the advanced materials segment is going to be from renew, and about half is going be from specialty growth um so that also says you know great that circular is kicking in great that it's delivering additional growth you know with that growth platform but also the specialty businesses are healthy you know and through innovation not in market demand we're creating our own growth and success across the marketplace uh one of the one of the great stories in that um is actually performance films so the first quarter earnings were quite challenged in the segment level, that was mostly due to films and in particular performance films. And we took a series of action very successful. So we launched a better, broader market strategy to win share in China that's been incredibly successful as we moved from Q1 to Q2. And also we took out an optimized bunch of capacity to optimize what we make in North America and ramp up our asset in China, which is a much lower cost asset. So, big improvement in cost structure. So, that led to, you know, pretty big part of the improvement in earnings from Q1 to Q2. It also means when you get to 2027, we're going to have an easy comp and probably do 25 to $30 million better in Q1 next year relative to this year. So, good adder for next year as well.

Okay, thanks. Yeah, that's helpful. Yeah, I apologize on the sequential versus year on year here. I guess you made an interesting comment on the PRT side or some of the RPET wins you're trying to go for. You talked about it being more capacity and ramp up. I guess in your comments or your prepared remarks when you updated on the circular growth, you seem to talk more about consumer demand. I guess, which is the bigger factor to your adjustment of your growth? Is it the consumer demand or was it your ability to supply?

I'd say it's a bit half and half. So, there were some limitations on production on the RPET side, you know, we're not changing the outlook that much. We've just brought the revenue outlook to be a bit below the range we gave you earlier. And then I would just say it's a little bit of slowness everywhere about the rate at which customers are ramping up on specialty and some of the RPET purchases. I mean, the economy is incredibly weak right now. We're not seeing anyone back away from their commitments to recycle content and seeing the value of it. But all of our brands, as you guys know from, you know, earnings calls are struggling out there, whether it's on the, you know, consumer durable side or on the consumer packaging side, you know, the economy's tough. People are very focused on managing costs. So they're being extremely disciplined on what premiums they pay. And I find incredibly encouraging that we've held onto our specialty customers who are paying premiums in this marketplace and that we're still growing it. I feel very, you know, very good that, you know, we see a ramp up in RPED in this kind of market context, which says people really see the value and the need of it because we have a superior product in quality and clarity, and, you know, that's incredibly important for durables always, but also important for these consumer package fits companies. So, you know, we're very encouraged about confirmation of our value proposition, and we're all just stuck in a weak economy waiting to, you know, find ways to keep growing.

Understood. Thank you.

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

Good morning. Mark, just on added and functional products, you know, very resilient margins in the face of really challenging end markets. Can you talk to what's underpinning those resilient margins and maybe views in the back half of the year for those margins? Thank you.

Yeah, so advanced, you know, added some functional products has been a phenomenal success story for us um and it's it's a tribute to a phenomenal team a great set of products and markets um and and just great execution every day so the you know the benefit that as a function products has versus am is you know the stable markets that we serve are two-thirds of our revenue so with stability it becomes much calmer behavior by everyone involved um and And so in that sense, you know, whether it's in pharma, you know, whether it's in water treatment, ag, personal care, you know, these series of very stable markets, aviation, we've got great industry structures, we've got very strong, you know, competitive positions, and a lot of cost passenger contracts, you know, associated with some of these businesses that give you a lot of margin stability. So, the CPTs will fluctuate quarter to quarter on headwinds and tailwinds to some degree. But on an annual basis, it provides a lot of margin stability. So, you've got these businesses that have, you know, solid, you know, moderate growth. You've got great industry structures and the products we have in this business and their stability, CPTs adding to that margin stability on top of it. And where we don't have CPTs, teams have done, you know, very good work in raising prices consistent with raws and materials as well, you know, in this environment as we went into sort of Q2 and holding those margins in the back half of the year. So it's just been a great, solid business.

Very good. And just on Kingsport Methodalysis, do you have an early view on revenue growth in 2027 from that plant and product line?

Well, I'm not going to give you a specific number, Josh, but I mean, David, sorry. But what I would say is, you know, we're building up revenue momentum through the year. So Q4 will be the strongest revenue quarter. um when you think about that 100 million this year um that of course that will then annualize into next year and then we will build on it and i would expect the same kind of build next year on this on the specialty side of the revenue um as we continue to win business and that in this environment and and the pt side i think is well positioned for for for you know strong growth next year but we need to see how that all plays out um as we go through the back half of the year But, you know, I would expect it's another strong performance next year on top of this year.

Thank you.

Thank you. The next question comes from Frank Mitch of Ferium Research, LLC. Your line is now open. Please go ahead.

Thank you. Good morning. You know, Mark, one of the more impressive things about the quarter is what you've done on price costs in the specialties businesses. I mean, typically we think of those as being priced for value and use and so forth, but obviously this is a somewhat unusual environment. Can you talk about, you know, what's been going on on the cost side in the specialties business and, you know, how you're able to get price ahead of that?

Well, Frank, thanks for the question. And I think one of the strengths Eastman's had for a very long time is our discipline around price cost management. I think we've done an excellent job, you know, through the years, whether it was, you know, catching up to raw material increases in 21 or maintaining great price discipline when markets are softening and holding on to value in those contexts. I'm incredibly proud of our teams and how they did it. And as always, once the war started, they moved immediately into action into taking the price increases necessary across the markets and both of the specialty businesses. What I'd say is that we succeeded in getting the prices in. We weren't greedy. We just, you know, put in price increases to cover our raw material and energy and distribution costs because we want to be fair and reasonable to our customers, and we're not going to sort of eat those costs, but we're also not going to try and take advantage of them. A lot of other companies, I think, get aggressive in these times. We had some feedback where we were being, you know, disciplined, and how we did that gives us a lot more credibility and durability in those price increases, not just in getting them increased, but into holding them, holding onto them. You know, the business is centered around driving value through volume growth and mix uplift, you know, in our innovation. And, you know, but we do a very good job of keeping our variable margin per kg pretty consistent and attractive. In fact, you know, through all this chaos, you know, that's been relatively stable since 2019 to now. And it's a testament just to the quality of the products and the innovation that we have in the marketplace. You can only do that if the value of your products, you know, are meaningful to your customers. And so when we can increase prices like this, it's a good proof point around, you know, these are specialty products that have value. Their customers will pay a higher price, you know, because they need them, because of what we do in their products and how we create value for them. And so I think that's a great way to test your portfolio. And I think we are passing that test really well in advanced materials and AFP.

So, you know, certainly the loss has been fairly volatile. And, you know, every time there's a peace proclamation, you know, you tend to see it go down and then it reverses the other way. Can you talk about the sustainability of that price cost into the third quarter or probably said another way? How did you compare your July margins with the second quarter average, if you could offer us that?

And, Frank, you were asking about the specialties, just to clarify.

Yes. That's exactly the specialties, yes.

Well, chemical or meats is a very different conversation. So, on the specialties, our intention is to keep the prices in place. The raw material costs and energy costs as well as distribution costs are still flowing through, and so we would maintain good price discipline in these businesses as those higher costs flow through. So what will happen is prices will hold. The raw material costs are probably a little bit less than we were in March at this point, obviously, if you go look at things like paraxylene, but we still have a lot of flow through. But on a year, I mean, on a first half, second half basis, the price discipline we, you know, have in July and expect to continue as we go forward will give us a tailwind, you know, on price costs in the second half relative to the first half.

Perfect. That's what I was looking for. Thank you.

Thank you. Thank you. The next question is from Jeff Sikorskas of J.P. Morgan. Your line is now open. Please go ahead.

Thanks very much. Mark, over time, Eastman has really been focused on investing in methanolysis in Kingsport, Texas, and Europe. And those plans have altered in part because of what customers want, what the government wants, what capital costs are like. And so when you look at the trajectory of your capital expenditures, your R&D, your investments, I would imagine that those have really shifted because of the delays or obstacles that have been put in place that have inhibited investment in methanolysis over a longer period of time. So maybe if you could sort of briefly talk about the redirection of Eastman over a longer period of time.

Hi, Jeff, and thank you for the question. Yeah, so I actually wouldn't support your characterization. So the way we look at it is, I think, considerably different. Methodolisis, I think, has been a great platform and a great investment. We see a lot of long-term potential to the platform. Without a doubt, when you start a platform like this in a very strong economy, like we had in 21, in the beginning of 22, and then you get to a much weaker economy, it's easy to sort of look back and sort of review, did we make the right set of choices? At the same time, you can't just sit here and look at the world you live in at this moment. You also have to look at the future. And, you know, I think we believe that at some point the economy will be healthy again. And in that context, you know, where there's some healthy economy and everyone's not just focused on cost reduction, we'll see, you know, pretty significant acceleration in demand for new products when it comes to the revenue side of this question. And both recovery in the consumer durable market will naturally give a huge lift to renew as well as, you know, like I said earlier, you know, we're not seeing anyone back off on the value of recycled content. I mean, plastic waste is an issue in the world is not going away. And it's not a bipartisan issue for the Democrats versus Republicans. Everyone hates plastic waste. No one likes it. No one wants it in the environment. People are worried about its impact on their health. This issue is not at all going away. and every brand knows it they're just trying to figure out how how they manage you know taking responsibility for you know the polymers that they put in their products relative cost management here in the short term so our confidence and revenue here both on the specialty side and on the arpet side is great even greater on the arpet side because we're proving that we have superior quality and clarity uh you know to mechanical every day in a pretty significant way that's being recognized in the marketplace. Actually, my point of view about the value proposition on the RPED side is much stronger today than it was a year ago and what we're seeing in our relative value recognition in the marketplace. Think about how much RPED increases are going on this year with our key customers in this market context. Revenue-wise, we feel good. It's frustrating to be in this current economy for everything in the chemical industry, but it doesn't question the value proposition of why we got into this and then when it comes to the capital side of the equation first of all the technical side of the equation the plant's running phenomenally well so we've got a technology running that no one else on the planet can do as well as we can i mean with our yields above 90 percent with the operations running reliably now with our ability to see that we can de-bottleneck the plant by 30 percent you know, to get more volume out of this plant and improve ROIC, you know, says that we have an operational and technical advantage to anyone in this world. And then on the capital efficient side, without a doubt, capital costs have gone up a lot. You know, that's what we were sort of facing as we looked at the project in Texas. And, you know, we, you know, with the loss of DOE grant and us having to rethink how to approach the marketplace, we started developing a much more capital efficient option about how to go forward um and and we're getting close to talking to all of you about you know how that looks like in specifics but we're not quite there yet um but we feel like we have a great path forward on a much more capital efficient option uh in in doing this and because we can develop that kingsport it allows us to um push out the need to spend that next chunk of capital until 28 so that we have time for the market to recover and align with that investment.

Thanks for that. And for Willie, receivables, I think, for the first six months have been a use of cash of $370 million. Ian, why is there a ballooning of receivables, what might be the penalty this year, and how much of that can you get back next year?

Thanks, Jeff, for the question. Yes, I think as Mark has already highlighted, our commercial teams have done a tremendous job on both managing price and price cost as well as the volume. Our revenue is expected to be $500 million higher due to the pricing actions that we're taking this year. And, you know, ultimately we're focused on delivering earnings and solid cash and strong cash flows in any environment. So as we look at it and as we highlighted, you know, when we talked in Q1, we expected, you know, the pathways to be narrowing. You know, actually on an overall working capital, we're actually consumed a little less here in the first half than we did last year. You've heard us being disciplined on inventory, as Mark also highlighted. But as we look at that, you know, and having a stronger back half, we actually will not get as much working capital back this year as we did last year. So, you know, that's where you're seeing around, you know, roughly the, call it roughly 75 million reduction on a year-over-year basis in our, I'll call it, multiple scenarios that we're looking at. So, going from 970 to approaching the 900, and we feel confident that we can do that.

Thank you. Thank you. The next question comes from Vincent Andrews of Morgan Stanley. Your line is now open.

Please go ahead. uh thank you and good morning um mark you know some moving parts um in both uh in fibers in both toe and textiles for the back half of the year um wonder if you just unpack those a little bit and and help us understand how much of that we need to follow through into 2027. thanks uh sure so when it when it comes to uh the back half of the year for fibers um there's uh as we've talked about I think extensively on the toe side we have these annual contracts with customers but they have the right to vary what they buy quarter to quarter so we they're not that good at rateability so we had in the front half customers on the toe side not buying that much but now to hit their minimums they're going to step up their purchases in the back half of the year to hit their what we considered sort of the low end of the volume bands that they have in their annual contract. That's what's happening on that front. There, of course, is a little bit of risk around the Middle East. That was an area that our customers thought they were going to grow last year, didn't have that much success as we explained. They thought they were going to grow this year, not having as much success with all the Mideast disruption. Highly determined to keep growing and do what it takes. There's a little variability on that front, but I would say the The tow volumes on an annual basis will turn out by the time we're done to be sort of relatively stable to last year. But that is a meaningful increase in tow purchase in the back half of the year, which we'll see a benefit of. On the textile side, it's a bit of the same thing. We thought that this year would be recovering from a very difficult year last year. We told you that we had about a $30 million headwind last year relative to 24 with the drop in the textile business, which was a combination of a weak market made even weaker by tariffs, impacting demand and our price point going into China. And so that created a lot of sort of headwind for us into 25. We had a bunch of actions we were taking to improve it this year, but they have not so far been successful because the market just continues to be weak. So the first half was pretty challenging. The volumes were relatively low and a very tough comp to last year because volumes in tech sales were high in the first half of last year and then really came off in the back half of last year with the tariffs. So tough comp to last year. But we are seeing some success, and we believe, you know, we'll build volume growth back in the back half of the year, which really would just get us to be even with last year. So we were thinking we were going to get a $15 million tailwind this year, and it turned out to be pretty much, you know, nothing relative to last year. But it is good momentum on textiles in the next year in the winds that we're starting to sort of build on in the back half of this year. So that's a play out, you know, from this year on sort of what's going on there. prices you know are not changing they're pretty much consistent you know with what we front from the beginning of the year energy costs are a headwind so there's that spread compression there and utilizations are a headwind you know as we manage our inventory and capacity relative to sort of this you know demand environment this year um so those are all sort of you know factored into sort of our point of view right now when you get to next year um you know it's important to Remember that, you know, a lot of this earnings decline from 24 to now is not actually tow. It's textiles. It's, you know, utilization hits about slow demand across the corporate stream that sort of flows into fibers on the cellulistic stream, higher energy costs. But what we do think, you know, is plausible as we look at next year is there's a set of actions that we can take, you know, that are in our control to try and sort of stabilize this business. you know the demand drop isn't market related it's you know the market's declining one percent this year you know in a range of you know a typical one to two percent you know the drops in demand have been destocking have been some share shifts you know that were principally in 25 and as we look at where we are right now you know we have by far the lowest cost position in this industry in the tow business in the cellulistic business and it's a very integrated advantage cost structure at our Kingsport site and something about this stream is that it needs to run really full you know to have a positive effect on economics and overall site stability so we do you know see us recovering some of our market share that was sort of lost you know in balancing the stream in that sense and we have all these growth programs that start kicking in so it's recovering textiles i just mentioned there's things like event that are moving slowly but picking up momentum you know there will be some additional volume for next year. There's some other programs we're working on that we can't really talk about right now that could be quite material to the stream. So there's a lot going on right now on actions that we're taking to make sure that the business is as stable as possible next year relative to this year.

Thanks for that. If I could just ask you, I think an AFP may be a little more so than the other segments, but there's been some share gains that have come on account of maybe some competitor dislocation given the Middle East situation. What's your assumption in terms of the durability of those gains, you know, whether it's for the back half of the year or into next?

I just want to clarify your question. Were you asking a volume question or a spread question?

A volume question in terms of market share. You know, you've had some volume share gains. You know, I think some competitors maybe, you know, didn't have the ability to produce to the same extent. And so you've picked up a little bit of share that way.

I guess, is that correct and then if so um what's your assumption on the durability of that sure so in chemical intermediates i think our assumption where we've had some share gains is that it'll be relatively durable volume you know gains in the back half of the year i mean not gains but we'll hold on to it in the back half of the year i mean there may be a few places where in our export markets you know we see some you know change of positions and where we're selling our material but our volumes you know overall will hold up it's just a question of spread so obviously there's a question around just how the back half of the year may moderate you know in spreads and chemical intermediates relative to to the to the first half with all the dynamics going on and it's anyone's guess at this point it's truly a box of chocolates out there where every day it's a different story and we can see things soften or we frankly could see things you know stay tight depending on on what happens and especially in the next couple weeks when it comes to the especially side of the question uh you know we uh we expect to hold our market shares we didn't see any market share losses in the first half of the year as we increased prices we're not expecting any market share losses in the back half of the year with how we're managing our positions in our markets um and that's being disciplined and holding our price relatively well in that context. The places where we picked up share on the specialty side is pretty modest in Q2. When we look at where we thought we could get a lot of share from companies being disrupted, that hasn't played out that much yet. Companies are really holding out and using whatever inventory they have to try and hope for lower prices in the future, both on the commodity and the specialty side. That's a big part of why markets on the commodity side are weakened is everyone's leaning on inventory. China is dumping inventory that they've built up over the last two years. Customers are using inventory to hold out for better market conditions. At some point, all that inventory is going to run out. If it hasn't been replaced by a lot of stability in the world, in the Mideast in particular, things could get pretty tight here in the back half of the year. So there's a wide spectrum of how this may play out. But right now, I'd say the teams are doing a phenomenal job of holding share, phenomenal job, great job of holding price. But we're not in the specialty side picking up a lot of market share yet.

Thank you very much.

Thank you. The next question is from Abigail Ebbots of Wells Fargo. Your line is now open. Please go ahead.

Thanks for taking my question. Just a quick question on your cost reduction targets of 125 to 150 million. Can you just remind us how we should be thinking about that weighted across your segments?

Thanks. Thanks for the question, Abigail. And the Eastman team has done a tremendous job, you know, delivering on 125 to 150 net of inflation. I would also say I'm confident with what we've delivered here in the first half and actions implemented that we will deliver the second half and also shift our focus into 2027 and focused on at a minimum offsetting the inflation. As we think about the split across the businesses, I would highlight advanced materials as well as chemical intermediates as being the two largest benefactors and to the lesser extent fibers, and added to some functional products.

Got it. Thank you.

Lucy, let's move on to the next question, please.

The next question comes from John Roberts of Mizuho. Your line is now open. Please go ahead.

Thank you. Lots of new product discussion in the prepared remarks. Could you back it up to an overall company level? where are you on your innovation index, new products as a percent of sales, however you want to define it?

So, first of all, good morning, John. Good to talk to you. We're incredibly proud of our innovation growth model. And at times like this, when markets are weak, I think we've proven we can create growth above underlying markets across the portfolio, and in particular in the advancement trail segment where we've made the most investments. So, you know, overall we see, you know, as you've noted, you know, great growth in Triton. We're picking up new growth in Triton because Europe's put a ban on BPA that's driving more conversion into our product, which is great. You know, we launched a new cosmetic product that's Recycle Code 1, and that's a big deal for the cosmetic industry. So we're seeing great growth there, including where new content being in it. You've got the HUD growth. You've got this new performance film strategy we just talked about in China that's given a significant broader addressable market growth that's been incredibly helpful. So there's a lot of things going on there. AFP is not as significant but still meaningful when it's ultra-high-purity solvents for semiconductors, which is growing very high rates right now with the market at good margins. You've got aviation continuing to roll, and we've got some new products coming out soon that are a big deal for the industry. Soiless cellosics for biodegradable polymer coatings on paper for cups and packaging and things like that. So there's a lot going on. We don't really provide a revenue percent of innovation, you know, as a public statistic. But, you know, it's roughly in the sort of mid-teen to 20% range when I look at it in the specialty world. So we feel very good about the innovation curve that we're on. And we have a lot of metrics in which we measure it. It's just we don't make those all public.

Okay. And then the Kingsport coal gasifier has been a pretty valuable asset here in this high oil price environment. When's the next major plan maintenance downtime for that unit?

We just did it. So, you know, we had a massive shutdown of that stream in Q2, which was a big headwind from Q1 to Q2 for fibers as well as chemical intermediates in that sequential result. and what I'd say is it was a very large cost so it will not repeat next year so there will be a tailwind next year relative to this year with that significant shutdown helping the whole cellular stream Thank you.

The next question comes from Matthew Dio of Bank of America Your line is now open, please go ahead Good morning everyone I have two but I'll start with like can you just bridge us a bit on some of this shift from 2q to 3q with all these outages and then like strategic inventory management decisions i guess i'll call it that i mean in general it seems like you're able to to destock your raw mats and then conceptually it seems like you're restocking at levels in 3q that doesn't net penalize you versus the gains from better utilization rates. Is that right? And like how much outage headwind was there ultimately in 2K?

So Matt, thanks for the question. You know, I think what Mark highlighted in the beginning advanced materials is obviously we were making trade-offs with the timing of, you know, plants coming online, the Triton facility that we highlighted, as well as the escalation, you know, impacts in the Middle East. So we, you know, ultimately were able to bring down some finished goods inventory within our advanced materials business. That created a utilization headwind as we did that. And we did that to ultimately secure, you know, key feedstocks to enable us to deliver, you know, with confidence into the second half. Mark just highlighted that we had major turnarounds in Q2. As we think about from Q1 to Q2, that was around 40 to $45 million headwind sequentially. Our original guidance was we expected to benefit about 30 million sequentially, but with the advanced materials pulling some turnarounds into Q3, we now expect that to be I'll call it closer to the 10 to 20 million for the overall company so those are the big shifts as you think about shutdowns and turnarounds I would also say on a year-over-year basis we will have substantial utilization benefits in the second half compared to last year as we had inventory corrections and advanced materials and across the company in the back half of last year. And you've heard Mark today talk about the strong demand outlook that we see here in Q3. And we'll continue to update you on that. But I think the big drivers are the turnaround that I just described sequentially.

Yeah, just when you want to locate it from a segment point of view, there's two different things that Willie described.

There was the finished good impact on advanced materials, the cellulosic shutdown that we just talked about that was very significant and actually a couple other smaller shutdowns but the big impact there was in fibers and in chemical intermediates so it shows up in different places depending on which topic that's helpful and i guess can you talk a little bit about volumes through the quarter and really even just like if you want to bridge march into this right there's a lot of discussions around panic buying downstream not how that might have ebbed and flowed into june and obviously you You know, when we talk to investors, there's just concerns around customer de-stock in 2H, given what's happened more recently over the last few years. So how do you get confidence around this 2H volume profile? And were things trending better as you exited 2Q?

So great question. And certainly volumes trended, you know, well through the quarter in Q2. So, you know, in almost like a normal way, which is it sort of built from April through June. And in that sense, you know, things actually felt quite normal despite all the chaos that surrounded us and what was going on. It is a very fair question and one that we constantly are debating internally around demand, especially after last year where you saw that build, you know, to get ahead of tariffs and then the decline in volumes in the back half. So far, you know, we're not seeing that same dynamic. So July orders are holding up, you know, well and on track to what we would expect and consistent, you know, with what you would expect relative to Q2. So that's a good sign. When it comes to a lot of the sort of, you know, buying in CI, it's a more dynamic question. So, you know, with whatever's going on in the straight. But when it comes to the specialties, which I think is really where your question is centered, we're not seeing any in-market demand declines or customers talking to us about, you know, that as a main concern. The customers are balancing two things at the same time, which I think is different than last year. Right now, they're very, you know, because of what happened last year, they're very disciplined, you know, through February of this year in de-stocking inventory and getting inventories to be really low, right? So when you got to March, obviously, you know, there was concerns about, you know, access to, you know, raw materials. And so you saw some pickup in demand. But at the same time, you know, worries and concerns around, you know, what could happen to the in-market demand the back half of the year, I think, has kept a lot of discipline in everyone's mind about just how much inventory they want to build. And, you know, you can debate whether they're building inventory right now or using up inventory right now, hoping for lower prices. So there's a lot of, you know, mixture going on that's very different than last year so far where, you know, they want to have inventory, but they also, you know, want to hold out for lower prices maybe if the straight, you know, normalizes and everything gets, you know, more stable. So you've got a lot of opposing forces, you know, where, you know, we don't think that people are sitting on significant inventories right now in this dynamic. Again, if they were going to really do stock, it could have started, frankly, in June when people were really optimistic in May about the straight opening.

And we didn't see that happen in June.

So, you know, I think things are better positioned to be more stable. The wild card here, of course, is if things really get out of control of the Middle East, oil prices go up dramatically. You know, you can have a global impact on consumer demand. And that's not in our forecast, that sort of extreme scenario.

The next question comes from Kevin McCarthy of VRP. Your line is now open. Please go ahead.

Thank you, and good morning. Mark, a question or two on your circular platform. I think you indicated in the prepared remarks that you expect sales to grow by $100 million or more this year. Can you comment on what a good contribution margin would be against that sales growth?

We're not going to talk about contribution margins on this business. What I can tell you is the revenue growth is attractive. The margins are certainly above company average when you think about this business. So it's a value and a mix upgrade to the company and to AM when you think about variable margins. When I think about the business and its long-term EBITDA potential, you know, we still very much feel we're on track for this first asset to get to $200 million EBITDA. You know, we're not seeing any reasons why that's not going to happen. It's going to take longer than we'd like with the state of the current economy. But, you know, the value proposition, the contribution margins, you know, we see is still very attractive.

Maybe related to that, my general impression is that the engineering team has done a great job. And if anything, you've proven out the capacity to be higher than originally expected. Obviously, the demand has trended as previously discussed. But is there a way to give us a sense of what the capacity utilization is? And, you know, I'm thinking back to your deal with Pepsi as well. You know, how much headroom do you have to kind of load that asset moving forward?

So I think with what we've shared with you last year is we were around 50% utilization on the asset, and we've stepped that utilization up, you know, with the improvement in demand this year. We've also run tests, you know, to run the plant as hard as possible to understand what we think the effective capacity of the plant is. and feeling very confident we can get up to 100% in running the plant to support demand growth as it comes. And then, of course, as we said, there are sort of targeted incremental capital projects to do in the plant to sort of de-ball-neck it up to 130% of design capacity or 130,000 So in that sense, I think we feel really good about where we're at and continue to gain more insights about how to optimize the performance of the plant and its cost structure. When it comes to polymer, that's where the constraint is on the RPED side, because this plant was originally built for specialties. And as the market sort of weakened on the growth in specialties, we obviously flexed our polymer lines, which is a great advantage we have, is this flexibility to flex them from Triton to copolyester to PET. We took a Triton line and flexed it to PET because we knew a new big line of Triton was about to come on to serve the market that we were building. And so that was a great way to balance it out. But there's still limits to what that PET capacity is. And so we're now looking at some other polymer lines that we can optimize to continue making our PET that have some additional capacity in this current market conditions. And so, you know, that work is going on right now to enable us to keep growing the PET in a significant way next year. And then there's other things we're doing about our sort of capital efficient model. We'll talk about, you know, in future calls about how that can support more polymer growth.

Great. I appreciate the update.

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

Thank you. The last question today is from Lawrence Alexander of Jefferies. Your line is now open.

Please go ahead. good morning can you touch on or give some detail on how you're thinking now about your m a pipeline you know how active is it um what are you seeing in terms of valuations are there strategic directions that you'd be open to considering um just you know what's your positioning on that well first what i'd say is i think eastman's had a great uh disciplined uh history when it comes to portfolio management.

So there are times where we divested a bunch of underperforming businesses. If you go far back in time, then there was a period of time where we got out of these underperforming businesses and did large acquisitions like Solution, Tomenko, and Boltons that have been incredibly successful. And we did them in times when valuations were actually rational. So those big acquisitions we paid roughly nine times, Siva Duff were, and have been huge value contributors to the company. And then we've been in a phase of optimizing and growing organic growth through innovation, which I think has been successful and proven itself in good times and bad. And we've also shown we're willing to continue to be very disciplined on divestments, right? So when we had some other businesses underperforming like tires and adhesives, we divested them as well as optimize our acetic acid footprint. So, you know, great discipline there um and investing things when it made uh made sense uh 10 times so you know i think we've got a good track record you know in m&a of being very successful with it being very disciplined when things are not working well we definitely believe our company is at sort of minimum scale to be effective in our innovation and our balance sheet to support all the growth potential the company has um you know so as we look forward you know we'll always be disciplined about you know businesses are not performing um and dealing with it uh and and we're always looking at m a and considering it um clearly that that uh m a market has picked up activity this year um as as you would expect in this market condition valuations have improved to being more rational than they have been for quite some time um so we're out there you know considering all of our options like i think every company in the industry is doing today um you know as i i think we can all acknowledge that we're probably going to see a lot of change over the next several years in this industry with all the dynamics that we face um you know but i'm incredibly confident that we'll remain disciplined um and make you know good choices on both sides of the fence you know as those opportunities come up but i'm not going to get into details on it thank you Okay, thanks again, everyone, for joining us.

We appreciate you taking time to talk about Eastman this morning. Please have a great day.

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