Eastman Chemical Company Q2 FY2025 earnings call

• Capital spend is being reduced in 2026 with significant cost savings targeted, focusing on cash generation and pulling inventory down. - The methanolysis plant is performing well, with potential for debottlenecking and continuous growth. - The trade war is impacting demand, especially in consumer discretionary markets, leading to a mid-single-digit drop in back half demand. - The company is focusing on cost management, inventory control, and innovation across segments, confident in the portfolio's position for growth in 2026 and beyond through innovation and asset optimization.

Chemical Intermediates is facing overcapacity issues from China and other countries, with the industry at cash cost and some products below cash cost, expecting to be at the bottom of the market. The Fibers segment is impacted by tariffs, with the Naia textile business hit and the tow business having timing impacts and end market demand decline, about a $20 million annual impact from tariffs. The AFP segment saw prices up 4% year-over-year due to cost pass-through contracts in care chemicals. The methanolysis plant is running well, with rate testing up to 105% and potential for debottlenecking to 130% and beyond, expected to contribute $50 million improvement for the corporation.

• Expect a mid-single-digit drop in demand for the back half of 2025. - Q3 earnings are guided around $1.25 with uncertainty due to trade dynamics. - Anticipate stability in 2026 with trade deals settling and pro-growth factors in the U.S. administration, expecting earnings improvement next year due to cost actions, asset utilization tailwind, and innovation.

• Uncertainty in trade dynamics and tariffs impacting demand. - Overcapacity in commodity chemicals from China. - Destocking issues and cautious customer behavior. - Volatility in raw material costs and market demand.

Q: How representative is the second half of trough earnings levels and impact on mid-cycle earnings power?

A: The back half is heavily impacted by trade and not representative of 2026. No one knows where demand will go next year, but pro-growth factors in the U.S. administration may stabilize the situation.

Q: Progress on metathesis unit investment?

A: Chemical Intermediates is facing challenges, and the E to P investment aims to improve the structural strength, expecting a profitability step-up.

Q: Methanolysis investments and Pepsi offtake?

A: The methanolysis plant is running well with potential for debottlenecking, and Pepsi offtake is still intact but options are being explored.

Q: Catalyst for customers to feel differently?

A: End of trade war uncertainty, lower interest rates, but the key is focusing on cost and innovation.

Q: Autos end markets weakness?

A: Weakness is in the back half, with aftermarket interlayers and coatings impacted by tariff uncertainty.

Q: Working capital and cash flow?

A: Working capital is a net headwind this year, but expecting a $1 billion cash flow platform with potential to optimize.

Q: Q4 guidance and range?

A: Q4 is expected to be similar to Q3, with a wide range due to trade dynamics and uncertainty in volume.

Q: Methanolysis sales optimism contrast?

A: Short-term demand challenges due to economic conditions, but long-term confidence in plastic waste responsibility and regulation.

Q: Fibers segment earnings outlook?

A: Utilization headwind, Naia recovery, tow market challenges, but offsets and stability are expected.

Q: Cost cuts and portfolio composition?

A: Cost cuts are focused on optimization, with no large portfolio changes expected in the short term, confident in the asset base for growth.

Q: Customer innovation engagement?

A: Customers are still engaged, but adoption rate is constrained by economic reality, but innovation is not paused.