The operator introduces the Second Quarter 2024 Eastman Conference Call and hands it over to Greg Riddle, who is joined by other members of the Eastman team. Riddle provides a brief overview of the call, including information on forward-looking statements and excluded earnings. He also mentions a potential conflict with the chosen date for a circular economy deep dive event.

The company is currently working on alternatives for their methanolysis plant and will update when a decision is made. They have faced challenges with feedstock preparation, but are now producing on spec plastic with 75% rDMT. The plant is able to handle hard to recycle waste and has validated all unit operations at high rates.

The company has been running at sustained rates of around 70% due to a small mechanical issue, which has now been fixed. They have also made progress in improving mechanical reliability issues and have encountered some plugging issues due to using a broader range of hard to recycle feedstock. However, after identifying the issue, they have made changes to address it and are now implementing those changes.

The company is confident in its changes and is ramping up production. They have made investments in purification and have learned a lot during the startup process, giving them a competitive advantage. The team has been crucial in overcoming challenges and the company is excited to serve customers in the second half of the year. The expansion of Tritan may seem counterintuitive given current market conditions, but the company saw a return in volume with the end of destocking.

The company is experiencing a resurgence in volume and high margins for its Tritan product due to its compelling attributes such as heat and chemical resistance, BPA-free composition, and now with the addition of recycled content. This has led to wins in various applications and the opening of new markets, with customers willing to pay premiums for the product. The company's investment in Kingsport is expected to result in good returns.

The company is planning to add additional capacity to meet the growing demand for their product. They are currently in the process of ramping up production rates and have seen slower adoption of their product due to inflation. However, they have a lot of committed customers and are accessing new markets. Overall, the demand for their product is strong.

The current economic environment is challenging for the industry, with weak demand and high inflation. Companies are focused on managing costs and ramping up volume on programs at a slower pace. However, the company remains committed to its goals and expects to see growth in the future through collaborations with brands and creating better value propositions. They anticipate reaching a run rate of $150 million in EBITDA by the end of next year.

During a recent earnings call, Mark Costa, the CEO of Eastman Chemical Company, discussed the company's decision to narrow the range for their 2024 guidance while maintaining the midpoint. This was due to strong growth in the second quarter, particularly in the AFP segment, and the expected benefits of methanolysis in the AM segment. The company is driving its own growth and is in a strong position for the second half of the year. The main factor that will impact their full year results is demand, which is a macroeconomic question.

The company initially had a neutral outlook for end markets, but they are benefiting from de-stocking. They feel confident in their price management and managing costs. The main factor affecting their forecast is the state of the economy. The midpoint of their guide assumes no change in economic activity from the current state. They expect modest growth in stable markets like ag and personal care.

The company's revenue is split between modest growth and no end market growth. They have confirmed that a lack of de-stocking has added a significant amount of volume back. The company expects $150 million of the $450 million hit in variable margin from last year to come back due to a lack of de-stocking. This is reflected in their guidance. In the acetyl chain, there will be higher plant maintenance in the third and fourth quarter, with half of it being related to acetyl cellulose extreme and the other half to polymer turnaround. The divestiture of the Texas City plant has already closed and is not factored into their guidance, but it will have a negative impact on their chemical intermediates business.

The market dynamics for acetyl products are currently challenging, with lower margins and shifts in the business model due to divestment. However, the spread is expected to improve and one-time costs will be a modest tailwind in the future. The company primarily produces acetic anhydride and is optimistic about the market for this product. The other segment of the company is now losing more money than before, mainly due to pension costs.

In the second half of 2023, the company saw an increase in pre-production and startup costs for their methanalysis and circular platforms. This was due to project timing and progress, as well as the successful launch of their Kingsport methanalysis plant. The current macro environment and continued investments in advanced materials and cellulosic products could result in a run rate of around $200 million or less. The unfavorable price costs and shutdown costs in the acetyl business are also contributing to a year-over-year penalty for the company.

In response to a question about the company's asset sales and increased logistics costs, William McLain states that they are not able to provide specific details at this time. In another question, Mark Costa discusses the company's ability to run their methanolisus plant at 70% with a diverse feedstock slate, but does not reveal their operating strategy. He also mentions that the limitations in run rate have been due to mechanical and feedstock processing issues, but the plant runs stably when these issues are resolved.

The speaker discusses an issue they faced in moving product within the plant, which has been resolved. They expect to run the plant at a higher efficiency in the second half of the year and are confident in their ability to meet customer demand. They have seen success in selling their recycled product to both existing and new customers. The speaker also mentions that maintenance will cause some downtime, but they are not concerned about meeting demand.

The speaker, William McLain, discusses the potential for lower maintenance expenses in 2025 compared to 2024. He mentions that this year's expenses are normal, but there may be some favorability on a year-over-year basis. Mark Costa adds that the cost for methanolysis is currently high due to start-up expenses, but this will be a tailwind next year. He also mentions that there was a $10 million decline in advanced materials in Q1. David Begleiter asks for a breakdown of the $50 million in incremental EBITDA and for an update on the France project.

Mark Costa discusses two upcoming projects, the Texas project and the French project. The Texas project has a strong partnership with Pepsi and a DOE grant to help with capital inflation. It aims to solve plastic waste and reduce carbon footprint. The French project is moving slower due to customer contract discussions and efforts to lower capital costs. Brands are committed to recycling and reducing Scope 3 emissions, which is important in these conversations.

The company is not on track to meet their targets for 2025 due to various factors, including a slow economy and lack of capacity for mechanical recycling. The PET market is currently at a low point and regulations in Europe are causing delays in contract negotiations. However, the company is still engaged with customers and working towards milestones on their circular projects in Longview and France. This has led to a reduction in CapEx, but the projects are still moving forward.

The company is expecting to spend $650 million to $700 million on CapEx this year to achieve growth, and they have increased their expectations for share repurchases to $300 million. The advanced interlayers business, which makes up about a third of the segment's revenue, is performing well due to innovation and operational excellence. It is mainly focused on the luxury and EV markets, which are growing faster than the overall auto market, and the company is seeing earnings growth by selling more premium products.

The company has had success with their HUD product and is seeing market upside due to its adoption in cars for better security and safety. The EV market is also driving high value due to the need for HUD and solar control in these vehicles. Despite challenges in the market, the company has seen growth in these areas and is pleased with the progress of their methanolysis technology, specifically in the ability to clean up impurities in the process. This has been a pleasant surprise for the company.

Unzipping the polymer is a simple process, but purifying the impurities and ensuring high purity DMT output is complex. The process technology for separating and isolating monomers has worked well, but there have been delays due to construction and vendor equipment issues. Recently, there were issues with feedstock impurities, but changes have been made to address them. The base business is doing better in coatings and agriculture, but it is unclear if the latter has returned to its previous levels.

Mark Costa, CEO of Eastman Chemical, discusses the company's volumes in coatings and attributes the increase to a lack of destocking compared to last year. He also mentions that the ag industry had a huge amount of destocking last year, but has now resolved it and is experiencing a normal season. The company expects a soft Q3 and does not anticipate much inventory building in Q4, but expects a big build in ag demand in the first quarter of next year.

Mark Costa, speaking about the French project, hopes to have a clear understanding of its progress by the end of the year. There is no formal go/no-go decision, but there will be good insight as customer contract discussions and engineering work progress. There are multiple options for managing the three plants and their products, with Texas having the capability to produce specialty products and PET. The company is committed to building all three projects, but will only do so if they secure long-term take-or-pay contracts, as mechanical recycling alone cannot meet the demand for high recycling content in Europe.

The speaker discusses the potential impact of tariffs on Eastman and their current exposure to Chinese exports. They mention that regardless of the election outcome, tariffs will continue to be an issue due to China's policy of exporting their excess capacity. While Eastman's direct exposure to Chinese imports is limited, they anticipate potential tariff tensions in the future.

The majority of the company's revenue in Fibers comes from tow, which has seen changes in the market due to high utilization rates and customer demand for supply security. The company has contracts in place for the next few years, with provisions for natural market decline and pricing adjustments for changes in raw material costs. The textile business, which has become as profitable as sigto, has been performing well.

The speaker discusses the growth of the company in the textile market, despite challenges in the fashion industry. They highlight the success of their Naia fabric, which has a strong sustainability story with half bio content and the use of waste plastic. They also mention the importance of their fibers being able to fully biodegrade, which is increasingly important in addressing the issue of microplastics in the ocean. The speaker then moves on to discuss the company's partnership with Sealed Air in the food packaging market and the potential for growth and profitability in this area.

Aventa, a product that replaces polystyrene in food packaging, has had a successful launch with Sealed Air and is now being tested in a large grocery store. It is made from a cellulosic polymer and is fully certified to biodegrade in home or industrial composting. It has a great end-of-life story and is being rolled out as a straw in major food chains. The volume and sales are ramping up, with potential for significant growth and higher margins than the company average.

The company has developed an alternative market using the same polymer as their tow and Naia products, allowing them to optimize value and support the growth of their flake business. They look forward to discussing this at an upcoming circular day event. The forward volume trajectory in advanced materials is expected to continue growing at a double-digit pace in the third quarter, driven by the ramp-up of methanolysis and continued innovation in the automotive sector. There may be a seasonal drop in demand in the fourth quarter.

The company expects a decrease in net sales due to the ramp-up in methanolysis and other end market sales, but the fourth quarter will be better than usual due to these factors. There are also tailwinds such as lower energy costs and higher PX prices, but there will be a headwind of $25 million in shutdown costs. The company is unable to predict the timing of heat transfer fluid sales, but expects a return to higher sales next year. The $50 million increase in new project investments is due to inflation and new platforms being developed.

William McLain apologizes for not being able to answer the second question. He mentions that the company is investing in growth and increasing expenditures in areas such as Aventa, which they expect to see revenue from in the future. The company is also focusing on efficiency and expects returns on their investments in 2025. Laurence Alexander thanks them and Gregory Riddle ends the call, mentioning a future deep dive on their circular economy platform and thanking everyone for participating.

This summary was generated with AI and may contain some inaccuracies.