Earnings call transcript: Eastman Chemical Q2 2025 misses forecasts, stock drops

Eastman Chemical Company reported its Q2 2025 earnings, revealing a miss on both earnings per share (EPS) and revenue forecasts. The company reported an EPS of $1.60, falling short of the forecasted $1.73, and a revenue of 2.29 billion dollars, slightly below the expected 2.30 billion dollars. Following the announcement, Eastman Chemical’s stock experienced a significant decline, dropping 12.73% in premarket trading. According to InvestingPro data, nine analysts have recently revised their earnings expectations downward for the upcoming period, signaling growing concerns about near-term performance.

Key Takeaways

• Eastman Chemical missed both EPS and revenue forecasts for Q2 2025.
• Stock dropped by 12.73% in premarket trading following the earnings release.
• Trade uncertainties and market dynamics impacted financial performance.
• The company is targeting additional cost cuts of 75 to 100 million dollars.

Company Performance

Eastman Chemical’s performance in Q2 2025 was affected by ongoing trade uncertainties and challenging market conditions. Despite efforts to focus on cash generation and cost management, the company faced a mid-single-digit volume decline. In comparison to previous quarters, the company’s performance reflects the broader market challenges, particularly in consumer durables and automotive sectors.

Financial Highlights

• Revenue: 2.29 billion dollars, slightly down from forecast.
• Earnings per share: $1.60, below the forecast of $1.73.
• Targeting cost reductions of 75 to 100 million dollars.

Earnings vs. Forecast

Eastman Chemical’s Q2 2025 EPS of $1.60 fell short of the forecasted $1.73, resulting in a negative surprise of 7.51%. Revenue also missed expectations by 0.43%, with actual figures at 2.29 billion dollars compared to the 2.30 billion dollars forecast. This miss is notable given the company’s historical trend of meeting or exceeding expectations in previous quarters.

Market Reaction

Following the earnings release, Eastman Chemical’s stock dropped by 12.73% in premarket trading, reflecting investor disappointment with the company’s performance. The stock closed the previous day at $72.61 and fell to $63.37 in premarket activity. This decline positions the stock closer to its 52-week low of $70.9, indicating significant market concern. However, InvestingPro analysis suggests the stock is currently undervalued, trading at an attractive P/E ratio of 9.15x with a healthy dividend yield of 4.57%. The company has maintained dividend payments for 32 consecutive years, demonstrating strong financial stability despite market volatility.

Outlook & Guidance

Looking ahead, Eastman Chemical is targeting an EPS of $1.25 for Q3 2025, with potential fluctuations depending on trade dynamics. The company is also focused on innovation across circular platforms and automotive products, aiming for stability and potential improvement by 2026. Capital expenditures are expected to be reduced in 2026 as part of cost management strategies. For deeper insights into Eastman Chemical’s valuation and growth prospects, InvestingPro subscribers can access the comprehensive Pro Research Report, which provides detailed analysis of the company’s financial health, peer comparisons, and future outlook among 1,400+ top US stocks.

Executive Commentary

Mark Costa, CEO of Eastman Chemical, highlighted the company’s strategic focus amidst market challenges, stating, "To get out of a weak environment, you gotta create your own growth." Costa emphasized the importance of maintaining innovation engagement and expressed confidence in the company’s ability to recover earnings next year.

Risks and Challenges

• Trade uncertainties continue to impact market dynamics.
• Declines in consumer durables and automotive markets.
• Potential volatility due to global trade tensions.
• Challenges in the textile and chemical intermediates markets.

Q&A

During the earnings call, analysts raised questions about the impact of trade tariffs and the drivers behind volume declines. Executives addressed these concerns, emphasizing strategies for managing market uncertainties and maintaining a focus on innovation despite the challenging environment.

Full transcript - Eastman Chemical (EMN) Q2 2025:

Becky, Conference Operator: Good day, everyone, and welcome to the Second Quarter twenty twenty five Eastman Conference Call. Today’s conference is being recorded. This call is being broadcast live on the Eastman website, www.eastman.com. We will now turn the call over to Mr. Greg Riddle, Eastman Investor Relations.

Please go ahead, sir.

Greg Riddle, Investor Relations, Eastman Chemical: 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 William McLean, Executive Vice President and CFO and Jake Barreault and Emily Alexander from the Investor Relations team. Yesterday, after market close, we posted our second quarter twenty twenty five financial results news release and SEC eight ks filing, our slides and the related prepared remarks in the Investors section of our website, eastman.com. Before we begin, I’ll cover two items. First, during this presentation, you will hear certain forward looking statements concerning our plans and expectations.

Actual events or results could differ materially. Certain factors related to future expectations are or will be detailed in our second quarter twenty twenty five results news release, during this call, in the preceding slides and prepared remarks and in our filings with the Securities and Exchange Commission, including the Form 10 ks filed for full year 2024 and the Form 10 Q to be filed for second quarter twenty twenty five. Second, earnings referenced in this presentation exclude certain non core items. Reconciliations to the most directly comparable GAAP financial measures and other associated disclosures, including a description of the excluded and adjusted items, are available in the second quarter twenty twenty five financial results news release. As we posted the slides and accompanying prepared remarks on our website last night, we will now go straight into Q and A.

Becky, let’s go ahead and start with our first question, please.

Becky, Conference Operator: Thank you. Our first question comes from Patrick Cunningham from Citigroup. Your line is now open. Please go ahead.

Patrick Cunningham, Analyst, Citigroup: Hi, good morning. Thanks for taking my question. Look, you’re reducing capital spend in 2026, now targeting pretty significant cost saves on top of that even larger in 2025. And this doesn’t necessarily signal a stable to modestly improving macro in 2026. So could you help us understand how representative of the second half should be when we’re thinking about trough earnings levels?

And with growth projects deferred and lower for longer macro, has your thinking on mid cycle earnings power changed at all?

Mark Costa, Board Chair and CEO, Eastman Chemical: That’s a great question and a large one. So first of all, when you think about the back half of this year, it’s heavily impacted in the decline by the trade situation that we face. And that’s creating a lot of, you know, challenges for this industry and and especially for the sort of consumer discretionary side of the house. So I don’t think that the back half is is really relevant measurement for how the company is doing in total because you’ve got a lot of situations around what’s going on with the tariff. I mean, when you think about us and the tariffs and the exposure we have in the back half of the year, there’s sort of really sort of three impacts that it could potentially have on any company.

But the biggest for us is by far what happens with demand and that was also true in 2019. The second factor of course is retaliation that happens in other countries and how you work your way through that and we do have some high U. S. Asset exposure when it comes to that equation. And then third is direct tariff impacts around raw materials and things like that, which we have very little exposure on because North America is all of our vertical integration and scale in North America is connected back to local raw materials.

So it really is a big demand question about what’s going on in this year and what that then sort of indicates for next year as we think about this whole thing. And the trade war is by far the driver of the demand dynamics in the second quarter as well as the back half. And as we look at that and think about trade, the first thing I want to say is there are unfair trade practices around the world and there are there is aggressive dumping by some countries, especially overcapacity out of China and transshipping to avoid tariffs. So there are real issues here for this industry that need to be addressed. But those, while very serious, need a strategic approach.

And the challenge that we’re having broadly right now is that that trade strategy of applying to all countries of the world at the same time may create more economic harm than what’s necessary as as you as try and focus on what the real sources of the trade issues are in the country. And and we sit here now where there’s a lot of uncertainty. What what you had happened in in the even in the GDP data you saw in Q2, lot of volatility of imports going up, private inventory is dropping. People are moving product all over the world to try and get ahead of tariffs, whether it’s retailers or the brands or all the supply chain manufacturers that support them to avoid tariffs, to buy time to see how things are going to get sorted out, take advantage of pauses that happen in the second quarter, etcetera. So it’s really chaotic to try and understand what’s really going on in end market demand.

Same question you have around consumers, how much do they buy ahead of tariffs potentially impacting prices in the first half of the year, which is probably why consumption was up versus them being conservative about worries about what they can afford for the year. Same with customers, what do they think about demand. So there’s a huge amount of chaos that goes into this whole situation that causes some challenges and complexity in Q2 and certainly is why we expect a sort of mid single digit drop in demand for the back half of the year, which is also representing some normal seasonality as well as some of the pre buy as well as customers being very cautious for everything I just said. So you’ve got all that complexity. Right?

I mean, a 15 plus or 15% to 40% tariffs as of last night on countries is a big impact to the market. So there’s reasons to be cautious and careful about the back half of the year. So with that, it was what our customers are doing and being cautious in July. We sort of built this forecast and this and staying focused just on Q3 as well as not really trying to forecast the full back half of the year. So that is a distortion to try and think about what’s going on in demand in general.

The second is in that chaos, we’ve very much decided to focus on cash generation as we told you we would in April. And so we’re taking all the actions we can to pull inventory down, generate cash, which unfortunately when you do this from an accounting point of view ends up in a utilization headwind. It’s not a cash headwind, it’s actually generating cash, but utilization headwind is somewhere around $75,000,000 to $100,000,000 in the back half of the year. So that distorts the back half as well. So you got the normal seasonality, you’ve got all these trade dynamics, and you’ve got the utilization headwinds.

So the back half of year is by no means something you can annualize and think about as representing, you know, you know, what what 2026 looks like. So your question is what do we think about ’26 and where demand could go there? I mean, the answer is, you know, with the with the current chaos, no one knows where demand is going go next year. But what we can do is with all the trade deals settling in one way or fashion, at least we’re going start getting some certainty that that is always better than uncertainty to calm everyone down and everyone starts focusing on what they need to do in this context. So that will help stabilize things.

You’ve got other things that are very pro growth in The U. S. Administration from tax bills and less regulation etcetera. So lots of other things that I think are pro growth outside of this trade disruption that’s going to help stabilize things. So our view is, especially without challenged demand is this year on top of what was already a bad situation from 2022 to now, there’s the reason to expect stability in the back half.

I mean, sorry, stability as you go into 2026, which would be equal to or certainly more likely better than where demand is now. But in this context, we have to manage our costs. We have to be aggressive in how we manage inventory because we don’t know where things are going go and so we’re going to take every action we can.

Patrick Cunningham, Analyst, Citigroup: Great. I appreciate the detailed response. I guess just a quick one on the Metapasys unit. How far are you along investment? And what gives you confidence on the pretty healthy step up in profitability there?

Mark Costa, Board Chair and CEO, Eastman Chemical: I’m sorry. You broke up for a second. Were you asking about E2P or Methanalysis? I just couldn’t hear what you’re asking.

William McLean, Executive Vice President and CFO, Eastman Chemical: Yeah. You can just

Patrick Cunningham, Analyst, Citigroup: e two p. Yep.

Mark Costa, Board Chair and CEO, Eastman Chemical: Okay. Sure. So, obviously, chem yeah. Got it. So the chemical and meads business, obviously, is facing some pretty significant challenges.

You know, they’re they’re the classic example along with the entire, you know, commodity chemical industry of the impact overcapacity coming out of China and other countries impacting businesses. And we certainly, you know, see the industry right now at cash cost, and frankly, there’s indication some of the products being exported to the world are below cash cost. So, you know, we feel like we’re probably at the bottom of the market. But we’re also constantly looking at how do we improve the structural strength of every business we have. We’ve done a lot of things to improve the CI business over time.

We made the RGP investment. We shut our Singapore plant down, constantly looking at how to value up our mix in North America where our margins are much better than export markets, which

William McLean, Executive Vice President and CFO, Eastman Chemical: at

Mark Costa, Board Chair and CEO, Eastman Chemical: the moment is a challenge because of demand being off, but always looking for every opportunity. And we told you all the way back in 2021, we had an idea of doing an ethylene to propylene investment to convert one of our existing crackers of the three that are at the site to going from ethylene to propylene. For those who are not familiar with Eastman, we make a lot of ethylene and propylene because that’s what crackers do. But if we had TDH four decades ago, that’s what we would have built. The propylene is where we make all of our specialties.

That’s where our value sits. And then we’re left with a bunch of excess ethylene just to run the crackers. So we’ve always been trying to reduce that. That’s why we made the RGP flexibility investment to increase propylene. But we still have a bunch of ethylene.

So what we can do with this investment, we’ve come up with a lot of insights since 2021 to scale it up to a bigger capability. And that allows us to convert ethylene to propylene. And when you do that and optimize the asset configuration of the site around that investment, you can dramatically improve the earnings by 50,000,000 to $100,000,000 in EBIT over the cycle. And it also really reduces volatility because that’s a lot of volatility comes out of the ethylene side of the equation. So it’s a great investment and it’s a great payback.

It’s a very short payback for building this capability because we’re leveraging an existing cracker to do it.

Patrick Cunningham, Analyst, Citigroup: Great. Thank you so much.

Becky, Conference Operator: Thank you. Our next question comes from Josh Spector from UBS. Your line is now open. Please go ahead.

Josh Spector, Analyst, UBS: Yes. Hi, good morning. I wanted to ask on the Methanalysis investments and some of the comments you made about it seemed like you were thinking about you’d delay a decision on Longview by maybe two years now, and you’re thinking about expanding Kingsport at some point in the future. So one, I’m just curious if you could expand on if that’s right in terms of how you’re thinking about it. And then two, what does that mean for Pepsi offtake that you have at the Longview facility?

Does that move to Kingsport? Does that get pushed out? How should we think about that? Thank you.

Mark Costa, Board Chair and CEO, Eastman Chemical: So first of all, we’re incredibly excited about how well the methanol system plant is running. It’s been a long journey from the beginning of this project to getting it built to getting the startup and working through a lot of construction issues. So it’s great to see the plant run well. Incredibly excited to see the, you know, rate test the plant to get up to a 105% as it is. And And all of that is working really well, which also means our cost benefits this year relative to last year are on track to get that additional $50,000,000 of improvement for the corporation.

It also when we started rate testing it and learning more and more about the facility with its better operational performance, we had we come across a variety of insights with some very targeted debottlenecking investments that are very manageable. We can debottleneck the plant and have a line of sight to get in the plant to a 130%, and we have some ideas to get, you know, you know, beyond that. And so that’s fantastic in this environment. Right? In this environment where we’re trying to always improve our cap know, lower our capital intense in everything we do, and this is, you know, our capital intensive project.

If I can now get 30% or maybe even more than that, you know, I’ve I’ve improved, you know, the ROIC efficiency. So that is is exciting. The second is that additional capability, especially right now, allows us to continue to, you know, grow the EBITDA to that 200,000,000 that we’ve told you about and keep going from this facility and have more continuous growth than when we cap out on the capacity of this plant and the original plan and wait for the next plant to start. So we can sort of keep the continuous growth going. And that also allows us to, in some sense, pull EBITDA forward from the second plant into the first plant as we sort of continue to fill it out.

So that that allows us to also have time to look at different options. So we’re certainly not happy about losing the DOE grant, and we’re highly engaged to try and get it back. That’s a highly uncertain process. And so we’re focusing on what else can we do. And so this ability to bottleneck gives us the time to work on alternative ideas.

And we have a lot of creative ideas about how to take scope out of the project. We have creative ideas of not just looking how to do it at Longview, but looking at three other sites where we might have some better advantages and how to be efficient. And so there’s a lot of things going on. We can’t talk about the details of all that right now because we’re in the middle of doing some of But we’re pretty excited about the potential to sort of optimize the footprint and find ways to actually pull forward some benefits that we would have had to wait for the second plant. When it comes to contracts in Pepsi, you know, our our contract with Pepsi is still intact and and we’re still confident that they’re committed to working with us, you know, as we sort of pursue all these different options.

So, yeah, we feel sort of good about that. And and we and the other thing I’d notice, we’re seeing accelerated demand in some cases with some of our customers who are finding mechanical recycling isn’t working well on the rPET side for food grade packaging applications. And so we’re getting more and more confident about that fill out.

Josh Spector, Analyst, UBS: Okay. Thank you. I’ll leave it there.

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

Vincent Andrews, Analyst, Morgan Stanley: Thank you and good morning. Mark, was there a particular trigger? It sounds like in July, all of a sudden the customer dialogue flipped. And so is there something in particular that happened? Or is it something that they were hearing from their customers?

Or just how do you sort of deconstruct exactly what happened, when it happened? And as you look forward into balance of the year and into next year, what’s the catalyst path or what are the events that are going need to happen for your customers to start feeling differently about their business and about purchasing? Is it just the end of the trade war uncertainty? Is it lower interest rates? But what’s really changed?

And what’s the path from here?

Mark Costa, Board Chair and CEO, Eastman Chemical: Yeah. That’s a great question. So, you know, I’d say that the the insights developed, you know, through the month of June into July as we were working with our customers and trying to understand what their views were. The market that’s most impacted is consumer durables, which you can imagine are caught up in the trade war since the vast majority of them are made in places like China or Southeast Asia and imported here. And our supply chain in serving that market is incredibly long as we make a lot of make the products that go into those applications here in The US, send them to Asia, they get made the product come back, so you’ve got a nine, twelve month supply chain on top of this that you’re trying to manage.

And so I think that, you know, that the the trade pause allowed everyone in the in the second quarter to move material around ahead of potential escalation on July 9. And so, you know, everyone did that. I mean, every company, you know, like I said earlier, from retailers to brands and manufacturers to people like ourselves. Because of of North America, you know, we had to move things to different places like Asia when we’re making it here, you know, that sort of factor into our supply chain being a bit longer and our need to move things being a bit higher, you know, because of where we were making it in The US and the risk of retaliation. So, you know, you’re working through all those dynamics with your customers.

And I think that as they look to the back half of the year, they became cautious. You know, I think the words were holding orders as opposed to canceling. I think it’s important to say as a way to sort of wait and see how all the trade situation was gonna resolve itself one way or another. And then they have to, you know, naturally factor that into, you know, where they think consumer demand is gonna go and how they sort of either serve those markets or not. Because while people are moving inventory around all over the planet, they’re also trying not to increase inventory too much in total because they are unsure about the back half economy when the consumer is more likely to be impacted.

Right? I mean, these tariffs at these rates are likely to show up in inflation. I know there’s a lot of debate about that, but the margins, at least in this in the consumer durable industry, you know, pretty thin, you know, when it comes to manufacturers in Asia or the retailers here. So, you know, some portion of this has to get passed on. It can’t be absorbed.

And if even if it’s absorbed, people are gonna have to lay off people, which impacts the economy, so somewhere in the world. So this dynamic is going on there. I think it’s very much going on in the auto industry, plenty of use of flow on that, but probably likely some pre buy there that, you know, the auto companies have to think about as far as what they think demand’s gonna do in the back half for them. And neither building construction segment, same dynamics. You know, obviously, you know, we can challenge.

And that half of our revenue is sort of where we’re seeing these these impacts. Customers, you know, are working with us. And I think, you know, what we’ve gotten our forecast represents better caution in July. We’re assuming things get a little bit better in in August and and September, know, with some of this trade certainly coming into place, and we’re just gonna have to see how it goes. But, you know, the the the key for us is focus on what you can control, cost, cash, you know, driving that analysis forward, finding capital efficiency, keeping our CapEx low, etcetera, and positioning us, I think, reasonably well for earnings to be materially better next year versus this year on the actions that we’re controlling and taking.

Vincent Andrews, Analyst, Morgan Stanley: Thanks very much. I’ll pass it along.

Becky, Conference Operator: Thank you. Our next question comes from Salvator Tiano from Bank of America. Your line is now open. Please go ahead.

Salvator Tiano, Analyst, Bank of America: Yes. Thank you very much. So I wanted to check on the autos end markets. I mean, and some of some other chemical companies today and yesterday did flag that they were weak in Q2 and Q3 could also remain weak. But that seems to be in contrast with both trade consultants and what some of the auto suppliers are saying so far this earnings season.

So you provide a little bit more color on what on where you’re seeing the weakness? And specifically, you know, in the case of Eastman, of course, is it more on the aftermarket films or more, for example, on the interlayers or any other products?

Mark Costa, Board Chair and CEO, Eastman Chemical: Yes. Good question. So on the aftermarket side, Q2 was a solid quarter. So we saw good performance in North America, a little bit more challenge in China. But overall, the aftermarket held up reasonably well in Q2 where the interlayer business or the aftermarket or the sort of automotive coating business saw some challenges as producers around the world given the tariff announcements were moderating production rates in preparation for where demand may go.

There’s a big question on once again how much of this tariff is gonna get passed on to consumers and inflation and impact demand in back half of the year. So you’re trying to worry about how much, you know, cars you’re producing for the back half of the year. So you gotta be a little careful on that front. And then you’ve got the dynamic of the pull forward of people buying cars, you know, ahead of the potential tariff increases. So I I think, you know, from what we’re seeing, you know, we we started the year expecting the auto market to be sort of flat relative to last year or now our view is sort of low single digits down, which is principally in the back half of the year as opposed to the first half.

So I’m not sure we’re that different from what I’ve seen from other car companies in sort of the underlying market assumptions. If it turns out to be flat in production in the back half of the year, it’s going to be upside for us relative to what’s in the forecast. I hope those people that are sort of predicting that are correct.

Salvator Tiano, Analyst, Bank of America: Perfect. Thank you very much.

Becky, Conference Operator: Thank you. Our next question comes from Jeff Zekauskas from JPMorgan. Your line is now open. Please go ahead.

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

Mark Costa, Board Chair and CEO, Eastman Chemical: Sure, Jeff. So on the AFP question, most of the increase in price was driven by our cost pass through contracts in our Care Chemicals business where we buy some raw materials that just have a lot of volatility to them that go into the product. So we have very steady margins in supplying our customers in that space But the fatty alcohols that we buy sort of bounce up and down, and and that’s really what that 4% is primarily driven by. One of the great things about the AFP business that has continued to be proven and and valued deeply by us is the stability of the price cost relationship in that business across the portfolio. Quite a bit of it is in cost pass through contracts keeping that stable, which takes to which is great by the way in removing a lot of debate and tension with with your customers in procurement, which is let’s just focus on how we grow together.

We don’t need to continue debating how raw materials go up and down. And so it’s it’s part of why you see AFP performing well. When it comes to the fibers business and tariffs, the principal impact of tariffs in the inside the fibers business on a full year basis is certainly the Naya textile business. Right? So those always been expected to decline to some degree with market and past the, you know, being added in China, etcetera.

But the textile business was a source of growth and the margins were pretty good. And so that, know, offset some of the dynamics in the tow business. And it’s been extremely helpful, you know, in the last four years in improving that that segment. So what’s unusual about this year is, you know, we’re we’re obviously dealing with some some issues in tow, but the the textile business was impacted. Most of that sold in China and then made in textiles that, you know, served the world.

And and we saw the the overall textile market slow down dramatically from tariffs because of the cost of selling fashion goods in The US, you know, against those tariffs. So that industry was already weak last year, but, you know, weakened further. So in market demand has come off. Customers that we have in China have become more cautious, and that’s translated to about a $20,000,000 problem we think for the year that’s spread across two q through four q in in impacting in the fibers business on the tariff side. On a short term basis, there is some dynamics of some toe being pulled forward into q two in Europe to get ahead of potential tariff risks that will sort of level out.

So it’s not a full year impact, but it’s just a timing impact.

Jeff Zekauskas, Analyst, JPMorgan: K. And then, you know, you described in your remarks trying to lower working capital by $400,000,000 from where we are at midyear. And you talk about the earnings penalties, this year for changing your operating rates. So as a base case, I get it. Earnings should rise next year as you move up to more normal operating rates.

But is it also true that what should happen is that cash flow next year should decrease? That is if you’re pulling the cash flow forward into this year. Does that mean that as a base case, your free cash flow next year will be or I’m sorry, your cash flow from operations will be less than 1,000,000,000 if there’s no change in the business conditions?

William McLean, Executive Vice President and CFO, Eastman Chemical: Jeff, thanks for the question. Obviously, to your point, I think the last statement that you just made, it depends on your outlook and the assumption. I think as Mark has described both from the economic lens as well as our assumptions is that we actually think that you can get to a more stable environment as we see tariffs etcetera unfold. With the actions that we’re taking in the first half and the timing, obviously, being here at midyear, we can’t fully optimize our working capital scenario. And actually, working capital is a net headwind this year as we look at it overall compared to what we built in the first half and what we’re taking out in the second half.

So my belief is the $1,000,000,000 is the platform at which we’ll be able to build off of with higher cash earnings and the potential to still build and optimize our working capital.

Jeff Zekauskas, Analyst, JPMorgan: Great. Thank you so much.

Becky, Conference Operator: Thank you. Our next question comes from David Begleiter from Deutsche Bank. Your line is now open. Please go ahead.

David Begleiter, Analyst, Deutsche Bank: Thank you. Good morning. Mark, just on Q4, reading your prepared comments, it sounds like you’re guiding to similar to Q3 of around $1.25 Is that fair?

Mark Costa, Board Chair and CEO, Eastman Chemical: Hey, David. I think that’s directionally correct. I mean, we have seasonality as you all know from Q3 to Q4 because Q3 is normally a strong quarter. Obviously, it’s not with all the factors that I’ve described on decline and expected demand and the asset utilization. So when you get to Q4, we’re very aggressive in our asset management in Q3.

So you’re going get a utilization tailwind because it won’t be as aggressive in Q4. The seasonality that normally occurs has already been put into q three effectively. And so I you know, we we expect things to be somewhat similar, you know. We gotta get through q three to be perfectly honest, David, you know, with all the volatility with with the trade and see how it all sort of settles out and impacts the markets. Our current expectation is what you said.

David Begleiter, Analyst, Deutsche Bank: Got it. Understood. And Mark, volume outlook is a little more severe than what we’ve heard from other from some of your peers this earnings season. Do you think that’s due to your business mix, your conservatism or maybe something else? Thank you.

Mark Costa, Board Chair and CEO, Eastman Chemical: I think that when you think about what’s going on in the dynamic of Q2 to Q3 in the mid single digits, there are multiple components and it depends on the business that you’re looking at. And it’s important to actually sort of frame it correctly. So if you look at Q2 to Q3 and add back the utilization headwind for $50,000,000 we’re basically flat sequentially from Q2 to Q3 when you back out the utilization headwind. And then you’re okay, what’s going on underneath the surface of that? Well, there are two moving parts, right?

Chemical Intermediates is getting better by greater than $30,000,000 which means Specialist and Fibers is going be down by $30,000,000 within the guide that we’re talking about. So when you think about Advanced Materials and the mid single digit decline we’re expecting there, what I’d say about half of that is expected market decline and the other half is this sort of pre buy dynamic of some materials in Triton performance films, some other polyesters being pulled ahead of tariff risk into Q2. So when you have it there and then the orders don’t occur in July for that, you’ve got that decline. So I’d say it’s about half and half market decline, which I think is more in line with what we’re hearing from specialty peers, other market participants and then the other half is this pre buy thing. I’d also note that in this segment, especially when you think about it, two thirds of this is consumer discretionary, right, between autos, consumer durables and B and C.

And those are the most impacted markets. They’re incredibly valuable markets to us. As, you know, as as the volume comes off, it hurts. But when the volume comes back, you know, it’s incredibly compelling. So that’s how I think about the AM part.

The fibers part is, I would pretty much say, is all pre buy and the moderation we’re spending expecting from Q2 to Q3. And AFP, this is sort of more normal for its decline. Normal seasonality coming off timing of HTF projects that got completed in Q2 instead of Q3 and a little bit of pre buy in some places is what’s behind their mid single digit. So again, you back out the pre buy and the HCF timing and markets moderating in a very normal way. So I think that when we look at it, I don’t think we’re, from an end market point of view, sort of misaligned too much.

But we do have exposure, especially in Advanced Materials, to these sort of very sensitive markets to what’s going on in the trade environment.

David Begleiter, Analyst, Deutsche Bank: Very helpful. Thank you.

Becky, Conference Operator: Thank you. Our next question is from Frank Mitsch from Fermium Research. Your line is now open. Please go ahead.

Greg Riddle, Investor Relations, Eastman Chemical0: Good morning. If I could

Mark Costa, Board Chair and CEO, Eastman Chemical: just follow-up on that.

Greg Riddle, Investor Relations, Eastman Chemical0: Are you sizing the pre buy at around $20,000,000 or so benefit 2Q versus 3Q? Any color there would be helpful. Thank you.

Mark Costa, Board Chair and CEO, Eastman Chemical: Hey, Frank. That’s probably directionally correct. When you follow the math of what I just put out there between Fibers and AM, that’s going to get you to sort of that number.

Greg Riddle, Investor Relations, Eastman Chemical0: All right. Great. And on this $1 point two point estimate for 3Q, now you guys put out a $0.20 range for 2Q. Clearly, commentary based on tariffs, etcetera, is that there’s a wide range of outcomes for 3Q. This 1.25 is that kind of at the low end of the range that you’re thinking, mid end of the range you’re thinking?

How a much range in your mind do you have in terms of how 3Q can play out?

Mark Costa, Board Chair and CEO, Eastman Chemical: That’s a great question, Frank. We put the word around before 20 1 point dollars 2 So we see upside and risk to that number based on all the trade dynamics that we have in here. In some some parts of the bridge, I’d say, are pretty predictable. So the asset utilization is in our control. We’re pretty clear on what that’s gonna be.

Our cost reductions in our control, clear what that’s gonna be. We’ve had phenomenal commercial excellence over the last four years in defending our price cost and our specialties and and our market share being being held incredibly well over the last four years. And, you know, we certainly expect to continue that excellence in the back half of this year and into 2026. So when when when I look at all those things that are, you know, to some degree in our control, that analysis, running better, etcetera, You know, we feel pretty good about the quality of our guidance. But to your point that we just mentioned in the comments I’ve made in this call, you know, predicting demand and customer consumer behavior in in this world right now, there’s no predicting it.

And so we didn’t put a range on it, but, you know, there is certainly, you know, uncertainty on in either direction. Right? If people really calm down, you know, we could be up in volume, you know, with these higher trade announcements and rates that just got announced through this week have a impact on the market, you know, you know, it could you know, on on people’s behavior, then it it could be down. You know, we just don’t know. And and frankly, no one does.

There’s no way to predict it.

Greg Riddle, Investor Relations, Eastman Chemical0: Alright. So a wide range around best guess today is a dollar 25, but there’s a there’s a bit there’s probably a bigger range around it than there was the range around the 2 q is is kind of what I’m hearing right now.

Mark Costa, Board Chair and CEO, Eastman Chemical: I don’t know if it’s bigger than that range, but, you know, I I mean, I really think we need to get through this next month. Obviously, if we see, you know, things really changing, you know, in either direction, you know, we’ll update people, at a conference somewhere along the way. But right now, you know, we’re in the middle of trying to digest all these announcements that happened last week and this week. You know,

Salvator Tiano, Analyst, Bank of America: it’s just

Mark Costa, Board Chair and CEO, Eastman Chemical: got you stuck. Every customer we have, every retailer, every consumer, you know, are trying to figure out what does this mean for me right now, and and what am I going to do in this context. So we just got to see how it plays out.

Greg Riddle, Investor Relations, Eastman Chemical0: Okay. Gotcha. Alright. Thanks thanks so much.

Becky, Conference Operator: Thank you. Our next question comes from Aleksey Yefremov from KeyCorp. Mark,

Patrick Cunningham, Analyst, Citigroup: to me, you sound less optimistic about Methanolis’ sales this year and at the same time, more optimistic about next year. Could you maybe talk about this contract, why, there’s this difference? And any, sort of signs of confidence you have into this ramp in Methanolisys next year?

Mark Costa, Board Chair and CEO, Eastman Chemical: Sure. So it’s a great question. Obviously, in our prepared remarks, we’ve acknowledged that things are going a bit slower. The interest in renew, I think, and recycled content is still very much there from an end market point of view, both in the specialties, which is what what the purpose of this current plant is is is aimed at serving as well as, you know you know, our pet, you know, which is, you know, partially gonna be served off of this facility as a way to fill the assets. And then, you know, as we migrate and upgrade specialties, we’ll, you know, move that PET to the second plant.

But when I when I look at the the overall underlying dynamics about demand, you know, you are attached to the underlying market. Right? So we’ve proven in Dragon over the last, you know, over more than a decade that we can grow well above the market by, you being VPA free and substituting out of other materials and effectively taking market share and growing incredibly well. And and that’s true, but there’s still some connection you have to the market. So if the market’s incredibly challenged, it’s gonna moderate the rate at which your customers launch new products that have your renew content in it, which we’ve we’ve talked about.

So that’s the short term dynamic of everything we’ve been talking about in this call. You know, when it creates that challenge in durables, it slows down the rate at which, you know, people are adopting new features and launching new products in in that space. Even through in luxury cosmetics, you know, that market’s also a bit challenged and moving a little bit slower as another key market. So, you know but what what I would say is I don’t we’re not seeing any signs where suddenly people think plastic waste is good. Right?

You know, a lot of people are demanding debating climate, but I haven’t seen anyone debating, you know, plastic waste, you know, and wanting it out of their environment and not impacting their lives. And so, you know, that’s not going away. You know, the rate in which customers wanna solve this problem when they’re incredibly economically challenged, you know, this year from tariffs where raw materials are buying or market demand that’s not that strong, you know, the rate at which they adopt is slowing down. But as you get to economic stability, I’m pretty confident that, you know, this issue is gonna be important and the responsibility of brands have to address their plastic waste. The environment is gonna be there.

There’s gonna be continued pressure, there’s lots of regulation that’s still happening in Europe and The US driving it. So in this context, you know, we still have, you know, over a 100 customers on the specialty side committed and buying and paying premiums. We’re just not ramping up orders as fast. We’re not seeing, you know, a bunch of order cancellations, and we’re just not seeing the ramp up as fast as we’d like. And as I mentioned on the rPET side earlier, we’re picking up more interest in demand for next year.

We don’t have it available this year because we’re still in the middle of switching our Trident line over to making PET, where we’d be selling it now. But as we bring that on in the fall, you know, and those two of our largest brands, in fact, on the ARPET side committing to meaningful volume next year. And what’s most interesting about that is it’s because mechanical ARPET is not working in some of their applications. They’re having performance issues, color issues, integrity issues around the product, the the on the mechanical side. And and so they need, you know, chemical recycled product, which is identical to virgin, to have recycled content for it not to be brown or yellow relative to other products on the shelf or not, you know, being able to make bottles quickly enough because of integrity issues, etcetera.

So, you know, that confirmation that we have a differentiated value proposition in our pet with chemical recycling, and we’re the only player in the world that can do it effectively, well, I think still think it’s gonna be a big competitive advantage for us and create a lot of value in the future.

Patrick Cunningham, Analyst, Citigroup: Thanks, Mark. And if you had to guess next year, fiber is flat, up or down in terms of earnings?

Mark Costa, Board Chair and CEO, Eastman Chemical: Great question. Thank you for it. It’s one we’re spending a lot of time on and focusing on. The Fibers business and the decline we’re seeing this year is certainly more than we expected at the beginning of the year. And to sort of frame the the Fibers conversation, I wanna sort of unpack what’s going on within the segment.

One question already came up, which is, you know, what’s going on in in in the segment? And I highlighted textiles as a $20,000,000 headwind within within the segment. In addition to that, there’s about a $20,000,000 asset utilization headwind as we’re pulling inventory down here to free up cash just like we’re doing in AM and other parts of the portfolio. And I would say the utilization impact here is is is is, you know, meaningful for the segment at $20,000,000. And then there’s about ten to fifteen million dollars of higher energy cost that’s not covered by the cost pass through contracts.

So when you look at that, you know, put those, you know, altogether, you know, that’s about 40% roughly of of, you know, sort of where the decline’s headed, you know, roughly. And that gets you to, know, thinking about those businesses. And and both the asset utilization comes back as a tailwind next year as long as as as we have growth in textiles and event and other things. So the vast majority of that utilization headwind is before you get to spinning toe. It’s in the making of the plastic and the stream that feeds into it.

So any growth anywhere in the portfolio on cellulosic plastic, you know, will actually sort of turn that $20,000,000 into a tailwind for fibers. And then you’ve got, you know, recovery in the naya textile business that we are, you know, moving with our customers outside of China as they’re trying to manage their tariff exposures as well as, you know, winning business in new accounts around the world and finding ways to get some of our Chinese business back as sort of tariffs have settled a bit. So all that sort of becomes an offset relative to whatever happens in the in the remainder of the decline this year, which is tow. And on the tow side, what I’d say is we don’t see a shift in in market, still declining one percent to 2%. You know, we always expected losing some volume as the Chinese capacity came online and everyone had to adjust their market shares to sort of make room for that capacity.

But the volume, you know, is turning out to be worse than that because there’s a bunch of destocking going on as we talked about in prior calls where people are holding a lot of safety stock and now are feeling a little more safe about not needing as much safety stock and destocking, and and and they were clearly holding a lot more inventory than than we expected. But there’s another dynamic going on as well, which is we had some medium sized customers that were very aggressive in wanting to grow their market share in in the in the cigarette industry, and we’re adding capacity for that and building inventory to fill that capacity and signing contracts that committed them to, you know, grow that volume with us and having our support. But, unfortunately, these customers were not successful in growing their share and actually ended up losing a little bit of share so far. They’re obviously not happy about that, and they’re trying to take their share back. But in this current situation, they’re trying to destock the inventory that they built for that that growth that’s not playing out.

And for us, you know, when we had that expectation of that growth and we had sort of given up some share with our price discipline and a few other places in this market context. We had an expectation of how volume would net out that isn’t playing out the way we expected. There’s a range of actions we’re planning to take right now to address this situation and and and and be very focused on on maintaining stability for us, know, in in this market. And so that, I think, is is sort of where we how we got here. We didn’t really get some of these insights from these medium customers until the second quarter, which you know, what we’re adjusting to now.

You know, from a destocking point of view, while there’s a lot of destocking certainly going on this year, it’s reasonable to expect next year. It will be less than this year from what we can from what we can tell. And we got all these, you know, offsets of things like utilization and textiles, etcetera, you know, being an offset to this tow dynamic. So we put it all together, we think we can stabilize the situation as we go into next year.

Patrick Cunningham, Analyst, Citigroup: Thanks, Mark.

Becky, Conference Operator: Thank you. Our next question comes from Kevin McCarthy from VRP. Your line is now open. Please go ahead.

Jeff Zekauskas, Analyst, JPMorgan: Thank you, and good morning. Mark, in the prepared remarks that you released last night, think you mentioned that you’re now targeting additional cost cuts of 75,000,000 to $100,000,000 So can you maybe elaborate on the actions that you’re taking and how those savings might flow through the financials over the next, I don’t know, several quarters here?

Mark Costa, Board Chair and CEO, Eastman Chemical: We’ll let Willie hit the cost reduction targets, and then I’ll add a couple of comments to that.

William McLean, Executive Vice President and CFO, Eastman Chemical: Thanks, Kevin. Good morning. Obviously, in this environment, we’re focused on building on the improvements that we’ve made here in 2025 as we enter 2026 and we’ve got detailed plans that we’ll be pulling together in the back half of the year that enable us to again deliver another 75,000,000 to $100,000,000 as long as the environment continues to persist. I would say also just highlight that our actions do not reflect a change in our strategy. As we think about innovation and excellence and how we execute, having an efficient and effective cost structure goes hand in hand with achieving that and generating returns over the long term.

So our actions range from optimizing our contract partners and then the overall usage of that. I think we’ve shown in multiple economic environments that we ultimately take structure that looks fixed and make it variable. As we think about reliability and maintenance execution, that is a focus as we continue to enhance and deliver reliability over the long term and reduce overall maintenance. As we think about purchasing an MRO for in this environment as we’re going through tariffs right now, We’re looking at how do we optimize that supply chain and ultimately overall mitigate and reduce that cost structure. Energy efficiency as Mark has highlighted, energy is a headwind this year and that’s core and we have opportunities on that front.

And obviously in this type of environment it will also result in reduced labor cost as we think about year over year performance.

Mark Costa, Board Chair and CEO, Eastman Chemical: What I’d sort of like to add to this is, you came up earlier, where do we view the world next year and are we really worried about it getting worse? First of all, to be clear, you can’t annualize the back half of this year with what we’re going through. You know, you can’t you’ve got all this asset utilization headwind that’s distorting. You’ve got normal seasonality that you’d always have to correct for where we’re more 55, forty five percent first half to back half normally. And you’ve got this sort of pre pre buy dynamic and just the absolute chaos of tariffs and how it’s impacting demand behavior in the marketplace.

So can’t do that. So, you know, when we think about cost structures and what we’re trying to do going into next year and really think about on a full year basis, how do we go from this year to next year, which I think is a better way to think about it. These cost actions are incredibly important. But what you didn’t hear Willie say is we’re shutting down a bunch of plants and rationalizing them. You know, a lot of the industry right now is you know, both on the specialty and the commodity side are rationalizing plants, you know, entirely because if they’re doing that, they don’t see that demand coming back in the future.

David Begleiter, Analyst, Deutsche Bank: We’re not doing that.

Mark Costa, Board Chair and CEO, Eastman Chemical: We’re actually confident with our innovation and the way we, you know, find ways to value up our facilities and grow and leverage them efficiently like we did from PET to copolyester to Triton or standard interlayers to acoustic interlayers to HUD. You know, we believe that, you know, our asset base, you know, outside of some tweaks here and there is well positioned for the growth that we would expect to have in ’26 and ’27 and beyond. So that’s you know, so we think about that $100,000,000 that that helps improve earnings next year to this year. And when you think about the asset utilization once again focused on cash and discipline, that 75,000,000 to $100,000,000 headwind becomes a tailwind. And the way to think about that as a tailwind, if the demand is really as bad as the back half of this year, it’s a $50,000,000 tailwind in utilization next year.

If it gets back to the front half of this year, it’s a $100,000,000 tailwind relative to this year. Just how those those utilization numbers work. And and to be clear, the the demand was not strong in the first half of this year with all the dynamics that we’re facing. So we feel good about that being a tailwind for next year. We’ve got all the innovation going on across the portfolio, growing, of course, the revenue on the on the Kingsport plan as we talked about.

There’s, you know, growth that we have and can see in new HUD inner layers on the Aventa products gaining traction and being key to driving that utilization in the cellulose extreme. New products in cosmetics and specialty plastics, etcetera, recovering Naya. We do think, you know, we’ll continue to have great discipline on managing our price cost. And so that won’t be a headwind or a tailwind, but, you know, good to to defend and manage and prove about the value of our products by doing that four years into a difficult world. Reasonably, there will be some recovery in CI.

And, of course, with our cash discipline and improving operating cash flow next year versus this year, more cash to return to shareholders, especially since we’re able to delay the step up of the next analysis plan due to the the advantages we have in the bottlenecking the current one. So, yeah, I think we’re well positioned to recover next year, you know, but as I said earlier, no one can predict where the absolute economy is going to go at this stage.

Jeff Zekauskas, Analyst, JPMorgan: Appreciate all the color there. Just to follow-up on your add on comment, Mark, in listening to you. Is it fair to say that as The U. S. Moves into this new tariff regime, you do not anticipate any large changes in terms of portfolio composition?

Reason I ask is in the second to last paragraph of the remarks, there was some commentary about addressing underperforming parts of the portfolio and a reminder that you’ve divested certain businesses in the past. But it doesn’t sound like you have anything larger than a breadbox under consideration right now. Is that fair?

Mark Costa, Board Chair and CEO, Eastman Chemical: In the short term, think that’s fair, Kevin. I mean, I think that and just to be clear, there’s optimizing capacity and then there’s thinking about what businesses belong in the portfolio, which are two very different questions. On the first question around optimizing capacity, you know, we’ve done things like optimize some production inside our our Massachusetts side in interlayers or shut the Singapore plant down and optimize some capacity and and heat transfer fluids to, you know, align with with market conditions. You know? And there none of those are big significant cost cut steps, but, you know, it’s just being, you know, conscious of of managing cost structure.

And we’ll continue doing things like that across the portfolio. That’s part of what Willie’s talking about when we have network asset optimization. The E2P investment in in CI is a structural investment to improve that that And and so there as we are more prepared to get into the details of that, you know, we’ll give you more insight on what that means. But, again, we’re not shutting the entire site down like, you know, like in Europe.

There’s just major sites just all being shut down by companies left and right. We’re probably gonna be to 30% shut down by the end of the year over the last four years. So we’re not seeing that. When it comes to portfolio, we’re always disciplined. I think we’ve proven that.

We’ve proven it with adhesives and tires and the acetic acid plant. If you wanna go back far enough in history, we approved it from 2006 to 2012 and divesting a lot of underperforming businesses. And, you know, we’ll always keep an eye on that and look at what belongs in our portfolio and be open minded to things that can be segregated and and separated from the company. You know, integration does create constraints on that. But, certainly, right now, the bottom of the market is not a time where you look at doing things like that.

Salvator Tiano, Analyst, Bank of America: Perfect. Thank you.

Greg Riddle, Investor Relations, Eastman Chemical: Let’s make the next question the Thank last one,

Becky, Conference Operator: worries. The next question is from Laurence Alexander from Jefferies. Your line is now open. Please go ahead.

Greg Riddle, Investor Relations, Eastman Chemical1: So just to follow-up on the innovation points you brought up, what are you seeing in terms of customers delaying versus canceling or accelerating their investments in evaluating new alternatives or innovative products? Is uncertainty leading to a freeze in activity or is it helping you on that front?

Mark Costa, Board Chair and CEO, Eastman Chemical: That’s a great question. You’re talking about across the portfolio. I think I’ve already hit. Yes, across the portfolio just for your customers, but that’s always been one of your differentiations. Just curious,

Greg Riddle, Investor Relations, Eastman Chemical1: is it becoming a demand pull for ’27, ’28, ’29, or is that becoming more of a concern?

Mark Costa, Board Chair and CEO, Eastman Chemical: What’s interesting across the portfolio, I’d say, is customers are still highly engaged. You know, they like us realize that, you know, to get out of a weak environment, you gotta create your own growth. You can’t just sit there and wait for things to get better. And you also wanna maintain your differentiation against competition. So whether it’s next generation HUD and different versions of that, we’re seeing very strong engagement in the auto industry as well as, you know, specialized products necessary for the EVs, you know, which are still growing in lots parts of the market.

You know, you see a lot of engagement there, a lot of engagement around Aventa as a solution. You know, polystyrene is being banned in a lot of food tray protein tray applications or straws and this and the other, and, you know, the retailers or the food service companies, you know, need products to sort of solve those problems. So engagement there has been been very good along with new products we’re always launching, especially plastics, you know, solos. We have a product that replaces polyethylene coatings for paper cups and other sort of paper food applications that has strong engagement. So across the circular platforms, across, you know, the automotive space, you know, personal care space, etcetera, we’re definitely seeing engagement.

But, you know, the rate at which they’re adopting, you know, is still constrained about economic reality here in the short term. You know, with all this, everyone’s just focused on how you manage costs and get through these tariffs. But the great news is it has not resulted in a pause on engagement on innovation.

Salvator Tiano, Analyst, Bank of America: Thank you.

Greg Riddle, Investor Relations, Eastman Chemical: Thank you very much everyone for joining us today. We appreciate your time. Hope you have a great rest of the day and a great weekend. Thanks again.

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