Eastman Chemical at Morgan Stanley Conference: Navigating Challenges and Opportunities

On Wednesday, 10 September 2025, Eastman Chemical Company (NYSE:EMN) presented at Morgan Stanley’s 13th Annual Laguna Conference. CFO Willie McLain discussed the company’s strategic initiatives amidst a challenging economic environment. While some segments like automotive exceeded expectations, others such as durables faced hurdles. The company is focusing on cost-cutting and innovation to drive long-term growth.

Key Takeaways

• Eastman aims to achieve $1 billion in operating cash flow for the year.
• The company is implementing cost-cutting measures to offset economic challenges.
• The methanolysis plant is expected to contribute $75 million in incremental EBITDA by 2025.
• Q3 performance is slightly below expectations, with Q4 anticipated to follow suit.
• Eastman is exploring methanolysis capacity expansion and addressing tariff uncertainties.

Financial Results

• Q3 2023 Expectations: Anticipated to be slightly below $1.25.
• Q4 2023 Directional Comments: Expected to be sequentially lower than Q3.
• Cash Flow Goal: Targeting $1 billion in operating cash flow for the year.
• Inventory Normalization: Aiming for over $200 million in savings, with DIO dropping from 105 to 90 days.

Operational Updates

• Order Books: Limited visibility with customers purchasing smaller quantities.
• Automotive Segment: Performing better than expected.
• Durables and Building Construction: Lagging and stable at low levels, respectively.
• Cost Actions: Doubling down on initiatives to offset demand impacts and inflation, targeting $75 million in net benefits.
• Methanolysis Plant: Progressing well, with significant interest from packaging customers like Pepsi.

Future Outlook

• 2026 Outlook: Anticipated $50 million to $100 million improvement from inventory normalization.
• Advanced Materials and Additives & Functional Products: Expected growth and stability, respectively.
• Fibers Business: Targeting $300 million plus in EBIT by 2026.
• Methanolysis Expansion: Considering a second facility in Texas and exploring alternative sites for efficiency.

Q&A Highlights

• Durables and Building Construction: Strong correlation with home sales noted.
• Tariffs: Uncertainty due to Supreme Court review of tariffs.
• Share Performance: Outperforming peers in Advanced Materials.
• Cash Flow and Inventory: On track to complete inventory actions by end of 2025.
• Chemical Intermediates Margins: Expected improvement from a lower starting point.

In conclusion, Eastman Chemical is navigating economic challenges through strategic cost management and innovation. For a detailed overview, refer to the full transcript below.

Full transcript - Morgan Stanley’s 13th Annual Laguna Conference:

Unidentified speaker, Interviewer, Morgan Stanley: Thank you and welcome. I’m pleased to introduce our next fireside chat, which is with Eastman Chemical Company. We are thrilled to have the Chief Financial Officer, Willie McLain, with us today. Before we get started, I’m going to read some important disclosures and invite you to see the Morgan Stanley Research Disclosure website at morganstanley.com/researchdisclosures and advise you that if you have any questions, you should please reach out to your Morgan Stanley sales representative with those questions. With that, we can begin the fireside chat. Willie, what I thought we’d do is maybe you could walk us around the world a little bit, you know, and just talk a little bit about how current business conditions have been trending versus where we were about a month ago when you reported the quarter.

Willie McLain, Chief Financial Officer, Eastman Chemical Company: OK, great. I appreciate being here again this year. As we think about where we are in the quarter, what I would highlight is the consumer and customer confidence is still challenged, both from an economic lens as well as when we think about the current trade environment. That is being reflected in the order books. The visibility in the order books is a couple of weeks at best at this point. As you think about a more normal or stable environment, that would typically be about six weeks. Customers right now are buying smaller quantities more frequently. As you think about what we had outlined as we expected progression through the quarter on the order books, the way I would summarize it right now is we’re a little bit behind in the order books. Maybe I can go end market by end market.

As you look at automotive, we had gathered that second half would be below first half. I would say that’s actually performing a bit better than we had expected, and Q3 looks a lot like the first half. As I look at the durables market, I would say that’s lagging a little bit compared to our expectations. It’s a little slower based on the momentum that we’re seeing today. In building and construction, what I would highlight in the last discretionary market for us is it’s basically stable, but it’s stable at current low levels. Obviously, we’re doing everything that we can in the quarter on the cost front as you take that into account. I would also highlight that our Chemical Intermediates, the margins there are probably a little bit behind as well.

Taking that cost actions to offset as much as possible the demand as well as the spread in Chemical Intermediates. As we think about September, it’s always important in the quarter to achieve the full results, and our businesses are focused on closing out the quarter strong. As we summarize that and take it all together, I would expect Q3 to be a bit lower than the approximately $1.25 for the quarter. While we can’t, as we talked about, have a little bit of low visibility, as we think about Q4, we can give some directional comments. As we think about Q4, we should have positive tailwinds with reduced impacts from both utilization as we’re taking inventory actions here in Q3 and also as we have reduced planned maintenance in Q4.

As we look at Q4, typically primary demand is lower compared to Q3, and we think that’s going to more than offset the tailwinds that we’re seeing sequentially. In Q4, the way I would summarize it is we’re going to be slightly below our Q3 expectations sequentially.

Unidentified speaker, Interviewer, Morgan Stanley: OK. Just to clarify a few things there, thank you for that. Are there incremental actions that you’re now taking at this stage in the quarter, Q3, that will carry into Q4? Is that what you were saying?

Willie McLain, Chief Financial Officer, Eastman Chemical Company: What I would say is obviously we’re doubling down on making sure that not only the cost actions that we’ve implemented to more than offset inflation and deliver the $75 million of net benefit, we are taking shorter-term actions as you would expect in this environment. I would say those are not structural. It’s just more to offset the impacts of reduced demand. Obviously, we’re focused and have pivoted to cash, and cash is critical as we’re driving towards that $1 billion of operating cash flow this year. I would say those are the key highlights.

Unidentified speaker, Interviewer, Morgan Stanley: OK. Just on the durables and the building construction, I think we all see the building construction data. It has been a soft third quarter to say the least. I think that’s easy to understand. I would assume durables is sort of part and parcel of that because if BMC isn’t happening, there’s less incremental durables demand as a function of that. Is it related to something else?

Willie McLain, Chief Financial Officer, Eastman Chemical Company: No, I think you’ve drawn the connection that I would make. I would highlight, you know, there’s a strong correlation with the building and construction. I would also say existing home sales. A lot of our durable sales are, you know, connected to existing home sales and turnover. As we think through those lens, we get the benefit of when sellers paint the houses as well as the buyers repaint. When the buyers come in, they’re upgrading, you know, their durables. In our case, that’s typically more small appliances that you would find in the kitchen and other areas of the home.

Unidentified speaker, Interviewer, Morgan Stanley: OK. Maybe just one last piece on this. I think it was a few weeks ago that the court came out and said that President Trump’s tariffs were not, they overruled them right now. It’s got to go to the Supreme Court. Did that ruling change at all the order patterns of your customers, good, bad, or indifferent? Is that a factor in this at all? Does it create any more uncertainty?

Willie McLain, Chief Financial Officer, Eastman Chemical Company: It is creating, I’ll call it, a heightened level of uncertainty. I’ll draw comparisons, right, of there was pull forward in the Q4 compared to Q1. Again, as we had April 2, there was timing at the implementations of trade and trade, I call it, agreements with our partners. Here again, there’s that opportunity for supply chains to optimize. I think all companies with interest rates still at high levels are focused on the incremental cost. There are those choices as people finish the year that they’re making. Do you have it in inventory? Are you going to be able to sell it this year?

Unidentified speaker, Interviewer, Morgan Stanley: OK. It sounds like customers are also shifting to working for cash as well. Are there any areas, this is a question that’s come to me a few times since you reported the second quarter, where within any of your segments or businesses where you’re losing share, are there any structural changes taking place that are also having a negative impact on 2025?

Willie McLain, Chief Financial Officer, Eastman Chemical Company: As I think about share and as you think about an innovation-driven growth strategy, I would highlight that upgrading mix and volume is key to our success as we think about Advanced Materials and Additives & Functional Products. Actually, as we look out and benchmark ourselves every year to our peers, we would actually say that we’ve outgrown in the volume mix compared to our specialty peers in both Advanced Materials. I would say even in Additives & Functional Products with our stable end markets, it’s been in line with peers. Why is that? I would highlight an example would be, as we’ve gone from PET to copolyesters to Tritan to Tritan Renew. Now we’re actually even working on next-generation copolyesters that can move us up the pyramid. The pyramid is focused on temperature, chemical resistance, clarity.

Now we can bring recycled content and potential higher, across those three factors with a new technology. That’s how we continue to upgrade. That’s taking us to higher ground. Obviously, those lower value applications, you’re giving some of that up. We’re doing that also in interlayers and performance films and across the Additives & Functional Products. Where we’ve actually made choices to give up volume, I would call it, is in our Chemical Intermediates space. There, you’ve seen us, I’ll call it, shut down our Singapore facility. You saw us divest our Texas City facility and continuing to value up what’s important to the portfolio of taking action when action is required.

Unidentified speaker, Interviewer, Morgan Stanley: Maybe just closing the door on 2025 and starting to think a little bit about 2026. Maybe just let’s finish up 2025 on cash flow. You know, you gave us some wide brushes on what Q3 and Q4 will look like. You also mentioned obviously the pivot after 2Q to managing for cash and running the business to generate cash this year. Does what’s taken place so far in the third quarter and the sort of follow-through into Q4, does that impact the cash flow number you’re going to get to? Is that going to come down a little bit as well? Do you still think you can manage to that cash flow number?

Willie McLain, Chief Financial Officer, Eastman Chemical Company: We still have our eye on delivering $1 billion and taking every action that achieves that. What I’ve told the team is we need to leave every action on the field to deliver that because, you know, at the end of the year, we need that momentum for cash into 2026 at this point in time. Higher cash earnings, obviously, that’s moderated, you know, with part of our guidance update. As we think about working capital and achieving those outcomes, we’re still highly focused on doing what it takes.

Unidentified speaker, Interviewer, Morgan Stanley: OK. As we think into 2026, maybe my first question would just be, you know, because 2025 or Q2 2025 is going to come in a little bit shorter than what you thought at 2Q, are you, will you be done with the inventory normalization and the asset utilization reductions by the end of 2025? Or will some of that have to continue into 2026 now?

Willie McLain, Chief Financial Officer, Eastman Chemical Company: My expectation is we’ll be substantially complete with the actions that we’re taking to deliver greater than $200 million. We’ll take our DIO from roughly $105 at mid-year to somewhere around, I’ll call it, approaching the 90-day. There’s obviously a level of efficiency that you can gain as economic recovery. I think that is at a good position. As we think about 2026 in the back half, I would also highlight that some of the actions you can’t annualize the back half. First, we’re taking $75 million to $100 million of impact from the inventory actions. In a 2026 environment, at a minimum, we would expect to get $50 million improvement if it’s at second half levels. If it actually is at first half levels, that could approach $100 million. As I think about baselining and normalizing, you’ve got $50 million to $100 million depending on your demand environment.

Additionally, we’ve been working through this year to implement another $75 million to $100 million of cost actions above inflation. You can think about those being focused in our operating disciplines as you think about third-party purchases and our indirect materials and our MRO. Additionally, we have been RFPing and looking at the partners that we want to go into the future with as key contractors at our major operating sites. That’s on the operating front. That’s structural change of where we’re making fixed costs variable or in some cases lowering those contractor partnership costs. On the commercial front, we’re looking at what should be done in our segment and division levels versus the enterprise and looking to continue to optimize and honestly take advantage of digital investments that we’ve made in our commercial processes. That applies also to the functions in the back office.

We continue to believe that we can take technology, our one platform of having a global ERP system, and transforming that into effective and efficient processes.

Unidentified speaker, Interviewer, Morgan Stanley: OK. You did mention before that Chemical Intermediates, the margins were coming in a little bit below. I think we were thinking before that there was going to be a benefit year over year of CI in 2026 over 2025 just because I think you had some outage issues in 2025 that ideally won’t repeat in 2026. Is it the case now that the spread levels are going to come in at a lower level in the back half, that that’s going to chew away maybe some of the benefit of not having the outages in 2026?

Willie McLain, Chief Financial Officer, Eastman Chemical Company: There are a couple of factors that are in play as we think about maybe more of the, I’ll start at the macro and we then go through the segments and get to your CI. One is what is the fundamental market momentum? We’re sitting here with the Supreme Court taking up, you know, the tariffs. On top of that, we’re seeing the jobs reports. Does that lead to interest rate, you know, and the rate starting to decline? If that decline is either in bigger tranches, i.e., instead of $25, you get a $50 basis point. What is the velocity that this takes place? Under those backdrops with the background of the cost savings and the normalization of fixed costs with inventory, we actually see our Advanced Materials business growing on a year-over-year basis as we think about our methanolysis investment and growing in the durables.

We’ve also highlighted accelerating momentum in packaging. They’ll also get the cost benefit from both utilization and our fixed cost action. As I look at that segment, it could approach, I’ll call it, the 2024 EBIT levels. Additives & Functional Products with that backdrop, I could see, you know, the stable end market, which is roughly 2/3 of it. You’ve got our ag business, water treatment, personal care, and also our exposure to the building and construction with declining rates. I see that being stable and improving from a year-over-year growth. I’ll hit Chemical Intermediates next just so I can get specific to your question. A lot of Chemical Intermediates is exposed to North America and that North American footprint. 70% of our exposure is to North America with most of our assets sitting here. We’ve got that exposure to nat gas and NGLs.

We’ve got one of the lower cost positions as we compete on a global basis. As tariffs get clarified and less of that is, you know, imports of products that are getting impacted by trade and tariffs, we actually think that that can, you know, help the North American footprint. As you continue to have capacity being taken out in Europe as well as Asia broadly, Korea, also as we think about China and what they’re doing with aging assets, that could ultimately stabilize and improve pricing. Right now, they’ve been, you know, putting product that we believe is at below cash margins. That’s not sustainable in any environment. That should be, you know, improving on the CI front. Margins in that case should improve. They may be improving from a slightly lower starting point is what I would say.

Unidentified speaker, Interviewer, Morgan Stanley: CI would clearly be the segment where they would benefit the most from anti-involution or what South Korea is doing. Are there any collateral consequences downstream to AM or AFP if some of these raw materials get more expensive?

Willie McLain, Chief Financial Officer, Eastman Chemical Company: I would say from Advanced Materials and Additives & Functional Products, you know, most of our competitors are in Japan or they’re in South Korea. We’re not competing with products with, you know, multi-generational technologies in those two segments.

Unidentified speaker, Interviewer, Morgan Stanley: OK. Why don’t we shift to methanolysis? You’ve had the plant running since March of last year. You’ve kind of worked out all the kinks in it. It’s been operating at very high levels, I think, since November of last year when we were all down in Kingsport, which is great. We’re coming up on a year of that. You’ve been seeing the benefit of the improved operations and fixed cost absorption. Maybe the revenue hasn’t been as accelerating as fast as you’d liked. How do we think about the phasing now for this plant to get to, I think, the original target for EBITDA generation was about $200 million. Is that a 2027 event? Is that a 2028 event? When do you think we can get there?

Willie McLain, Chief Financial Officer, Eastman Chemical Company: Great. Thanks for the question. What I would highlight is as we think about the commitments that we made here in 2025, right, incremental EBITDA of $75 million. What I would say is we’re on track to achieve that. The first $25 million was in Q1 of this year as we removed the costs that were associated with the startup and have ultimately taken that cost out of the company and/or it’s being included in normal operations. The additional $25 million was going to be spread across the year on the cost front. We’re achieving that. The maintenance cost, the cost of operations of this facility continues to be refined. We’re taking that cost out of the company as well. We’re getting the utilization benefit. On track for the $50 million of cost.

As you referenced, the key factor as we think about going forward is about revenue and revenue growth. In the environment that we’ve just discussed, it’s been tougher for our partners to introduce new products as consumers and their customers are concerned about inflation and new product launches going onto the shelf in this environment. What I would say is we’re still winning with those customers. There has been very minimal impacts of not moving forward with customers. We’re continuing to advance on product trials, on getting specced in so that when new product launches occur, that we are ready in those durable markets and other markets as we try to grow into medical, cosmetics, and personal care. The positive thing is I would say while those are a little slower on the packaging front, we’re gaining momentum. You know, we both have these bottles up here today.

What’s becoming more and more evident is that in the packaging space, using, I’ll call it, a broad spectrum of feedstock is leading to degradation in the finished products and the fitness for use for mechanical recycled products. It’s also impacting the brand value on the shelf. As you think about the discoloration, whether it’s graying or yellowing of a product on the shelf with a quality brand, they do not want to have that occur. We’re gaining momentum with large packaging, including Pepsi, as we think about using chemical recycling that has the advanced ability to also purify to a level that you can’t tell the difference between fossil fuel, which is what this is, is highly purified fossil fuel, and bringing that back to the shelf. Also, there are applications that we’re finding with our brands and partners that they can’t use mechanical.

It fails in the process, and what’s even worse is when it fails in the process as they’re producing their products. That leads to waste, it leads to yield issues, and in many cases, there’s a market that’s emerging that is only the high-quality clear, and it’s specially segregated. That’s driving premiums into the market because of the cost it is to get to that level of purity through mechanical recycling. That is positive from the momentum as we think about the circular solution profile going into the future. As we think about the mix upgrade that we’ll be focused on in the coming quarters around durables replacing packaging and then packaging leading and already having a robust profile for the next facility.

Unidentified speaker, Interviewer, Morgan Stanley: I think it was this week that the PET imports were taken off of the tariff exemption list. Did that have any immediate impact to the business or any change in your thought process there about how to market some of the more commodity grades?

Willie McLain, Chief Financial Officer, Eastman Chemical Company: First and foremost, it was interesting that I think it was 3% of the PET market is what drove the exemption. We advocated for this outcome along with other partners. We think that’s right for developing a regionalized and an economy that is focused on recycling versus bringing content in that’s been potentially mechanically or otherwise recycled in the rest of the world. Those fundamentals are supportive and conducive with those tariffs, having to compete against domestic produced and recycled content. The short answer is yes. I think it takes time. Obviously, we’re advocating. We need, I’ll call it, more certainty on overall tariffs and that we can move forward and that this is sustained as we go through the next set of milestones as this is reviewed both with the Supreme Court and further trade.

Unidentified speaker, Interviewer, Morgan Stanley: From an overall capacity perspective, I guess there are two lines. One is that at 2Q, you mentioned that you sort of found a way to debottleneck at this point the first Kingsport methanolysis facility and maybe add about 30% capacity there over time. You’re obviously still contemplating a second facility in Texas, still maybe trying to work on the Department of Energy grant, getting that to come back to life. Are there any updates there on the thought process?

Willie McLain, Chief Financial Officer, Eastman Chemical Company: Yeah, what I would say is obviously as CFO, you want the ROI and the cash velocity. Ultimately, when we did the rate test of our Kingsport facility, we identified the bottlenecks within the process and saw that there was not only 30% but the potential for more. That’s exciting as we think about taking this to scale and as we think about two different business models, one for Advanced Materials and the specialty growth, the other for, I’ll call it, circular packaging and a circular set of solutions. As we think about the Department of Energy and the Department of Energy grant, what I would say at this point, obviously, we’re advocating to get fully reimbursed for the contractual obligations, which is, I’ll call it, in the $30 million to $35 million. We’ve gotten roughly $25 million of that so far.

Since they canceled the project, obviously, we’re advocating for more as we go through that political process. Also, as we look at how can we take the technology that we have with methanolysis and combine that with infrastructure and/or polymer lines that have been impacted by the ongoing amount of material coming out of Asia and China along with trade, how can we find a set of solutions? We’re also looking at alternate sites along with Texas of how can we optimize and actually come to a capital that’s somewhere between the Department of Energy level and the Kingsport level as we think about the circular solution model going forward. The teams are working on that. We’ll update you as there’s more details and milestones with that.

Obviously, as we think about being forced into a situation where trade is being impacted, the Department of Energy is looking at how does it, or the government is looking at how does it pay for the tax bill. This is forcing us to be creative, which is what the Eastman team does each and every day. I think this will lead to even more capital efficient with the expansion of methanolysis and the scale that we can build it on the initial conception along with assets that are being impacted by the global environment.

Unidentified speaker, Interviewer, Morgan Stanley: OK. I think the only segment we didn’t touch on at all in past or present was Fibers. Is there any update on how that’s progressing for the third quarter? Maybe just help us understand the bridge into next year, just given there were some tariff-related interruptions this year and some new capacity. Will that even itself out next year? How should we think about it?

Willie McLain, Chief Financial Officer, Eastman Chemical Company: Thank you for the question. As we think about Fibers in 2025, I’d highlight that roughly 40% of the impact this year has been related to our textiles business. Textiles has ultimately been impacted by trade and tariffs as well. On top of that, we’ve been impacted in a year in which we expected growth, with the April 2nd that has further impacted the demand for textiles overall. Additionally, that’s been roughly $20 million plus that we expect on a full-year basis. Also, as we think about our cellulosic stream and the acetyl stream overall, the impacts on the utilization, roughly $20 million of that is flowing into the Fibers business downstream. As we think about 2024, the benefits of lower natural gas turning into higher natural gas this year, the cost pass-through contracts, that’s an added $10 to $20 million headwind as well.

We think that obviously will stabilize and will come back as we grow with our customers both in Asia and as they move their production to different locations. We think that can come back in the near term. In 2026 in acetate tow, what I would say is on a year-over-year basis, we expect less impact from destocking. This year, they couldn’t complete it all because of our contract and contract structures. We do expect that that’s coming to a close also as we’re seeing the additional capacity from Asia being fully absorbed into the market. The takeaway is we take the cost actions, we get the utilization benefit back and some growth in textiles in the near term. In the medium to longer term, we also have our growth projects like with Aventa that is gaining momentum.

We look to stabilize the Fibers business at that $300 million plus of EBIT level in 2026 and beyond.

Unidentified speaker, Interviewer, Morgan Stanley: OK. Great. I think we’ll leave it there. Thank you so much, Willie.

Willie McLain, Chief Financial Officer, Eastman Chemical Company: OK.

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