Eastman Chemical : 1st Quarter 2025 Sales and Earnings Results Conference Call Prepared Remarks

Published: 2025-04-25 10:04:33 ET EMN

Eastman Q1 2025 Financial Results Prepared Remarks April 24, 2025

Slides 1 and 2:

This document is the CEO's and CFO's prepared remarks for Eastman Chemical Company's first-quarter 2025 financial results. This is to be read with the first-quarter 2025 financial results news release along with the provided slides, which detail our first-quarter 2025 financial results. The aforementioned items were publicly issued and posted on our website (investors.eastman.com) after the close of NYSE trading on April 24, 2025. On April 25, 2025, at 8:00 a.m. ET, Mark Costa, Board Chair and CEO, and Willie McLain, Executive Vice President and CFO, will host a public question-and-answer session with industry analysts that is accessible on our website or by telephone as detailed in our financial results news release. This document, the accompanying slides, and the call/webcast that follows include certain forward-looking statements concerning our plans and expectations. Certain risks and uncertainties that may cause actual results to be different than our plans and expectations are or will be detailed in the company's first-quarter 2025 financial results news release, in the remarks in this document and in the accompanying slides, during the call, and in our filings with the Securities and Exchange Commission, including the Form 10-K filed for full-year 2024 and the Form 10-Q to be filed for first quarter 2025. All earnings referenced in this presentation, the accompanying slides, and the call/webcast 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 first-quarter 2025 financial results news release.

Slide 3 - 1Q 2025 highlights

The first quarter was a strong start to 2025, and our innovation-driven strategy delivered another successful quarter. The Eastman team delivered earnings results in line with our guidance and drove a year-over-year EBIT margin improvement underpinned by innovation, commercial excellence, and operating leverage. Adjusted EPS of $1.91 increased 19 percent

compared to first quarter 2024. As expected, our specialties benefitted from modest sales volume/mix growth in stable end markets, including medical, water treatment, and agriculture. Our commercial teams continued to demonstrate the value of our innovation-driven growth model as they closed new application wins.

In the circular economy, we achieved strong operational performance at our Kingsport methanolysis facility, driving production levels to new records.

As the quarter progressed, the likelihood of a global trade dispute continued to grow. As a result, the Eastman team heightened its focus on cost-reduction initiatives and pivoted to building plans to preserve optionality to generate strong cash flow across several distinct trade and demand scenarios.

Finally, we are proud to announce that we have earned the designation of VETS Indexes 4-Star Employer for the second consecutive year. The award recognizes Eastman's commitment to recruiting, hiring, retaining, developing, and supporting veterans along with the military-connected community. We are honored by this recognition from VETS Indexes for our commitment to supporting veterans, active-duty service members, and reservists and creating a welcoming environment for them at Eastman.

Slide 4 - Corporate

In first quarter 2025 compared to fourth quarter 2024, sales revenue increased 2 percent due to 2 percent higher volume/mix and 1 percent higher selling prices, partially offset by an unfavorable foreign currency exchange impact. The higher sales volume/mix was driven by expected seasonal improvements across Advanced Materials, Additives & Functional Products, and Chemical Intermediates. These increases were partially offset by customer inventory destocking in Fibers. We did not see any meaningful evidence of a tariff-related pull forward in the first quarter, as customers appear to be balancing trade risk and recession risk.

Adjusted EBIT increased sequentially as lower planned maintenance expense, higher sales volume/mix, and higher asset utilization were partially offset by higher raw material costs resulting from the prior quarter's last-in, first-out inventory benefit as well as an unfavorable

foreign currency exchange impact. The Kingsport methanolysis facility ran very well, delivering on our cost improvement targets.

Adjusted EPS of $1.91 was in line with our original guidance and was slightly above fourth-quarter 2024 adjusted EPS of $1.87. Sales volume/mix trended largely as expected.

Given the recent escalation of the trade dispute between the U.S. and China, we thought it would be helpful to provide some more detail on our revenue exposure to China. China comprises approximately $1.1 billion of revenue at Eastman, or approximately 11 percent of corporate revenue in 2024. Advanced Materials accounts for over 60 percent of this exposure, with Fibers and Additives & Functional Products being split equally across the remainder of the revenue. About 60 percent of our total China revenue is served from U.S. assets. We will share more on segment-level exposure later in these remarks.

Slide 5 - Circular Economy platform is a key differentiator for Eastman

Moving to an update on our circular platform, which remains a key point of differentiation for Eastman in this uncertain economic environment. In the first quarter, the Kingsport methanolysis facility operated well and recorded its best-ever uptime and production quantities. In 2025, we continue to expect strong cost leverage from improved utilization of the facility. We remain on track to produce greater than 2.5 times more recycled content than 2024. In the first quarter, we ran slightly ahead of this run rate.

On the commercial front, our teams continue to work to close new business and build the number of opportunities in our funnel. The uncertain economic environment continues to delay customers' timelines for new product launches. Increased uncertainty around tariffs adds another layer of complexity to these conversations, especially with consumer durables customers who have production in China. We also continue to build opportunities in the packaging market, which is expected to ramp up in the second half of the year with the conversion of one of our copolyester lines over to PET. Fortunately, we can focus on the U.S. rPET market, which serves stable food-grade applications. When putting these factors together, we are expecting the incremental revenue from the Renew platform to be lower than previously expected and to be between $50 million to $75 million. The increased uncertainty

resulting from tariffs is the main driver of this reduction. When taking together the reduced revenue expectations and strong production rates, we expect to deliver around $75 million of incremental EBITDA from the Kingsport methanolysis facility in 2025.

Turning to our project in Longview, Texas. With the uncertain macroeconomic environment, we have reduced our corporate 2025 capital expenditure target to approximately $550 million. Within this new target, we are moderating our project spending in 2025; however, we are sustaining progress for critical-path items of the project, and we continue to maintain our target for 2028 mechanical completion. We continue to have good engagement with the Department of Energy ("DOE") and believe we have good alignment of our project with Administration priorities. This is reflected in our receipt of $11 million in payments from the DOE for the project in the first quarter. Over the last couple of months, staff transitions and turnover at the DOE have slowed the pace of some conversations, but we do not view this as a long-term impediment to the program or our desired timeline.

Slide 6 - Advanced Materials

In first quarter 2025 compared to fourth quarter 2024, sales revenue was flat, as 1 percent higher sales volume/mix was offset by an unfavorable foreign currency exchange impact. The higher sales volume/mix was driven by new product innovations in specialty plastics for the consumer durables end market. Compared to our guidance, sales volume/mix was as expected in specialty plastics, while performance films and advanced interlayers saw lower-than-expected volume/mix. The segment also benefitted from improved operations at the Kingsport methanolysis facility. EBIT increased due to higher sales volume/mix and lower planned maintenance expense that more than offset the flowthrough of higher raw material costs from the prior quarter's last-in, first-out inventory benefit.

Turning to China, over 60 percent of our $1.1 billion of Chinese revenue is in Advanced Materials, or about $675 million in 2024. Out of this exposure in Advanced Materials, approximately two-thirds is related to products which are consumed locally, including interlayers and performance films. The remaining third is re-exported back out of the country by our customers and mostly consists of specialty plastics products. Within the segment,

specialty plastics supplies the country mostly from our facility in Kingsport, Tennessee. Advanced interlayers predominantly serves the local Chinese auto market with production in China. And finally, performance films has a combination of local-for-local production and imports from the U.S. and Europe.

Looking forward to second quarter 2025 versus first quarter 2025, we expect modestly higher seasonal demand in the automotive, consumer durables, and packaging end markets. We expect some of this sequential growth to be muted by uncertainty around tariffs and the overall macro environment. April orders are holding up well and support this view. The expected second-quarter direct impact of tariffs is modest as we will leverage existing inventory and our global asset footprint. We also will have sequentially higher planned maintenance costs and lower asset utilization rates related to inventory actions, partially offset by benefits from cost-reduction initiatives. Taking these factors together, we expect Advanced Materials second-quarter 2025 EBIT to be modestly higher than first-quarter 2025 EBIT.

Slide 7 - Additives & Functional Products

In first quarter 2025 compared to fourth quarter 2024, sales revenue increased 5 percent due to 4 percent sales volume/mix and 2 percent higher selling prices, partially offset by an unfavorable foreign currency exchange impact. As expected, we saw seasonally driven volume uplifts as well as some modest end-market growth, including water treatment, semiconductors, pharmaceuticals, and agriculture. Aviation was slightly lower than anticipated. Adjusted EBIT increased due to higher sales volume/mix and lower planned maintenance costs, partially offset by unfavorable price-cost.

The Additives & Functional Products segment has less exposure to China than Advanced Materials. In 2024, Additives & Functional Products revenues in China were approximately $200 million. Sales from the U.S. to China are comprised mostly of high-value cellulosic-based coatings additives that serve the automotive, building and construction, and pharmaceutical end markets. These products are used mostly for local consumption and are produced in the U.S.

Looking forward to second quarter 2025 versus first quarter 2025, we continue to expect modest growth across our stable end markets, including agriculture, personal care, and water treatment, but like Advanced Materials, seasonal increases are not expected to be as strong as usual. We still see no improvement in the global building and construction end market. We also expect to benefit from cost-reduction initiatives. More than offsetting these factors are the impact of tariffs. We expect inventory destocking in China while customers pause orders to work through inventory and take a "wait and see" approach due to tariff-related uncertainty. And finally, we expect to have sequentially higher planned maintenance costs. When putting these factors together, we project second-quarter 2025 Additives & Functional Products EBIT to be modestly lower than first-quarter 2025 EBIT.

Slide 8 - Fibers

In first quarter 2025 compared to fourth quarter 2024, revenue decreased 10 percent due to 10 percent lower sales volume/mix. The sequential decline in sales volume/mix was driven by customer inventory destocking in acetate tow, which accelerated from fourth-quarter levels as expected. EBIT decreased due to lower sales volume/mix as well as price-cost that was unfavorable due to the flowthrough of higher energy costs.

Looking at China, Fibers segment revenue in 2024 was approximately $200 million split evenly between Naia™ for textiles and cellulose acetate flake sold to our tow joint venture with China National Tobacco Corporation. These products are imported into China from U.S.-based assets.

Looking forward to the second quarter, we expect tow customer inventory destocking to continue at the same levels that we saw in first quarter 2025. As we reflect on the trends in this business, it has become clear that the industry did not fully understand the extent to which customers built inventory over the last several years. Tow is a critical item and a low cost of the final product. As a result, inventory was built to higher levels to secure supply in a tight market. As industry asset utilization percentages have moved down into the low nineties, destocking is persisting at levels similar to the first quarter. We also anticipate a net $15 million earnings

headwind from China tariffs impacting both textiles and flake. And finally, we expect to have higher planned maintenance expense. These factors are expected to be partially offset by the benefit of cost-reduction initiatives. Taking these factors together, we project Fibers second-quarter 2025 EBIT will be lower than first-quarter 2025 EBIT.

Slide 9 - Chemical Intermediates

In first quarter 2025 compared to fourth quarter 2024, sales revenue increased 8 percent due to 9 percent higher sales volume mix partially offset by an unfavorable currency exchange impact. Higher sales volume/mix was driven by a sequential increase in seasonal demand as well as an increase in flywheel volumes available to sell resulting from last year's asset reliability investments. Overall end-market trends in the quarter played out as expected, but we did see spread compression related to the flowthrough of higher raw material and energy costs. EBIT decreased slightly due to lower spreads, mostly offset by higher sales volume/mix and lower manufacturing costs.

Looking forward to second quarter 2025, we expect sequential headwinds of approximately $10 million in planned maintenance expense and modestly lower spreads to be mostly offset by higher sales volume/mix and benefits from cost-reduction initiatives. Taking these factors together, we expect second-quarter 2025 EBIT to be modestly lower than first-quarter 2025 EBIT in Chemical Intermediates.

Slide 10 - Eastman is in a strong financial position to effectively navigate an uncertain environment

Entering this period of heightened economic uncertainty, we have confidence in our ability to navigate the volatility. As we always do during times like this, we are emphasizing cash generation. On the slide, we highlight our track record of strong cash generation across several different economic environments. We expect this year will be no different. We have the team, tools, and flexibility to make quick choices to maximize cash flow. Our Treasury team has done an outstanding job managing our debt maturity schedule, and we have prudently used cash to

pay down net debt, significantly improving our leverage ratio since the onset of the COVID-19 pandemic. We remain committed to defending our solid, investment-grade balance sheet and are well positioned for the current economic environment with sufficient liquidity. We remain confident that we can continue to deliver resilient operating cash flow.

The primary driver of our use of cash in the first quarter was an increase in working capital related to higher inventory as we prepared for planned maintenance in the second quarter. We expect to deliver approximately $1.2 billion of operating cash flow this year versus our prior guidance of $1.3 billion, and we continue to expect our normal second-half weighting. The range of outcomes in the global economy remains quite broad, but we are confident we can achieve this operating cash flow result. It may come through higher cash earnings and less working capital benefit, or less cash earnings and more working capital benefit. Whichever the case, we are taking proactive steps to be ready to deliver this result. We now expect to spend approximately $550 million in capital expenditures versus our prior guidance of $700 million to $800 million. This decrease reflects our commitment to deliver cash amid a variety of macroeconomic environments. We remain confident in and committed to the strength of our dividend, which we have increased for 15 consecutive years, and we will continue to repurchase shares.

Slide 11 - 2025 outlook

Now turning to our 2025 outlook. Given the significant uncertainty related to the scope and length of the current global trade dispute, it is extremely challenging to project full-year financial results. The range of outcomes in the global economy is very broad. While we are preparing for the possibility of a global recession, we also recognize that the situation regarding tariffs could alleviate quite quickly. If the trade dispute is resolved in this quarter, then earnings in the second half could move back towards our prior guidance from January. If the recession scenario materializes, earnings will move lower in the second half of the year relative to the first. Our approach to guidance this quarter is intended to share what we know, what we can see, and no more-we are avoiding speculation about unknowns. As a result, we are moving to quarterly earnings per share guidance. We started off 2025 with a solid first quarter that had us

on track for our full-year range. After some initial concern about March order books, the month ended better than expected. To date, April has trended in line with March, and we have not seen any drop in demand at this stage.

Looking at the second quarter, we expect a modest improvement across most of our markets associated with a seasonal uplift, although the increase is being hampered by caution related to global trade. We also expect to benefit from a modest tailwind from increased sales revenue from the Kingsport methanolysis facility. In addition, we continue to expect tailwinds from our comprehensive cost plan that is improving operating costs and has gone beyond our usual focus on productivity improvement. Given the heightened economic uncertainty, we have raised this annual target from $50 million to $75 million net of inflation and expect to drive a benefit in the second quarter. Most of this benefit will occur in the second half of the year.

Offsetting these tailwinds, first and foremost, is an approximately $30 million net tariff impact related to the U.S.-China trade dispute. This headwind spreads across Fibers, Additives & Functional Products, and Advanced Materials. Next, we also have an approximately $20 million sequential headwind from planned maintenance turnarounds across our operating segments.

Putting these factors together, we expect adjusted EPS to be between $1.70 and $1.90 for second quarter 2025. On cash, we expect to drive approximately $1.2 billion of operating cash flow for full year 2025 across a range of trade dispute scenarios.

Forward-looking statements

This information and other statements by the company may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act with respect to, among other items: projections and estimates of earnings, revenues, volumes, pricing, margins, cost reductions, expenses, taxes, liquidity, capital expenditures, cash flow, dividends, share repurchases or other financial items, statements of management's plans, strategies and objectives for future operations, and statements regarding future economic, industry or market conditions or performance. Such projections and estimates are based upon certain preliminary information, internal estimates, and management assumptions, expectations, and plans. Forward-looking statements are subject to a number of risks and uncertainties, and actual performance or results could differ materially from that anticipated by any forward-looking statements. Forward-looking statements speak only as of the date they are made, and the company undertakes no obligation to update or revise any forward-looking statement. Other

important assumptions and factors that could cause actual results to differ materially from those in the forward-looking statements are detailed in the sections entitled "Risk Factors" and "Management's

Discussion and Analysis of Financial Condition and Results of Operations" in the company's Annual

Report on Form 10-K for the fiscal year ended December 31, 2024, and as updated in the company's filings with the Securities and Exchange Commission (the "SEC"), which are accessible on the SEC's

website atwww.sec.gov and the company's website athttp://www.eastman.com.

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Disclaimer

Eastman Chemical Company published this content on April 25, 2025, and is solely responsible for the information contained herein. Distributed via Public Technologies (PUBT), unedited and unaltered, on April 25, 2025 at 13:56 UTC.