Eastman Chemical Company (EMN) 2024 Q2 Earnings Call Summary

Optimistic Highlights

• World's Largest Chemical Recycling Facility Operational: Eastman has successfully launched the world's largest chemical recycling facility, achieving significant progress in producing on-spec plastic from recycled content, including food-grade Tritan with 75% rDMT.

• Growth in Advanced Materials: The Advanced Materials segment reported a 12% volume growth, driven by innovation and market demand in automotive and other sectors, despite a challenging economic environment.

• Expansion in Tritan Market: Eastman is moving forward with the Tritan expansion due to a significant return in volume post-destocking and ongoing wins in consumer durables, leveraging the recycled content value proposition to attract new customers and markets.

• Advancements in Aventa Business: The Aventa business, focusing on replacing polystyrene with cellulosic polymer for food packaging, is gaining traction with successful launches and trials, indicating potential for significant growth and higher margins.

• Stable Fibers Business: The Fibers segment, particularly in tow and textile fibers, continues to perform well with stable contracts and growth in the Naia fabric market, highlighting sustainable product offerings.

Pessimistic Highlights

• Challenges with Methanolysis Plant: The methanolysis plant faced mechanical and feedstock preparation issues, causing downtime and slower ramp-up, impacting the expected EBITDA contribution for the year.

• Economic Pressures on Customer Adoption: Inflationary pressures and economic challenges have led to slower adoption rates for new products like Tritan Renew, affecting the pace of volume ramp-up with customers.

• Acetyl Chain Pressures: The acetyl chain experienced unfavorable price-cost dynamics and higher plant maintenance costs, contributing to a reduced earnings outlook for the Chemical Intermediates segment.

• Guidance Adjustment: Eastman adjusted its full-year EBITDA guidance due to the slower ramp-up of the methanolysis plant and economic pressures, maintaining the midpoint but narrowing the range.

Company Outlook

• Full-Year Guidance Maintained: Eastman maintains its full-year guidance midpoint, expecting strong growth year over year, with adjustments made for the methanolysis project and economic factors.

• Continued Investment in Growth: Despite challenges, Eastman is investing in growth projects like Tritan expansion and Aventa, expecting these initiatives to contribute to future earnings and market expansion.

• Strategic Focus on Circular Economy: Eastman remains committed to its circular economy platform, with ongoing projects in chemical recycling and sustainable product offerings poised for growth.

Q & A Highlights

• Q: Can you provide more detail on the feedstock preparation issues at the methanolysis plant? (Patrick Cunningham, from Citigroup)

  A: We encountered plugging issues with a broader set of hard to recycle feedstock, which were addressed by optimizing feedstock form and dealing with non-polymer waste. We're ramping up to full rates and confident in the effectiveness of these changes. (Mark Costa)

• Q: Why is now the right time for the Tritan expansion? (Patrick Cunningham, from Citigroup)

  A: Despite economic challenges, there's significant volume return post-destocking and ongoing wins in consumer durables. Recycled content is attracting new customers and markets, necessitating additional capacity. (Mark Costa)

• Q: Are you now running at higher rates at the methanolysis plant? (Josh Spector, from UBS)

  A: We're in the process of ramping back up to higher rates after implementing a mechanical change. We're not there yet but moving towards it. (Mark Costa)

• Q: Can you clarify the situation in the acetyl chain and the impact of divestitures and shutdowns? (Jeff Zekauskas, from JP Morgan)

  A: The acetyl chain faces lower margins and adjustments in logistics costs due to divestitures. The total year-over-year penalty includes these factors, with specifics on the acetyl business not fully disclosed. (William McLain and Mark Costa)

• Q: What are your expectations for operating rates at the methanolysis plant for the second half of this year? (Aleksey Yefremov, from KeyCorp)

  A: We intend to run above 70%, using a diverse feedstock slate. Mechanical issues have been the main limitation, but we're addressing these to ramp up towards 90%+ rates. (Mark Costa)

• Q: How does the forward volume trajectory in advanced materials look, considering the 12% growth reported? (Kevin McCarthy, from VRP)

  A: The guide assumes similar earnings in Q3 to Q2, with methanolysis ramping up and innovation driving growth. The fourth quarter will see some normal seasonality but improved by methanolysis and innovation sales. (Mark Costa)