Eastman Chemical Company (EMN) — Q1 2023 Earnings Call Transcript

Good day, everyone, and welcome to the First Quarter 2023 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 of Eastman Chemical Company, Investor Relations. Please go ahead, sir. Thanks, Brenda, and good morning, everyone, and thanks for joining us. On the call with me today are Mark Costa, Board Chair and CEO; Willie McLain, Senior Vice President and CFO; and Jake LaRoe, Manager, Investor Relations. Yesterday, after market closed, we posted our first quarter 2023 financial results news release and SEC 8-K filing. Our slides and the related prepared remarks can be found 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 first quarter 2023 financial results news release. During this call, in the preceding slides, prepared remarks and in our filings with the Securities and Exchange Commission, including the Form 10-K filed for full year 2022 and the Form 10-Q to be filed for the first quarter of 2023. Second, earnings referenced in this presentation exclude certain noncore and unusual 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 2023 financial results news release. As we posted the slides and accompanying prepared remarks on our website last night, we'll go straight into questions. Brenda, please let's start with our first question.

Mark, just on fibers, I saw you increased the full year guidance, what is the high in that? And how sustainable is this new high level of earnings in fibers?

What we're really excited about is to see this kind of improvement in the fibers business, which we believe is structural and stable going beyond this year into the future. The key drivers for the improvement were obviously a pretty significant increase in price associated with making sure we're providing enough earnings and cash flow from this business to invest in it and be a secure supplier. So we've got improvements on price/cost relationship. We've got improvements in our operational performance, which has turned out to be better than expected because we've also raised our guide from $275 million to $350 million. With price cost being better, our operational cost improvements in this business being better, and the textile business really showing a lot of growth right now. Even though the overall market is pretty depressed, the sustainable value propositions we have are driving a lot of growth relative to the underlying markets. It's just another example of how our innovation model creates a lot of growth even in tough markets. Regarding the stability question, there are some factors that I discussed in January that I'd like to reiterate quickly. The market structure in the tow business has fundamentally changed from what we've been facing over the last decade. Part of it is that the demand didn't decline nearly as much as we feared over the last 10 years, really only declining about 1% a year versus 2% to 3%. The heat-not-burn segment is growing quite strongly, utilizing more filter tows than traditional cigarettes, growing over 15% a year, creating stability in that market. So when looking at the last decade, the market is only down about 10%, and now China is even showing some modest growth in the 1% range, which is about half of the global cigarette market. Additionally, our growth in textiles allowed us to focus and repurpose assets towards textiles in a way to see value not just on focusing on the PI market. On the supply side, we've seen a significant reduction in supply on two fronts. First, about 15% of capacity has been shut down by several players in the industry, including us, as we repurpose some of our capacity towards the textile business. We’ve probably lost effective capacity in the 10% to 15% range as we have pivoted to making more specialty items, such as slim tows and heat-not-burn products, which are more complex and slower to produce. So there's at least a 15% reduction in capacity, putting us in the 90% to 100% range on utilization. The markets are tight, and this has resulted in customers being very focused again on security of supply, as the cost of a tow filter is a small percentage of the price of the cigarette. We are working diligently to ensure we have contracts in place, which we do for this year; by the summer, we aim to complete the best contracts for the next two years beyond this one. This places these kinds of improvements front and center. We feel very good about where we're at, and this presents a great source of earnings and cash flow to invest in the growth of our overall portfolio.

And just on metanalysis, given the delay you highlighted today in the project in Kingsport, do you have an updated forecast of losses or EBITDA drag from this business in 2023?

One key point I want to highlight is that I don't expect a significant increase in the gross spend for the full year. The critical point is that we're on track to produce commercial quantities this fall, and we'll have revenue before year-end. In terms of costs, there is not a significant impact. Furthermore, I would highlight our overall capital spend expectations for 2023 are set at $800 million. I'm confident that we'll be able to complete the construction within that investment level and deliver the investment returns we've committed to for this project.

Mark, I saw this week an article talking about your successful completion of a recycling project for automotive mixed plastic waste. I think they call it automotive shredder residue. Could you talk a little bit about that and what you think the opportunity set is for you here? Is it similar to what you're doing on the consumer side of the equation? Just where is this in its life cycle?

Vince, great question. This highlights that sustainability and opportunities to grow our portfolio go well beyond just polyester recycling and our cellulosic growth. We're examining all forms and fashions of how we can lean into this trend that's creating a lot of growth opportunities. The automotive market has a huge need to recycle all components of vehicles as well as the waste generated in the manufacturing process. We are running several programs in both Europe and the U.S. on looking at every area where we can capitalize on this. For instance, all of the interiors and polyester involved in making the interiors can effectively be recycled with our polyester recycling technology project. We are also collaborating with the auto sector to recycle all the PVB polymer and interlayers around glass. The amount of waste in both glass and interlayers is substantial, and we are developing our own molecular recycling processes to reclaim that PVB and close that loop as another circular program. Although we don't talk about this much since it's still early in its development, it’s another driver for advanced materials and pitches us to be a unique supplier to the auto industry. Numerous companies are engaging with these programs for various reasons. We are uniquely positioned in textiles and glass to lead in delivering those solutions.

As a follow-up in your regular business, you noted that auto is strong in the quarter, and you also expect there to be growth in the second quarter sequentially. I'm trying to compare this with some other firms that have auto exposure, which mentioned that 1Q builds could be a pull forward from 2Q. Is that not what you're seeing? Or are your comments more reflective of your product portfolio rather than the broader industry?

From a total build perspective, Vincent, I don’t think our view is all that different from what you just said. I mean, Q1 was certainly a bit better than we expected, as we've highlighted. But I don't think we're seeing a significant sequential trend of improvement from Q1 to Q2. I'd say it's holding. It's incrementally better. Our position in the market is very different from the broad production data. When considering the Advanced Materials business, the products we manufacture, whether they are high-end protective films or window films or high-performance interlayers and multifunctional films going into EVs, our focus is positioned towards the much higher premium in the marketplace. Approximately 70% of these very high-value products target the high-end premium market, which constitutes about 25% of auto builds. That part of the market is actually growing steadily in the high single digits. These markets are performing much better than the overall market, allowing us to gain significant traction through our focused attention in that segment that is growing at double digits. Not only are we growing alongside those markets, but we are also winning numerous high-value applications in that space. Additionally, we aren’t losing any volume since we are not involved in the combustion engine drivetrain at all. Our involvement is strictly in glass and coatings. Hence, as these markets prosper, we witness absolute growth without any offsets due to our non-exposure to engines transitioning to electric. Overall, I believe our strategy, innovation, and market position are favorable. I should note that our AFP segment is more tied to the broader auto production market, so their growth rates are slightly more modest, as they serve a wider range of the market than just the premium segment.

Just curious if you could talk about what you see as the underlying level of volume declines in the portfolio today, excluding destocking, and how you're thinking about volumes developing from the first quarter to the second quarter. What's baked into your second-half predictions and how they drive some of your EPS uplift?

To start with the total volume numbers, let’s break it down. If you consider the fourth quarter and the first quarter, the consumer discretionary markets like consumer durables, building and construction, and electronics have seen a substantial drop in primary demand, alongside a considerable amount of destocking. The retail channel was massively overstocked, with inventory ratios shifting from approximately one times to over two times sales, leading to significant demand changes. To dissect this, the story we told in January indicated that this market area is down 40%, with retail sales falling about 10%. It's critical to note that retail sales reflect dollars. If you factor out inflation, volumes are probably down by 15% to 20%. This drop in demand can be attributed to several well-discussed reasons, such as COVID impacts and supply chain challenges. Unfortunately, that trend has persisted into the first quarter, worsening from the fourth quarter due to continued destocking. We anticipate that destocking will continue and are not optimistic about demand recovery for the rest of the year in these discretionary markets. In the building construction industry, we expect the situation in Europe and Asia to remain low as we've assumed that demand has been weak for some time. However, we've noticed a deceleration in demand in the U.S. and have integrated that into our forecasts across coating clients. Regarding stable markets, despite being stable, they are still under pressure. We're witnessing low single-digit declines in demand for some customers in personal care and water treatment industries, as they too are undergoing additional destocking, which has predominantly played out in the first quarter. Moving into the second quarter, we expect diminished primary demand to persist. This is the dynamic we observe across the market. While I elaborated on the auto market as a source of strength, agricultural sectors are also resilient, and aviation is recovering well as another source of strength. We have pockets of stability in medical and pharmaceutical segments, while the rest of the landscape is dealing with demand challenges. Looking from the first half to the second half of the year, our revised forecasts indicate that primary demand will likely remain at these low levels, and any uplift in demand during the second half will stem from the end of destocking that is contributing to first-half challenges.

I guess maybe if I could try to quantify some of that. So your volumes were down 9% in the first quarter, is your primary demand down low single digits? When you talk about demand consistent first half, second half, you went through a number of weak markets in your Slide 13, and I don't need to rehash all that. But what number are we looking at there roughly in terms of those markets?

Every story is different. However, to simplify, primary demand is down. As I mentioned, roughly one-third of the decline can be attributed to primary demand; another third from destocking in the first quarter, while the remaining 10% to 20% stems from specific places where we're losing market share. Maintaining price discipline means we don’t chase every kilogram. In the cases of AFP and CI, we are finding ourselves in low-value markets where we choose not to pursue market share. For architectural markets in China, margins are precariously low, and it does not make sense to compete in that space. It’s impacting volume but positively, as we avoid exacerbating price competition that wouldn’t significantly affect earnings. A small segment of that 9% decline relates to these strategic choices. That’s how we maintain commercial excellence to uphold price discipline and stability with valuable markets and customers.

With your molecular recycling facility set to come online late this year or early next year, is all of the material that's going to be made Tritan?

No. The molecular facility, coming online this fall based on our current schedule, will be producing recycled content, but it also extends to numerous copolyesters. For instance, the cosmetics sector employs our copolyesters, representing a solid market with substantial demand, especially as the Chinese market rebounds. Many luxury brands like LVMH, L'Oreal, and Chanel are our partners and are leaders in sustainability, with aggressive recycle content targets. They are eager to achieve these targets, given their luxury branding. Furthermore, Tritan presents immense opportunities, particularly in hydration bottles, including reusable water bottles like those from Nalgene. This sector is experiencing significant growth as it pivots away from single-use plastic. Moreover, this market hasn’t been as adversely affected as other consumer durable markets, which positions it for considerable growth. Our recycled content will flow into a plethora of products, including power tools or applications in electronics, where brands seek sustainability. We are successfully penetrating applications that typically didn’t leverage Tritan due to our strengths in chemical resistance, durability, and clarity, justifying high market prices. This process involves extendable flexibility from both our specialty and copolyester markets, enabling us to leverage capacity in diverse applications.

So maybe I'll try again. I think polyester demand or Tritan demand has been negative in 2022 and is negative this year due to weakness in the durable goods market. Given the additional capacity, might it be tough to reach high utilization rates in 2024, considering the weak demand for Tritan and other polyesters? Perhaps ramping capacity could take as long as three years?

Yes, Jeff, that’s a very good and related question. We’re indeed adding significant capacity in Tritan, which serves as an avenue for growth in our overall volume. You're right; Tritan is found in consumer durables, a key end market currently facing substantial demand pressure. Notably, there’s been significant demand drop in Q4 last year as well as in this year. As for how we manage our assets and expansions, we have always incorporated flexibility within our Tritan lines to modify production back to copolyester. This strategy stems from their history; originally, these were PET lines adapted for specialty copolyesters, then adjusted for Tritan production. We've retained this flexibility in our assets to adjust product lines accordingly. Therefore, our forecast points to a 25% effective increase in Tritan capacity when it comes online due to this flexible strategy. This flexibility also extends to copolyester markets, which are significantly larger and have greater potential. Our recycled content strategy doesn’t solely rest on Tritan; it targets broader applications such as cosmetics and shrink packaging markets. We anticipate considerable demand in these sectors as companies pursue sustainability targets. Hence, our plant in France will also address half of the specialty market, catering to the cosmetics sector and higher-value applications. Ultimately, we'll continue balancing our capacity effectively across all of these markets.

Mark, if I remember correctly, last quarter, you mentioned you were leaning towards the lower end of the annual guidance. Is this still the case for this update?

No, we have a positive outlook for our range and how we perceive it. Reflecting on the guidance given in January, it was premised on volume recovery and price cost improvements amidst trends in raw materials, energy, distribution, and the necessary cost actions we've been taking. Although those dynamics have shifted, I want to address the positives first: the price cost improvement has been substantial, and the fibers improvement relative to our January guidance is clear and significant. If you look at the strong performance already demonstrated in our specialties or with the spread improvement in fibers, we anticipate about $1 per share improvement in our fibers and spread forecast. This presents a positive tailwind. However, we'd like to be candid about certain adjustments to our guidance. We're responding cautiously to market demand-related weaknesses. When observing the next three quarters, the midpoint of our guidance stands at about $208. Our Q2 guidance midpoint is around $2. It’s a modest adjustment due to some demand not rebounding as we previously anticipated in Q2, which has been counterbalanced by our improved spread. Therefore, the bulk of this improvement has been pulled into the second half of the year, predominantly from volume and mix and the associated headwinds from asset utilization. In response to this weaker demand, we are taking steps to reduce our operational rates and cutting down our inventory to ensure we fulfill our cash flow generation targets of $1.4 billion, resulting in a combined $50 million asset utilization headwind noted, with about half occurring in Q2 and the rest in the latter half of the year. This mix of events indicates a derisking of our guidance — we’re not facing as significant a step-up burden in the second half as indicated in January. Overall, we feel confident about the range and our prospects, while ruling out any drastic optimism in sight.

On one of the slides, you highlighted interlayers being better positioned or gaining traction in electric vehicles compared to ICE. I thought both EVs and ICE used interlayers, especially in premium ICE cars. Could you clarify why there is a content gain?

Yes, both EVs and ICE cars utilize safety windows, but we've previously gone over this. The electrical vehicles (EVs) contain about 3.5 times more content in interlayers compared to ICE vehicles. One reason is that EVs contain batteries, pushing the headspace higher. Achieving aerodynamic efficiency, manufacturers tend to increase the size of the sunroofs, affecting the glass structure. The demands for laminated structures, especially with increasing windshields, has risen, as they do provide structural strength and reduce the need for steel. Moreover, interlayers are ideal for additional functionalities such as heads-up displays and enhanced solar rejection to lower HVAC system loads. We’re inserting solar rejection properties to avoid excessive heating in the cars. Additionally, clients need more specific stylistic colors and designs. All of these factors are translating into both an increase in quantity and quality of required materials per square meter in EVs, resulting in automatic growth. We’ve achieved a remarkable 70% uptick in sales compared to the 2021 figure from EVs, which is now roughly 10% of our business exposure. This whole narrative presents an incredibly compelling opportunity for us.

First, regarding inventory and working capital. You mentioned $50 million of incremental headwinds from lower asset utilization while managing your inventory. Could you specify which business or sector is experiencing the most pressure? Regarding Willy, what are the working capital assumptions underpinning your cash flow guidance for this year?

I would emphasize that the specialty businesses, particularly in the end markets of durables, building, and construction carry the most pressure. As a result, we anticipate seeing that impact on our inventory levels. To achieve our targeted cash flow of $1.4 billion this year, our working capital expectations were set to remain flat year-over-year. We have performed below expectations in the early part of the year, leading to a net usage of cash. Fortunately, we are taking actions now to drive that cash flow, ensuring we maintain our earnings guidance flat throughout the year.

Just quickly, Mark, regarding methanolysis. You indicated revenue would begin flowing before year-end; when do you foresee the facility ramping up to achieve a normalized EBITDA run rate?

The ramp-up of the facility will proceed quickly since recycled content will be the primary focus valued by our customers. We expect the facility's production and recycled content incorporation into a wide range of products will happen effectively before the end of 2024. However, filling out the Tritan capacity will take longer, as stated earlier, but we can leverage our assets to produce recycled content for several markets, including BT whenever needed. Fortunately, there is considerable market demand for PET relative to this capacity. We are confident about deploying this capacity promptly across many markets while seeking to realize higher value in specialty applications over time.

I wanted to ask about your Q2 guidance. The commentary is fairly tight, especially excluding Advanced Materials. I wonder what factors might take you to either the low or high end of that range?

When assessing sequential trends, it's clear that we exceeded expectations in Q1, mainly due to favorable price/cost dynamics, particularly from natural gas. We foresee this trend continuing into Q2 as those cost advantages persist. The $200 million cost reduction program we implemented has yielded recognition in Q1, with more expected to come in Q2 as the program matures. However, the wildcard hinges entirely on volume and mix, as these factors directly influence our asset utilization and overall performance. The stable markets exhibit an understanding of the revenue trends. However, uncertainties still linger around the ongoing destocking phase in personal care, water treatment, and AFP. Moreover, the outlook in advanced materials is closely linked to the discretionary markets, particularly consumer durables, and the timing of destocking. While we witness weaker order books mimicking March dynamics, we observe better order volumes in May, indicating a potentially positive shift in that market. Building construction markets in Europe and China are anticipated to stabilize, given ongoing conditions, although the U.S. construction market faces increasing challenges due to lower housing starts and existing home sales. Overall, we feel good about our guidance range, but we acknowledge the volatility around demand and the potential impacts of destocking.

If I can, regarding the Ai-Red Tech acquisition, while I understand it is modest, I recognize the strong growth of the paint protection film business, particularly in Asia. How fragmented is that market, and what’s the margin differential compared to the U.S.? What are the prospects for the paint protection and expansion business in the coming years?

We're thrilled about the addition of Ai-Red Tech into our Advanced Materials Performance Lights business. As you noted, we actively seek bolt-on acquisitions within AM, as well as Additives & Functional Products. Our key end markets are situated in Asia, primarily China, alongside the U.S. Americas. Boasting a global asset footprint will allow us to service both and tap into higher growth rates. To put it succinctly, this acquisition presents a premium product set. We’re genuinely thrilled about how this will contribute to the growth of AM in the longer term, specifically within the films business.

Mark, you relocated your functional amines business to report under A&FP from the Chemical Intermediates segment. Can you discuss the reasoning behind this move? Regarding the first quarter, what sales and earnings corresponded with that business? I noted the retrospective disclosures for 2022 indicated it amounted to $310 million in annual sales with EBIT margins slightly above 20%. Are those figures reasonable to channel into the first quarter you just reported?

The functional amines business is outstanding and has immense potential for operational efficiency. Integrating it within the personal care segment, which belongs to Taminco under AFP, allows us to collaborate and manage the business effectively. This integration aids investors in grasping the quality of the functional amines business. Approximately 70% of its revenue streams originate from stable, attractive markets ranging from agriculture to pharmaceutical to water treatment, ensuring consistent revenue flow. Typically, the nature of these products faces less competition from Asia since they are challenging to transport globally due to safety regulations. Hence, we stand as the dominant player in this market, particularly in North America and Europe. Given the business’s solid margin profile alongside stable pricing strategies via cost pass-through contracts, this segment demonstrates resilience through inflation’s ups and downs. Additionally, there lie promising growth opportunities in the partnerships we have, particularly the critical ingredient we supply for Corteva's product called C base. This aligns with our commitment to innovation partnerships that frequently lead to above-market growth, making it a fantastic business to integrate. Consequently, the first quarter results compared to last year reflect a stronger performance, correlating closely with our historical outlook.

If I can add context regarding the Q1 results and the robust performance exceeding our January guidance. Overall, we beat expectations by about $75 million. The breakdown reflects approximately a third coming from AFP, another third from fibers, and the remaining third from the Chemical Intermediates business, which you would assess prior to resegmentation.

On the subject of fibers, following David’s earlier query, can you summarize the historical trends? Your segment margins were consistently low at approximately 30% from 2013 to 2016, but they've since deteriorated into the 20% range during the subsequent four years and then even dipped into mid-teens recently during inflationary years. With first-quarter pricing rising 40% year-on-year, are we looking at sustainable margin levels now hovering around low 30% moving forward? Can you elaborate on what's changed regarding your pricing and procurement contracts?

That's a great question. It’s been a long journey for this business. Historically, it was a robust source of earnings, margins, and importantly, cash flow, given its lower CapEx demands. However, the demand landscape underwent significant shifts, leading to diminished returns over the years. I’ll refrain from repeating too much, but it's essential to point out that customer focus shifted towards supply security instead of just chasing the best price. The recent decade saw minimal investment in the industry, necessitating our firm to prioritize reliable supplier status. Inflation and costs have surged dramatically, and we've needed to raise prices accordingly to ensure margin appropriateness and reinvestment into asset reliability. Additionally, we anticipate growth in the textiles and some innovative product lines entering into food services by 2024 and 2025, which should significantly boost our earnings prospects. We maintain a strong belief in the margins’ sustainability moving forward and are incorporating adjustments to our contracts to ensure we manage fluctuating raw material expenses during this period. We’re fully contracted this year and are making solid headway on the contracts for the next couple of years, which facilitates our margin stability more effectively.

In the Advanced Materials market, your margins in the first quarter showed reasonable improvement compared to Q4, landing you in the low teens. Where do you see the potential to reclaim those margins back to high teens or even 20%? Is it simply a matter of volume recovery?

To clarify, we have faced nearly $2.5 billion in significant inflation over the past couple of years, equating to about 300 basis points at the corporate level. A substantial portion of that has hit our specialties and advanced materials segments, causing margin compression. As we advance through 2023, we expect to approach pre-COVID levels adjusted for inflation.

When sidelining inflation, I believe there are substantial margin improvements ahead of us consisting of two primary components. Firstly, last year we retained substantial price increases to keep pace with inflation levels, which were incredibly high, with PVOH increasing by 45%, energy by 70%, and PX by 40%. As we maintain these prices and begin realizing subsequent cost benefits, we foresee an improvement in margins within this segment. A significant factor will be demand moving forward. If demand is soft while we run our production more slowly, there will be an inherent asset utilization impact on our EBIT margins. Hence, while we can expect improved margins throughout the current year, we foresee a more pronounced margin enhancement in 2024, contingent on demand ramping up and customers pursuing restocking. Additionally, with the circular economy expected to contribute next year, higher premium existing applications and new sales at higher prices will continually drive margins higher. We sincerely anticipate returning to our previous margin levels and beyond.

Given your guidance for 2023, we can assume the midpoint suggests you may exit the year with around a $4 EPS run rate. If we extend that perspective into next year, this would yield approximately $8. Is this a reasonable base case on which we can build, and do you foresee normalized volume growth allowing for an 8% to 12% EPS growth rate? What key drivers align with this projection?

I would emphasize that at our current guidance, we perceive ourselves delivering about $3.60 in the first half. Aiming for the midpoint, we expect closer to $4.25 for the latter half, indicating a potential $8.50 for the full year. Assuming we transition to a normalized demand environment versus an extreme one, our sights are set on achieving 8% to 12% earnings growth.

Yes, I agree. As we analyze our portfolio, fibers are expected to stabilize at a higher altitude. The CI sector is at the bottom cycle in terms of spreads and margins, which we understand in the current competitive landscape will likely hold steady or slightly improve next year. The focal point remains on how specialties can grow compared to previous volatility, specifically after enduring extraordinary destocking impacts over the last two years within this low-demand context. Thus, we anticipate volume growth from recovery in various sectors, particularly in auto and aviation. If we manage a stable macroeconomic outlook in 2024, we will see marked improvements in EPS compared to this year, and while we need to adjust for seasonalities, the outlook remains robust.

On the free cash flow front, does this guide you closer to $2 billion by 2025? If so, would you allocate more to growth investment, or could we prioritize share repurchases?

We remain committed to achieving our $1.4 billion target for cash flow this year. As we look toward returning to a normalized demand situation, we aim for enhancements exceeding $1.6 billion of operating cash flow, which we discussed at Innovation Day. We’re focused on disciplined capital allocation, prioritizing our growing dividend, organically driving growth, and pursuing cash generation through innovative projects. Should additional cash remain, we will consider share repurchases to offset inflation or manage dilution.

Let's make the next question the last one, please.

I see that flex film is utilized in laminated window glass for commercial construction. Given that these projects have long lead times, do you see the bottom in the U.S. commercial construction backlog? And can part of that production be pivoted to auto?

John, the interlayer assets that create the auto and architectural windows are indeed flexible, and they can shift production as needed. That said, our business in laminated architectural glass predominantly operates in Europe, so the slowdown in that market has been reflected in our forecasts. Consequently, lower demand in that sector has been supplemented with our capacity redirected into auto production. While there hasn’t been a drastic downturn in the housing market, it has slowed significantly.

That's all the time we have for questions today. Thank you for participating, and we appreciate your time. Have a great day.