Eastman Chemical Company (EMN) — Q2 2025 Earnings Call Transcript

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; Willie McLain, Executive Vice President and CFO; and Jake LaRoe and Emily Alexander from the Investor Relations team. Yesterday after market close, we posted our second quarter 2025 financial results news release and SEC 8-K 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 2025 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-K filed for full year 2024 and the Form 10-Q to be filed for second quarter 2025. 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 2025 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&A. Becky let's go ahead and start with our first question, please.

Look, you're reducing capital spend in 2026, now targeting pretty significant cost savings 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?

That's an important and complex question. As we consider the second half of this year, it is significantly influenced by the trade situation we're currently facing, which presents numerous challenges for the industry, particularly in the consumer discretionary sector. Therefore, I believe the latter half isn't a true reflection of our overall performance because of the various tariff-related issues at play. Specifically, our exposure to tariffs in the latter half can create three major impacts. The primary concern for us is demand, which was also a factor in 2019. The second is the potential for retaliatory actions from other countries, especially given our high assets in the U.S. related to this issue. The third impact pertains to direct tariff effects on raw materials, to which we have limited exposure due to our local sourcing in North America. Essentially, the core issue this year revolves around demand and what that implies for next year. The trade conflict is clearly influencing demand trends both in the second quarter and moving forward. It's also important to highlight the existence of unfair trade practices globally, particularly aggressive dumping and overcapacity issues stemming from China, which contribute to significant challenges in our industry. While these matters are serious, addressing them requires a strategic approach. The overarching trade strategy currently applied worldwide might lead to unnecessary economic repercussions if it doesn't target the real sources of the trade problems. At present, we are encountering considerable uncertainty. The volatility seen in GDP data during Q2 reflects a lot of movements in imports and decreasing private inventories as businesses attempt to reposition their products globally to mitigate tariff impacts. This chaotic environment complicates our understanding of end-market demand, with consumers potentially purchasing ahead of anticipated price hikes linked to tariffs. This could explain why consumption rose, alongside concerns regarding affordability. This complexity has resulted in an anticipated mid-single-digit drop in demand for the latter half of the year, influenced by typical seasonality and cautious customer behavior. Amidst the chaos, we've opted to prioritize cash generation, as we mentioned in April, and are actively reducing inventory levels to generate cash flow. However, this approach inadvertently results in a utilization headwind of approximately $75 million to $100 million in the latter half of the year, further distorting our outlook. Given all these factors—normal seasonality, trade dynamics, and utilization challenges—the second half of the year is not something we can extrapolate to forecast 2026 accurately. With the present chaos, there's considerable uncertainty regarding future demand. However, as trade deals settle, we expect some stability to emerge, which is preferable to the current unpredictability and can help refocus efforts on necessary actions. Additionally, several pro-growth factors from the U.S. administration, such as tax reforms and fewer regulations, should contribute positively to overall stability. Overall, considering the difficult demand situation we've faced since 2022, there is reason to anticipate greater stability as we move towards 2026, potentially better than current demand levels. Nevertheless, we must remain diligent in managing costs and inventory as we navigate this uncertain landscape, taking all necessary actions to prepare for whatever lies ahead.

Great. I appreciate the detailed response. I guess just a quick one on the metathesis unit. How far are you along with that investment? And what gives you confidence on a pretty healthy step-up in profitability there?

I'm sorry, you broke up for a second. Were you asking about E to P or methanolysis? I just couldn't hear what you're asking about. Which one?

Yes. Yes. E to P, yes.

The Chemical Intermediates business is currently facing significant challenges, primarily due to overcapacity issues from China and other countries affecting the broader commodity chemical industry. We are seeing the industry operating at cash cost, with some products being exported at prices below cash cost, indicating that we may be at the low point of the market. We are continuously exploring ways to strengthen every business unit, including the CI business, which has seen various improvements over time. Notably, we made an investment in RGP and closed our Singapore plant while seeking to enhance our product mix in North America, where margins are better than in the export markets. Although demand is currently down, we are always on the lookout for opportunities. Since 2021, we have been considering an investment to convert one of our existing crackers from ethylene to propylene. Eastman produces substantial amounts of both ethylene and propylene, primarily due to the nature of our crackers. If we had built a propane dehydrogenation (PDH) unit several decades ago, we would have focused on propylene, as that is where our specialty products and value are concentrated. Currently, we have excess ethylene to manage as we run the crackers, which is why we invested in RGP flexibility to boost propylene production. Our insights since 2021 have led us to scale up this project to enhance our capabilities in converting ethylene to propylene. By optimizing the asset configuration around this investment, we can significantly improve earnings by an estimated $50 million to $100 million in EBIT over the business cycle, while also reducing volatility, which largely stems from the ethylene aspect. This investment offers a short payback period and capitalizes on our existing infrastructure.

I wanted to ask on the methanolysis investments and some of the comments you made about it seemed like you were thinking about you'd delayed a decision on Longview by maybe 2 years now and you're thinking about expanding Kingsport at some point in the future. So one, I 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?

We are very excited about the performance of the methanolysis plant. It has been a long journey from the project's inception to construction, startup, and overcoming various challenges. Seeing the plant operate effectively is rewarding. We're thrilled by the plant's ability to reach a 105% rate during testing, and this success contributes to our cost improvements this year, which are on track to achieve an additional $50 million in benefits for the company. During the rate testing, we gained valuable insights into enhancing the facility's operational performance, leading us to identify manageable debottlenecking investments. These improvements could increase plant capacity to 130%, with potential to exceed that. This is particularly exciting as we work to lower capital intensity on this capital-heavy project, which could significantly enhance our return on invested capital. Moreover, the added capabilities enable us to enhance EBITDA towards our target of $200 million and maintain growth from this facility, avoiding delays until the next plant starts. This lets us bring forward some EBITDA we would have otherwise had to wait for from the second plant. Although we are disappointed about the loss of the DOE grant and are actively trying to recover it, we are focusing on alternative strategies. The ability to debottleneck provides us with time to explore different options, and we have various innovative ideas about how to streamline the project. We're considering not only improvements at Longview but also opportunities at three other locations that may offer better efficiencies. There’s a lot happening, and while we can't discuss all the specifics now, we're optimistic about optimizing our operations and attaining benefits sooner rather than later. Regarding our contract with Pepsi, it remains in place, and we are confident in their commitment to collaborate with us as we explore these options. Additionally, we are noticing an increase in demand from some customers who are experiencing challenges with mechanical recycling in food-grade rPET applications, which makes us more confident about our ongoing initiatives.

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 the balance of the year and into next year, what's the catalyst path or what are the events that are going to 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?

Yes, Vince, that’s a great question. The insights we gathered from June to July while engaging with our customers showed that consumer durables are the most affected area. This segment is heavily influenced by the trade war, as many products are manufactured in China or Southeast Asia before being imported here. Our supply chain is quite extensive; we produce components in the U.S., ship them to Asia for assembly, and then the finished products return, resulting in a supply chain that can take nine to twelve months to manage. During the trade pause in the second quarter, companies, including retailers, brands, and manufacturers, took the opportunity to rearrange their materials in anticipation of potential escalation on July 9. For us in North America, moving items to Asia from where they were produced required extra effort, making our supply chain longer, given the risks of retaliation. Customers are navigating these complexities, and as we look toward the latter half of the year, they've become more cautious. They are holding orders rather than canceling as they want to see how the trade situation unfolds. This cautious approach also relates to their insights on consumer demand, as they aim not to overstretch their inventory due to uncertainties surrounding the economy in the second half of the year, where consumers might be more affected. The tariffs at current levels are expected to contribute to inflation, which is a widely debated topic. The profit margins for manufacturers in Asia and retailers here are quite slim, meaning some of these costs will inevitably be passed on, making it unsustainable for businesses to absorb them entirely. Even if they attempt to, it could lead to job cuts, further affecting the economy. These dynamics are also noticeable in the auto industry, where there's considerable conversation about it, alongside potential prebuys as companies assess anticipated demand for the latter part of the year. The building construction segment faces similar challenges, which affects a substantial portion of our revenue. Our customers are collaborating with us, and our forecast reflects the caution of July. We anticipate improvements in August and September as trade uncertainties begin to clear up, but we need to see how that plays out. Our focus remains on what we can control: managing costs, maintaining cash flow, pushing forward with methanolysis, ensuring capital efficiency, keeping our capital expenditures low, and positioning ourselves for significantly better earnings next year compared to this year based on these controllable actions.

Yes. So I wanted to check on the autos end markets. I mean you and 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 can you provide a little bit more color on where you're seeing the weakness? And specifically 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?

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 challenged in China. But overall, the aftermarket held up reasonably well in Q2 for 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, right? There's a big question on, once again, how much of this tariff is going to get passed on to consumers and inflation and impact demand in the back half of the year. So you're trying to worry about how much cars you're producing for the back half of the year. So you got to be a little careful on that front. And then you've got the dynamic of the pull forward of people buying cars ahead of the potential tariff increases. So I think from what we're seeing, we started the year expecting the auto market to be sort of flat relative to last year, where 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. So I hope those people that are sort of predicting that are correct.

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?

Sure, Jeff. Regarding the AFP question, most of the price increase was due to our cost pass-through contracts in the care chemicals sector, where we purchase raw materials that have significant volatility. This results in stable margins when supplying our customers in that area. However, the fatty alcohols we acquire fluctuate considerably, which primarily accounts for the 4% increase. One of the advantages of the AFP business has been the stability in the price and cost dynamics across our portfolio, largely due to these cost pass-through contracts. This stability helps reduce discussions and tension with our customers during procurement, allowing us to focus on mutual growth instead of debating raw material price fluctuations. That's a contributing factor to AFP's solid performance. As for the Fibers business and tariffs, the main effect of tariffs on a yearly basis is seen in the Naia textile business. It's anticipated that tow will decrease to some extent due to the market and increased capacity in China. However, the textile business has been growing, with good margins that have mitigated some of the challenges in the tow sector and have been beneficial in enhancing this segment over the past four years. What makes this year different is that while we’re facing issues in tow, the textile sector has been affected as well. Most of that production is sold in China and serves markets worldwide. We noticed a significant slowdown in the overall textile market due to tariffs, which raises the selling costs of fashion items in the U.S. This sector was already experiencing weaknesses last year but has deteriorated further. Consequently, end-market demand has decreased, and our customers in China have become more cautious, leading to an estimated $20 million impact for the year from tariffs, spread out across Q2 through Q4, affecting the Fibers business. In the short term, some tow orders have been advanced into Q2 in Europe to avoid potential tariff complications, creating a timing impact rather than a full-year one.

Okay. You mentioned your goal to reduce working capital by $400 million from midyear levels and discussed the earnings impacts this year from adjusting your operating rates. As a base case, I understand that earnings are expected to increase next year as you return to more typical operating rates. However, is it also correct to say that cash flow next year might decrease? If you're advancing cash flow to this year, does that imply that your cash flow from operations next year could be less than $1 billion, assuming business conditions remain unchanged?

So 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, etc. 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 billion 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.

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?

David, I think that's on the right track. Typically, we experience seasonality from Q3 to Q4 since Q3 is usually a strong quarter. However, this time, that's not the case due to the factors I've mentioned regarding the decline in expected demand and asset utilization. As we approach Q4, we are very proactive in managing our assets in Q3. This means we will benefit from utilization because it won't be as intense in Q4. The usual seasonality has already played out in Q3. We anticipate conditions to remain somewhat similar. We need to get through Q3, to be completely honest, David, given all the volatility from trade and assess how everything stabilizes and affects the markets. But our current expectation aligns with what you said.

Got it. Understood. Mark, your volume outlook seems more pessimistic compared to some of your peers this earnings season. Do you attribute that to your business mix, your cautious approach, or perhaps other factors?

When considering the transition from Q2 to Q3, there are several factors at play that vary by business. It's crucial to frame this correctly. If we account for the $50 million utilization headwind, we're essentially flat from Q2 to Q3 after removing that headwind. Digging deeper, there are two key elements to consider. Chemical Intermediates is improving by over $30 million, while Specialties and Fibers are projected to decline by that same amount within our guidance. Regarding Advanced Materials and the anticipated mid-single-digit decline, I would attribute about half of that to expected market decline and the other half to the prebuy dynamics for several materials, such as Tritan, performance films, monocoat, and polyesters, which were pulled ahead of tariff risks into Q2. Consequently, when orders didn't materialize in July, we observed that decline. So, roughly half is due to market decline, aligning with what we're hearing from specialty peers and other market participants, while the other half stems from the prebuy situation. Additionally, it’s important to note that two-thirds of this segment pertains to consumer discretionary markets, including autos, consumer durables, and building and construction, which are significantly impacted. These markets are highly valuable to us. Thus, while volume declines are challenging, the potential for recovery is substantial. For Fibers, I’d argue that the decline is primarily related to prebuy activities and the expected moderation from Q2 to Q3. As for AFP, its decline is more typical, reflecting normal agricultural seasonality, the timing of HTF project completions in Q2 instead of Q3, and some prebuy activity. Overall, when you adjust for prebuy and HTF timing, as well as typical market moderation, we don’t see a major misalignment from an end market perspective. However, we do have some exposure in Advanced Materials to market sensitivities related to the current freight environment.

If I could just follow up on that. Are you sizing the prebuy at around $20 million or so benefit 2Q versus 3Q? Any color there would be helpful.

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.

All right. Great. And on the $1.25 point estimate for Q3, you guys put out a $0.20 range for Q2, and clearly, the commentary based on tariffs, etc., is that there's a wide range of outcomes for Q3. 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 much of a range in your mind do you have in terms of how Q3 can play out?

That's a great question, Frank. We put the word around before $1.25. So we see upside and risk to that number based on all the trade dynamics that we have in here. In 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 going to be. Our cost reductions in our control, clear what that's going to be. We've had phenomenal commercial excellence over the last four years in defending our price/cost in our specialties and our market share being held incredibly well over the last four years. And we certainly expect to continue that excellence in the back half of this year and into 2026. So when I look at all those things that are, to some degree, in our control, methanolysis running better, etc., we feel pretty good about the quality of our guidance. But to your point that we just mentioned and the comments I've made in this call, predicting demand in customer and consumer behavior in this world right now, there's no predicting it. And so we did put a range on it. But there is certainly uncertainty in either direction, right? If people really calm down, we could be up in volume. With these higher trade announcements and rates that just got announced through this week have impact on the market, on people's behavior, then it could be down. We just don't know. And frankly, no one does. There's no way to predict it.

All right. So the best guess today is $1.25, but there seems to be a wider range around it compared to the range we had for the second quarter, based on what I'm hearing right now.

I don't know if it's bigger than that range. But I mean, I really think we need to get through this next month. Obviously, if we see things really changing in either direction, we'll update people at a conference somewhere along the way. But right now, we're in the middle of trying to digest all these announcements that happened last week and this week. So not just us, every customer we have, every retailer, every consumer are trying to figure out, what does this mean for me right now? And what am I going to do in this context. So we just got to see how it plays out.

Mark, to me, you sound less optimistic about methanolysis sales this year and at the same time, more optimistic about next year. Could you maybe talk about this contrast, why there is this difference and any sort of signs of confidence you have into this ramp in methanolysis next year?

It's a valid question. In our prepared remarks, we acknowledged that the pace is slowing down. Interest in recycled content is still present in the market, particularly in specialties and rPET. The current plant is designed to serve these specialties, while rPET will partially be processed here to maximize the use of our assets. Over time, as we enhance our specialties, we will shift that PET to the second plant. When assessing demand dynamics, we must recognize our connection to the broader market. Over the past decade, we have shown that we can outperform market growth by being BPA-free and substituting other materials, thus gaining market share. However, there is always some correlation to market conditions. If the market faces significant challenges, it will impact the pace at which customers introduce new products containing our renewable content. This is particularly relevant in durable goods, where the adoption of new features and products has slowed down. The same applies to the luxury cosmetics sector, which is also facing market challenges. However, it's important to note that we are not observing a shift in the perception of plastic waste. While there are ongoing discussions on climate issues, there's a consensus that plastic waste remains a problem that needs addressing. This issue will persist, and as economic conditions stabilize, the desire to tackle plastic waste will regain momentum. The responsibility of brands to manage their plastic waste will remain a pressing concern, supported by ongoing regulations in Europe and the U.S. Currently, we have over 100 customers in the specialty sector who are committed to buying and paying premiums, though we aren’t seeing rapid order growth. We're not experiencing cancellations, but the increase in orders isn't happening as quickly as we would prefer. On the rPET side, we are seeing rising interest for next year. This year, we don’t have capacity available as we transition our Tritan line to produce PET, but we plan to start selling it in the fall. Notably, two of our largest brands have committed to substantial volumes for next year, primarily due to mechanical rPET facing performance and quality issues in their applications. They require chemical recycled products, which match virgin quality, to avoid issues like unwanted colors or structural integrity problems in their bottles. This confirmation of our unique value proposition in rPET through chemical recycling positions us favorably in the market and offers significant future advantages.

And if you had to guess next year, Fibers flat, up or down in terms of earnings?

Thank you for your question. We are dedicating significant time and effort to this issue. The decline in the Fibers business this year is indeed greater than we anticipated at the start of the year. To better understand the challenges in this segment, I want to explain some key factors. One of the main issues is in textiles, which is presenting a $20 million headwind. Additionally, we are seeing about a $20 million impact from asset utilization as we reduce inventory to conserve cash, which is also happening in our other divisions. This utilization effect is significant for the Fibers segment. Furthermore, we face $10 million to $15 million in higher energy costs that are not accounted for by our cost pass-through contracts. Altogether, these factors make up roughly 40% of the expected decline. We anticipate that asset utilization will turn into a tailwind next year, contingent on growth in textiles and other areas. Most of the asset utilization headwind arises before we consider spinning tow, as it relates to the production of the plastic and the feeding stream. Any growth in our cellulosic plastic portfolio will convert that $20 million into a positive effect for Fibers. Additionally, we are recovering the Naia business, working with our customers outside of China to address tariff concerns, while also securing new accounts globally and attempting to regain some Chinese business as tariffs stabilize. These developments could mitigate some of the expected decline this year, particularly regarding tow. As for the tow market, we do not see a shift; it continues to decline by 1% to 2%. We always anticipated losing some volume as new Chinese capacity came online, but the decline appears to be worse than initially thought due to significant destocking. Previously, customers were holding excessive safety stock, but now they are reducing it as they feel more secure. Additionally, some medium-sized customers aggressively aimed to expand their market share in the cigarette sector, building inventory and entering contracts with us. Unfortunately, they have struggled to gain share and are now trying to destock the excess inventory they had prepared for growth. Our expectations for volume that arose from this situation have not materialized as predicted. We are currently planning a range of actions to stabilize our position in the market. Unfortunately, we didn’t receive insights from these medium-sized customers until the second quarter, which we are now adjusting to. While there is significant destocking this year, we expect it to be less next year. The offsets from utilization and textiles could help counterbalance the negative dynamics in tow. Overall, we believe we can stabilize the situation as we move into next year.

Mark, in the prepared remarks that you released last night, I think you mentioned that you're now targeting additional cost cuts of $75 million to $100 million. 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.

I'll let Willie hit the cost reduction targets and then I'll add a couple of comments to that.

Thanks, Kevin. In this environment, we're focused on building on the improvements we made in 2025 as we enter 2026. We have detailed plans coming together in the latter half of the year that could allow us to deliver another $75 million to $100 million, provided the environment remains favorable. I want to emphasize that our actions do not represent a shift in our strategy regarding innovation and execution excellence. Having an efficient cost structure is crucial for achieving long-term returns. Our efforts include optimizing our contract partners and their overall usage. We have demonstrated in various economic conditions our ability to convert fixed structures into variable ones. We aim to enhance reliability and reduce maintenance as we focus on these areas. Regarding MRO purchasing amid current tariffs, we are looking at ways to optimize our supply chain to reduce costs. Energy efficiency is also a concern this year, as highlighted by Mark, and we see opportunities there. Additionally, this environment is likely to lead to lower labor costs compared to last year.

Yes. I want to emphasize that we've discussed our outlook for next year and whether we're concerned about worsening conditions. First, it's important to clarify that we cannot simply project the second half of this year into next year due to various factors at play. There are asset utilization challenges causing distortions, and we also need to account for normal seasonal trends that typically reflect a 55% to 45% split between the first and second halves of the year. Additionally, we are dealing with a pre-buy dynamic and the complexities surrounding tariffs and their impact on market demand. Therefore, any thoughts on cost structures must consider how we transition from this year to next year, which I believe is a more meaningful approach. Our cost reduction efforts are crucial, but it's worth noting that we are not planning to shut down a number of plants, unlike many in the industry who are consolidating operations due to anticipated low future demand. We are confident in our innovation and our ability to enhance the value of our facilities and use them effectively, as demonstrated by our transitions like from PET to copolyesters, or from standard interlayers to acoustic interlayers and HUD. We believe our asset base, with minor adjustments, is well positioned for growth in 2026, 2027, and beyond. Considering that, the $100 million improvement in earnings next year compared to this year is important. Given our focus on cash flow and discipline, the current $75 million to $100 million headwind in asset utilization could turn into a tailwind. If demand is as poor as the second half of this year, the tailwind in utilization next year would be $50 million; if it aligns more with the first half of this year, it could mean a $100 million tailwind. It's important to note that demand was weak in the first half of this year despite the challenges we faced, so we are optimistic about that being a tailwind for the upcoming year. We continue to innovate across our portfolio, contributing to revenue growth from the Kingsport plant, particularly with new HUD interlayers and Aventa products gaining traction, which are key to increasing utilization. We are also introducing new products in cosmetics and specialty plastics and recovering Naia. We expect to maintain strong discipline in managing our price and costs, avoiding any negative impacts or surprises, and proving our products' value even in tough conditions. It's reasonable to anticipate some recovery in CI, and with our cash discipline and improved cash flow projected for next year compared to this year, we’ll have more cash to return to shareholders. This is especially true since we have postponed the expansion of the next methanolysis plant, taking advantage of our current debottlenecking process. Overall, I believe we are positioned to rebound next year, but as mentioned earlier, the future direction of the economy is still uncertain.

Appreciate all the color there. Just to follow up on your add-on comment, Mark, and 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? The reason I ask is in the second to the 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. It doesn't sound like you have anything larger than a breadbox under consideration right now. Is that fair?

In the short term, I think that's reasonable, Kevin. To clarify, there’s optimizing capacity, and then there’s assessing which businesses should remain in the portfolio, which are two distinct inquiries. Regarding optimizing capacity, we have made adjustments such as optimizing production in our Massachusetts operations in interlayers by shutting down the Singapore plant and aligning capacity in heat transfer fluids with market conditions. None of these actions represent significant cost-cutting measures, but they reflect our awareness of managing cost structure. We will continue these practices across the portfolio as part of what Willie mentions regarding network asset optimization. The investment in CI is a strategic move aimed at enhancing performance at that site. As we are ready to share more details, we will provide additional insights into what that entails. However, we are not shutting down the entire site as seen with some major operations in Europe, where companies are closing facilities rapidly, possibly reaching a 30% shutdown rate by year-end. We’re not experiencing that. Concerning our portfolio, we always maintain discipline. Our track record demonstrates this, as shown with adhesives, tires, and the acetic acid plant. Historically, from 2006 to 2012, we have divested several underperforming businesses. We will consistently evaluate what belongs in our portfolio and remain open to separating aspects of the business. Integration does impose certain limitations, but at this moment, it is not an ideal time to pursue such changes given the current market conditions.

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

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 the uncertainty leading to a freeze in activity? Or is it helping you on that front?

That's great. But you're talking about across the portfolio, and I think I've already hit... across the portfolio. And just for your customers because that's always been one of your differentiations. Just curious, is it becoming a demand pull for '27, '28, '29? Or is that becoming more of a concern? What's interesting across the portfolio is that customers remain highly engaged. They appreciate our offerings and understand that to overcome a challenging environment, they need to drive their own growth instead of waiting for conditions to improve. It's also important to maintain differentiation from competitors. We are observing strong engagement in the auto industry with next-generation HUDs and specialized products needed for electric vehicles, which continue to grow in various market segments. There is significant interest in Aventa as a solution, particularly since polystyrene is being banned for many food tray and straw applications. Retailers and food service companies are looking for products to address these challenges, and engagement has been robust. Additionally, we are consistently launching new products in specialty plastics, including a product that replaces polyethylene coatings for paper cups and other food applications, which has seen strong interest. Across our circular platforms, automotive sector, personal care sector, and others, we are definitely seeing engagement. However, the rate of adoption is still being limited by current economic realities. Right now, everyone is focused on managing costs and navigating tariffs, but the positive aspect is that this situation has not led to a slowdown in engagement with innovation.

Thank you very much, everyone, for joining us today. We appreciate your time. I hope you have a great rest of the day and a great weekend. Thanks again.