Eastman Chemical Company (EMN) — Q3 2025 Earnings Call Transcript

Thank you, Becky. 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 third quarter 2025 financial results news release and SEC 8-K filing, our slides and the related prepared remarks, and this is in the Investors section of our website, eastman.com. Before we begin, I'll cover 2 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 third quarter 2025 financial results news release during this call, in the preceding slides and prepared remarks and in our filings with the SEC, including the Form 10-K filed for full year 2024 and the Form 10-Q to be filed for third quarter 2025. Second, earnings referenced in this presentation exclude certain noncore 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 third quarter 2025 financial results news release. As we posted the slides and accompanying prepared remarks on our website last night, we'll go straight into Q&A. Becky, please let's start with our first question.

Mark, could you help us with the bridge to 2026? And in particular, is it just as simple as taking your full year EBIT from this year, adding the $100 million of cost savings and the $50 million to $75 million of asset utilization reversal. But then I'm wondering, you're talking about recycling being a good news story next year, but you kind of just mentioned that there'll be a revenue lift. So I'm not clear whether that revenue lift is being offset by weakness somewhere else in the portfolio or if there are other puts and takes that we need to put in that bridge to get to sort of what you're expecting at this point for 2026?

Thank you for your question, Vincent. It's a significant one as we look towards the second half of this year and aim for earnings growth next year. You highlighted many key elements. I want to begin by emphasizing that we need to consider full-year numbers. When assessing the latter half of this year, it's crucial to recognize three reasons why we shouldn't simply annualize those results. First, seasonality plays a role, particularly in AFP, and we typically expect a material drop from Q3 to Q4 in Advanced Materials. The second reason, as mentioned earlier, is that trade disputes have exacerbated this situation. Companies pulled forward materials in the first half to mitigate tariff risks, and now, with weaker consumer demand in the latter half, it’s taking longer for them to reduce their inventory. This has contributed to a larger sequential decline. Third, we began the year anticipating stability and growth in the first quarter; our expectations changed significantly during the second quarter. We had volume built for a scenario that became unnecessary due to softened demand, compounded by a $100 million asset utilization headwind for the second half compared to the first half. These factors greatly distort our outlook for the second half. Therefore, to establish a base case for next year, we should focus on full-year volume projections, specifically looking at Advanced Materials and AFP, which we expect to see down approximately 4% and 2%, respectively. Beneath that, for stable markets—about one-third in AM and two-thirds in AFP—we anticipate low single-digit growth, which is typical for these stable markets, especially following a softer year. This makes it more plausible to expect some recovery in growth for these products. The discretionary markets, however, feel a more significant impact from the trade war. For now, we can assume baseline volume remains stable. With interest rates lower and favorable tax legislation, there’s potential for upside, but that’s a decision for each investor to make. Regarding CI, we expect increased volume due to fewer shutdowns anticipated next year compared to this year. In Fibers, we aim to maintain stable volume similar to this year. So, we have a stable baseline with modest growth across the portfolio. After establishing these assumptions, we need to determine how to generate earnings growth from that scenario, which begins with cost reduction. We achieved $75 million in cost savings this year, much of which will carry into next year, contributing to our $100 million target for next year's savings. We are concentrating on this effort, with various initiatives underway. Based on the volume scenarios provided, we expect a utilization tailwind in the range of $50 million to $75 million for next year, contingent upon volume changes. If volumes are flat, we’ll be closer to the $50 million mark; if modest growth occurs, it could approach $75 million. Additionally, innovation remains central to our strategy, especially in this market environment, and we anticipate significant revenue increases from our circular polyester methanolysis plant, along with better utilization and costs. This will positively influence our EBITDA compared to this year. There will be ongoing innovation in HUD applications for vehicles and EVs within our interlayers business, and we see progress with Naia textiles, EastaPure semiconductor solvents, among others. We’re also focusing on regaining market share in several areas, where we have started to regain some lost share in architectural and coalescence markets, while tariffs are benefiting us in markets like specialty polyesters and rPET in the U.S. The tariffs hinder competitors in the U.S., and we're adapting as our customers shift their operations out of China. Overall, we're committed to maintaining pricing stability, expecting only slight declines, which helps preserve cash flow. Our focus remains on cash management, innovation, and aggressive cost control, all of which will contribute to meaningful earnings growth under this outlook.

Mark, there are many positive developments happening at Kingsport. Can you talk about the conversion to rPET capacity? How much is being converted and what impact will it have next year? Can you provide details about the debottlenecking, including the cost and timeline for when it will be operational? Also, what are your plans for the second plant? You mentioned three locations; where do we currently stand on that? Is Longview no longer a consideration?

Those are all great questions. I am somewhat limited in how I can respond to some of them. To start with Kingsport, the plant is operating well, and we are on track to meet our production goals. We have built strong confidence in our ability to enhance the plant's efficiency, and our yields are exceeding expectations, reaching 90%. This is remarkable, particularly when we are converting waste into top-quality polymer. We are thrilled with our progress and believe that a 30% increase in capacity is achievable. The capital investment required for this expansion, which will be made during our normal shutdowns, is relatively modest, so we're not disclosing the specific amount at this time, but it is not significant. We are eager to maximize the plant's output, which will contribute to continuous earnings growth while we also work on the second project. Regarding revenue from the project, in the current market, especially within consumer durables, the growth of our specialty Tritan products has not been as rapid as we had hoped, meaning product launches are slower. However, looking ahead to next year, we anticipate two developments: ongoing success in the specialty sector, with customers increasingly committing to purchases at premium prices, and a substantial increase in rPET production. Last year, we indicated that with the addition of 80,000 tons of new Tritan capacity, we could convert an existing line to rPET alongside a few other compatible lines. This allowed us to significantly boost our rPET production capacity. We have received strong interest from several customers looking to grow their rPET applications, driven by their challenges with mechanical recycled content, which often does not meet the quality standards required for high-end products. Our chemical recycling and purification process allows us to supply a virgin-quality product, and we expect a noticeable increase in volume that will help us utilize that capacity effectively. The revenue from this, along with specialty products, is expected to generate a significant upturn compared to this year, and we are nearing final commitments. As for the second plant, the debottlenecking provides us with the opportunity to explore a more capital-efficient construction approach. Additionally, it allows us to make a gradual capital investment in the current economic climate. We are progressing well on three different options for leveraging our existing assets in combination with our methanolysis technology to build the plant more affordably. We recognize the value of vertical integration, which we practice in Kingsport, and this will also be vital for any new developments. We are excited about our plans, although we won't be providing further specifics at this moment. Hopefully, we will have more information to share in January.

Perfect. And Mark, just on Q1, looking to next year, how should earnings ramp from Q4 to Q1? I assume most of the asset utilization headwinds should be gone by then. Is that fair?

Yes. The challenges with asset utilization should improve by Q1. This is one of several reasons. There's the typical seasonal decline in Q4 when demand is low, particularly in Advanced Materials and AFP. However, we usually see a rebound in the first quarter as preparations for the holiday season ramp up. In our Specialty Plastics business, many customers are already discussing plans to increase their purchases compared to current levels, which is encouraging. Additionally, we have this unusual situation where inventory built up in the first half of the year is being consumed in the second half, which has been contributing to lower demand in Q4 beyond the usual seasonal patterns. We believe there's a strong possibility that this excess inventory will be fully depleted by the end of the year, although it's difficult to predict. Our experiences in 2023 have taught us to be cautious with inventory depletion forecasts. However, this year differs from 2021 and 2022, when there was significant inventory buildup amid expectations of considerable growth. This year, expectations have not been as high, and data from retailers and consumer brands indicates they did not accumulate much inventory. They have instead focused on positioning existing inventory strategically to mitigate tariff risks, including for our products in China and Europe, meaning there’s not much to unwind. We anticipate some relief from this situation. Furthermore, we expect revenue from methanolysis and rPET initiatives to start contributing in Q1, along with our continual innovation efforts driving growth. Lastly, the cost-saving measures we've implemented throughout this year should also benefit us come Q1.

Mark, can you just discuss this dynamic with Renew? Your customers seem to be interested in the specialty applications for the polymer, but they're not actually buying the volumes. So how do you gauge their real interest and sort of ability to pay for the price that you're charging for Renew?

It's a great question and has been raised several times. The value of Renew lies in its ability to differentiate products on the shelf, which helps achieve a better price point and volume growth. There was significant interest in this in 2021 and into 2024 due to this opportunity. However, the realization of this value depends on the actual market and consumer willingness to purchase. With consumer durable markets being soft and not experiencing much growth, there was hesitance last year about launching new products in that environment. Current demand for consumer durables in 2024 is likely 5% to 15% below 2019 levels, depending on the product, and this is related to home sales. Home sales, which trigger durable purchases, are down 20% in 2024 compared to 2019 in the U.S. and Europe, with an even worse situation in China. Consequently, the underlying market for new products is weak. Despite having over 100 customers and only one cancellation of their commitment to Renew, the pace at which they are launching new products and achieving consumer volume is constrained by these market factors. The good news is that there is accumulated pent-up demand, as many appliances from the COVID period are aging. Therefore, with some stability in the economy, we anticipate a significant resurgence in demand since it is building up from 2022 to now. The trade war has further complicated the situation this year, but our confidence remains unchanged. If brands were truly uninterested, they would reduce orders, but they are not doing that.

Makes sense. And second question on Fibers. Why are volumes just stable next year in terms of your expectations? I thought we had some weaker textiles this year and also you had some customer destock. Could you just talk about these dynamics, how you see them evolving next year?

There are many factors at play within the Fibers business. As I mentioned in the second quarter call, around 40% of the challenges in Fibers are not linked to the tow business. Textiles, which helped support growth to counteract the decline in the tow market through 2024, has recently been affected by the tariff situation we encountered. We had modest year-over-year growth in the first quarter, but that shifted to a mid-single-digit headwind in May due to the tariffs announced in April, which impacted both housewares and textiles for appliances. Initially, we projected a $20 million headwind, but we now believe it could be closer to $30 million for the second half of the year, presenting a significant challenge in textiles. The positive aspect, however, is that this change in demand is cyclical and not structural. We’re already seeing some opportunities for gaining market share as we look to diversify our markets outside of China, where the reciprocal tariffs are affecting us. We're optimistic about rebuilding that aspect of the business next year. Overall, there has been a decrease in demand across the stream, leading to a $20 million headwind from asset utilization in the latter half of the year, which is affecting Fibers. Higher energy costs are unlikely to turn into a benefit, but textiles and asset utilization could turn favorable as we progress into next year and beyond. Regarding tow, there has been a notable drop in tow volume this year due to destocking. Customers built up significant inventory in response to previous supply concerns, and now that the market is less constrained, they feel they can reduce that inventory. We don’t anticipate the situation to worsen next year, but we expect the destocking to persist to some degree. It's similar to the medical destocking we've seen—it’s not just a single-year issue. Additionally, some market share has been lost to new entrants, particularly from China, and we're adapting to that. Looking ahead, we believe the share situation is stabilizing, and while destocking will continue, it shouldn’t worsen. If we manage our market positions effectively, we should be able to maintain stable volume.

Apologies if I missed this, but on the Pepsi contract, can you remind us in rough terms what the initial agreement looked like? And what is prompting restructuring of that agreement?

The Pepsi contract was a crucial foundational agreement that provided us with the assurance needed to construct the second plant. Although we cannot disclose specific volumes due to confidentiality with Pepsi, the amounts are sufficient to support a second facility at a scale of 100,000 tons, similar to our existing plant, which will be enhanced by 30% thanks to our debottlenecking capabilities. This contract includes provisions that ensure revenue stability, as it will adjust according to fluctuations in our key variable costs for feedstock and energy while guaranteeing committed volumes. It was originally structured with the timeline for the second plant's start date in mind, which was projected to be a few years out. The restructuring we mentioned involves successfully collaborating with them to accelerate the volume start date to next year. They recognize the value of recycled PET and are eager to offer high-quality products to consumers, hence their interest in beginning volume production next year.

Great. And then just at a high level, how should we think about CI earnings next year? You have some asset utilization tailwinds, cost reduction. And is there anything encouraging you're seeing from either trade regulations or perhaps planned asset rationalization that maybe helps pull forward an inflection point there?

Yes, that's a good question. Firstly, we are currently experiencing a manufacturing recession that began in 2022 and we are now entering our fourth year of this downturn. There's been no historical precedent for this situation. In 2009 or 2020, we experienced a sharp decline followed by a quick recovery, but that's not the case this time. The current landscape is complicated by an influx of low-priced capacity from China. The commodity industry as a whole is facing a unique set of circumstances. To address your question, there is significant capacity rationalization happening in Europe, and we anticipate that will continue. The Chinese government is attempting to influence rationalization, but it's uncertain how much they will succeed or to what extent. However, it's clear that excess capacity is leaving the market, which makes it difficult to predict when market conditions will stabilize. In terms of competition, I can confidently say that we are currently at the low point for competitive cash costs, especially considering how Chinese pricing is affecting the market outside of the U.S. The tariffs are offering some margin protection for us in North America. Our main challenge is that the North American market, where we ideally want to sell most of our products, typically yields higher margins and is very attractive. When the trade war affected demand in sectors like building construction and consumer durables, especially when a housing recovery didn’t materialize as expected early this year, demand for those products declined. This negatively impacted our mix since margins in North America are significantly better than in the now-challenged export markets flooded with Chinese capacity. An improvement in demand for housing and a recovery in durable goods driven by interest rates would enhance both the mix and the earnings potential for CI, and I believe this will improve next year. We expect demand to rebound better than it currently is, and we will also have more volume to sell next year. Additionally, we are pursuing aggressive cost-reduction strategies this year and next, with CI covering a substantial portion of those costs. There are multiple reasons to believe CI earnings could improve. However, I would advise caution regarding how much the spreads might enhance until we gain more clarity on the broader market dynamics.

I wanted to ask about Fibers as a business that is experiencing cyclical rather than structural headwinds. In recent quarters, there have been indications of losing market share in China for coating additives, as well as comments from other companies regarding interlayers, pointing to competitive pressure in that market. Are there specific chemical sectors where you are noticing more structural supply coming from China that could lead to declining earnings and volumes in the coming years? Additionally, regarding films or coating additives, is the issue you are facing this year largely cyclical or structural?

There are several questions in that inquiry, so I'll address them one by one. To clarify our situation in fibers, the cyclical aspect pertains to textiles, particularly where demand, especially in China, has declined. We don't face much direct competition in our Naia yarn product, but there is ongoing substitution among various textile chemistries, where we're gaining market share due to the sustainability of our product. This gives us confidence in its long-term prospects. With our product being 60% biopolymer and utilizing recycled plastic, along with fully biodegradable microfibers, we see considerable growth potential. Although we have experienced a loss in market share in the lower value segment of interlayers within the architectural sector, we are in the process of regaining contracts for next year. Additionally, in coalescence, we face competition from equal products in China, which has resulted in us conceding some market share, though they are increasingly gaining traction in other regions. However, for most of our advanced materials market, our innovation and competitive edge remain strong, and we currently do not encounter significant direct competition from Chinese production. The key factors influencing our situation from 2022 to 2025 are primarily related to market volume demand impacted by rampant inflation and subsequent interest rate increases, coupled with a trade war, adding to the complexity. Currently, we do not observe any significant new capacity in our specialty areas that might come online soon.

Perfect. I have a quick question about buybacks. I may have missed it, but I remember there was a mention last quarter about committing to more buybacks next year compared to this year. Is that still the plan?

So what I would say is, obviously, we're always disciplined when it comes to capital allocation. We bought another $50 million in addition to our dividend in Q3. We've completed the buybacks that we expect to do this year with keeping our net debt flat on a year-over-year basis. And what I would say is, as we think about the scenarios that Mark described, obviously, we're confident in our dividend in '26 and going forward. And obviously, we don't bet cash sit on the balance sheet, but making sure net debt is aligned with and moving back towards our 2.5x goal, we'll put the rest of the cash to use. But we'll update you in January on what the range of buybacks could look like.

I want to go back to the initial questions around the bridge to '26 and just really clarify the basis for when you're thinking about what we should be bridging off of? Because I think in your comments, you were adding back inventory actions in the second half, but we know you overproduced in the first half. So should we be thinking about that additive to the full year? Or is that additive to the second half? I think that's kind of the difference between getting to $5.50 versus something like $6.50 in EPS as a base expectation for 2026. So hoping you can clarify that.

Yes, Josh, this is Willie. So on the utilization front, obviously, we've been talking about a first half, second half. But as you also look at the volume and the demand outlook that Mark described, we've more than offset the inventory build that we had in the first half and expect to do that by the end of the year. And that should give us utilization benefits as we're going through a more normalized year of stable demand that's growing on a year-over-year basis. So as we think about utilization, you had a minimum $50 million due to the absence of inventory depletion on a year-over-year basis. And ultimately, upside comes from there to the $75 million depending on how much other demand drops to the bottom line.

Yes. I want to emphasize that we shouldn't look at the first half or the second half in isolation; instead, we should consider them together for a more accurate estimate of this year's volume decline. Given the various factors at play, we anticipate a decline of about 4% in AM and approximately 2% in AFP. Therefore, when considering volumes, we are building on that base as we head into next year. Additionally, we have to factor in all the elements mentioned in the first question regarding potential growth.

Yes. No, I appreciate that. That makes sense. And I guess, I mean, a related point, I guess, on combining the volumes, I mean, your first half volumes were down low single. Your second half is maybe down high single. I guess when you look at customer order patterns and what they're talking about, do you expect that to grow over the first half basis? Or because of the exit rate, are volumes actually down in first half in terms of your base thinking and then it's easy comps in the second half?

The second half should present easier comparisons, so we can respond to that. However, the first half is a bit more complex to analyze, particularly Q1. In Q1, our outlook on the economy, shared by others in the industry and our customers, was quite optimistic. They anticipated stable demand and modest growth in certain areas, expecting the Federal Reserve to lower interest rates eventually. Consequently, the underlying market volume slightly increased, particularly in Advanced Materials. Our strategy regarding volume and manufacturing is structured around the expectation that this trend will persist throughout the year, which is why there was a significant shift due to destocking in the second half. When considering the changes and the extent of inventory depletion from the prebuy in the first half, along with some of the impact from the first quarter, it's challenging to gauge. We're confident that Q1 will outperform Q4, but it's difficult to determine how it will stack up against Q1 of last year. We'll have to wait until January to provide clarity on that.

Mark, with regard to your Pepsi contract, is there any downside financial risk to Eastman now that you're rethinking the second plant? Or is it the case that there's really no downside risk because you're either protected contractually or you can perform against the contract through supply from Kingsport?

Well, first of all, we feel great about having them as a partner. We feel great about them seeing the value of recycled content, the importance of recycling their packaging in the market and creating a closed loop. And they've been a true leader in the industry on this front, and we're proud to have them as our baseload. When it comes to the contract, we believe the way the contract is structured, we can reliably supply them from Kingsport and the debottleneck that we're willing to get that extra 30% and the different ways we can configure polymer lines to support what they need. So clearly, we want that baseload contract to support our second plant. But with the actions that we've taken, we're in a position to support them from the different existing lines and how they can be configured and the margins are attractive and give us a good return on investment around Renew. So we're happy to support them.

Great. And then as a second question, I think you've raised your dividend every year since 2010. And with the actions you've taken, it looks like you've really supported the cash flow. I think you said approaching $1 billion. So given that's the case, would it be reasonable to expect that streak of annual dividend increases to perpetuate? I realize it's a Board decision, but it does seem like you're generating enough cash to do that. Any thoughts along those lines, Mark?

Well, first, thanks for the question and bringing up how solid and attractive our dividend is, which is well covered by our cash flow, as you also recognized. To your point, it is a Board decision, and we're not going to get in front of that process. But we do have a record of 15 consecutive years, and I think that speaks for itself. Also, as you've seen our most recent dividend, they haven't really significantly impacted the cash flows that are required to ultimately fund the dividend going forward, and we do have a strong cash flow that we would expect in 2026.

And if I could get a little more granular on the outlook question. Going back beginning of August, the expectation was 4Q would be in line, if not better than 3Q. And then in September, Willie indicated that 4Q might be a little bit weaker than 3Q. And then obviously, with last night's guide, things got even weaker. So I'm wondering if you can speak to the pace of activity that you've seen in the past couple of months? And what are your order books suggesting here for November? And how confident can you be that this is the bottom?

That's a great question, Frank. We've invested a lot of effort in understanding the current market dynamics, which are quite chaotic. It's challenging to obtain reliable data on the marketplace right now. We're striving to grasp the situation fully. The main change from our Q2 call in September to now is in demand. Everything else has remained stable. Our cost management plans are progressing well, and we're being somewhat more proactive given the challenges ahead. The price and cost relationships are as expected. The key issue is still end market demand and its trend. It links back to understanding current consumer demand and the inventory levels built in warehouses across the U.S. and in China, which were procured out of caution regarding potential tariff issues. We aren't certain how long it will take to resolve these challenges. The order patterns that we anticipated to be short lived in July have extended into the latter half of the year. However, we haven't accumulated significant inventory overall, based on observations from public companies and retailers. This limits how much they can adjust, but it ultimately hinges on consumer demand. All these factors are at play. The fourth quarter is always unpredictable, especially as it progresses. Revenue from October is in line with expectations, which gives us some reassurance. We’ll need to monitor trends closely. We are particularly encouraged by our Specialty Plastics customers in long supply chains who are already discussing increased orders for Q1, but it's still too early to determine the precise timing of these developments.

Okay. Understood. And you did mention that you're becoming a little bit more aggressive on the cost reduction front. You announced the 7% headcount reduction. Can you talk to the locations, the geographies? And how much of that is embedded in that $175 million in cost cuts that you're expecting between '25 and '26?

So Frank, cost discipline is a fundamental aspect of Eastman's identity and strategy. The cost reductions we have planned for 2025 and 2026 are aggressive and are designed to offset potential declines in Fibers and Chemical Intermediates that might not recover. This cost discipline is crucial to supporting our growth and investment in innovation. For this year, our net savings are expected to exceed the $75 million target we set at the beginning of the year, and the momentum we have gained in the latter half of the year gives us confidence to raise next year's net goal to $100 million. This translates to over $300 million in total cost reduction initiatives, driven primarily by productivity improvements, competitiveness in manufacturing and functions, and the scaling of AI within Eastman for both commercial and manufacturing purposes. The 7% figure reflects our expected headcount reduction from the start to the end of the year, as we effectively navigate the current environment while striving for excellence. Studies post-COVID have shown a productivity loss of at least 8%, compounded by retirements leading to a loss of knowledge in both Eastman and the chemical sector. Our focus is on reclaiming productivity by making substantial investments in capability, training, and work processes. Additionally, we are optimizing our footprint and managing supply chains that have incurred significant costs due to tariffs and logistics in recent years. A recent example of this optimization is how we are restructuring our films business to operate from a regional asset footprint, which involves some changes in our U.S. assets. We are also transforming our maintenance processes and ensuring we have the right partners, having switched out partners for some of our major assets in Tennessee and Texas. The benefits of these changes will contribute to our goal of achieving $100 million in savings as we head into next year. The application of AI is particularly exciting; it allows us to lower innovation costs and accelerate time to market by helping us predict which formulations will be most effective. On the commercial side, we are leveraging AI to enhance pricing excellence, create compelling offers, generate returns from those offers, and attract new business. Overall, we are right-sizing our costs to support long-term innovation investments and are on track to deliver results in 2025 and 2026.

Mark, when you think about the portfolio that you have now, I think the hope over the last decade was to move it to more specialty type areas. Your multiples compressed a lot. When you think about what to do for the next 5 years or so, do you think you need to make any changes? The results granted unprecedented times, has been difficult. So when you think about things to do to improve the portfolio, any thoughts there?

Thank you for your question, Mike. We're continually evaluating our portfolio and considering our future direction. I want to stress that our core strategy of becoming an innovation-driven company, which has been in place for over a decade, remains the right approach, particularly during these chaotic times. Protecting our value and market share relies on having differentiated products that customers seek. By launching new products, we can foster our own growth. We firmly believe this strategy is correct, and we've introduced a more aggressive cost management initiative to complement it. Previously, our productivity countered inflation, but we're now taking additional steps to enhance our competitiveness in the current market. This strategy enables us to steer our normalized EBITDA toward the goals we outlined in our detailed discussion last November, and we continue to adhere to it. The management of our portfolio has been crucial; we've made disciplined decisions to divest non-strategic assets like tires, adhesives, and the Texas acetic acid plant. Looking back further, we have a proven track record of shifting our portfolio toward specialty products, divesting around $3.5 billion in commodities before 2012, and executing sizable acquisitions such as Solutia and Taminco, along with smaller bolt-ons to significantly improve our portfolio's quality. We are skilled at mergers and acquisitions, integrations, and acquiring assets at sensible prices, and we are always on the lookout for such opportunities. The industry is undergoing substantial changes, and we are considering how our portfolio should adapt in this evolving landscape. However, we will not go beyond that at this time.

Yes. And then in terms of a quick follow-up, when you think about the normalized EBITDA, you talked about a year ago, a little over $2 billion or so. Is it less volume to get there now given your cost savings? Is there any major changes to the walk? Or is it still fairly similar? I mean we need some volume to get there?

Volume is undoubtedly the main story and challenge we've faced since 2022. We need volumes to stabilize, along with a stable economy, for improvement. Innovation tends to accelerate when customers feel confident in a stable environment, prompting them to launch new products to gain market share. So, volume growth, driven by both market conditions and innovation, is crucial. The cost reductions we've implemented are significant and have materially lowered our cost structure, but this year, a $10 million sequential headwind of utilization related to our inventory management is masking those benefits because the expected growth hasn't materialized. Therefore, the cost advantages aren't as visible this year. Moving into next year, if volumes remain stable compared to this year and the economy is also stable, we'll see the advantages of our cost-cutting efforts combined with the positive impact of utilization. This means we'll benefit from both increased volume and a more competitive cost structure. It's essential to remember that the volume challenges we've faced this year are particularly impactful due to our large, vertically integrated sites, like Tennessee, which have significant fixed costs. A drop in volume is painful, but when volume returns, the incremental margins will be very promising.

Most of my questions have been answered. I guess just wanted to know maybe you could elaborate on some of the choices you're making between giving up some maybe lower value business and the market share losses and what that kind of means for the future as you look into 2026. Does that set you up for maybe some improved margin performance? Or how should we think about that?

We are continually optimizing our asset base, which has been a fundamental aspect of our strategy from the beginning. For example, when Eastman developed competitive PET, we transitioned to a range of copolyesters made with proprietary monomers that enhanced their value. This led to the introduction of Tritan, a proprietary product that significantly increased value and achieved great success. The new Tritan line we are currently adding is the first PET line we have introduced in decades, as we consistently seek to increase the value of our assets. The same approach applies to interlayers, as we move from standard products to those with enhanced features like acoustic properties or heads-up displays. Optimizing our asset base to improve returns and shift to higher-value products is deeply integrated into our long-term strategy. We continually assess our product mix, replacing lower-value items with higher-value alternatives. While we have demonstrated the effectiveness of this strategy in our previous Investor Days, the current soft market has prompted us to consider some low-value applications for maintaining asset utilization. As demand has decreased, we have had to free up some capacity, so we’re looking to reintroduce lower-value applications to optimize asset use. As the economy rebounds, we will once again elevate our product mix, as we have always done.

In PET bottles, do you expect Renew to be used in a consistent way? Or is it going to be maybe blended at different levels? And do you expect any differentiated marketing around Renew and bottles?

We do, John. Different brands, both on the specialty side and in our PET packaging, are making varying choices about the percentage of recycled content they want in their bottles. Some may use 50% recycled content, while others may opt for 100%. This decision relates to their marketing strategies on the label and their corporate goals regarding recycled content. The approach varies widely among companies. We are able to adapt our assets to incorporate any level of recycled content that our clients desire, making the process seamless. This flexibility allows us to meet consumer needs, and we offer competitive pricing across different levels of value.

Is there an average level in your plan?

I would say that at the moment, our expectation is when you look at the specialties and the rPET combined together, it's probably going to be around 50% for a while. You'll have products that are going 100%. You'll have some that are 50%. And then you have products that, in some cases, might be lower. But somewhere on average, I'd say, when you look at it somewhere in the 50% to 75% range is sort of where the recycled content will land. But it's really evolving. What I expect to see happen is people go with a lower level of recycled content when the economy is as stressed as it is because there's a premium they're paying for it, but they want to make progress on their goals. They want to demonstrate commitment to the consumers. And then as the economy stabilizes, they'll start ramping up to a higher level of recycled content when they have better economics to afford it.

We've had a number of announcements from your ag chem customers about difficulties they're having in the market. A number of consultants are talking about pretty big structural changes there with the Chinese pushing harder into those markets. When you look through the view of your intermediates chemicals into the ag chem industry, do you think you have the right position? Or do you see changes which can affect you and cause you to have to change your business model there?

Yes. We're very fortunate to have a very strong relationship with a lot of the top ag companies. And the vast majority of our business is in North America where we make these intermediates and they're sold here. We're also very fortunate to be aligned with winners in the marketplace like Corteva when we're providing the sort of key ingredients of the Enlist product. So we're in a better position because we're just not as exposed to all the competition and battle that's going on in South America, which I think is what you're probably getting at. And the tariffs, of course, again in the U.S. are sort of helping manage some of the pressure here. So I think we feel relatively good. We're not having any conversations with our customers at this point, at least, where they're concerned about their position in North America.

Great. And then as you've seen some weakness in your downstream tow business and the textiles business, does that mean you're going to run your kind of acetyls chain at lower operating rates? Or will you have to push into more acetyls derivatives upstream from those markets?

That is the beauty of having an innovation-driven company. So a long time ago, we knew that demand would not be forever there for tow. We've been lucky that it's declined at a relatively slow rate. But we've been building a whole innovation portfolio, as we discussed at the deep dive last November around how to take cellulosic polymer into a wide range of new applications, right? So textiles was one of those applications, which was doing its job to sort of offset that to, as I said earlier. But the Aventa program is still having great progress going forward. This is the foamed cellulose polymer that can replace expanded polystyrene food trays, go into straws, et cetera, and all the food service areas where you can't really do recycling because of the way the product is contaminated and they completely biodegrade. So we have a lot of growth opportunity, huge markets in Aventa that we can serve, and we've got some great IP positions around some of those products. And we also have some specialties that are very high-value microbeads that are made out of nylon acrylic being replaced by a biodegradable cellulosic for cosmetic formulations that we can replace polyethylene coating on paper cups and paper wrappers around candy bars, whatever, the biodegradable polymer. So our whole portfolio is in action. Obviously, the volumes are still relatively low and building, but we have great traction with our customers. So that's how you drive overall company stream utilization because the stream has always gone into specialties in AM and AFP as well as tow and generate a lot of value in those segments. And we're going to keep growing and expanding through those to keep the whole stream vital.

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

Can you provide insight into the extent of reshoring appliance production in the U.S. and its potential impact in 2027 and 2028, particularly in light of the GE Louisville announcement? Additionally, regarding the Chinese five-year plan, do you believe the initial drafts circulating indicate a positive trend due to the focus on innovation in more specialized products, or do you see it as negative because of the emphasis on profit sharing to boost consumption, which could lead to lower returns for the chemical industry?

So on the reshoring question, I think that you will see people reshoring to the U.S., and we'll see the benefit of that. There are companies that have been leaders in doing that like Whirlpool and Newell. And I think after all this pre-bought inventory that happened in the first half gets exhausted, they'll see benefits to their position in the U.S., and we'll see more of that if USMCA gets preserved. I think you'll see it not just in the U.S., but also in places like Mexico, where that will continue to be built as well as people still moving to other places like Southeast Asia, where the tariffs are still quite a bit lower than doing it in China these days. So we're following our customers wherever they go. But it takes a while to build plants. It doesn't happen overnight. So we'll see how that plays out over time. Regarding the latest Chinese 5-year plan, I have to admit I'm not an expert on that plan. So I don't want to get into territory of details. I don't really know. What I would say is from what we see in the China market is uniquely challenged as part of the global challenge where they don't have consumer demand growing very much there because of the stress of the collapse of the housing market and they're adding a lot of manufacturing capacity and aggressively exporting it, and that's creating strain in the country, and it's also creating strain around the world, which is leading to these tariffs that you start seeing happen, not just here, but you're going to see them in other countries. So I think the China government has got a lot of complexity to manage there and their excess capacity is not helping their local economy or the world's economy. And hopefully, some of the actions they're talking about to sort of rationalize capacity to be more appropriate that they actually do. But we're just going to have to wait and see what they do on that front. And hopefully, they stimulate some consumer demand in China, which would certainly help their economy a lot.

Thanks again, everyone, for joining us. We appreciate you taking time with us, and I hope that you have a great day and great rest of your week. Thanks again.