Eastman Chemical Company 2026 Q2 Earnings Call

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. Yesterday, after market close, we posted our second quarter 2026 financial results, news release, and SEC 8-K filing, our slides and the related prepared remarks in the investor 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 2026 financial results news release, during this call, in the proceeding slides and prepared remarks, and in our filings with the SEC, including the Form 10-Q to be filed for second quarter 2026, and the Form 10-K filed for full year 2025. Second, earnings referenced in this presentation excludes certain non-core 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 second quarter 2026 financial results news release. We posted the slides and accompanying prepared remarks on our website last night, we will go now straight into Q&A. Lucy, please, let's get started with our first question.

Sure, Patrick, good morning. I have to say, I'm really incredibly excited to be talking about the company today and the tremendous execution our teams are doing across all businesses. Has really been a great result in Q2. Now we're looking at how we move forward in Q3 in the back half, I think is an important conversation. What I'd say when you think about the back half of the year, we're not expecting any improvement in the end markets when it comes to sort of the weak discretionary markets, auto, B and C, consumer durables. We're certainly benefiting from modest growth in what we call our stable markets across the entire portfolio.

We're not really seeing any sort of changes there. We're not seeing any impact of the Middle East war yet on sort of hurting end market demand in a material way across the world as far as we can see it right now. In that context, I think we're really well positioned to grow earnings, not just for Advanced Materials, but for the corporation as we look at the back half of the year. Starting with Advanced Materials, what you can certainly see is the volume growth has been strong into Q2, which is driven by a lot of wins in the marketplace, innovation driven wins. The growth that we're having in the circular business is still somewhat modest and will ramp up into the back half of the year. You'll see the Renew volumes continue to ramp up.

You'll see we'll continue to win in marketplaces through innovation, which would offset what is a normal volume decline in the back half for AM. We won't see that. Volumes are more likely to be similar to the first half. That's actually a good solid base to build from. On top of that, with Advanced Materials, you've got asset utilization head and tailwinds that are coming from all the actions we took. We mentioned the prepared remarks, where we reduced finished goods in the front half to offset some of the raw materials we were buying, like paraxylene to make sure we had security of supply. That created a bit of a utilization headwind in the first half. That will sort of flip around to being a tailwind, as these markets remain solid and we have to ramp up production.

In fact, we're really excited that the Tritan line is coming online now because we were pretty limited on capacity with Tritan with the volumes we had in Q2 and how we've switched one of our Tritan lines to serve the PET growth. That's coming on just at the right time, and now we're taking our paraxylene that we bought in advance for supply reasons and converting it to finished goods in the back half of the year. It gives you a tailwind on utilization, but not a headwind on cash. That's all going well, and then on the price cost side, team's done a phenomenal job of getting prices up with raw materials. As they've caught up, that will now flip into a tailwind in the back half of the year.

Also helping AM have solid earnings growth into the back half of the year, which is not our typical pattern, that's great to see that strength build. The second driver I would just mention to finish off the story is Fibers. The tow volumes will increase in the back half of the year materially as customers are increasing their orders to meet their annual minimum volume commitments with us. That's coming through, and there'll be some textile recovery we see as well, because volumes were quite low in the first half of the year, and some of the wins we're having will start bringing us back to sort of full volumes relative to last year. There'll be some offsets, obviously, in Chemical Intermediates and how those margins may moderate with the state of the Mideast conflict.

What I'd say on that front, though, is it's pretty uncertain what's going to play out right now. Right now we're expecting some moderation. Then as for petrol products, we'll have some seasonal decline like normal. When you put it all together, we're really in a good position to deliver a good, strong earnings improvement relative to last year. We basically had a strong beat in Q2. We're talking about a very solid Q3. When I think about our view on earnings for the full year today, I would say that it's better than where we were in April, and certainly feel like we're on a good track to very strong earnings growth in this context.

Yeah. On Chemical Intermediates and volumes, the vast majority of the volume increase was driven by, on a year-over-year basis, a lack of significant shutdowns this year relative to what we had last year. Last year, we had planned shutdowns and some unplanned shutdowns. We lost a lot of capacity to sell the market. This year, the volumes are running at normal capacity, which is a lot better than where we were. That does include some pickup in share due to the supply tightness in the marketplace. That's a quality of earnings comment, which is we're always going to sell the volume, it's just where do we sell and what the margins are. In North America, we picked up some share, where the margins are much more attractive than the export markets. Obviously, at the moment, the export markets are also very attractive.

We picked up some volumes in some attractive spots around the world where we saw opportunity to capture that value given the disruptions in the marketplace. The volumes were very good. It's more about mixed quality, and the tightness and the spreads that stacked on top of that. We also emptied out the cavern on ethylene at very attractive prices. We had some stored up ethylene that we sold off into the marketplace.