Everyone, welcome to the first quarter 2022 Eastman Chemical Conference call. Today's conference is being recorded. This call is being broadcast live on the Eastman's website, www.eastman.com. We will now turn the call over to Mr. Greg Riddle of Eastman Chemical Company, Investor Relations. Please go ahead, sir. Thank you, Keith. Hello, everyone, and thanks for joining us. On the call with me today are Mark Costa, Board Chair and CEO, William McLain, Senior Vice President CFO, and Jake LaRoe, Manager Investor Relations. Yesterday, after market close, we posted our first quarter 2022 financial results news release in SEC 8-K filing, our slides and the related prepared remarks in the investor section of our website, www.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. Cautionary statements regarding forward-looking information and certain factors related to future expectations are or will be detailed in our first quarter 2022 financial 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 2021, and the form 10-Q to be filed for first quarter 2022. 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 first quarter 2022 financial results news release. As we posted the slides and accompanying pre-prepared remarks on our website last night, we will now go straight into Q&A. Keith, please let's start with our first question. Thank you. Ladies and gentlemen, if you'd like to ask a question, you may do so by pressing star one on your telephone keypad. Star one for questions. Please make sure the mute function on your phone is turned off so the signal can be read by our equipment. We'll take our first question from Vincent Andrews with Morgan Stanley. Please go ahead. Thank you. Good morning, everyone. Wondering if you could talk. Good morning. Wondering if you could talk a little bit about just sort of how the second U.S. project in molecular recycling is developing. I see you're now mentioning that you're talking to several global brands. I'm wondering if anything is changing about the size, scope, or scale of the expected initiative as well as I think you'd originally said you might have something formalized in the first half of this year and you know here we are almost in May. Just curious for an update there. Sure, Vincent Andrews. On the circular economy, we're really excited about how well it's been going across all projects, right? We've got the Kingsport project that's gonna be starting up, you know, in the next nine months. Then you've got, looking at, the France project. A lot of momentum going on in those two fronts. As we look at the US project, we would expect it to be, you know, similar in size to what we're doing in France. It would be focused on predominantly packaging and textiles since we already have a nice, you know, specialty play in the Kingsport side. We do see tremendous engagement from several brands on wanting to be sort of significant off-takers of that project. You know, when you think about just the scope and need that these brands have for recycled content in the projects and the targets they've set for 2025, they really need to endorse molecular recycling. When you look at mechanical recycling, it just has limitations in truly creating a circular economy because when you look at the packaging waste, only about 20-30% of it can really be looped back into food-grade bottles. They have a real shortage of, you know, how they're gonna get this recycled content, right? 70% is gonna get downcycled into strapping or park benches or in the U.S. landfill or incinerated in France. That's just perpetuating the linear economy and not disconnecting from fossil-based feedstocks. Mechanical is great that it's energy efficient, but it's, you know, completely insufficient, not to mention it also degrades over time. They realize that to maintain high quality of their packaging and a long-term solution, molecular recycling has to be around to support that, and enable all of the packaging waste to be recycled. I mean, our position is you should reduce and reuse as much as possible, but much of this, you know, is still gonna be needed in packaging, or in textiles, same story. We are the required solution to actually eliminate all the waste. They get that. They understand it. They also understand that, you know, plastic is a much more energy efficient product than glass and aluminum. You know, if you first want to assume green energy is limited in the planet, then you should use the most energy efficient product, not glass. That's four times more energy, or aluminum, two times more energy to make than plastic. They're very focused on this, and that's why we've got such good engagement. They understand the sort of cost pass-through contract nature of what we're trying to do. We feel really good about where we're at. But as you know, with these kind of very complicated long-term commitments, it takes time to work out the details. Sure. Maybe just as a follow-up, you know, I noticed there were no buybacks in the quarter, but you're still committed to doing at least $1 billion in the year. How should we think about the cadence during the balance of the year to get to that at least $1 billion-dollar goal? Sure. Thanks, Vincent, for the question. We did wrap up the ASR that we launched in December here in early March, completing the $1 billion from last year. We've also, I would say here in April, closed on the transaction. We have the $1 billion of cash in. I want to compliment our teams and also wish Arxada's team success as they transition. We're continuing to partner, providing transition services on both transactions here through the end of the year. If you think about how we started Q2, we've already purchased 200 million shares here in the month of April. You can expect a pace similar to that through the rest of the quarter. For the full year, I expect, again, to be at $1 billion or greater as we deliver on the commitments that we made. You can look at that on a full year basis as, you know, basically, providing about $0.75 a share to offset, you know, the roughly $100 million of EBIT impact from the divestitures. I would say that's about $0.30 in the first half, growing into the second half as we complete the purchases here in Q2 and Q3. Great. Thanks very much. Appreciate it. We'll take our next question from Kevin McCarthy with Vertical Research Partners. Please go ahead. Yes. Mark, good morning. You affirmed the annual EPS range. I was wondering if you could speak to the seasonality in the back half of the year, you know, as you're recovering operationally at Kingsport. You know, speak to 3Q versus 2Q. Then, you know, the seasonality in fourth quarter. For example, I think you mentioned you got a plant turnaround in Chemical Intermediates later in the year. How do you see that unfolding through the coming quarters? Thanks, Kevin. A very important question. We spend a lot of time trying to think about how our cadence of earnings and value creation goes through the year. When you think about this year and you look at sort of the guidance we gave for the second quarter and add that together with what the results that we had in the first quarter, you know, the first quarter looks, you know, to be around $475 if you use the midpoint of our second quarter cadence. To get to our midpoint of our full year guidance, you're talking about $5 a share in the back half, which is about 5% higher than the first half to your sequential question, or $0.75 a share on a year-over-year basis. That's, you know, a strong back half quarter for us. We don't really have a normal that we can look to in the past because we've had so many different events that are first or second half loaded if you look at 2018 to now. We can recognize that's a little bit stronger than normal. I think the easiest way to talk about it is on a year-over-year basis. When you really think about delivering that $5 a share in the back half of the year, it really comes down to a question of what is AM going to deliver relative to, you know, what normalization in CI occurs. Because obviously the steam line event in the first quarter, you know, we had a sort of significant setback on that to the first half of the year. When you look at it and do the math on the midpoint of our guidance for the full year of AM of $650-$700, that means we basically have to be around $200 million over the back half of last year. Now roughly half of that, actually probably greater than half of that, will come from how we're managing spread. You know, almost all of the spread compression last year that occurred in this segment was in the back half of last year. We've been incredibly successful in implementing price increases, you know, to begin the first quarter, and get the spreads that we were aiming to get, that we discussed in January. That sequential improvement in spreads is still expected in the second quarter. We have a lot of great momentum in the pricing actions we've taken, including implementing a whole set of additional price increases in this month, to cover the inflation that, you know, occurred through the first quarter. You've got $100 million, you know, greater than $100 million really of spread improvement in the back half of this year relative to the compression that occurred in the back half of last year, right? Recovering that compression, if you will. That's half of it, or more than that. You've got, you know, strong volume growth. The volume growth in the back half will be a little bit different. First of all, you've got incredibly unmet need, especially plastics given how we were not able to serve that market. Markets are incredibly strong. No one has inventory, so the likelihood of destocking in the fourth quarter is much less because there's nothing to destock. You've got the automotive market we're assuming starts to get better in the back half relative to the first half. We expect, you know, logistics constraints to ease, which is really one of the bigger limiters of our ability to sort of serve demand. You've got the production catch up, right? We, you know, lost about $75 million of volume in the first quarter, and we think roughly half of that will be recovered through the year. Most of that recovery is going to occur in the third and fourth quarter, because we're just ramping up production and with logistics these days, getting all that out the door and recognizing the second quarter is going to be a bit of a challenge. A lot of factors that drive, you know, volume to be a lot better. You weigh that against, you know, what's going to happen in CI normalization. I think we've taken, you know, our standard approach to assuming it's going to normalize at some point. For now we're expecting that in the back half of the year. There's some higher gross spend. You put all that together, you net out, you're going to come up with, you know, positive EBIT relative to last year in a meaningful way. You've got $0.45 a share from the share purchase we're doing to replace the divested earnings. you know, $5 is a very reasonable improvement to get when you think about it in those dynamics, and that gets you that sort of 5% sequential improvement versus the first half. Great. Thank you for that color. As a follow-up, Mark, have auto production forecasts bottomed at this point from your perspective? I appreciate any updated thoughts on what you're seeing in terms of order books and expectations for that particular end-use market. On the auto market, we had an expectation of, you know, demand being relatively stable in the first quarter and the second quarter, and then, you know, modestly improving in the back half of the year. I'd say first quarter turned out to be a little bit softer than our expectations. We expect the second quarter to be down a bit relative to the first quarter, principally due to the Ukraine war impact on European auto production and some of the slowdowns we're seeing in the COVID, you know, lockdown situation in China. But we do. You know, a little bit lower base than what we started the year with, but we still expect it to improve in the back half of the year as China gets its COVID situation under control. That is our base assumption, as well as the European situation starts to stabilize, supply chains start to improve. You know, we're still looking at an annual number in our forecast that's below last year a bit. Obviously, LMC is above last year in their current forecast, and we're not using that. Just to be clear, we're using something lower than that in what's loaded into our forecast. I think we're taking a reasonable approach to what we're estimating and what we're seeing in the marketplace. Perfect. Thanks a lot. We'll take our next question from Josh Spector with UBS. Please go ahead. Yeah. Hi, guys. Thanks for taking my question. I guess just specifically on AFP, I'd be curious on the new portfolio if you'd comment on a couple things. One, you know, how you're thinking about longer term growth in that, you know, restructured business now versus, you know, GDP or whatever metric you look at from that perspective. And then also, you know, you have a relatively strong first half in that business. Your guidance leaves it pretty open-ended in terms of where things could be in the second half. And just wondering what drives perhaps a lower second half versus first half in AFP, or is that not the right way to think about that earnings trajectory? Thanks. Yeah. We're really excited about the new AFP. You know, it's a business that's very focused, has a lot of great end market growth rates that are both stable in things like personal care, animal nutrition, and has opportunities for accelerated growth in places like automotive and aviation recovery. And B&C has also been incredibly strong. The end markets are great. Like AM, our innovation is starting to really gain traction, so it's creating the ability to grow faster than the underlying markets. When you go get Tetrashield going into packaging, you look at how we're moving into, you know, higher value formulations in animal nutrition versus just selling the organic acids. The microbead opportunity, you know, not really relevant to this year, but significant upside in the future. There's a lot of growth programs, you know, that are out there allows us to grow better than the underlying market. On the spread side, you know, similar to AM, you know, there's some spread recovery that's gonna be in this year relative to last year. It's not quite as large as AM, but that accelerated path of inflation last year, prices, you know, we're still catching up in this business as well. You see, you know, price implementation being very aggressive in the AFP business to cover all those raw material, energy and distribution cost headwinds. We did a great job in the first quarter in getting prices up to sort of cover that and improve spreads. That will continue to be true year-over-year in the second quarter. Sequentially, we'll see, you know, the second quarter come off a little bit just because it takes a quarter for the CPTs, the cost pass-through contracts to catch up. So overall, very strong first half, both by strong volume, that 10% volume mix that will continue into the second quarter and spread improvement. As we look to the back half, there's some seasonality we're just assuming in how demand comes off in some of the these industries like B&C and the ag business, where that will soften up a bit in the second half of the year. We think that we'll see, you know, spreads, you know, continue to improve relative to the back half of last year. It's still gonna be a very good second half, but not quite as strong as the first half. Great. Thank you. We'll take our next question from Mike Leithead with Barclays. Please go ahead. Great. Thanks. Good morning, guys. Maybe just three quick hitters on the methanolysis facility in Tennessee. First, it looks like maybe a slight delay with supply chain. Can you just flesh out what's moved the timeline, whether it's equipment or labor? Second, is the $250 million capital cost still the right number for the facility? Maybe finally, if we do get mechanical completion in 1Q23, when should investors anticipate it sort of reaching kind of full commercial operations there? Sure. When it comes to the sort of one quarter delay we've identified in mechanical completion, it's equipment related. Just like the automotive industry, getting all the parts to build your plant isn't the easiest to do in this environment. The team's done an extraordinary job of locking down and securing, you know, all those components and, you know, being supplied. But just being realistic in the environment we're in right now, we expect about a quarter delay. It's, you know, it's not a labor issue, it's just a supply chain issue. When it comes to the capital, we're still on track for the capital. We did a lot of securing, especially on the equipment side, you know, before the inflation started, you know, when you go back to when we actually started this production. We think we're in a good position to manage that and keep that at you know, around that number. Then when it comes to startup, you know, we were always gonna aiming for a startup, you know, the first half of next year. We always assumed that there would be some you know, bumps along the road in how we get there. We don't think there's gonna be a significant delay in the startup of the facility for serving customers. You know, by summertime, you're making recycled content off of this facility and supplying the market and building to full run rates by the end of the year. You'll get a full year effect as you get into 2024. You gotta remember, this is different than a specialty plant and how it ramps up and fills out. Because while the specialties will grow like they normally do and not, you know, be a light switch on in how you fill out the plant, we have the ability to take all the excess monomer from this methanolysis plant and make PET or textiles, you know, for packaging and the clothing market, and sort of run the plant full pretty quickly, as the operations come up to full levels in those markets. Then we just mix and upgrade as we grow the specialties relative to serving those markets from this plant. Much faster ROIC in this kind of facility with that flex than what you would normally get in a specialty plant. Great. Thank you. We'll take our next question from Aleksey Yefremov with KeyBanc Capital Markets. Please go ahead. Thank you. Good morning, everyone. As we get closer to the startup of this methanolysis plant, Mark, I was just trying to understand how economics might work in the real world. For example, you know, with crude jump year to date, would it have been a tailwind for your methanolysis margins, or a headwind, or not a factor? In other words, when oil moves like this, is the cost of your feedstock changing? And if so, are you able to kind of promptly raise prices? Yeah. Higher oil prices is very good for methanolysis. The competitive material in the marketplace, which is virgin PET based on fossil feedstocks, you know, is connected to oil. The price, you know, that's in the marketplace for those products goes up pretty consistently every day with the price of oil. That raises the alternate, you know, product on the marketplace. The reality, though, is our product, both its feedstock and our final price is not really that connected, you know, to the virgin PET market anymore, because they're buying it on the value proposition of recycled content, you know. Right now, what we're seeing is those prices, both historically and in this environment, are holding up to be, you know, substantially higher than the sort of fossil-based, you know, polymer. If you look at European, you're roughly about a 50% premium for that recycled content value proposition of creating a circular economy versus perpetuating a fossil-based linear economy. The market's changed, and structurally so. When it comes to the value of our feedstock, you know, there may be sort of a modest increase in the prices, but the reality is it's going to landfill, right? The price of landfill isn't changing with the price of oil. It's being incinerated, same thing, you know, not really changing dramatically. These low-value applications like park benches or strapping and where this product, you know, this sort of waste feedstock is going that the mechanical recyclers, you know, can't, you know, upcycle into good applications. We're not seeing a significant increase in feedstocks just 'cause the price of oil's up. Thanks, Mark. We'll take our next question from David Begleiter with Deutsche Bank. Please go ahead. Thank you. Good morning. Mark, just on the Q2 guidance, in terms of the earnings bridge, you think about the $0.80 impact from the Kingsport incident and the $2.06 base. It looks like the midpoint of Q2 guide is $2.75. What are the offsets to that sort of bridge from Q1 to Q2 with the Kingsport incident layered in? Yeah. Great question, Dave, and that's exactly how we look at it. We had a phenomenally strong first quarter when you back out the steam line event at $285. It's just tremendous success, well above, you know, how we guided in January for the first quarter. Unfortunately, the event happened, but the demand for those products was very much there. That $125 million hit would have easily shown up in the quarter. We do start looking at saying, "Okay. From 285, which is, you know, the run rate now that the event's behind us, you know, what's the up and down relative to that number in the second quarter?" On the upside, you know, we expect continued strong demand that we saw in the first quarter and the significant mix improvement that comes with that. That's part of our story and our specialties. You know, the pricing actions, you know, are doing a phenomenally good job of keeping pace real time with inflation, that occurred through the first quarter. You know, spread sequentially will improve from first quarter to second quarter in AM and fibers. CI's holding up and being stronger than expected, so that'll be quite stable, you know, sequentially from first to second quarter. All of that, you know, leads to a higher number, right? Why are we guiding to something a little bit less than first quarter? First of all, you know, the $50 million of accelerated cost accounting doesn't repeat, so that's a pure tailwind, you know, Q1 to Q2. The $75 million in the steam line event that's related to production doesn't catch up in a quarter. It takes some time to get production back up, to get it on ships and trains, and get it delivered through this quarter, and there's only so much excess capacity that we have to make up that lost production. That's gonna take the whole year to sort of recover that. We're only expecting to recover about half of it, you know, through the year. You've got, you know, a bit of a headwind, you know, from the event on the production side. You've got in AFP, remember a good portion of their pricing is connected to cost pass-through contracts. We had a lot of inflation in the first quarter. The way those contracts work, it doesn't really catch up until, you know, July 1. There's just a lag in that part of AFP in how prices catch it up. They will. You saw the benefit of that in the first quarter based on catching up to fourth quarter raw materials, and this will happen, you know, as we go into the third quarter. There's a bit of a headwind from that, you know, AFP will be slightly down relative to first quarter. You've got a step up in growth spend as we start ramping up the circular investments. There's just macro uncertainty, right? We've adjusted our outlook, as I said earlier, about autos being a little bit softer sequentially, as well as China and the COVID lockdowns is certainly having an impact on some of our businesses like Performance Films and in general, how we bring, you know, product into the country to get it delivered with all the different various lockdowns. There's some sort of headwind there that, you know, we're trying to estimate, but highly uncertain on how that's gonna play out for the quarter. Very, very helpful. Thank you. Overall, though, put it together, it's still a 10% increase year-over-year. You know, it's great momentum, you know, to building towards our full year guidance. Got it. Just on the CI spread normalization in the back half of the year, is that more supply driven or demand driven? Which products in particular are you looking for the spreads to normalize first? Yeah. In the spread normalization, you know, we're obviously been in very tight market conditions since the second quarter, really since the beginning of the first quarter of last year. CI has benefited from that like many other companies in these intermediates. The markets remain, you know, tight, and that's demand driven. You know, demand is incredibly strong for all of the products or customers that we're serving with those intermediates. You know, that's obviously holding up in the first quarter, expected to hold up in the second quarter. There's also supply driven issues that are creating constraints, you know, across both olefins and acetyls, as you can see in the many announcements of operational issues across the planet. The third issue that's new now that we're still thinking through is, you know, the U.S. has just picked up a new advantage cost structure relative to the energy costs now in Europe and Asia. That structural cost improvement is not yet factored into sort of how that's gonna play out for the back half of the year or years ahead. That's probably, I would call an upside, if that continues to be true, to how we're looking at our forecast. It's really, you know, a combination of both, right? You know, we're assuming that the economy start to slow down a bit, you know, with all the inflation out there, the Chinese issues, the Ukraine-Russia issues, so markets soften a little bit. We assume, you know, people will get around to running their plants more reliably. Supply will start to improve, and that creates some softness. You know, I think we all know that it's hard to call when this normalization is gonna occur. We've put in something, you know, to estimate that there's some normalization back to, you know, sort of what we call sort of normal margins. You know, it's frankly anyone's guess when that's actually gonna occur. There's no specific data any of us have to make that call. Understood. Thank you very much. We'll take our next question from P.J. Juvekar with Citi. Please go ahead. Good morning. Good morning. There's a lot of discussion about inflation in the economy and all that. Where you sit from your vantage point, do you think 1Q was the peak inflation? You know, inflation could be raw materials, you know, trucking, logistics, truck drivers, all that stuff. Or do you think, you know, inflation has peaked when you look at the second derivative of your businesses and you talk to your own people, or do you think inflation will continue to go higher? Well, I think inflation is certainly going higher as you go into the second quarter. When you look at just all the price increases that we had to implement in April to catch up to the inflation that occurred through the first quarter in our raw materials and energy costs, that's now higher prices in the second quarter flowing into our customers. They're gonna take all those higher prices, and they're gonna have to flow it into their products, you know, which will, you know, go, you know, through this quarter into the third quarter. I don't think we're, you know, close to how inflation is gonna peak, downstream of us, because this has all got multiple steps to be passed on, you know, through multiple quarters to get to the consumer. You know, when you think about the inflation of our raw materials and energy costs, you know, what we're assuming right now is we are sort of peaking out in the second quarter, and that it doesn't get, you know, worse as we go into the third quarter and the fourth quarter. In fact, you know, maybe raw material stabilize and come off a little bit in the back half of the year from the second quarter. That's what's embedded in our forecast on our cost side. If you're asking downstream, we've got, I think, multiple quarters before inflation reaches the consumer of what's happening to, you know, our part of the industry because we're just so far up the value system. Right. Consumer inflation will continue for next couple of quarters is what you're saying? Thank you. My second question. For a customer- Yeah. For customers and consumers, yes. For us, we think, you know, second quarter is peak in our price. Right. Just you mentioned on methanolysis, you're putting together these contracts to buy raw materials. How are they structured? Is it fixed price or the price goes up with energy? The same thing on the other side, when you sell your product, I would presume that you would sell it at a premium because, you know, it has lower carbon footprint. How does those contracts look like? Can you just, like, give us the terms and how this contract is structured? Thank you. Sure. There's a spectrum of contracts that we're securing when it comes to feedstock based on the source of the material. There are some contracts that are exactly what you said, where the alternative value is, you know, landfill. You know, the pricing on that is set in a very stable manner, you know, that doesn't have an alternative value to drive the price and value of that material up or down. We're getting long-term contracts, you know, with sources of waste, you know, on that front. There are other products where you're competing maybe against, you know, a park bench or scrapping, downcycled applications that perpetuate the linear economy. We have to look at the alternative values of those applications and how that might change. There will be some connection to where price of oil goes, you know, and where alternative market values go that we have to compare our pricing to sort of secure that. It'll be, you know, connected to some either cost or price-based index. There's a lot of different sources, you know, but all of them, when you look at what drives them up or down, you know, they're actually, you know, relatively stable compared to where the price of oil goes every day, on the sort of fossil feedstock-based market. Then you have to keep in mind that on the customer side of things, there's two models we have in our pricing. In our specialty business, pricing is gonna be based, as always, on value. As I said earlier, the value of recycled content is quite high, right? It's, you know, it's not a speculation. You can look at just for PET for packaging, which is a relatively low value application compared to our specialties, is trading, you know, on average 50% premium to the fossil-based feedstocks. You know, plenty of premium there, to create the circular economy and get waste out of the environment and lower the carbon footprint impact of our operations and the Scope three of our customers, when they think about improving their overall carbon footprint. They are paying a premium for that already. That's not speculation, that's just fact. But you have to remember that, you know. The specialty pricing will just be based on that value and we'll do it like we do pricing today. But for the PET and the textile applications, the packaging and textile applications, as we said, we're not taking risk on the difference between our feedstock costs and market price. We're doing cost pass-through contracts that give us predictable, stable margins. Otherwise, we won't build these plants and invest in them because I don't wanna get caught in trying to speculate, you know, where the feedstock costs are gonna go relative to market prices. You know, that's the Airgas model that we're taking for those applications. So, you know, we're not trying to exploit a spread expansion or take a spread contraction risk on those high volume applications that base load the second and third plants. Great. Thank you. We'll take our next question from Matthew DeYoe with Bank of America. Please go ahead. Thanks. As we look at the year-over-year bridge to 2023, maybe it's early, but you know, it seems like particularly for AM, you know, it seems like the add back of $50 million on the accounting side is maybe a starting point. You won't recover the full $100 maybe or the $75 additional, I think you said, so maybe half. You're also gonna get that back through the course of the year. I guess what, where should we start when we think about, you know, building a bridge for next year? I think that with AM, you start with the bridge that occurs every year. You know, when you look at Advanced Materials, as a segment, you know, its value creation starts with strong volume growth prediction. You know, when we look at the markets that we serve, automotive, I think odds are good, I hope, that supply chain issues get resolved and automotive demand will be better next year than this year. You know, the demand we have in the other end markets like durables, medical, all those have continued strength that we see going forward, especially medical. You know, the end markets we expect to be, you know, relatively strong. We have the innovation that creates our own growth above these end markets. We've proven that extensively over the last decade. Even in a softer economy, we're still gonna create growth over those end markets. Then you've got, you know, production catch-up, right? With a certain amount of production volume because of steam line event we're not gonna realize this year even though demand is there for it. That'll be upside, you know, in volume next year. There's the cost accounting issue really isn't a year-over-year tailwind because while it's a headwind the first quarter, it sort of comes back, if you will, to the rest of the year. That's not something I would include in the bridge for 2023. Tremendous amount of volume and then importantly, mix upgrade across all these volumes that we're talking about that have high growth are very high value relative to the segment average, in AM and certainly well above company average. That creates a lot of, you know, mix leverage as always. You've got all those drivers, you know, that are gonna sort of increase success. On top of all that, you know, you've got the start of the circular plant that gives you a whole another growth driver and value up on mix because the margins are attractive there. You know, that's gonna occur, you know, in 2023 relative to 2022. You know, that's how we create value every year is control our cost structure, drive volume and mix. Spreads, you know, my guess are not a source of headwind or tailwind next year 'cause we're getting our margins back to pre-pandemic levels this year. It's a volume mix story as it always has been to deliver pretty attractive growth in 2023 versus this year. This year is gonna be a very attractive growth number relative to last year when you think about $650 million-$700 million. That's tremendous growth relative to 2021. Thank you for that. I guess it looked like corporate expense was a zero for 1Q. Part of that looked like insurance proceeds and stuff like. Does any of that flow into 2Q, or do we see a more normal rate of corporate cost in 2Q and the rest of the year? Yeah. Thanks for the question. For the rest of the year, we see roughly about $85 million expense. Obviously, with the steam line incident, we stayed focused, and I'll call it to pace our level of investment and growth and projects. Also, I'll remind you that we had the adhesives business still part of Eastman, and it was the earnings were part of other during Q1. As we ramp up the circular, as we also look at the startup of the facility and completion of the first methanolysis facility, the cost incurred and related to those initiatives will be paced through the back half of the year. We'll take our next question. Can we go to our next question? Yes. We'll take our next question from Jeffrey Zekauskas with J.P. Morgan. Please go ahead. Thanks very much. So when you talk about the methanolysis project and producing packaging material, is what you're referring to, you know, disposable PET bottles? In other words, you know, water bottles, and what you have is essentially a more circular route to making the PET bottles? Is that the essence of it? Jeff, that's it. It's not disposable water bottles, it's now circular water bottles, right? You know, we were in the business of making PET, obviously got out of it because it became incredibly competitive, if you wanna go back to 2011. You know, with the first plant, just to be clear, it's all specialties. Right. The case for a plant we're building is feeding our specialties. When we talk about the plant in France or the second plant in the US, you know, we are bringing, you know, back into our product portfolio making PET or polyester for textiles. Yep. Both of those end markets have a phenomenal waste problem, as we all know, in the bottles being thrown away. Frankly, right after packaging waste, textile waste is the second largest problem going to landfill or incineration across the planet. Both of those issues need to be solved in significant ways. That's why we're taking this tack to sort of bring the circular economy into the linear economy and eliminate fossil fuel-based feedstocks. The model is gonna be very different in how we get back into it, Jeff, versus you know, where we were before. It was market-based transactions compete against China every day in the traditional PET business. In this business, we're not building a plant unless we have, you know, long-term cost pass-through contracts that give us stable margins relative to wherever feedstock costs go. Not connecting it whatsoever to the sort of traditional PET market pricing. We get, you know, much more predictable and reliable returns on these investments. That's basically, you know, the heart of what we're trying to do in the model to make sure it's different than what we did in the past. Okay. I get that. You know, in terms of the non-packaging applications, you know, what you're doing is you're making a more specialized PET that's more capital intensive in the end rather than people who use, I don't know, recycled polypropylene. What is it about the applications for your specialty PET that makes the customers wanna buy a more expensive material? Is there some engineering characteristic that they've got, so that they wanna use specialty PET rather than, you know, a less capital intensive and cheaper polypropylene? Yeah. Jeff, I just wanna make sure we're keeping sort of different- Sure. Conversation clear. When you're saying specialty, are you talking about our specialty copolyesters and our Tritan? Yeah. Are you talking about- Yeah, that's it. Okay. Yeah, that's what I'm talking about. Yep. Yeah. If you look at our sort of first plant that's going into Tritan and our other copolyesters, it's the same issue, right? Investor Day, we told you a great story about BLACK and DECKER, right? It's a drill, but they want to be part of the circular economy. They wanna address you know, their scope three emissions, you know, the emissions that are occurring in their supply base. To improve their impact on climate. They want to be, you know, using something that is, you know, getting waste out of the environment, right? It's part of how they're marketing their product, and they're getting a premium on their products, whether it's a Tritan water bottle for hydration that are, you know, reusable bottles instead of using a you know, a PET bottle that you throw away, right? Sure R euse in the three Rs, or it's a drill, or it's a phone case where they want to make it out of recycled content to, you know, again, improve their impact on climate as well as you know, the branding positioning they get about using, you know, recycled content. All these brands are getting, you know, meaningful premiums well above the price, way above the price that we're charging for the polymer in their final products. It's a value up for them, and so we get, you know, a better price for this recycled content, so there's better spread for us as we sell this versus our current products. We're getting significant accelerated growth, not just in applications that we've been in, like, you know, water, you know, sort of reusable water bottles, but also into new applications like phone cases where, you know, we weren't before. You know, there's other electronic applications, automotive applications. It's opening up accelerated market growth that we can tap into as well. Okay, great. Thank you so much. We'll take our next question. It's actually been tremendously exciting because it's the scope and strength of interest in this has well exceeded our expectations. You know, we're rushing as hard as we can to get this plant up and running. We'll take our next question from Mike Sison with Wells Fargo. Please go ahead. Hey, guys. In Advanced Materials, in the January quarter, you gave a $700 million EBITDA or EBIT outlook, and you added sort of a lower part of the range this quarter, $650. Is that largely related to the Kingsport shutdown? If it is, what's the impact, you know, in maybe QQ and in that outlook? Mike, this is Willie. You know, what I would highlight is, yes, it is a key component of select adding a lower end of the range for $650 million-$700 million. As we've highlighted the impact in Q1 related to the steam line incident for Advanced Materials is approximately $100 million. Also, we've highlighted that it'll take us some time. We expect to get roughly half of the volume mix impact, which is for Advanced Materials, about $60 million. As you think about pacing that into the back half of the year. As Mark has highlighted, we remain confident in this business, and ultimately, it will put us on a strong pace in the back half of the year as we recover the $100 million of spreads on a year-over-year basis, and get our volume mix back to more normalized levels, which sets us up for more growth as we go into the 2023. Yeah, just to add one thing to that. There are really sort of three parts of this as we think about it versus where we were in the beginning of the year, where we said we were going to be greater than $700 million. We obviously had the impact of the steam line incident that Willie just described. We also have expectation of the automotive market being a little bit weaker, and then we have the China COVID kind of underlying risk here that we're realizing in the moment. The spreads, you know, are actually the spread improvement relative to last year is very much on track relative to where we were in January. That is held up and we believe, you know, consistent with where we were in January. We went from, you know, greater than 700 to this sort of adjusted range now to reflect these headwinds. Got it. Just a quick follow-up in Chemical Intermediates. I think you've had five quarters now above $100 million in just the EBIT. I mean, in the event that oil stays high, demand stays good, and when I talk to, like, the commodity folks, I don't think a lot of them are seeing sort of this normalization in the second half of the year. You know, if all that sort of plays out, would you stay above $100 million? Because I think if I model out the segments, you would be below in the second half. Yeah. When you think about CI, you have to keep in mind there are sort of three factors that cause the second half to be lower than the first half, right? One, we have just normal seasonal volume trend in functional amines, you know, the ag market. There's some of that occurs, you know, every year and certainly will happen this year, we believe. Second is just shutdown schedule. Last year, shutdown schedule was sort of loaded into the front half. This year, the shutdown schedule is loaded into the back half with a big cracker turnaround in the fourth quarter. There's just that sort of shift in maintenance expense, that's gonna occur. Those two will moderate the second half to be lower than the first half, even if the spreads, you know, stayed the same in the back half of the year to the front half. Then you get into this question about sort of markets, you know, softening and going back towards normal versus, you know, where the margins are today. You know, if you go do the math, you can see there's some headwinds already, you know, in the cracking spreads that it creates a bit of a headwind that you can start seeing here in the second quarter. Some of this is, you know, likely to happen. Again, we don't sell, you know, ethylene and propylene. We sell derivatives, and those markets continue to be really tight. We're not gonna see much of the impact on the sort of cracker spreads in the second quarter from what we can see. We expect this will eventually start finding its way into the market as we get into the second half, and some amount of normalization is going to occur. You know, we've all been guessing at when and how much it's gonna occur. As I said earlier, you know, I think we've taken a reasonable or conservative approach to say, you know, we're gonna normalize. You know, if we turn out to be wrong about that and it stays stronger into the second half, that'll be upside. We'll take our next question from Laurence Alexander with Jefferies. Please go ahead. Hi. Good morning. This is Maria Milina for Laurence Alexander. I have a question on the impact of China lockdown and COVID that you mentioned a couple of minutes ago. Do you expect to recapture the earnings after these lockdowns, or how do you see it playing out? That's a good question. You know, I would say China lockdowns is probably the biggest uncertainty, you know, that we can think of at this stage, you know, especially, you know, in the second quarter. You know, we've assumed that the lockdowns, you know, are continuing through this month and will start to get resolved in May. You know, who knows what's gonna happen? Just, you know, that's sort of what we've assumed into our forecast. You know, it's impacting us in a couple ways. One, our ability to import products into China, you know, which is important for all of our segments, including Advanced Materials, where a lot of products are made from our Tritan and then shipped around the world. You've got the impact on just demand in the country, you know, where you've got people buying cars and appliances and everything else, and the impact that it has on our business, you know, from a direct demand point of view. We're keeping an eye on all those factors. You know, automotive, you know, seems to be the market most impacted at this stage, especially for our Performance Films business at the point of sale for, you know, those films and paint protection and window films. I think that overall, you know, what we think is it is still underlying pent-up demand, especially all the export business that, you know, is still strong in Europe and the US. We do expect that there could be a rebound in demand, you know, when we get past, you know, how they're managing COVID. It's anyone's guess on how managing COVID in China is gonna go and sort of the pace and breadth of that impact. Okay. Thank you. We'll take our next question from Steve Byrne with Bank of America. Please go ahead. Steve, your line's open. We'll take our next question from Arun Viswanathan with RBC Capital Markets. Please go ahead. Great. Thanks. I guess I wanted to revisit the outlook for 2023, you know, you kinda laid out earlier. If you think about your own inflation potentially peaking in Q2, and then you look into the rest of the year, you laid out the 5% increase. When you look into next year, I guess you will see, you know, potentially a moderating feedstock environment as you just noted. Do you still expect kind of 8%-12% EPS growth in that? And if so, maybe what would be some of the drivers that would get you there? Would you see like a still $0.45 buyback opportunity, or how should we think about that as well? Thanks. Yeah. You know, 2023 bridge, I have to admit that's a first for me in the first quarter call. Look, when we look at it, for 2023, as I said earlier, strong demand growth in AFP and AM will deliver earnings growth next year relative to this year, you know, and we'll have a tailwind because of the, you know, sort of capacity production disruptions we had this year that enable that volume recovery, also to be a tailwind for next year. You know, it's a little hard to predict where spreads are gonna be next year, you know, in the specialties. You know, if inflation, you know, if raw materials come off, you know, that'll create a tailwind relative to pricing for next year relative to this year. I think that's correct. You know, you've got normalization of CI. How those two net out at the corporate level, you know, could be to some degree neutralized as a tailwind relative to this year. Really the volume mix story, you know, is the key drivers. You know, as always we'll manage our cost structure to make sure there's, you know, not a headwind there outside of some growth spend. We're set up, I think, for, you know, improving EBITDA in a meaningful way. Obviously we have a very strong cash flow, and that will continue to be both reinvested in organic investments that we're doing, you know, for Eastman as well as our circular plans. As we said at Investor Day, there'll still be money left over for share purchases on top of that, as we go through next year to create, you know, that EPS growth, on top of the EBITDA growth, you know, relative to this year. We feel good about the 8%-12%, but, you know, it's a little early to start calling numbers. Okay. Fair enough. I guess just wanted to ask, as a follow-up, you know, back to the strategy on methanolysis. It sounds like initially, you know, the plan is to roll out, more of the specialty applications, but over time, potentially progress towards, replacing some of the, as you said, circular water bottles. You know, is that really the strategy that Eastman wants to pursue? Maybe longer term, do you see this company as kind of 50% specialties, and then maybe 50% replacing some of these more commoditized applications? How do you think about strategy and, you know, the strategy you guys have been following for many years of trying to go more downstream and more specialty and squaring that with the needs to replace some of these commoditized items with circular solutions? Yeah. From a total company point of view, obviously our strategy is very much focused on specialties and AM, AFP, as well as textiles, you know, with our very differentiated, you know, biopolymers, and new applications that we're creating, for the biopolymers like microbeads and food service packaging, et cetera. When we think about specialty, let's just be clear what specialty means to us. It's attractive, high, stable margins over time, where we have good pricing power because of the value our products create in the marketplace to manage our pricing relative to our sort of raw material and energy costs. Creating value for shareholders, you know, not by expanding spread over time, 'cause the spreads are already very attractive to start off with, but by growing volume quickly and because that is high margins, that translates into significant mix upgrade at the corporate level. Whether that's, you know, especially copolyesters or Tritan or coating additives or personal care additives or, you know, circular PET, or circular textiles at, you know, very attractive margins that are very stable and cost pass-through contract. That's all in our category of specialty, where we're bringing very attractive high-margin growth, right? When you think of the circular platform, we've told you we're gonna deploy $2 billion of capital across these first three plants, the first one being focused on specialty, France being a hybrid of specialty and PET and textiles or. The third being predominantly, you know, packaging textiles with, you know, I'll call it specialty circular polymers. You know, that $2 billion translates into $450 million EBITDA. You know, when you look at the ROIC and the value creation from those three projects, I call it special. Let's make the next question the last one, please. Okay. Our final question is from Jaideep Pandya with Onfield Research. Please go ahead. Thanks a lot. Your first question is really around the circular plastic projects that you have. You know, to your point, if you take France as an example, you want to invest $1 billion for a 160 KT plant. So if I just go by the returns numbers that you sort of said, I mean, sort of back of the envelope, it feels like there will be, you know, all else equal, you would need almost 3x the price of a recycled polymer versus a virgin polymer. So if that is not the case, then what is the inherent cost advantages in the cost structure which make returns attractive and prices not ridiculously different from virgin polymer? That's my first question. The second question is just around cash flow. Sorry to ask this, but I suppose, is it really just a raw material inflation why you have changed your wording on the cash flow, or is there something else to it as well? Thanks a lot. Yeah. Let me start with the cash flow question first. Yes, obviously, we've seen a pretty significant inflation here in the first quarter, as Mark highlighted. We expect that to peak in the second quarter. As we think about that, you know, that's at least $100 million of you know, headwind that we see, and what we're highlighting is a change in guidance. I would say our first quarter cash flow you know, was probably pretty normal compared to pre-COVID. If you look back at the 2017-2019 timeframe, our Q1 is pretty representative. We had a couple of headwinds this year in Q1, which one is a higher than normal I'll call it variable compensation payout, as well as the impact of the steam line incident and the divested EBITDA year over year combining for about $100 million. As we go into the back half of the year, it'll be more traditional. You know, we'll use all the levers where we've made investments in integrated business planning to effectively and efficiently manage our inventories. As well as again, we look at you know, our Net 90 programs in terms and accounts payable as well as other avenues on the accounts receivable side. Again, we've been able to demonstrate and deliver cash flow in multiple environments over the last several years and remain confident in robust cash flow this year. The first question, I'm not quite sure how you did the math, but it's wrong. When you look at this plant in France, first of all, we've said that the first phase of the plant is gonna be $600 million-$800 million, not $1 billion. The second phase, where we're adding more specialty capability down the road is what gets you to the $1 billion. Capital number is a bit lower than what you assumed. Second, when we look at the pricing, you gotta remember that the value that we're capturing is the price in the marketplace relative to the cost of our feedstock, right? It's a two-step investment, right? We're building methanolysis, and we're building PET and selling, you know, PET revenue, right? That $600 million-$800 million is to build the methanolysis and the PET plant. The margins you're generating are a lot more substantial when you're going all the way to the cost of, you know, plastic waste, which is quite low relative to the price you can get in the marketplace. When you do that math and say, "Okay, what premium do I have to get above, you know, the sort of, you know, fossil-based feedstock market?" It's not all that different than the premiums that exist in the market today for mechanical-grade feedstock. Remember, our material is much higher quality in its clarity, its performance, reliability, and safety than mechanical-grade feedstock. It is a high-value product, and it is a long-term solution because we can infinitely recycle plastic waste. We don't degrade sort of after five laps, you know, like mechanical does. By the way, that makes us also a necessary complement to mechanical to keep it a viable stream in the long term 'cause we can revitalize what is degrading through our technology. You know, a lot of value we're bringing to the marketplace, not just in what we provide, but enabling mechanical recycling to exist in the future, which it will not do without molecular recycling. There's a lot of value we can get, but, you know, we're taking a pretty reasonable pricing approach relative to the market and generating the sort of $450 million EBITDA at $2 billion in capital, so good returns. All right. Thanks a lot. Thanks, everyone, for joining us today. Very much appreciate that, and I hope you have a great day. This concludes our call. Ladies and gentlemen, this does conclude today's conference. We appreciate your participation. You may now disconnect.