Good day, everyone, and welcome to the First Quarter 2025 Eastman Conference Call. Today's conference is being recorded. This call is being broadcast live on the Eastman website, www.eastman.com. We'll now turn the call over to Mr. Greg Riddle, Eastman Investor Relations. Please go ahead, sir. Thank you very much, Becky, and good morning, everyone, and thanks very much for joining us today. On the call with me 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 first quarter 2025 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 first 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 first quarter 2025. Second, earnings referenced in this presentation excludes certain non-core items. Reconciliations to the most directly comparable GAAP financial measures and other associated disclosures, including a description of the excluded and adjusted items, are available in the first quarter 2025 financial results news release. As we posted the slides and accompanying prepared remarks on our website last night, we will now go straight into Q&A. Becky, please let's start with our first question. Thank you. If you wish to ask a question, please press star followed by one on your telephone keypad now. If you are unsure if you have registered, please press star followed by one again to confirm your place in the queue. If for any reason you want to remove your question, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. Our first question comes from Patrick Cunningham from Citigroup. Your line is now open. Please go ahead. Hi, good morning. First, just on the lower sales guide for Renew, I guess first, what has been the sales and EBITDA contribution in the first quarter? I am just curious on the level of confidence in the low end of the sales guide, how much visibility do you have into order books, and is there a floor for that EBITDA contribution just based on cost performance and volume that is already contracted? Certainly, and good morning, Patrick. When it comes to the overall methanolysis program with Kingsport, things are actually going quite well on the operational side. We've had a very successful quarter of running the facility at high rates. We've maintained an 85% yield on the DMT feedstock from the hard recycle stream, or we're finding ways to use even cheaper versions of feedstock. Operations are really good. If you analyze sort of the production rate that we had in the first quarter, we're very much on track for that two and a half greater production volumes. When you put that together with the absence of the startup costs in the first quarter, it's generated a considerable amount of earnings in the corporate other area, around $25 million in that absence. When you look at the overall cost program we're on for a full year basis, we're very much on track to get our $50 million of EBITDA from the manufacturing cost side of the equation out of the original $75-$100 million guide. I'd say on the operational side, that $50 million certainly showed up in the first quarter as expected, and we expect will continue to show up through the year. When it comes to the Renew side of things, on the revenue side, we originally had given you a guide back to the deep dive of $75-$100 million of Renew revenue, and that was based on the assumption around the economy being relatively stable and consumer durables, stable modest growth in packaging for food applications, et cetera. Basically, continuation of the dynamics we had for 2024 would continue into 2025. That was for sure true through the first quarter. What happened is with the trade dispute tensions developing and the discussions of tariffs, especially the tensions between China and the U.S. and where the tariffs have now gone, the rate and growth of the consumer durable market that is largely made in China and shipped to the U.S. is now in question about how that market's going to hold up, right? With the level of tariffs that we currently have, it's not economic to import those kinds of products. The revision that we've given you from $50 million to $75 million of revenue now versus the higher rate is purely an in-market estimation of the impact of tariffs. It has nothing to do with the engagement we're seeing in the marketplace, but we certainly don't expect the same kind of growth in those kinds of products for the year. When it comes to engagement, customers are still very much engaged, as we said, on the durable side. We have over 100 customers. The economic tensions are certainly slowing the rate of product launches. If you can't import a product from China, you can't launch a new product. That reduces the rate at which the new product launches with renewed content can be brought to market. That factor is being managed. We've only had a few customers revert back to normal Tritan because of the premium that they're trying to avoid in this economic time. I would say the market engagement there is still good. It's just a question of where these tariff disputes go. If they're resolved soon, this quarter, things would start to recover and get back to normal. They'll actually have to restock because they're pulling inventory down below normal levels right now to avoid paying the tariff. We certainly aren't sitting on a big amount of finished good inventory in the plant, given we've been in a recession for a while. I would say on the food packaging side, on our PET, the engagement is also good. The brands are really facing some significant limitations on mechanical recycling in a variety of applications and are very much engaged in trying to find ways to buy some RPET from us in applications where there's high-quality aesthetics required or certain technical performance requirements that mechanical can't meet. We're still making good progress to be able to sell RPET in the back half of the year as we convert that Tritan line over to making PET that we discussed before. Overall, I'd say we're in good shape, and it's just a market question around tariffs. Very helpful, Mark. Maybe just on fibers, it seems to be getting double hit on some tariff-related impact and persistent destocking. How long do you anticipate this destocking to persist, and how should we think about contract performance next couple of years and potential further normalization from here? Yeah. Certainly, the overall fibers business has some challenges to it. As you said, there's sort of two separate challenges. I'll start with the destocking one first. First, there's no change we've seen in market growth rates. That is not part of what's going on as far as we can tell. Market growth rates are still modest in the 1%-2% rate as the traditional cigarette markets are declining in the 2%-3% range, but the heat not burn cigarettes offsetting it. We've talked about that in the past. That part is actually quite stable. Our contract rate for the year of this year is around 90%, which has put the prices in place for the year. We're in very solid shape on a pricing point of view. As you said, it's really a question of what's driving the volume decline. If the markets are stable, then by definition, it's a dynamic around customer destocking as the principal driver of what's going on. As I said before, TOA is an incredibly small percent of the final price of a cigarette, about 2%. The cost of it is not a high priority when you're selling cigarettes that are greater than 60% gross margins. The focus always starts with security of supply. When the market got incredibly tight in that 2021-2022 timeframe, customers were building inventory. As we've now discovered, building a lot more inventory than we fully understood. One of the challenges with customers when you're in situations like a very tight market is no one wants to tell you how much inventory they have because they're afraid you will not supply material to them as much as they might need going forward. You get this dislocation of inventory, and we certainly lived through that in the 2022, 2023 timeframe where we discovered just how much inventory people had built over time. The destocking is going a bit longer than we expected. The reason the destocking started, I should have mentioned, is the market has loosened up a little bit. There is some capacity that's been added in China. If you look at it from a 2023 to 2025 point of view, that capacity is around 5% of the ex-China market. The capacity utilizations have now moved down into that lower 90% range, 90-95% range. With that room, the customers feel safe in destocking. That is what we see going on. What we are going to see in the second quarter is something similar to the first quarter. I have learned my lesson around predicting how long destocking is going to last. Certainly, we expect some of it to continue in the back half of the year. We are still working with our customers to truly understand exactly where this all sits. The good news is the fundamentals are there. The capacity utilization is still in the 90s. The markets are not declining in some significant way. I think that gives us stability. The contracts, as you asked, are about 80% for next year. Most of those are multi-year contracts, some are annual. They generally include pricing, a lot of it CPT pricing that actually gives customer protection on making sure the margins are tracking with raw materials. Overall, I'd say we feel like the market is certainly facing that challenge, and it's going to continue a bit more than we expected. It's good to remember there are a couple of other dynamics driving earnings down. We had a discontinued product from customers of about $10 million, and energy is a bit of a headwind this year relative to last year and how it flows in. The second part of this discussion, of course, is around the impact on the tariffs with China. We do have two products that go into China. One is the textiles, the Naia product, which has been a great growth story for us. About half of the Naia that we sell is in China. The other half's outside of China. It's a huge market. It's a time-based issue for us to, if these tariffs last for a period of time, of just winning market share in mills outside of China to replace what we do in China. That one is manageable, and we have some inventory in place to mitigate some of those issues now. When it comes to the flake, this is cellulose flake that you spin into fiber, and we do this with the China National Tobacco Corporation. Obviously, the rates are pretty high there, and we'll have to just see how those tariffs evolve over time. That's a more specific thing around what's going on with the tariffs, and we'll have to just see how long the tariffs last with China. When you put them together, obviously, it creates a bit of more challenge for this year. It's still extraordinary earnings compared to our past and great cash flow that comes out of this business. Very helpful. Thank you. Thank you. Our next question comes from David Begleiter from Deutsche Bank. Your line is now open. Please go ahead. Thank you. Good morning. First, congrats on being recognized for your support of veterans and active duty service members. Very well done. Thank you. Mark, on your China—thank you. On your China sales, of the portion, roughly 60% supplied from the U.S., if these tariffs stay in place, how much is at risk, do you think, of perhaps just going away? I know you addressed fibers, but how about AM and AFMP? Thank you. Yeah. David, a lot of these questions are really sort of situational, specific to the segment. I just suggest that we address the fibers part where half of it is very much addressable to move out of the country. There are other mitigating actions we are pursuing around the flake supply. I think there are lots of different ways over time to manage the fiber side of the equation. When it comes to CI, just to be clear, no exposure. Nothing to worry about there. Frankly, probably upside in CI, which is primarily selling in North America, and the tariffs that we have coming to this country from products around the world that sort of set the price on the marketplace over time will give us some lift there. In the short term, pretty modest just because of the competitive situation. When it comes to AFP, the exposure in AFP is more limited. Similar to fibers, it's around $200 million of revenue in 2024. A lot of the segment does not have exposure to China from a U.S. production point of view. Especially fluids business, we have production outside Europe. When it comes to all of our means business and care and ag, we've got assets in the U.S., but our largest assets in Europe, and assets in China. We have lots of different ways to serve those markets locally around the world. A lot of the coating-related products, we do not really sell into China. There are a couple of very high-value specialty products like our cellulose additives that go into a wide range of coatings from cars to pharma to some other packaging applications. That is exposed. It is a proprietary product that only we make. The margins on this business are pretty high. Short term, it's hitting us in Q2 because our customers are well stocked on inventory because it's so important they carry a lot of inventory in their formulations. We certainly see them not buying this quarter, hoping for a resolution between the U.S. and China discussions. It is a very important functional product where there really isn't a substitute. We have an ability to pass on some of that duty cost if we need to and find ways to work with our customers when they get back to ordering after they've used up their stock. I think that one is also in the category of manageable over time. In advanced materials, which is obviously the largest segment from a revenue point of view in China, there are really three businesses that have different stories. Interlayers makes the products in China, so no issue there. Performance films, historically, has used a lot of product made in the U.S., but that is why we did the acquisition of Dylan to have our own performance films manufacturing capability in China. We also did an expansion of our capability in Germany. Those two assets are in the middle of ramping up for this specific reason of being more local and diversified in how to serve the market. We will have some—we are not going to have that much impact this quarter because of the inventory in place for performance films. We'll have some impact as we balance out the ramp-up of these assets relative to what we make in the U.S., but we can supply that market long-term from other locations in the U.S. Especially plastics clearly has exposure when they're made here in the U.S., and those products are sent to China. On that front, we're also not getting that much of an impact this quarter because the customers are sitting on inventory. The real question, in especially plastics, is a lot of what we sell into China, especially Tritan, is then re-exported back to the U.S. and Europe and other markets, and a lot of it to the U.S. The main issue is how long do the tariffs stay in place that make it very expensive to buy an appliance or water bottle or whatever else in the U.S. that's made in China. There is some uncertainty and risk around how those supply chains adjust to that. All these companies that make all these appliances have to get the product from somewhere. The retail lines need products from somewhere. There is a huge amount of effort going on around the world right now to find ways to source and make these products and ramp up production. We will follow the customers wherever they move around the planet because Tritan is a unique product. There is no easy substitute for Tritan. There are different plastics you can use, but they all come with significant compromise. Either if you go to polypropylene, it is very cloudy and not clear. If you go to a variety of different styrenics, the toughness or the chemical resistance from other products all create failure modes and how well the product performs in the market. You can go if you want to compromise your product on the shelf, but otherwise, you really want to keep using Tritan. We will certainly feel some of that risk and impact if these tariffs stay in place through the back half of the year as these supply chains move around and the market here in the U.S. has been impacted. Overall, that's sort of where we stand. When you put it all together, we've told you there's about a $30 million impact in Q2. Honestly, with all these uncertainties around tariffs and where they may negotiate, it's hard to predict what this impact is in the back half of the year. Very good. Just lastly, on Longview and the DOE funding, I know you've been getting some funding every quarter, the last couple of quarters. What's your level of confidence in this funding continuing under the current administration? We feel good about the executive order. Sorry, I just lost my track of thought. We feel very good about where we are with the DOE. They have been highly engaged with us. We think that we've got a good relationship there, and we think that our project actually holds up well in the way President Trump thinks about U.S. manufacturing. When you look at it, we're focused on growing U.S. manufacturing. It is a serious issue. Manufacturing hasn't grown here in this country. It's been growing around the world. The vertical integration and all the products that go into manufacturing of finished products is equally important if you want to have national and economic security. There are actions that I think we should be taking. Strategic transactions that are focused on specific issues around this topic make a lot of sense. We need a lot of regulation that reduces the difficulty and cost of building here, tax and other incentive policy, workforce. A variety of things I think we're very aligned with. The current administration is important, and this project fits all of these criteria. When you look at these circular investments, we're building infrastructure to deal with plastic waste, right? It's also a national security way to make raw materials for food packaging, medical, etc. It's onshoring jobs from Asia because most of all the PET business has now gone to China. You're creating revenue way beyond just our facility and supporting the growth of the recycling infrastructure behind us and being a better supplier to local manufacturing of plastic-related products in the market. It checks all the boxes on that front. It also is a version of energy independence. Plastic waste is basically some oil sitting above ground, and you're reusing it instead of throwing it away. This process is advantaged relative to Paris Island at any oil price above $60. Economically advantaged as well. From a voter point of view, there's no one—there's a lot of debate on climate, but there's no debate that people do not like plastic waste in their environment, no matter which side of the aisle they sit on. We think we're in really good shape on this. So far, everything I just said seems to be aligned with what the DOE is looking for in the conversations we've had with them. We've been receiving our funds in Q4 and Q1. There is a lot of staff change going on in the DOE right now. We're moving a little slow in how we sort of finalize the next phases of the contract, but we're not getting any indication that the project's at risk. Thank you very much. Thank you. Our next question comes from Alexei Yefremov from KeyBanc. The line is now open. Please go ahead. Thank you. Good morning. I wanted to ask you, there's a lot of concern about consumer health in the businesses where your products end up in consumer, I guess, such as auto films. Are you seeing any meaningful slowdown in demand? On auto demand? Just consumer. Just consumer discretionary demand. Consumer-related demand. Right. Yes. Look at our Q2 guide. We basically called out two dynamics that took us from where we were originally to now, both of which are trade-related. I already covered the impacts, the direct impacts of trade, which is that $30 million. The other impact, and as we tried to explain in our prepared remarks, is seasonal growth is typically really strong for our portfolio when you go from Q1 to Q2. That is what drives going from $1.91 to some higher EPS in a normal situation. We still see seasonal growth now, but we do not expect it to be as strong as what would have been normal. That is very much related to consumers being concerned about the world and what is going on. You can see the confidence decline. You can certainly see consumer purchases on discretionary items right now increasing, right? People are buying cars. People are buying blenders, whatever else, because they're worried about tariffs coming. The consumer data would lead you to believe that there's a certain amount of growth going on. In some sense, what you're doing is you're pulling forward consumer demand from the second half into now. There's people worried and being cautious about what they want to spend in general. That's creating a lot of fog in what's really going on. As a company, whether it's us or our customers, you have to be considering multiple scenarios right now, one of which is trade gets resolved quickly and everything's okay. You also have to prepare for the more difficult scenario where these tariffs stay in place for a longer period of time and impact demand. We can see customers being a little bit more cautious on just how much inventory they want to build. That is sort of the dynamic we are looking at here in the second quarter, not seeing as much growth. I mean, there is a risk where we do not make much progress on some of these trade issues. You start getting people more nervous about when this is going to get resolved, and you could see some more destocking towards the back end of the quarter. We will just have to see how that all plays out. Thanks, Mark. Just listening to your remarks about how tariffs are impacting your businesses, it seems like initially you maybe had some inventory in China that allowed you to mitigate it. Is it fair to say that if this tariff does not change in the second half, you may see a larger negative impact, direct negative impact from the tariff, or that is not the case because you have some other mitigating measures? I just could not quite understand the net result of these two. Sure. Again, sorry, guys, but I got to go segment by segment because it's a different story. I don't think there's any additional risk in the fibers business. With the mitigating actions we have in place, I would expect that number to be relatively steady as you go through the rest of the year if things are not resolved. Same is really true of AFP. I think there may be some modifications or mitigations there, but where things are a bit better in the back half of the year versus where we are now, where the customers aren't buying at all. That's got probably some moderate upside. When it comes to the advanced materials segment, that's a little bit more complicated, right? Again, interlayers fine. Performance films does have inventory in the marketplace right now, so that will run out at some point as you go in the back half of the year. They are ramping up plants to replace a bunch of the inventory from being made in China or in Europe. It is hard to say exactly how that balances out, but I'd say that the headwind in the back half is a little bit more than the first half on PF. On specialty plastics, the headwind there would be more than where we are now with the second quarter. If people stop buying all these appliances and consumer durables, we'll have downside on the durable side, and then we'll have upside on selling more PT in the back half versus the first half as we start taking that to market. Obviously, that's lower margin, so it's not going to be a total offset. Some more exposure on SP in the back half versus the first. Thanks a lot, Mark. I would know there are mitigating actions that we're taking that are a lot broader across just inventory. We certainly have done that. We're ramping up plants. We're definitely working with a lot of customers around how they're moving to other parts of the world to make products. There's a lot of that going on right now. If we're under pressure, imagine what it's like being someone forcing a blender from China right now. They're highly motivated to find solutions, and we'll follow them where they go. There's going to be pricing opportunities that we're going to find across the portfolio. There's going to be volume growth opportunities that we can realize here in the U.S. We've got opportunities when it comes to direct competition being a bit more expensive as it's being imported. We're going to see some benefits in those kind of areas. For example, in specialty plastics, we'll see some of those benefits. When it comes to thinking about parts of the portfolio in AFP, we'll see some benefits around ag and even things in CI. We'll see benefits like floor tile. There are a bunch of different examples moving around where there will be some growth we should realize in the U.S. I mean, we are the ultimate company with a low-cost structure to serve the North American market across all these different products that we make. Let's go to the next question, please. Thank you. Yes. Our next question is from Vincent Andrews from Morgan Stanley. Your line is now open. Please go ahead. Thank you. Good morning. Mark, could you talk a little bit about the CapEx reduction and sort of what triggered the decision you made on, I guess, sort of deferring that CapEx at Longview? Are there any sort of costs associated with doing that in terms of the overall cost of the plant? Seems like timing's not changing, but just curious there. Good morning, Vincent. Thanks for the question. As we're looking across the scenarios that Mark has outlined, obviously being prepared for the potential downside of an extended trade dispute, we looked at now as the right time to optimize both efficiency and effectiveness of a CapEx reduction. Obviously, we're in the engineering phase of the Longview, Texas project, and we can go through that detailed engineering and basically get more complete before we start to solidify the commitments without affecting the timelines of the completion of the project. As you think about the midpoint, we reduced our capital from roughly $750 to $550 million. I would again note that our CapEx from a maintenance standpoint is about $350 million. We're still investing in this environment slightly above our DNA. We're confident in our strategy, but we want to make sure that we're also prepared for those downside scenarios and making sure we deploy it efficiently. I would also highlight that the Texas project is the largest project, but it's still a little bit less than half of the reduction. Most of that is the remainder is across a combination of other business growth and timing the key maintenance. Okay. If I could ask you, I know in the sort of March conference season, you had some concern over March orders, and it sort of turned out that they were, I guess, better than feared or better than expected. I'm not sure which it is. I'm just curious what happened there because usually when there starts to be hiccups in the order book, they do not reverse. Any color there? Yeah. Certainly, with all the trade talk, even in the first quarter, you have to remember, we still had 20% tariffs being put in place in China, etc. There was a lot of caution that developed around customers and what they wanted to order. We were reading into that as we were getting into March. Frankly, just surprised in how people sort of bought more. I think it was not really a lot of pre-tariff buying. I am sure there was a little bit of that at the end of March. What is comforting around that question is April orders are similar to March. If they were really pre-buying, you would have seen a drop-off in April as you have gone from March. We have seen that before in our past, and right now we are not seeing that. That is encouraging. The order books are holding up in April. May looks okay. June is just too far away for us to really assess when it comes to sort of our order visibility. I do think we're in solid shape, but there is uncertainty risk, obviously, in June with how all these discussions around the world go. Let's add the next question, please. Thank you. Our next question comes from Jeff Zekauskas from JP Morgan. Your line is now open. Please go ahead. Thanks very much. You abandoned your annual earnings guidance, but you did not—but you are still guiding for annual cash flow. Why is that? Why would the cash flow for the year be more forecastable than the earnings? Or why do you have more certainty around the cash flow? Yeah. Good morning, Jeff. Thanks for the question. Obviously, as we've highlighted in our prepared remarks and even in the Q&A this morning, it is highly uncertain, and we pivoted to an emphasis on cash generation ahead of a potential recession. As I think through the levers that we have, whether it be the cash earnings, obviously, but we have a broader set of working capital and operating set of solutions and also how we manage variable resources across our global asset base. In that, we've got flexibility that I think gives us a narrower range on the cash outcomes versus all the accounting ramifications that comes in with an earnings estimate when you're trying to deal with these choices. As we've highlighted, if the trade dispute is resolved in the short term, ultimately, we'll have higher cash earnings and less working capital actions. If it's drawn out, then ultimately, it could cause a recession. The dynamic between EBITDA and the OCF that we're going to deliver ultimately will be based on that trade scenario. We do have higher confidence, and I think we've done that across multiple economic environments in the past. Yeah. I think that we're really proud of the fact that we try and look forward and see what's coming and be prepared to take whatever actions are necessary to sort of weather storms. I mean, this industry has been facing a lot of storms over the last seven years, and it's a well-aware machine on how to react to it at Eastman. The reality is if the focus on cash is not needed because the economy is snapping back and recovering, then that's upside. It's easy to run the plants harder in the back half of the year and catch up. We have the excess capacity at this point. I think this is the prudent way to approach things, and we'll obviously adjust as the macroeconomy and sort of trade-related matters sort of evolve. Okay. Then secondly, what you did is you estimated the tariff impact at $30 million in the second quarter. How do you calculate that? Is that lost sales? Is that tariffs that you're paying? Could you describe where it seems that you're paying the tariffs or whether you're being reimbursed for your customers? Where are the tariffs actually touching you? Is it China mainly, or is it other regions as well? Can you sort of get to the bottom of this $30 million number and what it might be in the third quarter if things continued? Jeff, when it comes to the impacts on the tariffs in the second quarter, it is an impact on volume as opposed to an impact on duty, right? When you have a 125% duty into China and there is a hope that the trade will get settled between the two countries, customers do not want to buy a lot with that adder. That is the impact you are seeing in fibers where we are projecting less sale of flake for the TOJV, less Naia textile fibers being purchased while people wait to see what plays out in this quarter. That is what happened there. Same thing I said in AFP. The high-value cellulosic additives are going to all these coatings and pharma applications, some other applications. Those customers carry a huge amount of inventory because it is such an important product for the product they make, and it's such a small percentage of the total cost of these products in these cellulose additives in AFP that they're not going to take any risk. They have inventory, months of it, and they can, through this quarter, just not order. They are pulling inventory down, right? The same dynamic in advanced materials, but just less because we have a lot of inventory available in that marketplace for we make it in interlayers there. We already explained everything around PF and SP. The real risk there is ability to sell what they make as a finished product back to China. I think people are, everyone in that whole supply chain is sort of trying to figure out what they're going to do on that dynamic. It's a volume hit as opposed to a tariff hit. I mean, what I'd also note is while we have this exposure because we make a lot of product here in the U.S. and we export around the world, we're also vertically integrated, and this is a very unique competitive advantage for us on that integration, which is most of the raw materials that we use across the company are sourced in North America. We're not facing much tariff risk of what we have to pay for on the raw material side of things. Even PX, which we buy around the world, we have sourcing from all countries around the world so that we can flex on where we get our PX, and obviously, PX prices are very low right now. We do not, like a lot of companies who buy a lot of raw materials but may not have as much exports to China where they're having that problem they have to manage or if we're buying auto parts in the auto industry or whatever else. We do not have that issue. Our issue is this primarily China-related matter right now as far as the second quarter is concerned. I think I already addressed how it trends into the back half of the year in my answer ahead of you. Okay. Great. Thank you so much. Thank you. Our next question comes from Kevin McCarthy from VRP. Your line is now open. Please go ahead. Yes. Thank you and good morning. Mark, I wanted to come back to the discussion around the fibers segment and the issue of destocking. I think what you've said in the past, and you alluded to again this morning, is that a high percentage of the volume is under contract. Obviously, the implication of that is that the business should be relatively stable volumetrically. I'm trying to weigh those two things: more severe destocking and contractual protection. Maybe you can kind of talk through. The first quarter volume was down 12%. Do you think that could be indicative of the year, or do you have sort of take-or-pay provisions in some of these contracts whereby maybe there'll be destocking in the first half, but then customers become obligated to meet minimum volume requirements as the year progresses? Any thoughts along those lines to frame out or bracket that the volume risk would be much appreciated? Sure. On the volume side of the equation, price, by the way, is just pretty predictable and locked in. This is really a volume question for this year than a price question with these contracts. On the volume, there's always a band of volume that customers can buy within from a low to high range. Typically, the middle range is what they're aiming to do. We have customers buying in the first and second quarter at the low end of the volume range. They're not violating the contract. They're just at the low end of the band across their customer base. What's changed, I'd say, from December and early January to now is it's a broader set of customers who are now destocking than what we originally had expected in January to where we are today. No one's sort of violating a contract, but there's just more customers moving to do some destocking and move to the lower end of their band than we were originally notified, if you will, in January as we built the forecast in versus where we are now. As you think about it and you're going back in the second half, this just comes to the question with each customer and just how much inventory do they really have to destock and where they would then start moving back up into the band to normal or staying at the lower level. I think that it's going to be a challenging year. I would expect maybe it gets modestly better in the back half versus the first half as some customers address their inventory issues, but we're just going to have to see how it evolves. Okay. Secondly, if I may, on the subject of tariffs, I appreciate the various headwinds that you articulated. I am curious, though, are there examples of product lines within Eastman's portfolio where the tariffs may be helping you in chemical intermediates, for example, or otherwise? Is that just simply not the case and the overall economic environment impact is sort of overwhelming any such benefits? Certainly. I would say the opportunities are still emerging. It's early days to sort of have a definitive view on this as these tariffs are still being debated and implemented. Performance Films, for example, does have upside in North America. We are by far the largest player in the performance films business, but we still have a lot of different competitors out there. All of our product is made in the U.S., so we are advantaged in having the largest scale U.S. manufacturing base. Our competitors are sourcing some film domestically, but a lot of it is being sourced abroad, including places like China, etc., where they're facing tariffs. We think there's going to be opportunities there to win some share, but it sort of depends on where the auto market sales are going and how those net together in the short term, but certainly a place where relative to the market, we will do better. In specialty plastics, there are definitely opportunities where we have imported products that we have to compete against. The shrink labels around the packaging for beverage bottles, as an example, even some of the consumer durables, there are manufacturing capabilities in the U.S. that some of our customers have, and they're ramping that up, and we're going to sort of see growth there in volume that they have that could be advantageous for us. The ag space is another place where we're going to have opportunity. Our ag customers were facing a lot of competition with formulated ag crop protection products being imported and really, frankly, dumped in America at very low prices. The tariffs are going to create some relief for them and ability to sort of regain some market share. That is another place where I think we will see some benefits about our customers growing relative to exports out of China and some other countries. Even in building construction, there are opportunities like floor tiles, which use our plasticizers. A lot of that got offshore to China and supplied by Chinese manufacturers that make DOTP. We have a number of customers who are now looking to bring that production back here. This is a place where capacity does exist to ramp up in U.S. manufacturing. There is a bunch of places. It is not uniform across the portfolio. I think ultimately there will be price benefits across the CI portfolio when you get some additional settlement of just the competitive dynamics that are going on right now. CI is a little complicated because you have a lot of companies that were exporting chemicals, and now they cannot export them as easily. There is a dynamic there that is settling itself out. Over time, there should be upside. Perfect. Thanks, Mark. Thank you. Our next question comes from Frank Mitsch from Fermium Research. Your line is now open. Please go ahead. Sorry. Frank's line has just been closed. Let me just reopen it for him. Hello. Frank. Hello. Can you hear me? Hey, Frank. Yes. Yep. Yeah. Good morning. Hey. Good morning. Sorry about that. Do not know what happened. Given the number of ways things can go, certainly cannot fault the pulling of annual guidance. I want to focus on the second quarter. As I think about Eastman, more of a less cyclical than most companies that I follow, that range of $1.70-$1.90 is rather large. Can you talk about kind of the puts and takes to hit the low end and the high end? What are you embedding in terms of that wide range? To put it simply, it's a question around demand in June and to some degree May. With the uncertainty of everything we've discussed on this call, how orders trend with customers is just heavily connected to that. We're very encouraged that April is holding up, which is great. We are off to a solid start to the quarter. How customers behave and how many orders get placed creates the range on that uncertainty. I mean, there are other smaller things around trends on natural gas prices and currency and this, that, and the other, but the principal question is just a demand question in the back half of the quarter. Interesting. I want to drill into the positive take on April trending in line with March, as I might have thought that historically April, I do not want to be too granular, but I would have thought that April would have been a little bit better than March given building and construction, etc. It seems like it is kind of one for one. Is that typically the norm at Eastman? It is typical for April to be similar to March in a good year or a solid year. I mean, not a great year or a bad year. What happens, you got to remember, the result of a quarter is three months, right? Every quarter typically starts out where the beginning is weak and it gets stronger through the quarter. The last month of the quarter, March, June, September, all tend to be the stronger month of the quarter. The fact that April saw similar to March, which is a strong month, is good, right? You are building off of that performance because March was better than January and February. I would put this in sort of a normal start to a Q2 as opposed to good or bad. Gotcha. Gotcha. Gotcha. Gotcha. Just following up on a lot of discussion on volumes in tow, obviously. Back to your earlier point about how small tow is as a percent of the cigarette. Raising tariffs, raising the price by 145% or something like that. When you sell to CNTC, are they paying or will they be paying that tariff and you're maintaining price? Conversely, if you're having to eat some of the tariff or what have you, what would prevent you from raising price given how small it is as a percent of the total? That's a great question. Technically, when you're going into a country, you're the one paying the duty and you have to decide to raise the price to cover the duty or not in the way that that works. The conversation, the joint venture between the China National Tobacco Corporation and us has an obligation to buy flake from us. They can jointly decide with us that if the price is too high for the flake, they will reduce production if it's not economic at that price to sell the tow. That is where the volume risk comes with this flake sales, that price is much higher than the other plants that the CNTC has, right? Remember, they have a spectrum of joint ventures making tow, all joint ventures with us or a lot with Celanese and some other players. Those are making both the flake and the tow in China. We are the only ones importing flake into China. They can flex up the run rate of those other assets and reduce the run rate of this asset if our flake is too expensive. Okay. Gotcha. Fingers crossed that 90 days from now on your next call, this whole conversation will have been moot and we will be back to normal. Thanks so much. Thank you, Frank. It is a good point, Frank. I mean, if we get these things, all this tariff to moderate back to sort of more rational levels in the, let's just say, 10-20% range versus where we are at now, I do not think we should fantasize about everything going to zero. I do think things can normalize and get a lot better, and we would be able to snap back towards our original forecast for the back half of the year from January. You do need to get some of this extreme tension taken out of the system. Let's go to the next question, please. Thank you. Our next question comes from Mike Sison from Wells Fargo. Your line is now open. Please go ahead. Hey, good morning. Mark, you sort of gave a soft recession sort of outlook, I guess, in your prepared remarks. How do you think the Eastman portfolio should hold up or perform if the U.S. does go into a recession? In 2023, your volumes took a pretty big hit for advanced materials and AFP, but a lot of destocking there. Just where do you think volumes would sort of mirror if we do go that route, unfortunately, this year? Yeah, that's a good question, Mike. I think there's a lot of mitigating actions we're taking. To answer your question first, I think that the demand situation this year will be considerably different and less potentially than what happened in the 2022 timeframe. We've been in a manufacturing recession since the summer of 2022, and we have not come out of it, right? I mean, demand has been challenged, as we all know, with the inflation and the interest rate hikes, etc., that especially on the consumer discretionary demand side of the equation, cars, homes, autos, we're still below 2019 levels. At the same time, there's been no driver for restocking in these markets. The inventory levels that are sitting around the planet right now are not that high, right? They're at appropriate levels for this low demand scenario. People have only had a couple of months to react to this tariff risk. There is not a lot of time to sort of build inventory ahead of this tariff risk through the first quarter. You are worried about recession. Everyone is trying to balance just how much inventory do I want to have. What has happened is the geographic location of inventory has changed a lot, right? Anyone who had blenders and TVs in China got them in the U.S., but that does not mean they made twice as much. Same thing, we got materials into China. Materials have moved around, but I do not think we are sitting on a huge amount of inventory right now for a destocking event. I do not think demand has a big step down because we are already at a relatively low level of demand compared to a normal recession. There are extreme differences, obviously, between the U.S. and China economies being dislocated at these tariff rates that you got to then factor in. Hard to put it all together, but you just do not have that sort of mountain of risk in absolute volumes, I think, this time relative to where we were in 2022. I think that is important to keep in mind. The second thing I would say is there will be a tailwind on the price-cost relationship if you go into recession. Similar to the demand situation, I do not think the tailwind will be as significant because we have already been at sort of stress levels in pricing with raw materials. I do think you will have a tailwind there to offset that demand dynamic. There is just a lot you can do to manage through this in the actions you take, right? As we've said, we've already focused on making sure we're going to be sort of cash-generative in how we're performing. There's a whole list of mitigating actions around tariffs I've already mentioned. There is still innovation that's allowing us to grow above markets. The commercial excellence of our teams is phenomenal in defending pricing and value of our products, which we've demonstrated over the last three years and will continue to do. Methanol systems is a unique upside to Eastman where we've got that $75 million EBITDA as a way to offset some of all these challenges we've been talking about. Of course, we'll be prudent on the CapEx front so that from a free cash flow point of view, we're in good shape. A lot of things that we're doing to manage through it, I think I would not recommend just running a proxy analysis on demand for 2022 and 2023 relative to this scenario for the reasons I just mentioned. Got it. As a quick follow-up, if the tariffs were resolved and we get back to that 8.875 run rate for the second half, what was the volume assumptions that AFP and AM could do? Like low, mid-single digits, is that sort of what we were hoping for initially? That's about right, Mike. I think that people are really draining stock right now to avoid the tariffs, which means inventory is going to be a lot lower than what is normal if we're going back to a normal economy. You would hope markets continue to come back to some stability. There is going to be friction from all these tariffs. If we're at a 10%-20% tariff, there is going to be some consumer friction around that and what people can afford to pay or people managing headcount costs if companies are absorbing the hit. That will have an impact on the economy. You'll have a restocking of bringing inventory back to more normal levels that will certainly help volumes in the second half be better. Thank you. Let's make the next question the last one, please. Of course. Our next question is from Josh Spector from UBS. Your line is now open. Please go ahead. Hey, guys. This is James Cannon for Josh. Thanks for taking my question. Just given all the uncertainty in the market, I just wanted to focus on some of the more controllable items and looking at the guidance that baked in the $20 million headwind from turnarounds. Could you just help level set how the turnaround schedule is expected to look in the back half? Yeah. What I would highlight, it is unique for us to have the scheduled turnarounds here in the first half in Q2 specifically. We have the sequential $20 million headwind. I would say sequentially into Q3, it will be at similar levels. Q4 would actually be an improvement. We will basically have some higher cost in Q2 versus Q4. Obviously, in this uncertain environment, that also helps us get ahead as we look at inventory and generating cash flow because taking actions here in Q2 and Q3 ultimately defines the year in cash. Thank you. Did you have a follow-up question? Okay. No, that was it. Thanks, everyone, for joining us. Okay. I appreciate it. Thanks, everyone, for joining us. I appreciate you joining this call. Hope you have a great rest of your day. This concludes today's call. Thank you for your participation. You may now disconnect.