Eastman Chemical Company ($EMN)

[Audio Gap] today is Mark Costa, Board Chair and CEO of Eastman Chemical Chemicals. I'm going to leave for some questions for Mark. We'll go from there. So Mark, welcome to our conference.

Great to be here and looking forward to the conversation.

Maybe you can walk us around the world from [indiscernible] perspective by region, by business, by end market, how are things progressing through the second quarter?

So I'll start with end markets first, and then I'll come back to regions. On a new market basis, if you look at sort of roughly half of our revenue is exposed to what we call consumer discretionary. So that's autos, which is the largest in market and then building construction and consumer durables. And consumer durable parts, which includes a lot of appliances, TVs, things like that are obviously connected to state of the housing market because that's a big trigger for purchases of those kind of products. In that world, what I'd say is there isn't anything dramatic in its change relative to last year. building construction market, we expect to be similar to last year. It was obviously the hope for interest rates dropping and stimulating demand. That's obviously not happening. Out-of-market I think, is a bit softer this year, and that's been the 1 change, I think, for the whole industry from what people thought in January to where we sit today, where that global market will be off low single digits. It's not a significant change, but it is going to be a bit weaker this year from what we can see so far. And I'd say on consumer durables, it's a little bit better than last year, but but similar, right? So you could see demand getting a bit better sequentially out of Q4 into Q1. We're seeing seasonal demand that you would expect on those kind of products being purchased to be made into things that show up for Christmas, et cetera, things like that. So put it all together, it's sort of stable when you look at it -- on the what we call the more stable markets. So that's personal care, consumer packaged goods, medical, ag, all those kind of more stable markets, I'd say you're seeing modest sort of low single-digit kind of growth in the market for this year versus last year. We're not seeing any headwinds. We're certainly not seeing any snapback and that's 1 point of those markets is relatively stable. So that is sort of the way it's playing out. [indiscernible] say, is so far looking like a normal year, lots of conversation about what [indiscernible] next year given the straight disruption. But this year, I think it's in the normal category. Geographically, I think it's what you all know, Europe and China are certainly worse off economically than here. The economy here is obviously not strong. And even though affordability is a big issue, I think what's defined everyone's logic, including mine, is that demand has held up relatively well compared to like consumer confidence. And the biggest way to explain that, I think it's just employment is still really good, right? So while people are worried about was before they sell the job. And so they're still buying things. They're certainly stretched and we're worried about that. as a back half kind of question around when consumer demand goes. But right now, we're seeing demand hold up well in this quarter across the portfolio. We're not seeing any signs yet of demand destruction associated with what's going on with the Gulf and the impact it's having on prices. But it takes a while for those impacts actually show up in the final price of the consumer product. So we're just going to have to see how this plays out.

So relative to your guidance of $1.70 to $1.90 for the second quarter. Are we tracking a lot of those expectations?

Yes, we feel good about where we are on our guidance. So on the specialty side in Advanced Materials -- we're seeing the sort of sequential improvement in demand that we expected. If anything, it's a little bit stronger than we expected on the consumer durable side, a little softer on the auto side for the comments I just made. But overall, I would say, demand is on track and the quality of the demands it. So the mix value of what we're selling are some of the higher-margin products. So that's good stability there on the price cost side of it and the innovations coming through as we expected. So the ramp-up of the recycled PET ramp-up of some of the consumer durables using our new content is on track. So we still feel good about that 4% to 5% revenue growth this year versus last year. for the Advanced Materials segment driven by the circular economy. And it's not just that, right? You've got the heads-up display interlayers that are very high value that are growing faster than the underlying auto market. You've got some good solid growth in the performance films business, but I see that's more in line with the market than growing faster than it because aftermarket products are not exactly a prior to when people can't afford a car, they're not going to put film on it, right? So that's a bit more challenged. But overall, I think it's in good shape. On the price cost side, you've got the benefits of price increases we've put in place. We've got them all in place. As we said, we would do I'm feeling confident about that because of the speculation that maybe the strain will open and oil prices come off, raw material headwind is probably not quite as strong as we expected in things like PX, which have moderated a bit. So helpful. And then when you look at that volume increase and you put it together with operations running hard to keep up with demand relative to relatively low utilization we had in the first quarter in Advanced Materials. As we are still managing inventory and uncertain about demand. So we got a pretty helpful utilization tailwind going from Q1 to Q2 in Advanced Materials. So that segment's on track as the functional products is just rolling along. Demand is holding them solid. They have a lot of cost pass-through contracts, 2/3 of their demands in stable markets, so it's stable. And then the cost base contracts are working as they should to keep up with raw materials energy distribution costs. So that business is on track for a good quarter. Chemical Intermediates is obviously feeling fine. Sure we'll come back to that in a more detailed questions, so I'll just keep it short here. It's fine. And its earnings are probably going to be a bit better than $50 million, which is what we originally sort of estimated with the tightness in the market. And then I would say fiber is going to be potentially a little bit light. It's -- as we told you, Mideast demand, how to get [indiscernible] more importantly, cigarettes out is the bigger issue. They're solving but it just takes time to sort of work our way through it, right? That's about 10% of the fibers demand revenue is the Mid-East and to, and so that was a bit of a challenge. But overall, our customers are committed to their contracts on a full year basis. We're not seeing any divergence there, and we'll come back to that I'm sure another question and what that means for the back half.

Would you say the bias is to the upper half of the guidance range?

I would say where I sit today, you could see potentially we're in that zone, but June is an extremely important month, and you just don't know. On how demand will play out in June. The order books investment trials are solid through July right now, which is good and not typical, right? But at some point, if the straight opens, people are going to say, oh, maybe if I just hold up buying, the price won't get cheaper, right? So there's going to be a month like that at some point. I don't know which month that's going to be, clearly, none of us do, but I don't think it's going to be due at this point. So I feel good about sort of how volume should be trending. But it's more on multiple continents. I mean, there's a lot going on.

Again, just on that prebuy question, your there has been some prebuying across the portfolio. Is that fair?

I don't think there's been much pre-buying in chemical intermediates, just to start up with the easy thing. We can sell whatever we can make because other people can't make it. right? So everyone focuses on oil naphthas and methanol and things like that is what you should really be focusing on for this industry at the moment. And it's short, right? A lot -- 15%, 20% of [indiscernible] the world comes out of the Gulf, it's not coming out. there isn't a bunch of refineries sitting around empty outside of the Gulf and to be ready for this scenario. So when you're dumping all the strategic reserves into the world, you're depressing oil prices because there's no refineries to use it, right? And so that's the part that I think people are missing is you got to do the supply demand balance at every step in the chain. And you've done artificially depressed price in oil, I think, and it's part of because demand is coming off on fuel. But it's also partly because there's no refineries to turn in. And so that naphtha situation is going to drag on for a long time. We were just talking about last meeting. I met with the CEO of 1 of the biggest chemical tanker companies. And they're like, look, there's a clear priority of what's coming out of the Gulf. And it starts with avgas and urea and sulfur because we need transportation and people not starved next year. right? So that gets prioritized, then oil, then chemicals. So we are not in the priority rank of getting things out of the Gulf. So when you open this thing, if they have -- I don't understand how they do it, but apparently, they can prioritize what goes through it. I'm told. And if that's true, it's going to take a while to establish naphtha and other refined chemical products for very good reasons for the state of civilization, right? So I think things are going to stay tight. Certainly, people who are far more qualified like the Dows and Lyondell can give you a better detailed explanation of it. But I've had the conversations with those guys, they're of this view. Without doubt, China is adding some capacity. But we'll have to see how it plays out.

There may be some prebuying in AM. Is that fair? -- or at least some

Yes. On the AM side, there could be a little bit of prebuying, and there could be a little bit of prebuying in AFP, certainly not at the opposite going on in fibers. You have to keep in mind that the back half of last year, which was brutal, as you all know, involved a huge amount of destocking. The good news is we saw that destocking come to an end because we saw a very substantial recovery, right, sequentially, our volumes in [indiscernible] back 10%, right from Q4 to Q1, which was encouraging. But the underlying demand hasn't improved a lot January, February relatively weak. So no 1 is ramping up plants, including us, right, for some expectation of growth this year. People are being cautious. So certainly, you get to the war where now people can't make things as easily as they used to. People may want to buy forward, but they can't because it's not there to buy. So I think that there's just constraints on what's out there. to be pre-bought because we certainly have stock out some places. As we got to the end of March, and certainly what we could actually allow people to build and we're still running hard just to keep up with demand rate. So I think that inventory situation is quite a bit different than, obviously, when we were in '22 or even in '25. Because in '25 years without the economy is going to get better, from present. This is all good. People are like us were building inventory for growth for the year in the first quarter. It did not happen this year.

That's the conflict. How long do you think it will take for supply chains to normalize once a conflict then and a straight reopens.

There's 2 different camps on that out there, and I guess in the answers in the middle. So 1 camp is China is going to make everything and ramp up their coal assets in these the other, but 70% is not to 15% to 20% coal as it can ramp up the cold that much. And they certainly have plenty of reserves. But again, they didn't have a bunch of idle refinery sitting around. They're all running relatively hard. So they don't have a lot of swing up in what they can do, right, to solve food cap in the world. So I think -- I'm in the camp that things are going to be constrained. It's going to take a while to reestablish the supply chain, just like shipping explanation. You got to fix the things that are damaged in the Middle East. You've got to reestablish just start these plants are not like light switches, right? It takes a while to start them up, and there's some we know got shut down hard, which never come back well. And so there's all of that that's going to sort of drive this out at least 6 to 9 months and really getting back to some stability. And I don't think we're ever going back to where we were in the back end of last year and the beginning of this year that whether it's oil or naphtha or everything else, I just think it's going to be structurally short for quite a long time. But it's not going to stay as extreme as it is here, right? So our expectation is there's some moderation in spreads in the back half of the year and we'll see how it plays out.

And just at ACC, the American Chemistry Council of Annual Meeting. What's the mood -- what was the move in Colorado? And maybe what the divergence of opinions if you mentioned a whole bit on the state of the opening?

What I just said is there's -- things will remain tight versus it's going to loosen up faster than people think. And normally, at ACC by the way, you have all these meetings like this, right, back-to-back meetings. And by the time you get to the end of yesterday, everyone has the exact same point of view about the world. And that is not the case right now. People have very divergent views about how this is all going to play out. And as I said a moment ago, I think the answer will typically end up being somewhere in the middle of big stream is. But I would say uniformly, the opinion is what I said demand is holding up. We're not seeing any signs of demand destruction. I think that's sort of a a consistent point of view out there. Everyone is worried about inflation impact on consumer demand in the back half of the year and is only rational. But the consumer continues to find that concern every year and holding -- to be clear, it's not like markets are good. That's not overstated, right? End market demand is bad, but it hasn't gotten worse. But we're housing is 20% lower than 2019, right? Same in Europe, 20% lower China total disaster, that they're really good about that. It's just not getting worse. But there's a huge amount of pent-up demand when you think about just how many housing transactions have not happened now for 4 years, right? The age of a car is getting 14 to 15 years old on average, right? That's a lot of really old cars that are just going to start hitting into life. Clients, right? They were massively bought in 2020 and '21. And now they last 5, 7 years, and then you've got to replace them, right? So you're getting to replacement cycles at a minimum, let alone, maybe some demand recovery. So the area under that curve is significant. It needs to be unlocked, which it is in my opinion, not probably going to lock this year, right, unless interest rates come down, you're not going to sort of lock the housing, consumer durable side of things. So I'd say demand-wise, everyone is nervous about the future but not seeing it yet in their orders. People aren't seeing a lot of pull forward consistent with the comments I made earlier. So there's maybe a little bit of that going on, but not significant for the reasons I've already mentioned. And the big question about China and what they're going to do, I think, is they're just going to keep doing what they've been doing, right, which is at capacity and take global market share on the commodity side of the world, where it's just about price and subsidies, they have to go do it. On the specialty side, we still don't have a lot of direct Chinese competition yet. I mean we always assume we're going to have it. That's why we have an innovation-driven company to innovate and stay ahead of that challenge. Circular economy should be a regional business. And so that's another way to sort of disconnect from Asia, we're going to have actual circular economy. So we're always looking for all the boats that we can build around that threat. And so far, everything is holding up reasonably well.

And longer term, you're thinking the group is thinking about benefits, U.S. suppliers, you're a heavy U.S. asset base. Is there a premium on U.S. supply, security supply? Is it less dependence on virgin golf supply? Although long-term benefits beyond 6 to 12 months I'll just call it to you any U.S.-based peers.

Yes. Without a doubt, that's true. On the commodity side, we can sell whatever we make, right? So that's clear as markets are shorter from what I said earlier about not that everything else around the planet. On the specialty side, I think for sure part of the reason orders are holding up as they have is we're viewed as much more secure supply. Most of our competition is not in China, but it is in Asia. It's typically Japanese or Korean competitors who are about the best right now on the specialty side of things. And so that's holding up reasonably well. They're under more cost pressure than we are that comes to pricing. I think that being a North American asset-based company. 80% of our volume is made in the U.S. 60% of revenue is outside the U.S. We're highly levered to North America always happen. And now it's a really good thing, right? So our energy costs are advantaged, our obvious our olefin cost structure within a propane or advantage and we're viewed as having much better position to be secure in our supply and reliable to supply to customers. And that's always a good thing. We will come -- the North American chemical assets will be winners in this long term. The miss, it's going to be hard to recover straight being safe completely, I think, forever at this stage because the Iranians now know they have a huge leverage point. And while the Chinese are certainly adding massive amounts of capacity and massively subsidizing it, getting discounted oil to run it when they're not getting the discounts anymore. And two, all their assets from a cost position point of view are in the third quartile.

So you can add it, but they're not cost advantage in doing it, right? So they want a subsid forever, then that's a long-term problem for the industry. But there's also just a limit on how long you could do that, right?

Segue into Chemical Intermediates, which has been the biggest beneficiary for you guys was conflict. Where are spreads today versus where they were pre-conflict expectations in the back half of the year. And longer term, the role of this asset in your portfolio during the company. So there's 2 elements of what's going on in Chemical Intermediates before you get to the war, right? There is a structural element and there's a cyclical element to what's going on. The cyclical side is North American markets are far more attractive than the export markets for anyone who makes these kind of products, whether it's acetyl or olefin. So demand came off because that also goes into housing because of consumer durables, cars and everything else for the intermediates that we make. So that has that same sort market exposure. So we had a mix hit when that demand is lower than normal. And so those -- and those margins are much better than export, right? And then on the export side is where the structural part showed up because that's -- the Chinese aren't really penetrating our market because we have tariffs and things like that. And logistically, it's easier to go to Latin America and Europe for them or Southeast Asia than it is to come here. So that export market got crushed in '24 and '25 by all the exporting done by China, right? So those values basically got down to very low values. Those values are not very high, right? So that benefit on the export side of thing is obviously helping us. So while that comes off, if there's stability that comes back in the North American market, we can offset some of the decline in export values with higher value mix in North America and some demand recovery. So those can stabilize out a little bit that would be helpful. But the margins right now are certainly higher than what I would call normalized in the world that we now live in, given the structural dynamics out of China. But I also think because of everything I've already said, it's not going back to where we were last year. somewhere in the middle I mean anyone guess somewhere that is.

And long term, it's important to roll in the Eastern portfolio?

Look, the [indiscernible] business, first of all, acetyls is part of the integrated complex in Tennessee. That's not going anywhere. It's all big pilots for getting there, right? So you can't just assemble some -- anything with cellulosic or polyester on site. But when it comes to the Texas side, we've been clear that's not a strategic asset to us. It carries a lot of costs, a lot of costs are spread by revenue, and it has a lot of revenue. So carries a lot of cost structure. So you got to keep that in mind when you're trying to think about it on portfolio or its absence. You provide -- half of the output does go into our specialties that gives us a nice secure raw material position that's made in America. So that's a good thing to have. But at some point, it's in the portfolio as we're growing the specialties or building up a circular economy, probably not. But right now, it's doing its job. And it's providing some earnings to ability, right? What nice thing is it's a small percentage of the portfolio. But when raws go really up like 21% or now where you have pricing trying to chase it on the specialty side, the margin expansion here actually offsets that. It gives you a bit of a stability hedge -- but you don't want to be too big right. Otherwise, you're going up and down with it, but it's small enough for it just helps offset some of that. And gives you more stable margins. So there's this thing going on with our stock where people don't know how to trade this, right? I want to trade on the commodity side, rate on the specialty side, so you can see that word debate in the investment community going on daily -- the reality is it provides stability, which is a good thing in this world, right? Stable cash, stable growth, that's what you get out of this portfolio, right?

[indiscernible] stability. Fibers asset, we have seen some destocking the last few quarters, where we stand on that journey and what we saying that the stock in journey into [indiscernible].

So the destocking is not a few quarters. It's -- unfortunately have to think about this in a year. So to is a critical part of the cigarette. It's about 5% to 10% of the price of a cigarette. You run out, Joe, that is [indiscernible] bad when you have 65% gross margins, right? So security supply is always the priority in history for this industry. When we had all the shortages and we had some operational problems at the beginning of 2022, with our site. The customers became especially the big multinationals who are very well run, built inventory because they want to secure supply, they built it in '21, they built '22, they built a little bit every year because we have these volume bank contracts that they stay in. They don't buy a lot extra year, but they bought a bit extra each year. So they accumulated a lot by the time they got to 2024. And of course, no 1 ever tells you when they're building inventory ever because the word you put them on allocation and not give it if the market is relatively tight. So you just don't know it's happening. That's what happened across so many marketplaces in '21, not just top and everything, right? But they didn't -- and everyone else started to destock right away at the end of '22. These guys because they're so worried about security apply, I didn't start destocking anything until last year. And they're all under contracts, especially the big ones that have a [ Minimax ], so they went to their minimum commitment which allows them to chip away at the destocking, but they can't solve it in a year because we hold them to these minimum contract to keep stability in the business on the volume side. So it just -- it started last year. It's going through this year. It's going to keep on going to some degree into next year. By the end, it will be done. I mean there's an age limit on this to -- so it will sort of resolve itself. But but it's a journey. But that's the primary drop in demand. I mean why I got enabled was a Chinese player came on with some capacity that made it available the Western world. Historically, they've just been selling into like Russia and Venezuela and Iran places that we can't sell. But they added some capacity so they could actually take some of the risk out of the marketplace about , which is what enabled the destocking. The asset that's being shut down by [indiscernible] is pretty much equivalent to what they added. So that helps sort of on the balance side. But there's still a lot to go. And the margins are very high as people get tempted into chasing volume because the value is so high. So that's why you get these dynamics where prices come off, and we had really high prices in some places, I mean really high. And so it was not a surprise that they were going to come off.

Underlying decline rates still the same 1% to 2% or...

It was 0% to 1% between -- turned out between 2014 and 2024. And -- it's moved more into that 1% to 2% range. There's some more excise taxes in places like in this and the other that's going to impact demand to some degree. But historically, demand despite all the drama around cigarettes has just not changed a lot over time. But it will definitely decline a little bit more than the last decade.

On the non-toll portion of fiber, is that still progressing?

So the textile business was a great opportunity to keep the assets running full, and the margins were actually pretty good. I mean not exactly tow margins, but not that far off. So as that business was growing, it offset some of that to market decline. As we told you about 40% of the earnings decline has not going to a tow from '24 to '25. And this was about a $30 million decline in '25 relative to '24 with all the drama of the trade war, the retaliation tariffs on our products going into China, that slows or demand for us. And I'd say that we thought demand would be coming back meaningfully this year at the beginning of the year. It's a lot slower than we thought because of all the economic drama going on right now. So there's still that $30 million recovery out there, but it's more in the future than it is this year at this stage. I mean it's coming back a little bit, but not a lot, right? So that will help in years.

I want to touch on M&A. It's been picking up in the space here and there. even 1 of the least acquisitive companies in chemicals. I think you've earned the right to do something but be chosen to focus for GAAP internally. What role does M&A play in the growth of [indiscernible]?

Yes. So historically, by the way, we're 1 of the more acquisitive companies in a different time frame. So we went to this huge portfolio optimization, if you in our history from 2006 to 2011, where we got rid of a lot of commodities and really upgraded the quality of the portfolio through a series of divestitures. And then we flipped around in 2012 through '14, and we did $9 million of acquisitions, right? So we were very quit? So we bought [indiscernible], we bought Tomanco. We bought a bunch of bolt-on businesses, all of which have delivered great returns and very successfully integrated into our company. But yes, when we hit 2014 after we bought all this stuff, we went into an organic phase, say, well, we have all these products, all these specialty businesses the ones that we bought had a lot of potential but had not been properly invested in from an R&D point of view. So we are working on that and ramp that up successfully and built a pretty good business. And through all that, and we had a lot of leverage that came with it and the economy wasn't exactly great. So the rate of delevering wasn't quite as fast as we'd like. And so it took us a while to get to the balance sheet back to where we want it to be. And then you have to bite and then you had supply chain drugs. And then you had complete another drop of manufacturing consumer-related demand, right? So it's been a little caution the last -- yes, it just never stops. And by the way, I joked a year ago that we're running a terrestrial problem. So we'll have an alien invasion. And apparently, that's true, too. So who knew. But the good news is they've been walking among us for decades, and so they must be peaceful. So maybe we don't have to worry about the disruption, but maybe Hill tax other galaxies as well for inputs. We have to think about all that chaos and being responsible with your balance sheet and your cash flow and being stable and real. So running around doing M&A didn't seem like a great idea. But the real choice that we made, I'm getting to your question, but I think history is important. The real choice we made in 2021, which is we could go really aggressive with the strength of our balance sheet at that point and the strength of earnings right back then. On the M&A side or we could go in the circular economy side. We couldn't do both. And we decided that the certain economy had far more upside and organic growth gets a far better valuation has done well. that, that was the right choice because we're unique in what we could do in something at that scale of platform level relative to anyone else in the industry. And we still believe there's a lot of value there, right? Go look at Pure Cycle right, negative $140 million of EBITDA, $2 billion valuation, right? And we've got very significant revenue. We actually have significant profit, and it's not in our stock at all because people are worried about the core. You stabilize the core, and you start getting that valuation on top of the portfolio creates a lot of value. So we still believe our organic strategy has a lot of value despite all the chaos. Having said that, the world is going to speed up on M&A, as you said, the world is definitely going to, I think, in our industry consolidate to some degree. Certainly, that seems to be the going theory. And so we're looking at all options at this point. But there's nothing just to be clear going on at the moment. But you have to realize the world is changing and change with it, right? So M&A probably play a role in our portfolio to both ways, both the things you could divest or things that you could buy or et cetera. So we're starting to consider those things, but there's nothing imminent.

The pipeline filling small bolt-ons lease? Or how is the pipeline today?

The pipeline -- I mean, there's always the bolt-ons out there. But the thing about bolt-ons is they take a lot of effort relative to the value they bring -- and so if you've got a machine going like Roman hostile a long time ago, where they're rolling up like competitors and coatings, it's really compelling. And we've done that well in performance films. We rolled up competitors and built that business to be more robust than what it was. And we're always open to doing it. But it's not as robust as any of us would like it to be.

Right. Okay. You mentioned [indiscernible] organic growth. Where we stand that journey here today?

Well, certainly, it's a little slower than what we've done in 2021. So the current status is the plant is running great. The yields are fantastic. We've got clear insight on how we can debate to at least 130% of design rate, right, to stretch the asset and give us time before we have to have the next big capital spend. On the specialty side, the volumes are growing with some of the recovery in the market, but you're going into blenders. You're going into reasonable water bottles. You're going to those products that are discretionary, right, where that market conditions are great. So it's going to grow with the rate of the market because people don't want to just add recycle onto it in existing product. They want to put it in a new product launch, right, where they get people paying attention, you get the value for it, et cetera. So if you're not launching products, then you're not growing a lot of renew. So we are seeing half of our revenue growth, which would be that 4% to 5% I mentioned on AM is in the specialties where they are starting to launch some products, they are picking up some volume there. The other half, which is the RPE Demand has improved considerably for that side of the business. In the last 9 months, as we've talked about on the calls, principally because their mechanical istegrating faster than they thought -- and the -- and then we blended with the mechanical make it look good again. So there's more recognition of our value proposition that our product is identical to Virgin where mechanical really is not and going to be less so every year. So that's creating a lot of opportunity for us. At the moment, we're capacity limited, not demand limit. So it's our assets are flexible, but they're not that flexible, right? You have to take some effort to sort of swing them back to making PET, which is what they originally did before we turn them into specialty assets. And so we're in the middle of sort of making some of those adjustments. We told you about 1 line we're switching over and we're looking at another 1 right now. So things are good on the demand side. Premiums are holding

[indiscernible] company is a big customer for you guys? What's been their feedback on the material and what they want for you going forward?

They've been extremely happy with the product. They actually have a whole thing on their website around Eastman and how we're enabling them to sort of address the environmental challenges of packaging. So they've been great. And a few other big package companies are engaged as well. So there going forward the volume even in this economic environment. And if you think about the stress test and the value proposition, things are not good if you're in the consumer package world, right? They have some demand challenges because pricing got so high, they're lowering pricing right now to rebuild volume and they're still buying our materials -- it's a good value proposition does -- in this context, right? They could easily just say, I really care about the environment. I want to care a lot more about it in 2027 than '26. And a number of the brands are doing that, right? That is certainly happening. But the ones who really take the environment seriously like perhaps you like P&G, as 2 examples, very much sticking with their plans.

Then you have your home state, California putting in place recycling laws that can only help matters I presume.

[indiscernible] rules get written. So there's always 2 camps out there in the environmental community. One is they really want to solve the problem, which is recycling and supporting all those types of initiatives, whether it's recycling or the biodegradable cellulose polymers we have that we're taking into foodservice Now. But there's also a contingency that just wants the world to have no oil on it ever. right? And so the only way to get rid of oil is you have to get rid of combustion engines, you have to get elastic for that group, the more extreme NGOs just want to ban everything, right? So there's that war going on, which is totally unrealistic. It sounds good, raises money, but it doesn't -- they can't actually over accomplish their goal. But that creates a lot of volatility. But yes, in general, the recycling rates being required, EPRs, which are enhanced product responsibility, also known as attacks on packaging waste those drive behavior. Colorado, I would say, is the best example of a pretty thoughtful design that I wish more countries -- countries at states would adopt. Of course, California is going to be more extreme about everything. So we'll see how it plays out.

So what's the next year for [indiscernible]. Texas is obviously a bit more gassy, but what's the next from a capacity standpoint?

So the Texas project was a very capital-intensive design because we're building everything new, right? [indiscernible] new, all the infrastructure around it, new that's led to what the capital cost was so high and also helped us when we got that DOE grant of $375 million or bringing the number back down to sort of more targeted rational range. So when we lost that grant, it actually forced us to step back and say, well, is there a different way we can approach this to be a lot more capital efficient. And at the same time, you have so much stress in the commodity markets, including PET, a lot of assets being effectively abandoned. That creates the opportunity to leverage existing facilities and infrastructure and focus really the capital down to the methanolysis unit, right? So we've been looking at multiple options of how to do that. I believe we have a couple of different pathways but we haven't finalized exactly what we're going to do. And so we're not going to talk about the details and the we've got it all sorted out. But there is a capital-efficient way to go forward.

Could we hear about that in 2026 or [indiscernible]

[indiscernible] starting CapEx in a pathway more clarity of [indiscernible] -- that the only U.S. Europe as well. The issue, we're in a tough environment. We're going to be very disciplined about our capital allocation, and we're not going to be ramping CapEx up a lot. So we feel like the economy is stable right. certainly not the moment. And because we can debunk the first plane that buys us, let's say, 2 years of grace in how we want to sort of build out this facility and stretch its capacity and then add on the next plant. So -- and that allows us to be capital efficient, it allows us to be disciplined about the market demand, making sure it's building as strong as we believe it will, and therefore, higher our confidence around a good return on investment for the second plan.

My last question is you've always been hard to value peg, what is Easton Chemical. And I think people teal to a lower valuations they can't really figure out what you are and where you're going. How do you address those concerns and issues have Greg here as well. The age-old question, why is this in and how do you value the [indiscernible].

Well, look, the core of Eastman is it is a specialty chemical company, right? It's not a commodity company. Yes, it has a little commodity tail on it. Would you actually stabilize this earnings and cash and we can debate how it impacts the valuation. But the reality is the Advanced Materials as the functional products business are the sort of the core of where all the capital goes and where the growth happens or where the acquisitions will occur or whatever else. -- searcher economy is completely not valued in the current stock price, right? I think you can 0. Yes. But we have a company, I can make any profit that has a $2 billion value. So as a reference point, I'm feeling pretty good that we're worth a lot more than that on the circular economy since we've got the largest asset in the world that's doing chemical recycling, it's up and running. It's up and running at high yields, right? So the technology is totally proven. We have an established customer base with a reasonable -- a serious amount of revenue now. We were paying premiums in the worst economic environment we could imagine, right? So I think that platform has value, right? So I think that what's being missed is the margin challenges, the earnings challenges are all volume driven. It's not about some sort of collapse in margins in the specialties. It's just asset utilization, right? Set demand is low. So you've got all this pent-up demand on the upside in the core business. You've got circular not just on the polyester side but on the cellulosic side, so we've got the event of products and things like that coming on foodservice. Obviously, we got to stabilize fibers and take that uncertainty off because I think that's a bit of a hang up. But we're in an earnings known range now where it's going to start stabilizing. I mean, it's not stabilized yet, but we're working on it. And then I think CI gets back to a more stable level, right? So call it $150 million, $200 million of EBIT on a normalized basis. And you've got the ETP investment that adds $50 million to $150 million of earnings depending on the market conditions on the ethylene and propylene investment that will be online in the summer of '28 that further strengthens that, which is just great cash flow. Now whether it stays in [indiscernible] or not, is debatable based on how we're growing the specialties. But I think that people are missing about the quality of the portfolio and how well is holding up in this context. Because so much of our demand is exposed to discretionary consumers. So that is the issue, right? We are going to have exposure to discretionary demand. That is the 1 demand volatility on that side is real. But we're at the bottom of the market when it comes to consumer construction demand. So -- and there's never a better time to get into the stock because the incremental margins are at least 30% to 40% of Advanced Materials, so that volume comes back. if not higher, right? So it really hurts on the way down. It's really good on the way back, not just on the earnings, but on the cash flow, right, because the margins on those products are high. And AP is really holding up well through the things. So you've got a nice stable base there and then you've got all the upside in AM. I think they obsess too much on the tail risk, which is a very small part of the company.

Do we get a circular segment at some point to highlight its value relative to the company you mentioned, your own circular segment?

We've had that debate. I mean with the first plant that's not going to happen because it's so integrated into making all the specialties. As you scale up to the second and third plant, that's more stand-alone, if there's please perceive value to making sure that's called out as a separate segment, we'll do that, but that's a problem for a different year.

But that time is up. Mark, Greg, thank you very much.

Thank you. Thank you all.