Eastman 3rd Quarter 2026 Sales and Earnings Results Conference Call - EASTMAN CHEMICAL CO

Good day, everyone, and welcome to the third quarter 2026 Eastman conference call. Today's conference is being recorded. This call is being broadcast live on the Eastman website at www.eastman.com. I will now turn the call over to Mr. Greg Riddle, Eastman Investor Relations. Please go ahead, sir. Thank you, Joel, and good morning, everyone. And thanks for joining us. On the call with me today are Mark Costa, Board Chair and CEO, Willie McLean, Executive Vice President and CFO, Jake Leroux, Director of Corporate Finance and Investor Relations, and Mason Tencher, Investor Relation Manager. Yesterday after market closed, we posted our third quarter 2026 financial results news release and SEC 8K 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 third quarter 2026 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 2025 and the form 10-Q to be filed for third quarter 2026. Second, earnings referenced in this presentation excludes certain non-core and unusual items. Reconciliations to the most directly comparable gap financial measures and other associated disclosures including a description of the excluded and adjusted items are available in the third quarter of 2026 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 joel please let's start with our first question thank you so much we will now take our first questions from vincent andrews with morgan stanley your line is now open please go ahead uh thank you and good morning everyone um congratulations on getting the uh the doe grant back together. We'd be curious to hear a little more details on how that can be allocated in terms of how much can you put towards the Kingsport expansion. And then there was some discussion of restoring underutilized American recycling assets. And so what does that actually entail? Are those going to be also chemical recycled or methanolysis assets that you're going to somehow be able to do? Or is that the more traditional recycling? Thank you. Good morning, Vincent, and we are very excited to get the grant back. I would say that the Department of Energy has been a phenomenal partner in coming back to us and talking about how we could collaborate on a reinstatement. And I think we're fully aligned in their vision, which is, you know, priority on re-industrializing U.S. supply chains to America, building resiliency. And when you look at this project, it's creating U. S. manufacturing jobs directly, as well as in all the collection and recycling industry that feeds into it. It's providing security on a critical material without security on things like PET when China getting to be 75 of the industry you know you have a serious issue about how you can put food and water on the shelves and so security is incredibly important and it also allows us to be another leader and demonstration of technology leadership in creating a unique position in this that allows us to also create a regional economy so when you think about the grant coming back at at the full value it's really exciting now the grant does require easement to provide at least sort of 50 of the cap x but it is structured where up to 50 of the capital if we can get the number at the right target can be paid for by the doe so that's a great place for us to be and as you mentioned the scope has materially changed the original scope was centered around building the second plant and all the capital would have been sort of devoted to that in their support this actually pulled in the scope of a current plant. So all the deballnecking of the current methanolysis plant to get to that 30 percent extra production, the expansion of the feed processing capability in front of it, the additional, you know, add of polymer and infrastructure that goes around producing more product and getting it to the market uh across both especially and and in the pt section you know those kind of uh incremental expansions are covered on their toe where we would get a 50 share uh from them on those uh investments so that's great it helps us minimize capex in the short term in this environment and it allows us to build momentum to you know to the second plant and then it also of course it covers the second plan um and that will be um you know a project that i think will have substantially less cabex than what we talked to you about in longview texas for one of the reasons that you just mentioned we are looking at you have to remember that the longview project was not just a methanol spline it was also a polymer line it was feedstock processing the front end it was infrastructure to support all that together and about 40 to 50 of the capital is actually not the methanol supplies it's all the other things the processing the polymer lines the infrastructure etc so those kind of assets exist today um you know there are recycling uh plants that have shut down in this country that we can get up for a very we can purchase for a Very low price there are polymer lines that have been shut down and there's infrastructure around both of them that have that are sitting there in those sites so we have made great progress and and in finding a way to acquire those sites at very low capital order and have that replace a significant amount of new build capital associated with the second plant so we're very excited about that we'll tell you more about that once we get it fully completed also i would mention on the methanosis plant itself we believe we can build it at a much lower capital cost than the first plant because of all the learnings we've had in how to design it better how to execute the construction better i would also note that the solar facility is out of the scope of the project and the other thing to keep in mind is given the insights we have about building 130 000 ton plant you know we build 130 000 ton plant not a hundred thousand ton plant you know with incremental extra capital from all the learnings we've had for the first plant so the output you're going to get out of this plant is far greater for a similar amount of capital so you can get the capital number down a lot when you put it all together it basically says to complete the expansion and the ball necking of the first plan and building this second plant the DOE would probably cover 30% to 50% of the capital cost associated with that combined investment. Well, that's great news. I'll pass it along. Thanks so much. Your next question is from Patrick Cunningham with Citi. Your line is now open. Please go ahead. Hi, good morning. I guess just on advanced materials, Where do you stand in terms of price costs for the business? How much of the planned price recovery have you gotten year to date? And is this more of a headwind in 4Q as costs start to ramp up and prices start to stick in other areas? And just in terms with the January 1 price increases, how should we think about the levels that you're targeting there? Yeah, so I'll start with just on a four-year basis, and then I'll talk about Q4. So the commercial teams have done a phenomenal job on managing price in this environment. And as we talked about back in April, when the Iran conflict was driving raw material prices up in a significant way, we leapt into action across the whole company, including AM, and started increasing prices in a pretty significant way to keep up with that higher raw material costs as well as distribution costs that come with this crisis. So I think we've done a great job in the implemented prices that we did, especially in the especially plastic side of things. I think what was keeping up with those raw material increases with the actions we took through July. And I think мы've made very good progress on that. So when it comes to the SP side of it, we were pretty much catching up in September. And then, of course, with the Iran conflict escalating, you know, had a new spike up in PX prices, you know, because back in the July-August timeframe, prices of oil were down in the 80s. You know, we were expecting a raw material tailwind in the back half of the year in our guidance back in the second quarter call as, you know, prices sort of got implemented at a higher level and raw materials were expected to come off. Obviously, that didn't happen. And the prices have held, but we have a much higher level of PX that's really impacting Q4. And so we are taking actions, but it's a little difficult in the middle of the quarter to sort of address the problems that higher costs creates. So we'll probably have about a $15 million head one that's associated with a bit in Q3 at the end of the order and mostly in Q4, And so we have a $15 million headwind relative to what we expected would have been a greater than $15 million tailwind. So it's quite a swing from where we were in July. On the film side, there were some prices, you know, that were locked in in annual contracts on the interlayer side and some adjustments we had made in prices to regain some share in a few places. So we talked about that to you at the beginning of the year. That's been an all-year thing. Of course, raw materials higher there that's led to some compression and some of that has been offset by some price cost expansion and performance films when you put all that together it's about a net 15. so you've got on a full year basis about a 30 million dollar headwind in price cost for the segment half of that is really a q4 thing with especially plastics and the and the other half has spread across the entire year but the january one implicate price increases that we'll put in place will address that raw material cost uh challenge that we're facing um and uh we feel confident we can sort of cover the raw materials as we go into next year and i would mention the war comes off um and prices go back to the 80s you know we'll be in a position to have a pretty significant tailwind in price costs next year relative to this year Great. That's helpful. And then maybe just on some of the operational constraints with the delays on the Triton startup and the polymer line conversion, I guess, how substantial are these delays? Does this persist into next year? And maybe just in terms of the size of the plan shutdown in terms of the earnings impact, pushing that from 3Q to 4Q, if you could help size that, that'd be helpful as well. Sure. So, the line delays are solely an impact in the third quarter. So we had two lines. One was the large Triton line that we've been constructing as part of the circular program, and we had finished the construction of it and desperately needed it to ramp up and serve the Tritons demand that we had in the quarter. And so we were pushing hard to start it up, and we ran into some issues with some bad pumps that had to be replaced and delayed us you know by about a month uh and getting the line started up and that impacted you know both the cost of you know fixing that as well as missing some orders at the end of the quarter the uh conversion of a polymer line to make pt which we talked about to you guys a long time ago for making pt to serve all the pepsi demand and other customers um that really wanted a product in the in q3 we ran into some startup issues um in that line which also delayed us about a month both lines are up and running and running incredibly well so it's no issue for q4 but it did impact creating some additional expense in the quarter and then it also impacted you know some of the volume we could have sold in the corridor that was part of why we were you know not you know a little bit below q2 as opposed to being you know above q2 in our original guidance Can we have our next question, please? Your next question is from Josh Spector with UBS. Your line is now open. Please go ahead. Yeah. Hi. Good morning. And maybe this is related with the prior question, but just your commentary around reiterating 3% volume mix growth this year. I mean, it implies fourth quarter, you need about high single-digit volume growth. Understanding it's an easy comp in fourth quarter but a 3Q was an easy comp as well. I imagine it's more than just the polymer lines that you need to pick up to get there. So, you know, what drives that confidence to say that now? Yeah, that's a great question. So, I mean I'm going to answer it first on the sort of full year basis and then come back to sort of Q4 specifically, because I think context matters. You know, overall for the full year, we expect to be about 3% up in volume mix in advanced materials, which is a really impressive performance in the context of the year that we're at. So two-thirds of our revenues in discretionary markets in advanced minerals. And you've got, you know, challenges in auto, of course, you know, where automotive demand is, you knows, challenged both on the sales and the production side, especially in China, which is extraordinarily challenged. And the innovation has just done a great job on the interlayer side of holding revenue flat when the market is probably down two, three, four percent, depending on who you ask. But it's certainly down. And that innovation in HUD and getting more territory on an EV versus an ICE car that we've told you about before, et cetera, is certainly playing out. And then on the performance film side, that's been the more challenged part. You know, the majority of our profit in performance films is sort of split between North America and China. Obviously, things have been fine and holding up well in North America. But in China, with the market being down about 20% in sales, you know, that's a pretty material headwind. And so we faced that headwind, and it really impacted us in Q1, where we served a high-end market. And we responded and told you about this back in the Q1 call of broadening our position into the mid-tier because they're a low-cost asset we brought online in China and allowed us to penetrate that market. And we had a significant headwind with low-demand dealers destocking in Q1, and then a significant improvement in business as we went from Q1 into Q2, the actions that we took, along with optimizing the cost structure of that business in Q2. And all that carries forward into Q3, which was very strong. q3 was a little less strong because q2 was very strong and sort of how the dealers had loaded some inventory and they were expecting the market to grow and it didn't sequentially and so you know they're managing inventory that's a big part of the story on q3 but overall when you look at it and that momentum still continues with that broader market position into q4 so we have a broader market positioned in a tough market we have innovation delivering growth and autos will you know be a contributor um year over year in q4 but also on a full year basis but it's lumpy across the quarters um you know on consumer durables same story mid single digit growth in a down market and that's all about you know winning applications and triton that's part of the renew value proposition that's allowing us to win with customers and just the great performance tritons has and our team's just out there fighting every day picking up market share versus other materials so great story volume growth there's you know steady markets um are obviously giving you know sort of modest you know growth and and on a full year basis i would note there's also about a 50 million dollar revenue loss relative to last year some business you know that we walked away from last year so this is not a wrong conflict oriented but just walked away from in medical that that just didn't have much value so that sort of masks some of the growth that you're seeing across all these other areas so in q4 you just have the momentum and pickup of all the renew volume going into the quarter which is pretty significant as we're driving to our up to 100 million dollars of revenue a lot of that's in q 4 so that's part of how q4 is better you've got the continuing innovation across the durables that's you know delivering value and you've get some more stability and market presence in pf all those come together to give you the ability to have some better volume growth year over year and and not as much of a sequential decline as you would normally expect. Got it. Thanks, Mark. Your next question is from Frank Mitch with Fermium Research, LLC. Your line is now open. Please go ahead. Thank you. And if I could piggyback on a couple of things. One, congratulations on getting the DOE grant. Mark, obviously, you're saying that you're going to grow the circular sales in 2026 up to or approaching $100 million, and I believe in the prepared remarks it was expecting another $100 billion in 2027. And I guess I would have thought that 27 would have been higher than 26. Can you speak to the expectations there and what we can expect um you know uh in 27 and beyond yeah it's a great question frank and we are seeing a lot of great you know revenue momentum um in the circular economy as you're highlighting um and i think that it's important to keep in mind that it sort of half specialty half pt so i think on the specialty side it's going to be continuing to deliver the performance we delivered this year right so mid single digit growth you know in a challenge market you know is great um and that momentum should just continue as we go through uh next year and continue to build in you know the specialty side of things um when it comes to packaging i think that's where the big step up in volume is so this line that we just converted in q3 is now available for full year next year um so we certainly have more capacity to support um growth in the in the rpet space um you know with pepsi with some other major brands um that are very you know engage with us and when we get to january we'll be able to talk more about you know some of those customers and what we're doing with them as we get their commitments finalized um but we have a very clear line of sight that the revenue there will be stronger so i would say 100 million dollars is a minimum um for what we need to deliver next year um and you know relative to this year when you look at that momentum but you know it's early and we don't know what the state of the economy is going to be with the Iran war. So at this stage, you know, it's good to be a bit conservative until we have clarity on the economy and can give you better insight in January. That's very helpful. Makes sense. And then, Willie, the expectations on operating cash flow for the full year went from $900 to $850 million. I was wondering what accounted for that decline and if you care to offer a sneak peek on your expectations for 2027. Thank you. Thanks, Frank, for the question. As Mark's already highlighted, we've had continued inflationary pressures with the Iran conflict and what's going on in the Middle East. So that's putting a little bit more pressure on working capital as we wrapped up Q3 and early Q4. We expect a release as you think about how much working capital has been built through the year. That's almost $500 million year-to-date, $560 million to be exact, and we expect that to release in Q4 and have our traditional strong Q4 cash flows. Again, we think that's around $850 million, but that also sets us up for stronger cash in 2027. Even if you don't even have to release cash next year, as long as we avoid headwind or re-escalation and things normalize, we will have significant cash flow above the 850 in 2027. And we'll be talking more about that on the year-end call when we have our complete outlook pulled together. Thank you so much. Your next question is from John Roberts with Mizuho. Your line is now open. Please go ahead. Hey there, John. Your line is now open. You can go ahead. Sorry. I was on mute there. Yep. My apologies. I think you initially announced the ethylene propylene flex unit at the December 2021 investor day. What took so long for that project to reemerge? And if you had had it up for 2026, would the EBITDA benefit have been at the lower or higher end of that 75 to 125 plus range you gave on slide 10. So, John, it's – first of all, the E2P project, the metathesis unit that we're talking about is a phenomenally great project and a huge value-adding investment, and it's a fair question around when you do it sooner. Back when we originally had this idea and the concept we were trying to create was sort limited. And we were very focused on CapEx when we were driving the organic investments in Circular and some other growth projects across the company. And so being responsible about capital allocation as we always are in our discipline and not spending more than we have, we had to make some tough trade-offs and we focused on the Circular economy versus this investment. And I still believe that was the correct choice to do and the information we had at the time when making the decision we didn't exactly see four years of stagflation ahead of us when we were making this choice um but you know where we are today this is a great investment um and actually because of the way time has gone by we've developed more insight around the technology and realized that we could double the scale of the investment from what we were intending to do in the beginning to create a lot more value for shareholders you know from that investment so So to get $100 million of earnings on average, $75 to $125 in range for something that is repurposing an existing cracker that's a very capital-efficient approach and a payback in one to two years is great, especially in this business that certainly has its volatility. And it not only delivers $100 billion roughly in value, it also takes a lot of volatility out of the earnings because a lot of the volatility in our earnings comes from the ups and downs of the bulk ethylene sales. And we sort of now minimize that and take that volatility out. So it's great both in volatility and value. We did actually run the numbers because we thought someone might ask of what the value would have been in 2026. And the capacity had been online all year. It would have added coincidentally about $100 million of earnings to this year in this current volatile context um so it's it's a great investment over time it's very capital efficient uh reduces volatility we're looking forward to having it online in the middle of 2028. and john i would just add you know as we think about the capital efficiency that mark just referenced i think we highlighted also that on the high end the simple paybacks a year, and on the low end, it's about two years, which is great as we think about capital going forward. Good. I'll pass on. Your next question is from Salvatore Tiano from KeyBank Capital Markets. Your line is now open. Please go ahead. Yes, thank you very much, and good morning. I wanted to understand a little bit better the ANFP price-call situation. There are a lot of comments about how you have contractual pass-throughs, but the implied, I guess, price-cost spread seems to be widening every single quarter. So, firstly, when it comes to your price mechanisms, how do we reconcile the view that most are just contractual for the cost versus the widening spread? And secondly, specifically on Q3, when we look sequentially versus Q2, you have 4% more price, 7% lower volume. It seems that this is pretty much resulting in the sequential EBIT increase, and there was no incremental sequential cost. That's kind of at least what a model would spit out. So how were you able to get sequentially 4% more price when your inflation didn't rise materially Q3 versus Q2? So, yeah, so first of all, it's not all cost-passer in this business. So roughly half is CPT, if you will, and the other half is where we make price choices like everywhere else in the portfolio. So the team has just done a phenomenally good job in commercial execution across the entire portfolio managing price in this context. Their ability to sort of be commercially excellent is also supported by being in a lot of very stable markets, right? So two-thirds of AFP are in stable markets that don't have as much economic stress in them as, you know, BNC or Otto or Durables does. So you have a calmer, more sort of straightforward relationship with customers that market as they're, you Know, delivering steady growth year over year. So that helps. You know, the CPTs certainly do help in the nature of those CPTs, you know. With the level of volatility and raw materials that we're dealing right now, certainly, you Now, continues to, you You know. Create some tailwind. And I think that as we go into next year won't turn into a headwind just to be clear but i think it'll stabilize uh out as as we're catching up to these raw materials or in these in this case in in this quarter you know getting ahead of them um and so i think that we're in good shape you know that this is a durable improvement this year and then we can hold on to it next year from what we can see um and then the of course the volumes being stable gives you you know a certain amount of growth obviously on a full year basis on a sequential basis there's obviously seasonality that you see in the numbers on the volume coming off and that's just seasonality as far as we can tell from q2 to q3 but it's just excellent performance and yeah operations have run really well there was a big shutdown in in q2 and so they have a lack of shutdown headwind that was in q1 to q2. and then you know we have that as a tailwind across uh you know two large shutdowns that are giving us some help there. Your next question is from Alexey Yefremov with Barclays. Your line is now open. Please go ahead. Thanks, and good morning. This is Ryan Weiss on for Alexey. Mark, a couple questions for you, all related to acetate toe. So I believe in the prepared remarks, you guys are talking about some form of price degradation in 27. So, you know, I guess just how much you're kind of expecting there. And then I believe you also mentioned that you have some confidence that you can grow volumes in acetate till next year. You know, again, I recall this is a pretty competitive market and, you know, some of your customers have been comfortable running it at lower inventory levels. So just trying to level set kind of what's going on there. And then lastly, just in this market, I think a competitor in the east recently acquired. some uh some assets that are in europe so any comments are there thank you sure well you embedded about three questions in there so we'll we'll try and answer all of them um so on the uh on the toe side um i just want to talk a little bit about context for this year before we get into next year um this year as we went into it about 20 of the industry contracts were open for you know competition if you will as we went in the year and a lot of those contracts were at relatively high prices compared to sort of the market average if you will and that led to a certain amount of price degradation as we held on to our volume so the good news is you know our volumes are two volumes are stable in 2025 um but you know it came with you know mid-single digit declines um and so that is a context we also were expecting textiles to grow this year which obviously they didn't as we had hoped and we didn't realize that stream utilization benefit for that reason as well as some slower demand in a few other places across the company on the stream so those were sort of what drove the challenges um you know as we think about market context um something we also mentioned the last call is that you know eastman is by far the the low-cost leader in the industry with the scale and integration that we have with our site in kingsport you know given our the nature and and scale the entire site benefiting our cost position but it does come with a need for the stream to run at a certain level of utilization for it to be economic and and for other operational reasons so we have to keep a close eye on that and we're pretty clear about that you know in past comments so when you put those two together we have think about what's our strategy for going into 27. and we do believe volumes will improve next year. It's a mixture of the destocking seems to have played out with the independents which are you know often more on an annual contract basis and therefore they were more aggressive in their destocking. We still see the multinationals that have more multi-year agreements and contract minimums that are going to have to continue doing more destocking next year but we're certainly going to pick up a tailwind from that that de-stocking finishing. And for the stream reasons, we've been looking at our market position where we lost a lot of market share from 24 to 25 when we were being disciplined in our pricing. And we're intending to regain some of that in this context. There's a lot more industry contracts open this year. Fortunately for us, we have fewer, quite a bit less of our contracts are actually open relative to the overall market and as these contracts are playing out you know we are you know regaining a bit of our share in in some places so when you put all that together we have you know better volume next year and then you've got you know the natural adjustment of these new open contracts where the prices are coming off you know so we expect another mid-signal digit decline in prices but you know but differently you know improvement in volume and this combined a couple of other growth programs that are now getting into gear we expect a pretty meaningful asset utilization tailwind you know to go with all of this and we put all that together you know it allows us to keep earnings in 2027 stable to this year your next question i'm sorry you you asked me about the genon sirdia combination i forgot to answer that um so you know we obviously can't comment on what their plans are and we're certainly still evaluating you know what what they you know intend to do and how it might impact the industry but you know a couple high-level industry perspectives i i would suggest is a combination you know of those two would you know would increase their capacity to serve the market um but it will include some high-cost assets and we expect them to be you know focused on cost synergies as anyone is in an acquisition And as they look at integration, when they put that together to make sure they're supporting the debt they've taken on and delivering a good return on investment. So when you look at their situation, you know, it could lead to higher capacitalization and they certainly don't have any reason to add capacity. And I think that, you Know, that could be a stabilizing force in the industry, but it's way too soon to really know. And we're going to have to see how customers respond to this announcement. But that's sort of our view on it at this point. Your next question is from Jeff Zakowskis from J.P. Morgan. Your line is now open. Please go ahead. Thanks very much. Now that you have the – yes? Hello? Hi there. I just was making sure you were unmuted. You can go along with your question. Thank you very much. Thank you. Now that you've received this DOE grant, is it likely that the trajectory of your capital expenditures will go up or down or stay at the same rate? In other words, will you spend more capital over the next three years, less capital, or same amount of capital now that you have the grant jeff thanks for the question uh you know the first phase of the project as mark's highlighted the investment scope is really focused on expanding our kingsport method analysis operations and supporting the collection of feed stock and processing infrastructure so we expect this first phase of investments to be incremental as we've already previously stated and now with the voe support to remain within our planned capex for 2027. uh so no major changes on 27 and if i think about capex overall while we're doing the metathesis project we also have completed the triton project so we'll be disciplined out of the gate depending on the economic scenario for 27 and effectively the grant cuts the additional investments as we think about going forward and 28 in the future you know at roughly 50 percent we've also highlighted that we'll be disciplined and you know ultimately it'll be a good scenario as we think about moving forward with the second facility as we deliver on the first facility and fill out the expanded capacity uh so i'm not going to state more about the the future but that'll be a good uh a good opportunity for us uh as we meet those milestones yeah what i say is it's a great way to sort of reduce the capital and efficiency and our ability to be competitive you know insert your economy to drive volume growth and earnings growth so we're really happy about it you know overall capital allocation depends on your cash flow each year so we'll have to see how things play out in the economy. And, you know, in terms of your inventories, I think year over year, maybe they're up 250 million. Do you have to cut back on your operating rates to bring them down? Or Or do you think you can operate your businesses normally and still work your inventories down, you know, through the course of 2027? Yeah, Jeff, a couple of things. So, one, I would just highlight that, you Know, earlier in the year, we've talked about how we've added, you Now, raw materials for security of supply. I would highlight there. It was pure xylene as well. also as you think about in q2 we did actually produce some of our finished goods inventory so that we could take on more of that as mark has also highlighted here again the inflation that we've seen here at the end of q3 going into q4 we would expect not only the raw materials to go up but as we convert those raws into finished goods that'll put pressure across the work screen we expect to have and also had a planned turnaround in q3 that that planned turnaround got pushed out into q4 so naturally the key takeaways are inflation security of supply as well as the timing of our turnaround i see all of that uh you know ultimately normalizing we're going to release inventory in q4 as we deplete that during our turnarounds As well as we go into 2027, we have ultimately a level of inventory on raw materials that we can work through and create a tailwind in 2027. I would highlight also that our days inventory from year end 25, it was call it 115 days. At the end of Q3, it Was about 105. So there's been a lot of inflationary pressure. We're working through it, and that's what will give us some additional tailwind in 2027. And where the real opportunities for inventory reduction are in advanced materials and fibers. Those two places, as we look at next year, we have confidence that volumes are going to be greater next year than this year. So you've got that volume growth, you know, to contribute and manage that. So I just addressed the fibers growth and then advanced materials. If we deliver similar growth as we did this year or better, that gives us some momentum to sort of pull down that inventory as well. Great. Thank you. Your next question is from David Begleiter with Deutsche Bank. Your line is now open. Please go ahead. Thank you, good morning. Mark, just in CI on the propane-propylene spread, you mentioned in the prepared comments So it might – should be a temporary condition. Can you talk to why you think it will be temporary? And talk about the impact of the spread, not just in CEI, but in the rest of the portfolio in Q4. Thank you. Sure. So thanks for the question. Good to hear from you, David. So in general, high oil is a very good thing, you know, for the olefin, you know, complex in North America. And that has been, you know, true in Q2 and Q3 as sort of went through those dynamics, you know, driven by the Iran conflict. Q4 has turned into a very, you know, sudden and unusual situation. So what's happened, you know, in the propylene side of the chain, which is where we're concentrated, you know, you had a situation in September where propane was 80 cents a gallon, oil was 80 dollars pgp was 40 cents a pound you know and in that you know economics and the advantage that we have as a north american producer was good you know today you know um we're at a dollar 20 propane per gallon and 43 cents cents in pgps and and this is where it gets interesting um asia principally china is at 61 cents um in the value of propylene so you've got a 20 cent per pound arbitrage that's open between China and the U.S., and that is extremely unusual. In fact, the last time it was this big was in 2004, and it lasted about two months. As you look over the last 20 years, which we did in preparation for this question, every time you see the ARB open between Asia and North America in this context, it closes very quickly. You guys can do your own math, but you can see it is pretty clear that these ARPs, when they're that wide open, get closed. Today, you've got the cash margins in European crackers, and that's a part of the refinery, are negative. So European production is being materially reduced. I think we're going to start seeing at these prices, you're going start seeing even PDH reductions here in the US. supply is going to start getting constrained. That will, you know, reinforce the close of this ARB. And I will admit that time to sort of close it is difficult because the ships to move propylene around are constrained by all the Iran war drama. So, you Know, that's a complexity. And it's also hard to solve in a Q4 dynamic when you're seasonally low in volume. There's a lot of customer caution out there about the future economy. When you put all that together, it's hard to close that ARB instantaneously. But what we are doing is shifting our focus to offset some of this by shipping exports of olefin derivatives into Europe where the prices are going up because China is disadvantaged at the 61 cents plus logistics to get there relative to the U.S. and getting to that market. And so we're taking actions as much as we can within the quarter to get that export out there and offset some of this arb at the propylene level because remember we don't sell propylene right we sell propylen derivatives and that's our focus on how we manage that but when you look at this context it looks you know very much like this arb will get closed and and that will make a difference when you think about that as you as you think about next year you can't use q4 as a proxy because of this you know even if you closed half of the arm uh that's open right now in this quarter for the logic i've laid out you'd add 30 40 million dollars of earnings to to next year relative to q4 and q4 is seasonally very low in volume anyway so you can't annualize you know the volume side of it either so q4's not a very good proxy when you're trying to look at how you want to do this um so when you think about next year you know i think q3 is probably a better place to start at some level and if you look at the propylene propane spreads there they're about 27 cents 10-year average is about 28 cents so pretty similar to you know historical average where q4 right now is about 14 which is way disconnected from anything that is this that is remotely normal so you know some degree of return on that i think is logical to expect acetyls will get better next year because of some of the capacity shutdowns that have been announced and we put all that together you know i would say that you know we could be earnings next year somewhat moderately look below this year but it's not likely to be a significant headwind um you know as you as we're growing those specialties in the portfolio i don't expect ci is going to be from what we didn't know today a big headwind to you know sort of offset that very helpful and just on circular you mentioned the incremental earning sales for next year can you discuss the incremental earnings you you expect with those sales and maybe over total earnings from this platform in 2027 thank you so david uh you know what it would first highlight is uh you with the up to 100 million this year we think uh the earnings on an incremental basis is going to be around 20 million dollars um also as you think about the current economic environment and the value that we're getting um you know from i'll call it processing feedstocks versus paraxylene we would expect to continue to run the plant hard here in q4 and look to grow that into next year so we'll be building upon those and expect it to be you know at or above those as mark's already highlighted at this point we're looking at being at the conservative end but we'll build upon that incremental growth in 2027 and we'll be more specific as we get the economic scenarios and plans in place you know at the beginning of the year thank you your next question is from matthew deo with bank of america your line is now open please go ahead yeah good morning everyone um it feels like or at least directionally i've seen some commentary around different uh degrees of interlayer capacity expansions coming maybe from some of your uh japanese competitors can you talk a little bit around um some of the dynamics around that i'm not 100 sure if it's the same polymer strains or not but um you know demand isn't necessarily like super robust for for some of these markets so i'm just kind of wondering how you think that plays out yeah for the for the markets we play in with the japanese that we compete against um we don't see any sort of material capacity expansions coming from them i think in this market you know where demand has been you know pretty challenged there's not a lot of incentive to add capacity to that market until we have more clarity around market growth all right i appreciate it otherwise all my questions were asked oh wait uh did i have another one so if i could drill in on jeff's question a little bit on capex um you know we had been willie i think you made a comment that like 27 capex will kind of be in in line with plans can you just give me a notion is that i think in our model we had you marked up a bit for 27 versus 26 just given some of the ramps is your comments that can you give maybe a little bit more clarity on like the absolute dollar spend plan for 27. so yes so a couple of things so as i think about within plan that was really more around the i'll call it the um capacity expansion of our methanolysis facility and and the spend on that front and that now that would be ultimately we would receive some funds from the voe on the absolute amount you know i would expect with the um you know this year coming in at 400 million is what we expect to be also as we think about uh you know some of the uh how do we move forward within the circular as we think about the broader feedstock assets and we look at the metathesis i would say the baseline starting point will be around 500 million i would know we're always disciplined about our cash flow and our capex and you know our view of 27 is we can deliver pretty reasonable growth in earnings and cash flow um and release cash obviously our working capital on top of just the earnings growth And so we feel good about where we're headed, but we always are going to be disciplined to look at the situation, you know, and if I'm right, we've got that kind of growth and we'll be able to support that kind of CapEx. Thank you for that. Your next question is from Abigail Eberts with Wells Fargo. Your line is now open. Please go ahead. Good morning. Thanks for taking my question. Just a clarification on chemical intermediates. It looks like your full year assumption for Brent crude implies slightly lower pricing over quarter for the fourth quarter, but you're expecting CI spreads to be a tailwind to fourth quarter. If you could just clarify some of your underlying assumptions there. Thanks. I would just point out, Abigail, on the assumption, I think you're looking at the full year average. The Q4 average is actually quite a bit higher than the full year. Okay. Yeah, I mean, the full year, it's been wild toads right, right? I mean you've had a pretty challenged market situation in Q1, then you have the round conflict and it drives everything up, then the oil prices collapse through the summer and everyone thinks it's going to be okay because the conflict's going be moderated in some form or fashion And then suddenly that turns out not to be true, and we are today. So it's a roller coaster to be polite on sort of what's going on to the market and how that all flows through. But it actually averages out to that number through all of it. Your next question is from Lawrence Alexander with Jefferies. Your line is now open. Please go ahead. Hey, good morning. This is Kevin Estak on for Lawrence. Thank you for taking my question. I guess just on underlying demand, so I guess how much of the weakness recently, at least in auto and consumer durables, I guess, how much does that actually reflect actual end market deterioration versus let's say maybe customers reducing inventories, delaying orders? I guess in just what are you assuming for your end markets, let's day as we enter maybe the first half of 2027? Yes, that's a great question. So from an in-market point of view, obviously, the in-markets have been challenged, and we've been in a version of stagflation since 2022 that has not had any improvement. And I think that as you look at the auto market, obviously it's impacted by interest rates, price of gas and everything else going on this year but you know the the challenge and demands been in in place for for quite some time we expected the beginning of the year autos would have been similar to last year turns out they're going to be from a sales point of view probably down three to four percent and that's a function of you know interest rates and gas prices which i think all connect to to some degree um you know that are on warp and i and i think when you look at building construction it's been down 20 percent on total home sales in the u.s you know starting in 23 and it stayed there and it continues to to be weak uh also true same about same percentage 20 down in europe and obviously china being worse and consumer durables are to some degree connected to home sales as a transaction moment and just overall overall affordability so you know those also remain you know somewhat challenged and i'd say you know at least in the back half you're going to be a bit down relative to last year um but overall if you look at it it's been down but it hasn't got a lot worse this year it's just not gotten better right in the beginning of 25 before the trade war was it was the economy was recovering and then the trade were hammered it down things i think were stabilizing with consumers and was getting a bit better um in first quarter this the Iran war hammered it down. So unfortunately, those two events have prevented some market recovery. But underneath it, what it tells you is consumers are resilient because everyone still has a job. And that's the key difference between other sort of recessionary moments where a lot of people lose their job and really cut back on spending. People have their job. They're just monitoring how they spend money to manage that affordability. So that's the good news. And then if you actually add up the area under the curve of things they've not bought you know, since 2020 to now, there's a lot of pent-up demand if we could just get to some stability and where they feel safe. And in this context, we're demonstrating our innovation still delivers a lot growth, as we said it would, and have proven year over year. So, you know when you've got mid-single-digit growth in consumer durables in the down market, when you've got autos flat in a down market. You know, you've got all this renew growth creating new markets for us to sort of grow in and expand our corporate addressable markets you know accessing you know the packaging market in a profitable way etc you know we feel good about you know how we're delivering growth this year in this context and this context which is very challenges continues in the next year you know that will we're confident we can keep delivering that revenue growth in this contexto so that's one context it could stabilize if the run conflict gets resolved i think that would be a big stimulus in consumer behavior feeling safer about the future so you know that could happen but that would be upside and how we plan for next year but the revenue part feels like we're in a good shape you know to drive growth and revenue and as we mentioned we have ways to stabilize fibers you know i don't think ci is going to be a big headwind uh despite the drama we're here in the in q4 and then we've got tailwinds and spread tailwind and in in asset utilization so it all lines up to being a pretty good year with that volume and importantly when you think about that and that working capital can be released you know a much better cash flow year next year okay great thank you your next question is from kevin mccarthy with vertical research partners your line is now open please go ahead yes thank you very much and good morning Most of my questions have been asked and answered, but I was curious, Mark, within ANFP, do you have in your mind that functional means is likely to be appreciably better or worse moving into 2027 based on what you're hearing from your agricultural customers in particular? yeah so our functional means business first of all it's been a phenomenal acquisition and delivered consistent earnings growth just year over year um since we've had it and it's and it it's on track to have a record earnings this year i also mentioned afp is on track to have the record earnings uh you know for this year to any anything in our past um so we feel really good about how the overall segment's performing in this context and the means as a real contributor into that steady continuous improvement a lot of that goes into personal care kind of products and home care products that's very stable and has growth obviously there's some up and down in ag but from what we've seen so far from our ag customers is they feel like next year will be a stable year you know and planning on sort of modest growth there we're not seeing any big spike up or drop but there's a lot of dynamics around ag as there is every year so i'd rather not predict next year on on the ag market until we get you know into january and have a little more clarity about how the season is expected to play out okay fair enough and then just as a clarification mark if i may is uh is the projected cost of your metathesis plant likely to be roughly $100 million, or would you steer us to a different level over the next couple of years? Kevin, this is Willie. You may have missed earlier when I commented that it's a one-year payback at the high end of the EBITDA, and it's two years at the low. That should give you a pretty good range on the capital. All right. Thank you. Let's make the next question the last one, please. Thank you so much. Your final question is from Aaron Viswanathan with RBC Capital Markets. Your line is now open. Please go ahead. Great. Thanks for taking my question. I hope you guys are well. I just wanted to clarify on the volume outlook. It sounded like you said that you do expect volumes maybe slightly up next year. I guess I was just going to clarify if that was AM and AFP specifically. And then you know, in the past, I think there's been some confusion between primary demand and restocking, destocking. So, could you just address, maybe just clarify that? And sorry if I missed that, but if it's positive volume growth for next year in those two segments and if it is actual primary demand or maybe some restocking. Thanks. Sure. So yes, we are expecting volume growth in AM, AFP, and fibers next year relative to this year, and we'd expect volumes to be similar to thisyear and CI. So on the in-market question around the behavior of customers versus in markets, what I'd say right now is that we see the customers, our direct customers, the OEMs, the brands, being more cautious than the in market demand, right? So the market demand is pretty stable right now across a lot of markets. I mean, it's off a little bit, but we're certainly seeing, you know, normal seasonality in the back half, which always happens as customers are managing inventory. But I think we're also seeing much smaller orders more frequently. You know, there's a certain amount of caution they all feel in this environment with the uncertainty about the Iran war, about what that could do to consumer demand next year. And I think that softness that we have in our demand in the back half of this year that is a bit, you know, driven more about that fear of the future than in-market consumption, you now, in the current fall that we're in right now. So, there is that dynamic right now. In theory, that could mean there's some destocking inventory. Certainly, it is relative to current demand. I think there'd be stocking and would, you know need to replenish if if demand holds up next year um and it's you know understandable with all the uncertainty that that dynamic is playing out across any of the discretionary markets in particular um in that context though i think as we looked at you know that happened this year relative to last year by the way um you know with iran conflict creating additional stress on top of the trade or um and and so we've seen that impact and yet we still found a way to volume growth in advanced materials you know as we've described you know afp had about 20 million dollars of of discontinued products you know and we're able to replace that with growth um so you know they are also doing reasonably well you know in that underlying growth market um development efforts you know so i think that we're in a position you know a stable market to this year which is you know certainly currently challenged we'll grow volume in am we'll grow volume and afp you've got the whole circular program delivering a lot of revenue growth i told you what we're going to do in fibers so you know we feel pretty good about you know how that can play out um and it sets us up you know for you know at least having a good running started next year and delivering earnings and cash flow growth thanks okay thanks again everyone for joining us. We very much appreciate your interest in Eastman and I hope everybody has a great day. This concludes today's call. Thank you so much for your participation. You may now disconnect.