Release Date: July 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Eastman Chemical Co (EMN, Financial) has successfully produced on-spec food-grade Tritan with 75% rDMT, showcasing significant progress in their chemical recycling facility.
- The company has seen a return in volume with the end of destocking, particularly in the Tritan market, which is expected to drive growth.
- Eastman Chemical Co (EMN) has secured significant customer commitments for their Texas methanolysis project, including a large contract with Pepsi.
- The advanced interlayers business is performing well, with significant earnings growth driven by innovation and operational excellence.
- The Aventa business, which replaces polystyrene with biodegradable cellulosic polymer, is gaining traction with customers like Sealed Air and is expected to grow significantly.
Negative Points
- The methanolysis plant has faced mechanical reliability issues and feedstock preparation challenges, causing downtime and slower ramp-up than expected.
- Inflationary pressures and a tough economic environment have led to slower adoption of Tritan Renew, impacting growth projections.
- The acetyl chain has experienced unfavorable price costs and higher planned maintenance, contributing to a year-over-year penalty.
- The French methanolysis project is progressing slower than expected due to delays in customer contract discussions and capital inflation challenges.
- The 'Other' segment has seen increased expenditures due to higher preproduction and startup costs for methanolysis and circular platforms, impacting overall profitability.
Q & A Highlights
Highlights from Eastman Chemical Co (EMN) Q2 2024 Earnings Call
Q: Can you give more detail on the feedstock preparation issues for the methanolysis plant? What equipment modifications did you have to take and how much downtime was there in 2Q and any expected downtime in 3Q?
A: Mark J. Costa, Chairman of the Board, Chief Executive Officer: We encountered some plugging issues in the front of the plant due to non-polymer waste in a few select sources of feedstock. The issues were relatively straightforward to address, involving optimizing the feedstock form. We have implemented these changes and are ramping up to full rates. We expect to run very hard with the facility through Q3 and Q4.
Q: Why is now the right time to move forward with the Tritan expansion despite inflationary pressures?
A: Mark J. Costa, Chairman of the Board, Chief Executive Officer: The Tritan market has seen a significant return in volume with the end of destocking. We continue to have wins on the traditional value proposition of Tritan and are now layering on recycled content, which is important for many brands. We see the need for additional capacity to avoid shorting the market and feel confident about the timing.
Q: Did you say that you're now running back at higher rates of methanolysis, so the issue is resolved or is that yet to be determined?
A: Mark J. Costa, Chairman of the Board, Chief Executive Officer: We are in the process of ramping back up to higher rates. We recently implemented a simple mechanical change and are ramping up towards higher rates now.
Q: Can you talk about the factors that will drive you towards the low end or the high end of the full-year guide?
A: Mark J. Costa, Chairman of the Board, Chief Executive Officer: The biggest factor is demand. If the economy gets better, that will be upside; if it gets worse, there will be some risk within the range we've given. We feel good about our price management and cost structure, but the material element is really about the economy.
Q: Can you clarify what's going on in the acetyl chain, including the higher planned maintenance and unfavorable price costs?
A: William Mclain, Chief Financial Officer, Senior Vice President: Higher planned shutdowns are primarily in Q3 for the acetyl cellulose stream and in Q4 for polymer turnaround. The transaction has closed, and the impact is not in our guidance. The combination of the Texas City divestiture and a key customer shutdown represents a $30 million headwind year-over-year.
Q: What are your expectations for operating rates on average for the second half of this year for methanolysis?
A: Mark J. Costa, Chairman of the Board, Chief Executive Officer: We intend to run above 70%. The limitations in run rate through the first half of the year have been more mechanically related or feedstock processing related issues. We feel confident we can serve customers with the ramp-up in volumes with the actions we've taken.
Q: Can you speak to the reduction of CapEx a bit? Is it a timing dynamic?
A: William Mclain, Chief Financial Officer, Senior Vice President: We're still working towards milestones on our circular projects, both in Longview and France. The CapEx required to achieve growth has been balanced, and we think $650 million to $700 million is appropriate for this year. We increased our expectations for share repurchases for the full year to $300 million.
Q: Can you speak more to what you're seeing in advanced interlayers today?
A: Mark J. Costa, Chairman of the Board, Chief Executive Officer: The interlayers business is having a good year, delivering meaningful earnings growth relative to last year. We're seeing a lot of earnings growth as we're creating our own growth, especially in the luxury and EV markets. HUD and solar control products are growing fast in a challenged market.
Q: Can you provide an update on the Aventa business?
A: Mark J. Costa, Chairman of the Board, Chief Executive Officer: Aventa is going well with a successful launch with Sealed Air. The product performance is strong, and we expect meaningful commercial sales this year with a step-up next year. Aventa can definitely be bigger than the Naia business, with significant volume potential and better margins than the company average.
Q: Can you speak to the forward volume trajectory in advanced materials?
A: Mark J. Costa, Chairman of the Board, Chief Executive Officer: Our guide is for a similar quarter in Q3 to Q2. Methanolysis is coming online, and we expect innovation to drive growth above underlying markets. We see all that volume helping us in the back half of the year, with some normal seasonality drop in demand in Q4.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
