Eastman (EMN) Q2 FY26 earnings call: guidance and Q&A

How should we think about the recovery trajectory of weaker end markets for Advanced Materials and the sustainability of volume growth into H2?

Management does not expect improvement in weak discretionary markets (auto B&C, consumer durables) in H2. Volume growth in Advanced Materials will be driven by innovation wins and ramping circular business, offsetting overall market declines. Asset utilization and price/cost actions will provide tailwinds, leading to solid earnings growth in H2, which is not typical for the segment.

“we're not expecting any improvement in the end markets when it comes to sort of the weak discretionary markets, auto B and C, consumer durables we're certainly benefiting from modest growth in what we call our stable markets across the entire portfolio.”

asked by Patrick Cunningham · answered by Mark Costa

Can you split Advanced Materials volume growth between base business and methanolysis PRT? And clarify Q3 volume expectations, given easy comps?

Q3 Advanced Materials volumes are expected to be similar to Q2 sequentially, but substantially higher year-over-year. For the full year, about half of Advanced Materials revenue growth will come from circular (renew) and half from specialty growth. The adjustment to circular growth outlook is due to both production limitations and general market slowness, not a lack of customer commitment to recycled content.

“volume slide is a sequential comment, Josh. It will be substantially higher than last year. So we were just talking about volumes will be similar to Q2 in. So in that context, which is much higher than last year, the volumes.”

asked by Joshua Spector · answered by Mark Costa

What underpins AFP's resilient margins, and what's the view for H2? Also, an early view on 2027 revenue growth from Kingsport methanolysis?

AFP's resilience stems from serving stable markets (2/3 of revenue) with strong industry structures, competitive positions, and cost pass-through contracts. Effective price increases also help. For Kingsport methanolysis, Q4 will be the strongest revenue quarter this year, and management expects another strong performance in 2027, building on this year's annualized revenue, especially from the PET side.

“So the benefit that as a functional products versus a the stable markets that we serve or 2/3 of our revenue. So with stability, it becomes much calmer behavior by everyone involved.”

asked by David Begleiter · answered by Mark Costa

How is Eastman able to get price ahead of costs in specialty businesses, and what is the sustainability of this price/cost into Q3?

Eastman's discipline in price/cost management, focusing on covering raw material, energy, and distribution costs without being 'greedy,' has allowed them to maintain prices. This approach builds credibility and durability for price increases. Prices are expected to hold in H2, providing a price/cost tailwind relative to H1, despite some raw material costs being lower than March levels.

“We weren't greedy. We just put in price increases to cover our raw material and energy and distribution costs because we want to be fair and reasonable to our customers.”

asked by Frank Mitsch · answered by Mark Costa

How has the trajectory of methanolysis investments shifted due to delays/obstacles, and why are receivables ballooning?

Management views methanolysis as a great platform, with the Kingsport plant running phenomenally well and debottlenecking potential. Capital costs have increased, leading to a more capital-efficient approach for future projects, allowing the next major investment to be pushed to 2028. Receivables increased by $370 million in H1 due to higher revenue from pricing actions, but working capital consumption was less than last year. A $75 million year-over-year reduction in working capital is expected for FY26.

“Methanolysis I think, has been a great platform and a great investment. We see a lot of long-term potential for the platform.”

asked by Jeffrey Zekauskas · answered by Mark Costa

Unpack the moving parts in Fibers (tow/textiles) for H2 and into 2027. Also, what's the assumption on durability of AFP share gains from competitor dislocation?

Fibers tow volumes will increase materially in H2 as customers meet minimums, leading to stable full-year volumes. Textiles remain challenging, with H1 volumes low, but H2 momentum is building, aiming for flat full-year volumes. The earnings decline in Fibers is primarily from textiles, utilization hits, and higher energy costs. In Chemical Intermediates, share gains are expected to be relatively durable in H2, but spreads are uncertain. Specialty share gains have been modest, with customers holding inventory and hoping for lower prices.

“So when it comes to the back half of the year for fibers, there's -- as we've talked about, I think, extensively on the tow side, we have these annual contracts with customers, but they have the right to vary what they buy quarter-to-quarter.”

asked by Vincent Andrews · answered by Mark Costa

Can you bridge the shift from Q2 to Q3 regarding outages and inventory? How were volumes trending through Q2, and what gives confidence in the 2H volume profile?

Advanced Materials reduced finished goods inventory in Q2, creating a utilization headwind, to secure feedstocks for H2. A major cellulosic shutdown in Q2 caused a $40M-$45M sequential headwind. Q3 turnarounds are expected to be a $10M-$20M sequential benefit. Volumes trended well through Q2, building from April to June. July orders are holding up. Confidence in H2 volumes comes from low customer inventories and no significant end-market demand declines, despite customers balancing inventory building with hopes for lower prices.

“So far, we're not seeing that same dynamic. So July orders are holding up well and on track to what we would expect and consistent with what you would expect relative to Q2.”

asked by Matthew DeYoe · answered by Mark Costa

How is Eastman thinking about its M&A pipeline, activity, valuations, and strategic directions?

Eastman has a disciplined history of portfolio management, including divestitures and successful acquisitions. The company believes it is at minimum scale. The M&A market has seen increased activity and more rational valuations. Eastman is actively considering options, emphasizing continued discipline in both acquisitions and divestitures to adapt to anticipated industry changes.

“Clearly, that M&A market has picked up activity this year, as you would expect in this market condition. Valuations have improved to being more rational than they have been for quite some time.”

asked by Laurence Alexander · answered by Mark Costa