Maybe I'll jump a little bit to the segment level, if that's okay, and we can hit those at a high level. Our Additive and Functional Products business, we said, would be moderately down sequentially on the Q1 call. With the pause in the tariffs and also the stable end markets, we actually see our Additive and Functional Products performing well and expect that it will actually be similar, if not a little better, compared to Q1. Positive momentum on that front, and you can think about water treatment exposure, also in personal care, ag, etc. Moving on to Advanced Materials, we thought we would have modest sequential improvement, and I would say we continue to expect that to occur.
There was limited impact as we had positioned inventories related to tariffs, but the end markets in the durables and also the auto continue to be challenging, but our business team is navigating that well. I think the question within the automotive sector is, what does the build environment look like in the second half? Momentum here in June will set part of that tone. On our fibers business, there again, with the tariff pause, we expect a little bit favorable outcomes, maybe less than what we're seeing in additive and functional products. We had expected that business to be down sequentially. Most of the trends are playing out as we expected on the destocking and with the pause in tariffs. We actually expect it to be down, but we expect that decline to be less now.
As we look across our specialties and fibers, I'll call it positive momentum. Chemical intermediates, what I would say is for those that follow the spreads, the propylene and propane mix have been challenging and more challenging than we had expected. We also had planned turnarounds, but earlier in May, we actually had an unplanned outage at our Longview, Texas facility that impacted our cracker operations and then the downstream derivatives. Since that occurred while we were also having a planned outage, the impact is going to be about $15 million to the quarter, both from incremental maintenance, but more on the utilization and the lost revenue with the operations and the scale that we were down.
As I think about wrapping all this together, I think that we'll be around the low end of the range now, and that's primarily with the impacts for the unplanned outage and the weakness in chemical intermediates. The health of our specialties and our fibers business, I think, is continuing to be very resilient. Also, it's been demonstrated in the price cost. The price cost spreads in those businesses are continuing to perform well. We talked about earlier, this is an uncertain environment. It's dynamic, and at some point, I think when we get through this period, even today, Trump and Xi, it's positive, I'll call it today. The other thing is cash. Cash is critical, right? We committed to $1.2 billion of cash flow, and right now we're working through, I'll call it the operating scenarios for Q3 to meet that $1.2 billion of cash.
That could come with some incremental utilization impacts, obviously, which we'll update you when we have the Q2 call.
Very good. Ex-additive, we'd be close to the midpoint of the range. Is that fair? Or maybe a touch below it?
That's fair.
Okay. Just on June, how are June order books trending? Any divergence versus what you talked about or seen?
Yeah, just some of the momentum. We talked about April being similar to March as we've gone through the quarter. I would say the momentum has been positive in the specialties. I think it's been more challenging in our intermediate space. The real question is, how do we exit this quarter, right? I think the timing of tariffs has played itself out. People tried to position in Q4, position again in Q1, now in Q2, and I think there's been a wash of the timing, and there's not pull forward or delay. It's really what's the momentum and the confidence, whether that be with the Fed, with tariff and trade agreements. I think that momentum could set the tone for the second half.
Right now, the order books, to your point, are consistent with, I'll call it, stabilizing at a low level type of economy versus there's positive or negative momentum outside of BNC.
Right. Anything getting worse or anything getting better?
BNC is the one getting worse. I think the real question is people are looking at what's in the supply chain. I think there's questions around auto production in the second half, but those stable end markets are being resilient, and that's about 50% of our portfolio as we see it now. We are navigating, I'll call it those trade and back and forth on again, off again tariff discussions, and we're trying to navigate that the best we can, which is in this case, you focus on what you can control: cash, cost structure, and time horizon as you think about capital and the capital velocity.
By region, Europe seems fairly stable as well at these demand levels. Is that fair?
I would say it's fair in the businesses that are more specialty, right? If we do export any out of our intermediates, it goes to Europe, and obviously intermediates broadly is at low margins globally. As we look at the personal care, the water treatment, even some of the automotive space, it's been, I'll call it stable at low levels.
Right. Just in China, what are you seeing there from the demand perspective ex-acetate tow?
What I would say ex-acetate tow, ultimately our Advanced Materials business has been trying to navigate the timing. As you think about tariffs in excess of 100%, trade stops as you think about utilizing your inventory, your customers are trying to value that in the supply chain. We positioned well ahead of that, had both inventory in country as well as in bonded warehouses. The great thing with the pause that we have seen is there has been a pull through and that economic activity has returned. There is still, for local demand, I think a 10% tariff incrementally or 30% overall can be handled. If the trade flow then has to come back to the U.S. and there is another 30%, that is where the dynamics are more complex at this point.
I think it's stabilizing and improving, and we'll just have to watch and see how the tariff and trade agreements unfold.
In the U.S., we know durables remain quite weak. On the consumer itself, any signs of further stress on the consumer that you can see for your businesses?
I would say in the U.S., it's still relatively healthy compared to the rest of the world and also just our asset base and the cost position that we have to serve our specialty customers and in markets. I think overall, consumer confidence is at very low levels, but it's not, I'll call it materially different than what we saw six or eight weeks ago.
Excellent. Just on the cost side, we've seen some lower propane and ethane prices of late. Would that be helpful to you guys in the back half of the year?
I believe it can. Now, part of that comes with what's the strength in demand overall in the back half of the year, and does that strengthen the propylene market such that gaining volume mix that you can gain the spread with it? Because I think they're closely correlated right now.
Very good. Now, back in the Q1 release, you increased your 2025 cost savings by $25 million to $25 million. How much of that is permanent versus how much is structural?
Yeah, I think right now, my objective is to make most of those permanent, right? Because many of these are in the sense of how do we operate efficiently and effective. Now, on the operations front, that's where they may not be as permanent. As you think about right now in the operations, you're minimizing contractors, right? You're taking that fixed cost structure and turning it into variable and leveraging our resources. It's also how we did our turnaround schedule this year. We've executed the turnarounds well here in Q2, both in our methanolysis as well as we get ready for our planned turnaround in other areas. We're using Eastman resources to be efficient and effective and produce more cash for shareholders.
If current demand were to continue at these low levels and even get worse, what additional cost levers could you pull to mitigate those headwinds?
I think it goes back to you're looking at your fixed cost structure and how do you continue to leverage that and make it more variable? How do you ultimately campaign and use those campaign strategies to produce the lowest cost product that you can, especially if you're talking in a recessionary, more extreme environment? Right now, I think we've done the level of action that we need to serve the demand as we see it today at a level that's stabilized and potentially we view it as improving when you can get to some trade clarity.
Very good. Just on guidance, lastly, you pulled your full year guidance back in Q1 due to uncertainty. We see it resumed after Q2, and on the cash flow guide, you maintain that without having the full year earnings guide. What's the confidence in achieving that $1.2 billion of cash flow, and can we see a resumption of full year guidance as well on the EPS side?
To your point, David, I mean, the key question here is what's the operation scenarios? As we were entering Q2, we were looking at, okay, you can get to your cash flow two ways. One is there's trade clarity. Second half is ultimately stabilizing and improving from that standpoint, and you grow it and achieve it through earnings. The other side is, okay, we stay at these maybe low levels or lower levels, and you have to take additional working capital actions, and you deplete it through working capital. Those achieve the same outcome, but they achieve very different P&L results through the accounting lens because you have to take those fixed cost charges. You can't just put it on the balance sheet.
To me, ultimately, we do not have trade clarity that will lead to additional working capital actions beyond our planned shutdowns here as we end Q2 and go into Q3, and that will have impacts on EPS. You can expect us to be clear on the Q3 guide and the implications of that on the call. With that, you also then have to give a view, at least qualitatively on Q4, because that supports your cash assumptions.
Very good. Switching to circular economy, you had a bit of a hit to your plan last week, the DOE pulled their funding on your clean energy project or your Longview, Texas methanolysis facility. Can you talk about, again, how much of that DOE funding was for the thermal batteries and the solar portion of the project versus project cost inflation? And why is this project still—what are you doing to accept that potentially and keep this project moving forward?
To your point, David, a week ago, one, we were surprised and two, disappointed. As you think about the announcements that the DOE and the secretary there did, we looked at it and said, "Okay, this does not fit our project profile." One, I would highlight the fact that our award and contract was completed actually in Q3 last year. At this point, we also negotiated the phase one contract, of which we have met every milestone, and have also received almost $25 million of cash from the government, and they are still processing the invoices that we sent to them. Two, as you think about viability, one, we have a world scale facility in Kingsport that the technology has proven and continues to work extremely well.
We also have a base load contract with Pepsi, and we're having other discussions with brands that are now seeing the implications of product that's not fit for use with mechanical recycling. As you look at that landscape and what we did, obviously there's a formal route and a political route to the question of can we be reinstated, and we're taking that. On the other side, to your point, before the DOE was ever thought of, we had a Texas project. That Texas project had returns of greater than 12%. We added in the scope, I'll call it the thermal battery technology, as well as solar energy to support the innovation for the DOE. It's a win-win. You can basically take, I'll call it feedstock that's petrochemical that you're putting back into landfill or burning, and then you can do it with a lower carbon footprint.
That's success. Plus, you create U.S. jobs and U.S. investment. To us, we think that's win-win. As you think about the $375 million, I'll call it a key portion of that was definitely for the asset. We can take that scope out as you think about multiple path forwards. One, you go through the DOE route. Two, you rescope it and you take the Pepsi contract plus other commercial interactions, and then you refine also the optionality that you built into the first, and you take that out to ensure the returns can be above 12%. The one thing I want everyone to know, obviously from the CFO lens, it's about being disciplined and making sure the cash velocity and the returns are there regardless of the path forward. We'll be doing that.
We're doing that today, and you can expect us to be giving updates, and I'll call it a set of path forwards as we think about Q2 and beyond. Near term, we had already seen the DOE slowing down as we were negotiating our phase two contract. We reduced our capital on the Q1 call from $750 million to $550 million. A good portion of that was also related to this project. Another key thing to know is, one, we met our milestones. At this point, the DOE is not asking for any reimbursement of the $25 million. Two, we're at a phase where we do not have significant commitments related to the Longview project beyond the engineering that we've done, and we have not broken ground yet.
We're at a great spot to continue with the surprise to evaluate multiple path forwards and also continue to deliver on the momentum that we have in Kingsport. We're on track both operationally and in our sales funnel with the Kingsport project as I sit here today.
Worst case, the Longview fuel would cancel today. What would be the remaining cash outflow you would incur, or would we be the write-off as well on that facility?
Yeah. What I would say, David, on the cash flow, it's a modest impact. It's not going to be anything significant. At this point, I'm not going to give a number on write-off because I don't think that's ultimately the path that we'll be on.
No, I hope not.
We'll update you accordingly should things change.
The world needs what you're doing. Just to be clear on the DOE funding, was it roughly half for the solar and thermal battery portion and half for project cost inflation? Or maybe a little bit more on the decarbonization side, or how should we think about that?
I think that's a reasonable assumption, maybe a little bit more than half for the carbon.
Very good. In terms of scope changes, how should we think about those to lower the cost or enable you to go forward?
I think there's multiple options that we're sorting through today. Ultimately, I'm not ready to speak to your point. It was a week ago. You can think about all things of how do we maximize the use of and the volume that comes out of our Kingsport site, as an example. We have optionality for expansion and things like that that are built in. Those are all things that we can think through as we think about serving this market, proving out the return on our existing assets, and generating that greater than 12% over the long term because this isn't a political issue. I think everyone agrees that we don't need plastic waste in the environment.
I know you added an RPC line in Kingsport. How does that compare to what you're doing in Longview?
As I think about the scale of the methanolysis, you can think about the phase for Longview as being basically the similar footprint as what we have in Kingsport. Obviously, in Kingsport, we already had the polymer capacity. So that's the incremental piece here. You'll have, I'll call it material handling, mixed plastic processing, as you saw on your visit. Then we had methanolysis as well as polymer lines. That's the scope that we've talked about previously of $1.2 billion or $900 million net of the incentives.
With the change in funding from the DOE, Pepsi is a base load customer. They need this material. Is it potential for them to come into a project in a different format as maybe an equity or capital contributor?
We don't think that's going to be required, David. I think as we think about the circular solution model, we're talking to other global brands right now and having productive discussions with them around additional capacity of the Longview project. As you think about the specialty model that we have in Kingsport, we also have that optionality to use Kingsport as it's ramping up specialties to bridge and serve some of those other customers as they run into issues with mechanical recycling so that they can actually see that proof of concept today. In many cases, we're working with customers, and they're ultimately testing our product so that they can adopt that product when they're ready to launch or new products into the marketplace.
The confidence that we have in delivering in the back half of the year is based upon those sales funnels and bringing those projects along.
Again, in the week since the announcement, not a long time, I'm sure you've pulled all levers. What's been the feedback and reaction you heard from either your congressional supporters or the DOE? It does seem that just the decarbonization portion of the project, you see why that would be canceled. The project itself makes complete sense. What's been the initial feedback from either your supporters or the DOE about the next path forward here?
I think there's a level of equal surprise. Greg not only has investor relations, he also has government affairs. There is a lot of synergy there as we think about this. As you think, both our Tennessee and Texas congressmen and women are very supportive. There are other stakeholders that believe in the value of circularity jobs in the U.S., and it is aligned with the key attributes of this administration. We actually think at some level, it got commingled with a set of other projects that it is dissimilar to, and it just got pulled into that. We hope that political process will prevail because there is definitely disappointment at multiple levels, and they are aligned to support it.
Okay. We shall see. To Kingsport, you had in Q1 your best ever uptime and production quantities for that unit. How has the unit operated in Q2?
As I mentioned just briefly earlier, in Q2 early, we had our planned turnaround. That went extremely well. We are back in operating at levels demonstrated and increasing that demonstration level as well as the DMT yield. Everything coming out of that turnaround points to being able to achieve the higher production levels that are required in the second half to more than increase our production two and a half times in 2025 compared to 2024. Sitting here with that, the pressure is on the commercial team, right? They are making good progress here in the quarter.
There's nothing that we see right now that takes us off track from our revised targets, even though one could argue in the durable sector and just consumers in general, there's more overall consumer concern and uncertainty just with the on-again, off-again challenges with China, with Europe even, of what's the rules of the game that we're playing. We're battling through that, as you would expect our Eastman team to do, and ultimately making our own success.
I know processing hard recycled material is always key for this project moving forward. You've had success in doing that. How's that success continued in Q2 processing the hard recycled material?
It's exciting when you can actually take some of the more complex, and that starts to become, I'll call it a tailwind because you can actually process that more efficiently, more effectively than even some of the middle grades that are out there. We continue to learn, and the knowledge curve of our engineers, of our operators, we're getting better at this know-how every day. Ultimately, that's a competitive advantage as we think about first starting up because there's more and more of these that have tried to produce. Those companies are running out of cash and/or running out of options of how they're moving forward. We're generating cash today.
On that point, are you seeing increased competition for the feedstock material? Is it harder to acquire? Is it costing more to acquire?
I would say there's been no significant changes in that. Honestly, in this environment, in some cases, you can actually see it could be easier to acquire. I would say at this point, it's not material to what we've discussed previously.
All right. You mentioned on the commercial side that you have seen delayed timelines of customers, given for new product launches, given the overall macro. How has that progressed in the last few months? Are you still seeing delays by customers? What does that mean for this year's guidance? Is it still on track for renewing the overall EBITDA of the unit?
Yeah. I would say even some of the recent experiences of our commercial team and our technology application teams is it's starting to become more apparent around applications that mechanical recycling is just not fit for, meaning degradation or you think about color and brand effects. All of those are starting as there's more time that passes with mechanical where they're turning to us to have discussions about being the solution because we can basically provide a purified recycled content that's same at the molecular level, and there's none of that trade-off. We can do that. That helps the brand, helps them win in the marketplace. It doesn't give a negative on the shelf space and meet their overall objectives of using recycled content because that pressure is still there, and it's going to be there longer term.
We're getting new engagement, new wins in those spaces that net-net, I think winning in new applications, winning where business for use is required, is offsetting that pressure that we described of existing customers willing to trade up to pay a premium from Triton to Triton Renew. Right now, I think momentum is in line and excited about where we are.
Any early thoughts on Renew platform revenues or EBITDA in 2026?
I would say we're not ready to talk about that today, David, but definitely we'll be at future engagements.
I think I'll give it a shot. In terms of the next project for methanolysis, if Longview is delayed, could you expand in Kingsport?
I think I highlighted that the creative minds are working. Ultimately, with the success that we have on the know-how and also on the operations, we look to maximize the value and the return of our existing asset base. I'm not ready to talk about and quantify specifically today, but we just need to continue to demonstrate that progress. That progress will lead to future discussions. Eastman has traditionally done that, whether it's been our Triton facilities, our TMCD facilities, all of those, as we've done it in both polymer cellulosics, have found, I'll call it untapped potential and assets historically.
Understood. Just on your French project, I know it's been paused and something's been said. Any movement or progress on efforts underway there to advance methanolysis or?
What I would say is there's no significant changes at this point. Obviously, we're looking at how the producer responsibilities that are tied to that also, as you think about imports and how the landscape of that reshapes. Ultimately, in all of this, it comes back to, as you think about food contact applications and things like that, you want there to be safety. We're also advocating for, ultimately, how do you know the source and the quality of the materials? Because we feel that our methanolysis is at a superior level compared to all of these, and ultimately, supply chains can have confidence in.
Now, between a Triton Renew polymer and a PET molecule, you agnostic as to whether your methanolysis really goes moving forward?
What I would say is there's still two models, David. At the end of the day, there's how do we grow our specialty plastics and how we grow from durables and other markets into medical applications and higher value. That's what we've done as mix-up grade over time. There's still how do we provide a larger scale packaging solution as well. Yes, there can be some hybrid, but I still see there's two very different models as you think about the scale of packaging longer term and a robust growth path for our Triton brand.
Okay. Lastly, you do have some efforts underway on a bio-based front. How are those progressing versus your prior target here?
Yeah. What I would say is ultimately, on our cellulosics front, as I think about the original biopolymer, our teams are out there just like we discussed on the polymer side. We're making progress as we think about the asset profile, ultimately winning in certain solutions. We're looking for those leverage points of when does it accelerate the growth. At this point, I would say it's at a lower scale than polyesters, as you would expect, but it's gaining momentum.
Is there a capital investment down the road in cellulosic and bio-based or cellulosic opportunities?
It's not at the scale of what we're talking about today. A lot of this is leveraging our existing assets in Kingsport that are integrated in our cellulosics. As you think about the declining rates in our acetate tow business, ultimately, this business can grow and displace that. Ultimately, we want it to be a competition between those and the returns. No, it's a much more modest capital investment required there.
Very good. With that, we'll end it there. Willie, thank you very much. Thank you as well for coming.
Thanks, David.
Thank you.