Turner Hinrichs

Turner Hinrichs asked about the driver for the less severe than expected seasonal drop in North American polyurethanes last quarter, and how tariffs on U.S. MDI imports have impacted regional demand dynamics.

Answer

Phil Lister, Executive Vice President and CFO, attributed the less severe seasonal drop to some business wins and a slightly shorter Rotterdam outage. Peter Huntsman, Chairman, CEO, and President, confirmed a significant drop in Chinese-origin MDI imports due to tariffs. He speculated that if U.S. housing rebounds, the U.S. could face supply issues due to these import constraints.

Turner Hinrichs asked about the drivers behind the less severe than expected seasonal drop in North American polyurethanes in Q4 2025, and how tariffs on U.S. MDI imports have impacted regional demand dynamics, given reported drops in Chinese origin MDI imports.

Answer

Phil Lister (Executive Vice President and CFO) attributed the less severe drop to business wins and a shorter Rotterdam outage, while Peter Huntsman (Chairman, CEO and President) clarified seasonality was still present. Peter Huntsman confirmed seeing import drops and speculated the U.S. could face supply issues first in a housing rebound due to import constraints.

Turner Hinrichs asked for more color on the bridge items for Advanced Materials, excluding methanolysis, specifically regarding innovation, reversal of asset utilization headwinds, FX tailwinds, and price-cost headwinds.

Answer

Mark Costa (Board Chair and CEO) explained that Advanced Materials benefits from volume growth (circular economy, innovation), a significant portion of corporate cost reduction, a meaningful utilization tailwind from aggressive inventory actions last year, and FX tailwinds. These are partially offset by higher energy costs, modest price declines, and variable compensation adjustments.

Turner Hinrichs asked for more color on the bridge items for Advanced Materials, excluding methanolysis, specifically on innovation, asset utilization reversal, FX tailwinds, and price-cost headwinds.

Answer

Mark Costa (Board Chair and CEO, Eastman Chemical Company) reiterated that Advanced Materials has significant leverage from volume growth (circular, innovation, core recovery), a good portion of corporate cost reduction, a meaningful tailwind from utilization reversal (due to aggressive inventory actions last year), and FX tailwinds. He noted offsets include higher energy costs, modest price declines, and variable compensation adjustments.

Turner Hinrichs asked about management's confidence in the 3-4% top-line algorithm for 2026 and how much the construction market's weakened demand is holding back segment margins, inquiring if an improvement would be incremental to the overall 150-200 basis point target.

Answer

Lori Koch, CEO, expressed confidence in the 3-4% medium-term targets, citing healthcare and water performing at 5% (half the company), and the potential for shelter markets to normalize from a 2.5% drag in H2 2025, combined with low single-digit growth in industrial tech. Antonella Franzen, Chief Financial Officer, noted that despite volume declines, the shelter business has maintained good margins due to productivity and cost management, positioning it well for future growth, and that this operational efficiency contributes to the overall margin expansion targets.

Turner Hinrichs inquired about the confidence in achieving the 3%-4% top-line algorithm for 2026 and the impact of the weakened construction market on segment margins, specifically for the shelter business.

Answer

CEO Lori Koch expressed confidence in the 3-4% medium-term targets, noting that healthcare and water are performing in line with their 5% target, and the absence of a negative drag from the shelter business (down 2.5% in H2 2025) would provide incremental opportunity. CFO Antonella Franzen added that despite volume declines, the shelter business has maintained margins through productivity and cost management, positioning it well for future growth.

Turner Hinrichs, on behalf of Vincent Andrews, asked about the impact of outages, specifically the $200 million impact this year and the Petro One turnaround, and how maintenance costs for next year would compare to this year in the absence of unplanned outages. He also inquired about the go-forward capital expenditure, asking if it would remain in the $900 million to $1 billion range if the market environment stays similar in 2026.

Answer

Steven Bender, EVP and CFO, confirmed that 2025 was a much heavier year for planned outages. He expects relative maintenance expenses for turnarounds in 2026 to be much lower, as there is no ethylene cracker planned outage, only smaller units. For CapEx, Mr. Bender stated that while 2026 budget plans are being finalized, he expects it to be similar in relative size to 2025.

Turner Hinrichs asked about the impact of outages, including a $200 million impact this year and an $80 million Petro One turnaround, and how maintenance costs for 2026 would compare to 2025 in the absence of unplanned outages.

Answer

Steve Bender (EVP and CFO) stated that 2025 was a much heavier year for planned outages, including an ethylene cracker turnaround. He expects 2026 to have significantly lower relative maintenance expenses for turnarounds, as only smaller units (PVC, chlor alkali, polyethylene) will undergo their regular 2-3 year maintenance cycles.

Turner Hinrichs, on behalf of Vincent Andrews at Morgan Stanley, asked for clarification on the $100 million energy and feedstock headwind, questioning if it included one-time storm impacts. He also requested details on the $100 million CapEx reduction, including the level of maintenance spending and what was cut.

Answer

M. Bender, EVP and CFO, confirmed the headwind was entirely due to market dynamics in ethane, ethylene, and natural gas. He explained the CapEx reduction is partly linked to diminished spending at the epoxy operations in the Netherlands, for which a charge was taken in 2024. He noted ordinary maintenance runs $700-$800 million annually and that safety and reliability spending would not be reduced.

Turner Hinrichs, on for Vincent Andrews, asked about the relative priority of reducing Westlake's short ethylene position versus pursuing M&A in the HIP segment. He also inquired about the expected cash costs of the new cost savings plan.

Answer

EVP and CFO Steve Bender explained that acquiring ethylene is evaluated like any other business acquisition, with a focus on value. He mentioned debottlenecking the JV cracker as a possibility but noted cost estimates would need to be refreshed. Regarding the cost savings plan, Bender stated the cash outlay is minimal as the savings are primarily driven by negotiations, procurement, and general belt-tightening.

Turner Hinrichs of Morgan Stanley, on for Vincent Andrews, questioned the durability of growth in key vectors like healthcare and defense. He also asked for the drivers of the SEM segment's year-over-year margin decline beyond the disclosed maintenance costs.

Answer

SVP & CFO Jamie Beggs affirmed the long-term growth potential in healthcare, citing underlying sub-markets like respiratory care, glucose monitoring, and drug delivery. For the SEM segment's Q2 margin, Beggs explained the decline was primarily due to the $3 million in planned maintenance and the flow-through of some higher-cost inventory. She guided for SEM margin expansion of approximately 100 basis points year-over-year in the second half of 2025.