Vincent Andrews: Mark, could you talk a little bit about plant 2 and plant 3? There were some comments in the prepared remarks, talking about methanolysis obviously, in the prepared remarks about the teams working to sort of make sure they can stay ahead of inflation. And I’m just kind of curious how you’re feeling about the CapEx estimates for those plants. We all know it’s obviously an inflationary environment. We’ve seen some cost overruns at non-related large-scale projects that other folks are doing. So how are you going to stay on top of that? Is it something that you can do technically? Or is it going to be something you’re going to have to do in terms of how you price the product?
Mark Costa: Yes. So Vincent, you’re absolutely right, that’s an inflation environment. Certainly, if you go back to Investor Day in December of 2021, the capital estimates we had there for both Kingsport as well as these projects have gone up which is true for every construction project I’ve seen in the chemical industry and probably everywhere else. So we’re all managing and dealing with that inflation. And a lot of what we saw happened in Kingsport went beyond just normal inflation, right? So we had a huge issue with the contractor not having skilled — properly skilled labor and that productivity issue was the biggest issue we faced. We also had just an endless series of severe weather events along the way. And there was a lot of engineering work we were doing in that project, in outing of how to optimize the design of the project, why we’re building it which is never ideal but allowed us probably to get 2 years ahead of the market and getting the product online.
So we have a lot of learnings from the methanolysis project here that we’re incorporating into France and second, U.S. projects, where we’re very clear on how to build them a lot more efficiently than this first one. So what I’d say is, from a CapEx point of view, there is inflation that’s occurred. There is some deflation that’s now in front of us in materials, even contracts — contractor. Labor availability is improving, as we sort of are in this sort of more recessionary cycle for the materials industry. They’ll help sort of offset or slow down or maybe even decline some of that inflation. We are building the same plant again. As I said earlier, same scale, same design. Obviously, whatever learnings we have in Kingsport, we’ll incorporate into it.
But we’re not trying to build something new, we’re just building the same. And you get a lot of capital efficiency when you’re building serial number 2 and number serial 3 at the same plant. So there will be benefits in controlling capital, both the cost and the predictability from that. Scopes will be completely locked up before we start building and that will help us control CapEx relative to what I just described in Kingsport. And we’re using great firms, Technip, Fluor, for this — these projects. And they’ve got access to an excellent set of contractors to do this. So we feel good about controlling the capital cost. They will certainly be a bit higher. And that’s why we’re also pursuing more incentives in both France and in the U.S. as part of the projects.
So I think we feel good about that. What I would say is when we when we came up with the original economics and talked about returns on these projects, we gave ourselves some room for inflation and other challenges we might encounter. So the Kingsport project is still at 15% return on capital despite the capital increases. And these projects are still with the proper customer contracts and incentives, above 12% return on capital. So even with inflation, we feel good about the returns and feel that we’re on track to get these 2 projects started this year, assuming we hit our requirements that I mentioned earlier, we’ve got to still get those 3 things, customers, incentives and finalize the capital number.
Operator: Our next question comes from Mike Leithead from Barclays.
Michael Leithead: First question, I wanted to circle back on the EPS outlook. I think the last number of years, the first quarter is roughly 25% of what Eastman’s full year EPS turns out to be. This year, 1Q is maybe 18% or so, the full year guide. So can you talk through why this year’s 1Q is a bit different? Is it mainly the lingering destocking that gets you a bit better into 2Q there?
William McLain: Yes. I think as Mark has outlined, we expect the traditional curve, right? We’re growing earnings through Q1. Traditionally, Q2 and Q3 are best quarters. And then there’s a seasonal decline in Q4. Also, as we’ve highlighted and also on a year-over-year basis, we expect the second half is where we’ll pick up most of the utilization benefit as well as the benefits from our Kingsport methanolysis facility. So there’s a combination of factors of the pace that we’re seeing in the order books, traditional seasonality as well as the specific items that impact us in ’23 that are turning into tailwinds in ’24. Those are the key items. Mark?
Mark Costa: I would just add, there’s a couple of unique elements of Q1 beyond just the seasonal pattern where you’ve got oddly low orders from Fibers customers. No volume risk on the contract. They’re just not buying as much in Q1 as they will do in Q2, Q3. And so that’s sort of putting some pressure on there that’s sort of beyond seasonality. Same is true in just timing of fluid fills, not much going on at all in Q1 but we have more in Q2. So there’s a few aspects beyond just sort of normal that’s sort of impacting the continued destocking in ag and medical, beyond just the seasonal pattern that mostly will play out in Q1.
