Eastman Chemical : 1st Quarter 2024 Sales and Earnings Results Conference Call Transcript

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EMN.N - Q1 2024 Eastman Chemical Co Earnings Call

EVENT DATE/TIME: APRIL 26, 2024 / 12:00PM GMT

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APRIL 26, 2024 / 12:00PM, EMN.N - Q1 2024 Eastman Chemical Co Earnings Call

C O R P O R A T E P A R T I C I P A N T S

Gregory A. Riddle Eastman Chemical Company - VP of IR & Communications

Mark J. Costa Eastman Chemical Company - Chairman & CEO

William Thomas McLain Eastman Chemical Company - CFO & Executive VP

C O N F E R E N C E C A L L P A R T I C I P A N T S

Aleksey V. Yefremov KeyBanc Capital Markets Inc., Research Division - Research Analyst

Arun Shankar Viswanathan RBC Capital Markets, Research Division - Senior Equity Analyst

David L. Begleiter Deutsche Bank AG, Research Division - MD and Senior Research Analyst

Frank Joseph Mitsch Fermium Research, LLC - President

Jeffrey John Zekauskas JPMorgan Chase & Co, Research Division - Senior Analyst

John Roberts

Joshua David Spector UBS Investment Bank, Research Division - Equity Research Associate - Chemicals

Kevin William McCarthy Vertical Research Partners, LLC - Partner

Laurence Alexander Jefferies LLC, Research Division - VP & Equity Research Analyst

Michael Joseph Sison Wells Fargo Securities, LLC, Research Division - MD & Senior Equity Analyst

Patrick David Cunningham Citigroup Inc., Research Division - Research Analyst

Patrick Duffy Fischer Goldman Sachs Group, Inc., Research Division - Research Analyst

Salvator Tiano BofA Securities, Research Division - Analyst

Vincent Stephen Andrews Morgan Stanley, Research Division - MD

P R E S E N T A T I O N

Operator

Good day, everyone, and welcome to the First Quarter 2024 Eastman Conference Call. Today's conference is being recorded. This call is being broadcast live on the Eastman website, www.eastman.com.

I will now turn the call over to Mr. Greg Riddle of Eastman, Investor Relations. Please go ahead, sir.

Gregory A. Riddle - Eastman Chemical Company - VP of IR & Communications

Okay. Thank you, Lydia, and good morning, everyone, and thank you for joining us. On the call with me today are Mark Costa, Board Chair and CEO; Willie McLain, Executive Vice President and CFO; and Jake LaRoe, Manager, Investor Relations.

Yesterday after market close, we posted our first quarter 2024 financial release and SEC 8-K filing. Our slides and the related prepared remarks in the Investors section of our website, www.eastman.com.

Before we begin, I'll cover two items. First, during this presentation, you will hear some forward-looking statements concerning our plans and expectations. Actual events or results could differ materially. Certain factors related to future expectations are or will be detailed in our first quarter 2024 financial results news release, during this call, in the preceding slides and prepared remarks and in our filings with the SEC, including the Form 10-K filed for full year 2023 and the Form 10-Q to be filed for first quarter of 2024.

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APRIL 26, 2024 / 12:00PM, EMN.N - Q1 2024 Eastman Chemical Co Earnings Call

Second, earnings reference presentation excludes certain noncore and unusual items. Reconciliations to the most directly comparable GAAP financial measures and other associated disclosures, including a description of the excluded and adjusted items, are available in the first quarter 2024 financial results news release. As we posted the slides and accompanying prepared remarks on our website last night, we will now go straight into Q&A.

Lydia, please let's start with our first question.

Q U E S T I O N S A N D A N S W E R S

Operator

(Operator Instructions) Our first question today comes from Vincent Andrews of Morgan Stanley.

Vincent Stephen Andrews - Morgan Stanley, Research Division - MD

Mark, if I could ask you on the France project, could you talk a little bit about what you think the scope of the timing delay might be? It sounds like they're still committed to going forward there, but have some issues to iron out on the customer and the cost side. So what type of timing delay are we talking about? And what's your confidence that both of those issues will be resolved?

Mark J. Costa - Eastman Chemical Company - Chairman & CEO

Thanks for the question. Overall, we're incredibly excited about the circular platform, excited about how we're operating the first plan, proving out this technology works and have a lot of engaged customers and also excited about long view with the DOE grant and Pepsi contract that gives us a lot of confidence.

And we believe long term, the European market is going to be structurally, an extremely attractive market to serve. But there are sort of two issues we're working with that we mentioned in the prepared remarks. There's a sort of regulatory uncertainty and there's just continuing to do the work we always do in dealing with inflation and getting the CapEx number where it needs to be for a good investment. And on the CapEx, we feel good about how we can manage that. So it really comes down to customer contracts and EU policy.

And what I'd say is the European Union has been far ahead of the world on recognizing both the carbon issues in this world, the climate change and having aggressive policy of that and also recognizing that they've got a packaging waste problem like we do everywhere else and wanting to have a policy that drives the brands, suppliers, the market to sort of address that packaging waste, which also includes a lot of carbon emissions.

And so they developed a policy that is quite comprehensive, that has some reduce, reuse goals that will be -- sort of help the problem, but really focused on how do we get all of this material recycled. And it's still being finalized, but they've got aggressive targets like 25% content in beverages next year in '25 and everything being at 30%, very high local recycling rates required in Europe, EPR taxes on people who don't do it, strict definitions of what is a recyclable polymer, et cetera. And so all that, I think, is headed to be in policy and makes sense.

But there was one recent change that created some uncertainty on how the brands can achieve the recycled content targets. And there's a problem they face especially as you go from this year to next year, which is they're only recycling about 12% of PET back to bottles at the food grade level. They've got to be at 25% next year, so they will struggle to achieve that pretty significantly as well as there's some WTO issues that come up around imports. And they changed policy from requiring everything to be made from local material to allow imports to be included.

Now they put a bunch of restrictions on what imports would qualify around how it's being made from a sustainability point of view as well as all these standards. And there's still a lot of complexity and trying to understand that, but it would probably make it very difficult to import for most

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APRIL 26, 2024 / 12:00PM, EMN.N - Q1 2024 Eastman Chemical Co Earnings Call

countries in these equivalency requirements. And it really creates a huge amount of complexity, both for the implementation of policy as well as -- and achieving the goals of high recycling rates and really issues around consumer brand equity when you're using imports, right?

Because when you bring imports into the country, you're replacing local demand for recycling, which increases incineration, which also violates the carbon emission goals of the European Union. The recyclability targets, which is your material considered recyclable requires a very high recycling rate in the European Union, which is also a problem. And then consumers don't want to be solving China's waste problem. They want to see policy driving up recycling locally to address the local problem.

So this creates some uncertainty and it really goes back to why we had the circular contracting model of we're in this business to be a service provider to the brands to solve their plastic waste problem. We're not getting back in the commodity business. So we're sticking to our guns as we've told you we would around long-termtake-or-pay contracts that provide stable margins. And so we're still highly engaged with customers, still very much working with this, but this has slowed down the discussion on how to structure these contracts in this market context.

I'd also note that we are targeting a lot of applications that can't even use mechanical recycle material because of performance requirements in the package. And long term, mechanical recycling won't work anyway because it's going to degrade without chemical recycling sort of keeping it refreshed. So we're very confident in the long-term market structure. We believe this is a facility that should get built, but we've got to stick to our milestones and our requirements around getting the contracts in place like we told you we would do.

Vincent Stephen Andrews - Morgan Stanley, Research Division - MD

Okay. And what about on the cost side of the equation? It seems like you're still working on that as well.

Mark J. Costa - Eastman Chemical Company - Chairman & CEO

I mean inflation, I think, has been an issue for every project out there that I've seen in our industry. The supply chain crisis has driven up the cost of everything from labor to equipment, et cetera. So all projects have had some amount of escalation to it. We have a good plan to get the capital to where it needs to be on the Longview plant, and we have developed a plan on how to get the capital down on the French plant.

But it's going to take a little more work on some of the elements of doing that. And so while we're working on getting these contracts, we're taking that extra time to continue working on reducing the CapEx. But we feel that we have a pathway to manage that issue.

Operator

Our next question comes from Aleksey Yefremov of KeyBanc.

Aleksey V. Yefremov - KeyBanc Capital Markets Inc., Research Division - Research Analyst

Mark, just to follow up on this, do you have any idea to what degree this delay in France could maybe help you load the Kingsport facility for specialty applications?

Mark J. Costa - Eastman Chemical Company - Chairman & CEO

So we have a lot of different flexibility. That's the beauty of how we manage all of our polymer lines in how we optimize value. Today, we do it from Tritan to copolyesters to medical PET. And every line we have built, the ones in France as well as the Texas project, we'll have the flexibility to make both PET and specialty products. So we're always going to optimizing value and mix. That's the heart of our business model, and we're very good at doing it.

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APRIL 26, 2024 / 12:00PM, EMN.N - Q1 2024 Eastman Chemical Co Earnings Call

So in that sense, it doesn't really matter which project gets built first. We'll sort of optimize value between specialty and PET as we sort of build out our sort of our global position. The first plant is already very much focused on specialty applications. So we'll be driving into Tritan, into cosmetic packaging, into shrink packaging, into a variety of different applications and levering that up. And there's things we're working on to expand and extend the capacity on the first plant as we get it up and running while we sort of work on building the second and third plants.

And so whichever plant gets built first between Texas and France, we'll optimize value between PET, which we have the contract with Pepsi on and specialty to maximize value as we build out the portfolio.

Aleksey V. Yefremov - KeyBanc Capital Markets Inc., Research Division - Research Analyst

And on the annual guidance, a nice beat in Q1. You have a lot of details in the press release. But in general, a strong start of the year, why not raise the full year? Did anything change in the rest of the year to keep the guidance the same? Or is it more conservatism than anything else?

Mark J. Costa - Eastman Chemical Company - Chairman & CEO

It's more of the latter. When you -- we're very proud of the beat we had in Q1 and the fact that it was volume driven, which is the key element of the challenges we had last year, frankly, the whole industry had last year, to see that volume come back better than expected, gives us confidence, especially because it came back in the specialties, which is where our highest value is generated for the portfolio. So we feel good about that.

And as you look at our guidance, clearly, we have confidence in AM and AFP, and we have confidence in Fibers doing better. CI is always a little uncertain. But the main reason we're -- didn't upgrade the range is it's the first quarter. There's a lot of macroeconomic uncertainty out there, a lot of geopolitical uncertainty that we're all living with every day.

And we wanted to really stick to our approach in January, which is this is an economy-neutral forecast, right. We're not projecting fundamentals getting better in the back half of the year to deliver this range. We're also not projecting -- underlying demand is going to get worse in the back half of the year. We're saying it's neutral. We believe fundamentals will get better into the back half, and that would be upside in our forecast. If you have concerns about geopolitics, then there's some sort of -- there's risk to the midpoint of our forecast. But at this stage, I think it's just prudent to be a little cautious until we see how things develop.

Operator

The next question comes from Duffy Fischer of Goldman Sachs.

Patrick Duffy Fischer - Goldman Sachs Group, Inc., Research Division - Research Analyst

Can you just give us some more details around the methanolysis plant that's been running, let's say, for a month now? I'm sure some stuff you can't. But things like what's the premium looking like? What's the breadth of feedstock that you've been able to run through? Maybe just kind of an update on how the plant's running and how you would expect it to ramp from here over the next couple of quarters?

Mark J. Costa - Eastman Chemical Company - Chairman & CEO

Sure, Duffy. It's great to get that question because we're really excited about having this first plant up and running. This will be the world's largest chemical recycling facility, and we're really excited to show the world what's possible, not just in generating earnings and growth for our owners, but in solving a pretty significant environmental problem.

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APRIL 26, 2024 / 12:00PM, EMN.N - Q1 2024 Eastman Chemical Co Earnings Call

And we're really excited that we're on spec with the material and we're serving our customers. It's pretty amazing when you look at basically garbage going into the front of the plant and sort of on-spec material coming out the back end. And it is a very complicated technology and plant. So it is nontrivial to start up compared to if you're building a commodity asset.

The good news is that we have fully confirmed that the process chemistry works, which was always the biggest question that I think people had and we can confirm that's working. We've validated all the unit ops are functioning as designed. It can run continuously. So we feel really good about the sort of design and the structural aspects of the plant.

The challenge has been just on getting the plant to run reliably. And we're certainly about 4 weeks behind schedule as we mentioned in the prepared remarks on that front. And really, we're still focused on reliability. So we haven't moved into a broad feedstock slate or ramped up the capacity a lot until we've actually addressed some of these mechanical issues.

So all the issues we're facing have nothing to do with the process chemistry. It's literally mechanical issues. Some of it was in the beginning, construction errors, leaks and improperly installed equipment. We believe we've addressed most of those issues -- actually, all of those issues at this stage.

Then there's been sort of more-than-normal early failure of some pieces of equipment like instrumentation, valves and some other equipment. This is not unique to us. We see all of our peers having the same challenge globally where just equipment wasn't as made as well as we would hope in the supply chain crisis. And we're all sort of dealing with these kind of sort of annoying little issues. They're simple to solve, but they just slow you down as you have to sort of pause to address them.

And we've also had some reliability issues on rotating equipment, especially pumps. And that is a little more complicated. It's a mixture of quality

• quality of assembly, some design issues and some operating learning. We've done a total root cause analysis on that. We feel we have a very clear understanding of what's causing it, and we're very close to completing all the actions we need to address those issues.

So I'd say from a mechanical point of view, we feel very good about where we're at. The plant's running. Our priority right now is serving customers, which we're doing. And we're just in the phase of ramping up production and sort of expanding our feedstock slate to sort of try out those issues.

But the 70% of the op of the plant is a monomer called DMT and that's always clean, no matter what. So the process chemistry around sort of viewing impurity really is just about EG, which is a smaller part of the plant. So as we ramp up, test that other material, we feel very good about supplying customers this year because their demand that we're projecting is not close to capacity of this plant. And so we've got plenty of ways to keep them served and supported.

So we still forget about the $75 million of EBITDA that we've got out there as having a pathway. It's obviously a little more challenged with how we've had a slower start, but we feel good that we can achieve it for the year.

What I'd say as far as progression goes, our plan was always to do what we're doing right now is run at a steady state to make sure mechanically everything is fine, then you ramp up as well as start broadening the feedstock, which we'll be doing through this next quarter. So we'll have a lot more to tell you about that when we get to the second quarter call.

Patrick Duffy Fischer - Goldman Sachs Group, Inc., Research Division - Research Analyst

Great. And then in the market, it seems like there's been an inordinate number of PDH unit issues over the last couple of quarters. Maybe just bigger picture, how has that impacted your business? You obviously take a lot of propylene, make derivatives. But do you see that as a positive or a negative across your whole portfolio?

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APRIL 26, 2024 / 12:00PM, EMN.N - Q1 2024 Eastman Chemical Co Earnings Call

Mark J. Costa - Eastman Chemical Company - Chairman & CEO

Well, first and foremost, the sort of propylene derivatives are predominantly going to show up in CI as far as the value goes, but there are propylene derivatives that go into AFP as well as AM. So there's parts of the propylene stream that goes across a whole integrated complex.

When the outages occur, and the price of PGP goes up, that's good for us, obviously. But it's always a question of how does PGP move relative to the price of propane that gets us to that spread. And through the first quarter, we certainly saw PGP move up, but we also saw propane prices come in much higher than expected. So those sort of netted out to some degree.

And as we go into this quarter, those spreads look like they're going to contract a bit from the first quarter with the way PGP prices have come off as outages have been resolved. So it's the nature of these olefin businesses where there's a certain amount of up and down in spreads and that's just factored into our guidance.

Operator

Our next question comes from Frank Mitsch of Fermium Research.

Frank Joseph Mitsch - Fermium Research, LLC - President

Mark, I do appreciate the color on what's going on in France. And I'm trying to reconcile how the consumer brand companies that are out there, they're making promises about what percent they're going to have recycled by what year. And reasonable minds believe that they're not going to hit those targets. And so here is an opportunity to get on board with recycled content with you and yet it seems like they're waiting for government subsidies or mandates or something before they sign contracts.

I mean the -- it almost seems hypocritical on their part in terms of making these statements. So it begs the question, how committed are they in terms of recycled content? And given where we are right now, how do you feel about the potential of -- if things don't work out the way that you anticipate, walking away from the France project?

Mark J. Costa - Eastman Chemical Company - Chairman & CEO

So one, every customer we have that we're meeting with, I think, is highly committed to addressing the recycled content question and making sure that they're making their packaging with higher rates of recycled content. And frankly, many of the top brands have 100% goals on a lot of their packaging. They're way above any sort of regulatory policy that's out there. So I don't think there's any lack of commitment that they know this is important.

I do think there's a reality which is there's a significant lack of recycling infrastructure in this world and in mechanical recycling today, and I think most of the brands understand that a lot of what they do in packaging, mechanical recycling, won't even work properly. So the need for chemical recycling is absolutely necessary in the long term. There's just -- I haven't run anyone who thinks that both mechanical and chemical aren't necessary.

So demand condition is very clear. The question is how do they meet those conditions, right? And at the moment, there's been a ramp-up if you go look at the data of inwards of our PET into the U.S. and Europe that is affordable. And that's a way for them to manage cost and hit their targets in the short term.

The dilemma for that is it doesn't really solve the actual problem, which is you, as consumers, European consumers, want waste out of their environment, right? They don't want to be a solution to China's trash problem, right? So they've got to work their way through that on the economics versus what the real goal is, which is addressing local recycling.

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APRIL 26, 2024 / 12:00PM, EMN.N - Q1 2024 Eastman Chemical Co Earnings Call

And so as they're sort of in a situation of where our PET prices are relatively low right now and imports are available versus the long term, which regulation is certainly going to drive a requirement for higher recycling rates within the U.S., within Europe, how do they sort of make those choices and decisions?

So it's just taking us longer to work through these contracts. I'm confident in the end, these brands will focus on what is the correct thing to do for the U.S. and Europe sort of waste issues, but it's just taking us longer to negotiate the contracts than we expected.

Frank Joseph Mitsch - Fermium Research, LLC - President

I appreciate that. I mean it seems like a slam dunk. You guys seem to be the best game in town for them to get to that chemical recycling, which is superior to mechanical recycling and yet it's taking a little bit slower.

Just one other question. In the prepared remarks, you talked about a Patagonia partnership where you're recycling it's unusable apparel. Unusable apparel, what is that? Is that like off-spec products? And is this something that -- can you provide a little more color on that? And is this something that you're looking to expand with other consumer brands?

Mark J. Costa - Eastman Chemical Company - Chairman & CEO

It's a great story. And Patagonia is by far the leader like Europe around recycling. Patagonia has a take back program. So it's an active program with their customers to say when you're going to -- instead of throwing your garment away, your fleece vest or whatever it is you have, drop it off at a store and we'll take it back, so it doesn't end up in landfill. So it's actually a genuine circular program to prevent textiles being thrown away.

The second largest source of plastic waste in landfills or incineration are textiles after packaging. It's a huge problem. And so they are truly forward-leaning when it comes to anything environmental way ahead of anyone else, and they really do their science on it. So they're taking back all these garments and then we're shredding them and recycling them and putting it back into fibers, in this case, Naia fibers, for some of their products. So it's a genuine circle for the textile industry.

So it's a program we certainly want to expand and do with other companies. If you think of all the fast fashion brands out there where the whole business model has been centered on buy things and then throw it away and buy new things, with the regulations that are coming in Europe around that waste, which is the next round after packaging regulation as well as the consumer pressure on waste that exists here as well, this is another great circular story.

And we can take ultimately this back into the -- our CRT to make Naia fibers or we can take the textile back into the polyester plant to make polyester fibers, chips for polyester fibers. So it gives us a lot of opportunities to work on there.

These are complicated programs. I wouldn't say that the volume is going to be particularly high anytime soon. But it is a model that has to be developed to build a future where we have waste out of the environment. And with the new technology, when you think about the Texas project, 90% lower carton footprint, almost close to a zero carbon footprint plan. And that's extremely compelling not just on the waste side, but on the decarbonization side. So we're very excited about what we can do for the marketplace.

Operator

Our next question comes from David Begleiter of Deutsche Bank.

David L. Begleiter - Deutsche Bank AG, Research Division - MD and Senior Research Analyst

Mark, on the Longview project, if you could reach FID in Q3, what's the time line from there for construction and start-up?

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APRIL 26, 2024 / 12:00PM, EMN.N - Q1 2024 Eastman Chemical Co Earnings Call

Mark J. Costa - Eastman Chemical Company - Chairman & CEO

Yes, that would have a plant sort of coming online in the second half of 2027.

David L. Begleiter - Deutsche Bank AG, Research Division - MD and Senior Research Analyst

And would the cost -- how would the cost compare to Kingsport?

Mark J. Costa - Eastman Chemical Company - Chairman & CEO

The capital costs are different. The methanolysis unit will be much cheaper than the Kingsport plant to build because there's a lot of sort of lessons we learned as we've shared in past calls around how to sort of be more effective in building the plant, right? So we certainly don't intend to have the construction issues that we ran into, and there's a lot of learning both in the construction as well as operating the plant now that gives us much better insight on how to improve some aspects of the plant, all of which will make the plant cheaper to build.

So we feel good about that part of the plant coming in lower than Kingsport by a meaningful amount. But the difference is Kingsport had a huge amount of polyester lines and all the infrastructure for handling materials into the plant and out of the plant that we could leverage as well as energy infrastructure that was already in place here that was leverageable, we didn't have to add energy and steam infrastructure.

So when you go to the Longview plant or the France project, the methanolysis one part is cheaper, but you're adding polymer lines, you're adding

• and you have a lot of infrastructure you need to build around this facility that doesn't exist in either of those locations. So the total capital cost turns out to be higher.

Fortunately, we've got great incentives with the DOE grant, that $375 million is extremely helpful in supporting the economics of the project, offsetting inflation and paying for this add of scope that we did to the plant with this thermal battery and solar facility that allows us to get to that 90% reduced carbon footprint I mentioned.

And then the French plant, same thing. It's cornfield, so there's infrastructure you're having to add that's sort of more. And there, you've got a biomass steam plant you're building as opposed to leveraging existing energy infrastructure at the Tennessee site.

So it is a -- each project is quite different in scope in what it's building, and both projects have a lot of incentives to support it. We haven't disclosed the full amount from France, but it's an attractive amount of support as well. I mean I have to say, the French government through everything has been incredibly supportive on incentives, on permitting, helping make sure the policy makes sense in Europe as much as they can. So we really appreciate all their support and everything that they've done to enable that project.

David L. Begleiter - Deutsche Bank AG, Research Division - MD and Senior Research Analyst

And Mark, if I could ask just on Fibers. And obviously, strong top line driven by Naia. I read your prepared comments. How should the top line trend in Fibers as you move through the rest of the year?

Mark J. Costa - Eastman Chemical Company - Chairman & CEO

I think that the Fibers trend from a volume point of view is a bit less in the back half of the year than the first half. So volume and earnings will be a little bit less in the back half of the year. And it's just timing of customer orders. It's sort of normal. We've always talked about this business. The order pattern of the customers is a little bit unpredictable across the year. So it's just that.

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APRIL 26, 2024 / 12:00PM, EMN.N - Q1 2024 Eastman Chemical Co Earnings Call

But the textile side will continue to grow and provide earnings growth. The tow volume obviously, as I just said, will come off a bit, and the back half will be a little bit lower in the first half.

Operator

Our next question comes from Jeff Zekauskas of JPMorgan.

Jeffrey John Zekauskas - JPMorgan Chase & Co, Research Division - Senior Analyst

What's the depreciable life of the Kingsport methanolysis plant?

William Thomas McLain - Eastman Chemical Company - CFO & Executive VP

The depreciable life, you can just think about around 20 years for the Kingsport facility. And honestly, that would be true for each of the large circular recycling plants that we're building.

Jeffrey John Zekauskas - JPMorgan Chase & Co, Research Division - Senior Analyst

Great. And in terms of the volume growth in the quarter, Additives & Functional Products shrank 1%. Which of the subcategories declined in volume in the quarter? And in Advanced Materials, where you were up 4%, how would you compare what happens in Specialty Plastics to interlayers to performance films? Did they all grow? Did some of them shrink?

Mark J. Costa - Eastman Chemical Company - Chairman & CEO

Sure, Jeff, and nice compound question. You got two segments in one. So on AFP, we were sort of net down 1%, which I'd call mostly flat. And there are meaningful moving parts on that, Jeff. Coatings and care chemicals actually had very good growth sequentially into the first quarter. And then we had much lower specialty fluid bills and heat transfer fluids. And those two sort of offset each other.

Ag was its own unique dynamic, right? So year-over-year, there's still destocking relative to last year, so demand's down. But we did see more-than-expected sequential improvement in ag demand from Q4 to Q1, which was just less -- it turns out they didn't need to destock as much as they thought. They had confidence about the ag season this year. So in North America, I would say, destocking is over.

There is still some residual destocking, competitive dynamics for our customers, not us, but for our customers, going on in Latin America. So there's still some of that destocking to come to an end in the future. But the vast majority of our business is focused on North America. So for us, we're feeling pretty good about the ag business and how it played out.

Regarding AM, we had a very strong recovery in the durable space. So sequentially, sort of durables were up 15% from Q4. They're up significantly relative to last year. So that was a great improvement. We saw also shrink in cosmetics sequentially grows. Shrink, up 15% and cosmetics also had a good sequential growth. So those were all good, but there's still a lot of destocking offsetting some of that growth in medical. That's still going on.

And there's a tough comp on the performance film side. Last year, we had a very strong loading of channels in China orders. And with the auto markets basically being flat globally, but down in China, the demand was not nearly as good in performance films this year as it was last year against that tough comp. And the interlayer part was sort of flattish with builds.

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