Please standby. Good day everyone, and welcome to the Eastman Chemical Company First Quarter 2019 Conference Call. Today's conference is being recorded. This call is being broadcast live on the Eastman's website www.eastman.com. We will now turn the call over to Mr. Greg Riddle of Eastman Chemical Company Investor Relations. Please go ahead.

Okay. Thank you Kim, and good morning everyone, and thanks for joining us. On the call with me today are Mark Costa, Board Chair and CEO; Curt Espeland, Executive Vice President and CFO; and Jake LaRoe, Manager, Investor Relations. Before we begin, I'll cover two items. First, during this presentation, you will hear certain 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 the company's first quarter 2019 financial results news release, also during this call and in the accompanying slides, and in our filings with the Securities and Exchange Commission, including the Form 10-K filed for 2018 and the Form 10-Q to be filed for first quarter 2019. Second, earnings referenced in this presentation excludes certain non-core and unusual items. In addition, historic quarterly earnings use an adjusted tax rate, using the forecasted tax rate for the full year that excludes the provision for income taxes for the same non-core 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 2019 financial results news release, which can be found on our website www.eastman.com in the Investors section. Projections of future earnings exclude any non-core unusual or non-recurring items With that, I'll turn the call over to Mark.

Thanks Greg, and good morning everyone. I'll start on page 3. In the first quarter of 2019, we had a number of accomplishments we can be proud of, and a number of challenges to take on. Before we get into the financial results of the quarter, I'd like to pause and take a moment to discuss some of the important highlights from the quarter. First, after challenging fourth quarter, we delivered a 28% sequential improvement in our earnings, and we expect this momentum to continue on to the second quarter. We also received an ENERGY STAR Partner of the Year award for the eighth consecutive year, demonstrating our commitment to operate our facilities responsibly and efficiently. Eastman is always searching for ways to leverage our world-class operations and macro trends like sustainability, and I'm proud of the investments we're making in methanolysis and the carbon renewal technology, which provides serious solutions to enable the circular economy. In this environment, we continue to see strong customer engagement with our innovation programs and delivered an 8% increase in new businesses revenue closes from our innovative products. As always, we also continue to aggressively execute on cost management, running a highly productive organization and we have increased our cost reduction actions given the short-term macro-economic challenges. Consistent with our strategy to pursue bolt-on acquisitions in our specialty businesses, we completed the acquisition of Marlotherm heat-transfer fluids from Sasol, opening up their product offerings in new regions and we'll continue to pursue bolt-on M&A where it makes sense. Core to how we win is our ethics and integrity and we appreciate the recognition is one of the World's Most Ethical Companies by Ethisphere for the sixth consecutive time. And finally, these awards and the focus of our strategy comes back to our owners, where…

Thanks, Mark and good morning, everyone. It's always a pleasure to spend this hour together. I'll begin with a review of our corporate results on slide 5. Although challenges from the fourth quarter persisted into the first, we increased EBIT by 28% sequentially with growth in three of our four segments. Driving this improvement was a seasonal increase in volume, improved product mix and higher spreads. On a year-over-year basis, sales revenue and earnings decreased mostly due to lower volume. We managed our controllable cost down significantly in the quarter. These actions will more than offset by a stronger dollar and cost in which we have less discretion such as higher pension costs netting out to greater than a $30 million headwind year-over-year. Looking across to our end markets, we experienced volume softness, particularly, in transportation, consumables and consumer durables, especially, in Asia and Europe. Global economic uncertainty persisted throughout the first quarter, which contributed to the softness and particular higher-margin specialty businesses such as tire additives, adhesives and specialty plastics were most impacted by the challenges in these end markets. The primary driver continues to be the U.S.-China trade wars impact on demand in China and its associated impact on Europe which is highly dependent on exports to Asia. Looking at the cadence through the quarter. January was about as expected, but after Chinese New Year demand was sluggish and did not pick-up as we had hoped. Destocking was evident throughout the quarter and a substantial contributor to our volume decline. That said March was a strong month and April orders gave us confidence we'll continue the trend upwards into the second quarter and we're seeing signs of destocking coming to an end across many of our end markets. Moving now to our segment reviews and beginning with Advanced…

Thanks, Curt. On slide 11, I'll provide an update on our 2019 outlook. Our earnings challenge in the first half of the year is predominantly a volume challenge for our high-value specialties and the slow growth world especially in Asia and Europe, compounded by the destocking. Spreads in the specialties in the second quarter improving and are expected to be similar to last year's level. The volume challenge, we see is primarily trade related and to a lesser extent, due to slowdown in the global transportation market. That said, we are encouraged by the improvement in our orders through March into April and believe most of the destocking is behind us. And as the 16th largest exporter by volume in the U.S. with Exxon as the only chemical company above us, we're probably more exposed to trade disruptions, we've seen for the last two quarters. The stronger U.S. dollar is having a negative impact which is a challenge given our U.S. manufacturing footprint. We've assumed that on average the dollar-euro exchange rate will be around $1.14 for the year. And we expect the impact of the first half to be around $30 million with AFP and AM most impacted, and with limited impact in the second half. You recall from our fourth quarter call that we discussed that slow flow through of high-cost raw materials from last year would impact our earnings in the first quarter, which it did. Given this lower-than-expected volume in the first part of this year, this impact was greater than we expected. So the benefits of the lower cost raw materials will now be more of a second half impact. Lastly, we're expecting higher pension costs for the year and this is approximately $30 million split relatively evenly between the quarters. Putting this together, we're…

Okay. Thanks Mark. We've got a lot of people on the line this morning and we'd like to get to you as many questions as possible. So as always, I ask you to please limit yourself to one question and one follow-up. With that Kim, we are ready for questions.

Thank you. [Operator Instructions] Our first question today is from David Begleiter from Deutsche Bank. Q – David Begleiter: Thank you. Good morning. On your full year guidance, it looks like you lowered segment guidance in one segment AFP, but maintained in the other three. You maintained a full year guidance. Can you talk about that dynamic? And why you didn't take the opposite -- opportunity now to trim the full year guide given the challenging macro? A – Mark Costa: Thanks Dave. And in your observation around the guidance is sort of directionally correct. Obviously in the first quarter, our earnings came in a little bit lower than we expected and we have that adjustment in the second quarter. And that's why you saw us take the aggressive cost actions that we announced in late March. So while we have these challenges, we stepped up our cost reductions to take another $40 million out relative to the plans we had in the beginning of the year. That sort of balances that equation out, allows us to stay on track for our guidance. And we also feel very encouraged by the improvement in volume we saw in March and the continued improvement in the volume that we're seeing as we go into April and getting our mix back. One of the bigger challenges we've had here is mix of our high-value products and that gives us confidence. We're on the right track for the rest of the year. Q – David Begleiter: And Mark, on these additional cost actions, how permanent are these actions? And where are they coming from? A – Curt Espeland: So David, as we started the year as a reminder, we already taken aggressive cost actions to kind of help offset higher turnaround costs and other anticipated challenges at that time. So as Mark mentioned, as we started the year, we decided to take additional actions which are primarily headcount contractors and discretionary spend. So the additional actions are expected to contribute $40 million to our 2019 results. So I'd call those pretty permanent kind of reductions and again predominantly in the second half of the year. So these factors plus the additional expectation -- expected improvements in 2019, should provide us good momentum going into 2020. A – Mark Costa: I'd also note about three quarters of those cost reductions going to manufacturing and they'll go into our COGS and then they will have to flow out. So that's why they're going to very back-end loaded and where the benefits shows up. Q – David Begleiter: Thank you, very much.

Moving on, we'll hear from Jeff Zekauskas from JPMorgan. Q – Jeff Zekauskas: Thanks very much. What was the magnitude of the cash restructuring charge that you took in the first quarter? A – Curt Espeland: So you saw the restructuring charge, I believe it was about $28 million. That's a good portion of that is the anticipated severance of our restructuring programs. There will be a little bit more in the second quarter and maybe a small tail in the second half of the year, but a good portion of that is that $28 million of severance charge accruals that we took in the first quarter. That will be the cash impact. Now not all that cash flows out. This year, it could go over a 12-month time period too, so some of these severances accruals get paid out over a 12-month period.

And then, for my follow-up, your prices in Advanced Materials in the quarter, I think, were up 1%. And if you -- and you had negative volumes in the quarter of some mid-single-digit level. And like, if you think about the Celanese's earnings, I think, in there engineered materials their prices were up 7% and they had a similar volume decline to you. When you look at your businesses versus their businesses, do you find them in any way comparable? Do you think you're more disadvantaged in terms of being able to raise price? Or do you think that there was an opportunity where you could have been more aggressive and you plan to be more aggressive in the future? Can you kind of assess this difference? Can you assess that comparison?

Sure, Jeff and good morning. First of all, the Celanese's business and our business are just fundamentally different. So it really doesn't make sense to make a lot of comparisons. They're primarily a compounding business with a completely different set of polymers and different set of applications. So I'm really focused on us. The business that we have has been incredibly successful delivering very strong earnings growth for the last six years and this year it will be the seventh. And the underlying driver of that is volume and mix improvement, as the key to sort of driving that growth where we're selling at very high-growth rates, very high value, high-margin products like Tritan and heads-up display, interlayers, performance films, et cetera, relative to the segment average and we keep on driving the weighted average mix growth up. So that's the core and heart of our strategy. Pricing is, obviously, a key part of how you manage your spreads for any product relative to raw materials. And our goal is always to keep it stable, because that's how you keep a solid relationship with your customers long-term for innovation. So in our business -- and SP was probably -- the specialty plastics guys are probably up about 3% in price and then that was offset by some price declines in advance interlayers for a high-value products. We've discussed this all back at Innovation Day. When you have these very high-value products and you're in the early phases of adoption, your prices gets your cost structure quite high. And then as you develop scale and volume and growth of that, you share some of that benefits of scale with your customers in price declines, which is especially typical in the automotive industry where those products go. So you see that going…

Okay, great. Thank you so much.

Our next question today is from Robert Koort from Goldman Sachs.

Thank you. This is Regina [ph] filling on for Bob. You're highlighting some sequential earnings improvements through the year and the 4Q to 1Q improvement was notable. But when you fast-forward to 4Q 2019 what kind of year-over-year growth is possible, given the easier comp?

So, great question and it's an important one to remember when we talk about our back half guidance. With macroeconomic growth occurring with innovation in our high-value specialties, also creating our own growth, we're assuming that 2018 -- I mean, 2019 is going to be materially better and the fourth quarter is an easy comp, right? So if we can just get back to 2017 levels in Q4, that's $80 million of the hole we have to fill in the first half. And then we look at, for both the third and fourth quarter volume and mix growth being better than 2017. So you've got that as a tailwind to help the back half of the year. And you got the cost flow through, which will flow through, through the back of the year, especially as you go into the fourth quarter. So I expect the fourth quarter to be very strong compared to the past.

And what I might add on top of it, I'll remind you the roughly $30 million of impact of foreign currency you're expecting in the first half of the year goes away to a greater extent in the second half of the year, so we don't have that headwind overcome any more in both third and fourth quarters.

Right. So you put all that together and you -- and the cost reductions, you've got the hole basically being filled in the front half and you've got to just believe in some reasonable volume mix growth and some raw material tailwinds and you can get to our guidance.

Okay. Thank you. And are you seeing any signs that the specialty plastics destocking has ended? Any indication on volume changes for that for quarter-over-quarter and may be also year-over-year for 2Q?

Yes. We've already seen that. So January, in particular February were rough. The destocking in the fourth quarter that continued in those first two months was pretty significant. You have to remember that the vast majority of what we sell into China from specialty plastics is made into products that are predominantly exported back to the U.S. and to some extent Europe. So when you get into this trade war issue. A lot of those producers really lost confidence in their ability to sort of export back to the U.S., because they fear the trade there and tariff is going back to 25%. That's what held them up in the third quarter -- I'm sorry, in the fourth quarter last year as well as the uncertainty what would happen on March 1. As things started to sort of stabilize, and look like things we’re going to get settled to some degree, people starting to getting back to business and we saw a pretty good recovery in Tritan orders, in particular in March and March was, as a month pretty strong, and those orders are holding up as we go into April. So we feel pretty good about the destocking question when it comes to specialty plastics. And when you combine that with raw materials, finally starting to flow through at a benefit in the second quarter, it leads to a pretty strong second quarter sequentially from the first.

Thanks.

We'll take our next question from Vincent Andrews from Morgan Stanley.

Thanks, and good morning, everyone. Just kind of maybe a little bit of a follow-up on the last one. As it relates to trade and the settlement of the trade dispute, what's your sort of sense from talking to customers about how activity or behavior or buying patterns will improve? It sounds like there's already been some improvement sort of as people sense that a resolution is within sight. So how much of an incremental step up would you anticipate right away post settlement? Or is this something that's going to take a few months or a quarter before we sort of have a real sense of how much of a snap back there's going to be?

Vincent, a great question, and it's obviously a pretty difficult one to forecast since we're depended on President Trump settling a trade dispute with President Xi and the timing of that is unknown or and the details of it are unknown. But based on everything we've seen, which is the same stuff you've seen, it seems like they're making good progress, and the odds of escalation now are going down. And I'd say that's very well covered here in the press in the U.S. But from what we can tell in China, they're pretty quiet. They're very being very careful about declaring any kind of victory or possible victory with their -- inside their country, because they just don't know what's going to happen with President Trump. So there's still a lot of caution and uncertainty in China today. But I'd say, the destocking is mostly playing out and behind us, so you've got the removal of that headwind. And primary demand is still out there including exports to some degree, but we really haven't seen any restocking yet. That could be material at some point, and we're not banking on much of that in our forecast, so that would be upside. So what we need is a trade settlement to sort of get settled, not escalate and the Chinese government to send the all-clear signal to their companies and their consumers that things are going to get back to normal. You've also got them dumping a ton of stimulus into their economy, which is also of course helping improve things right now. We can see some of that benefit. So when we put that altogether, we feel like it is stabilizing. News is getting out that the things are going to be okay in China, but we're not really seeing a dramatic recovery yet. But we're a lot better off than where we were in January and February.

Okay. And on the adhesives resins competitive activity, has that been sort of made worse by the trade issue and -- or just weak demand? And if that's something that potentially were about to lap or could snap back post resolution?

Yes. So far on adhesives, the global underlying market growth rates for adhesives is very strong. It's in your consumables hygiene applications. And overall I'd say, it's pretty good. There's no question in China demand has been a bit off, especially in some applications. They are a little bit more consumer discretionary, and that's contributed to some of the pressure in the marketplace. But adhesives is more of a supply-driven issue than it is a demand-driven issue. As we told you in the past, we've had new capacity come in the marketplace in Asia, and the growth slowing down a bit doesn't help in that equation. The good news is this business has very strong underlying market growth rates that will continue that are really not that discretionary. We got to use the diapers and we got to use them. And so we feel good about observing this capacity that's been added. On top of that, we've got innovation rolling out in the marketplace this year. That is a huge sustainability trend. This market is no order -- preferably no order no VOC kind of product. We've now launched the best-in-class product for those applications with this sensitivity on the environment out there. And it's expected to grow quite well. We'll get that in the marketplace in the back half of this year towards the end, and that gives us another way to grow out of this business. And the raws and resin conversions also continues where same environmental trend raws have a lot of odor and smell too. Consumers don't want that. And so that's another way we're picking up resin growth to fill up the capacity.

Okay. Thanks very much, guys.

We expect second half to be better.

PJ Juvekar from Citi has our next question.

Yes, hi. Good morning.

Good morning, PJ.

I'm looking at ethylene prices. Ethylene prices have collapsed. They're down to what $0.13. And I know you don't sell as much ethylene now, which are RGP project. But then looking at propylene, it's also down with propylene inventories close to six million barrels. So I guess my question is if one or more complex remains weak, are you able to get pricing on your derivative products?

Yeah. Good question. So on the ethylene side as you just mentioned, we had a considerable headwind in ethylene last year, and the RGP investment we made this year, which is up and running incredibly well and actually performing better than we expected is taking us a long way in reducing the ethylene we sell this year in the merchant market and that helps mitigate a lot of that headwind giving us a year-over-year benefit. So that's been great. When it comes to derivatives, you're right to point out that propylene and ethylene don't define the price of a derivative. It's just an indicator of the underlying market conditions. And in a lot of places, prices are holding up well in our derivatives from propylene and ethylene but there are few places where Curt called out that we do see some price pressure in particular glycols MPG, MEG and glycol ether, places where we're seeing some price pressure creating some spread compression. So that's factored into our guidance. And to some degree that's what offsets the benefits we've created through RGP and not having the industrial gas outages from last year those net out those benefits to keep the segment stable this year.

Okay. And then you added a lot of new capacity in products like Triton, Crystex and PVB. So if I look at all of them together in aggregate, what ballpark EBITDA do you expect in 2019 from that?

PJ, we don't breakout the EBITDA growth just from distinct projects. What they are really driving is the underlying growth in the markets we serve that we've been providing in our guidance. So like Advanced Materials where we're talking about earlier, again that business is looking to grow EBIT, 7% to 10% EBITDA would be reciprocal to that other than the factors a little different. So overall those projects are typically greater than cost of capital returns, driving good returns and there will be one of the factors that long-term contribute to our EBITDA growth as a percentage.

I mean, what I'd add is that the fact that we did all those plants is because our volume growth has been so strong from 2015 through 2017. We are running out of capacity on all those products last summer and they started up just in time. And, obviously, we didn't predict a trade war impacting demand in the short-term. But as those markets come back through this short-term disruption on the macro, the fixed cost leverage of all that's going to be very attractive when that volume from those high value products come in and as we work through the back half of this year-end and even more so in 2020.

Great. Thank you.

Next we'll go to Aleksey Yefremov from Nomura Instinet.

Hey good morning, it's Matt Skowronski on Aleksey this morning. On the last call you gave out a Brent crude prediction for the year. It seems to change since then. Can you just tell us how this changes your outlook?

It doesn't really have much of an impact on our outlook. We're in the $70 range. We're now what $74 before. So I think that it's important to remember that oil is part of an indicator of how raw material prices move, but it's not the only indicator. Last year oil did move up quite a bit especially as we got into the third quarter, but the spreads above oil also dramatically increased. So if you've looked at something like paraxylene, normal spreads above naphtha are like $300 a ton. You at history we were well over $700 in the third quarter last year and we're now back to sort of in the $500 range. And even with the oil up, we expect that $500 keep moving its way back to normal because there's a lot of capacity coming along in PX in the back half of this year. So you got to remember that those are indicators but they're not -- there's a lot more going on in any of these markets. So even if with oil being a bit higher than we expected a lot of the raw materials that we buy we don't expect those prices to move up much. And in places where they do, we'll increase prices. We've have demonstrated we're very disciplined about managing prices. We offset all the raw material increases through the third quarter last year with price increases. And as we look at the price raw trade-off in the specialties, we expect to get back to the second quarter spreads of last year by the second quarter of this year and then that becomes a tailwind as we go to the back half. So we can manage that.

Thanks for that. And then in Fibers, on the last call you noted that it will be the weakest quarter, which it was. How did trends look so far in April? And can you give an outlook on pricing for the remainder of the year?

Sure. So on the volume side as Curt mentioned, we expect volumes for the year to be slightly down with the overall market decline. So what's underneath that assumption is customer buying patterns in this business as you look at our history bounce around a lot. So Q1 was just uniquely low customer buying pattern outside of China. In China this is a trade related issue where they stop buying tow from us made in the U.S. And we had to start shifting to our Korean facility to import in the U.S. We have orders now from the Korean facility, but we're still in the qualification process on some of the -- with some of the customer plants there. But we feel like we'll get back to sort of where we needed to be on that volume relative to last year as well. So, I think we're fine. It's just going to be lumpy in how it spreads out. I mean second quarter will be a lot better than the first quarter in volume. And price, another good question. Prices were down a little bit more in the first quarter versus the rest of the year because some of the price declines we put in place last year didn't go effective until April 1. So, you're going to just see a bit more of a drop in Q1, than what you'll see for the rest of the year. On a full year basis prices won't be down very much at all.

Thank you.

Thank you.

Moving on, we'll hear from Frank Mitsch from Fermium Research. Q – Frank Mitsch: Hey Good morning, folks I’d appreciate some of the colors so far. Curt you were talking about the use of that $1.1 billion plus free cash flow that bolt-on are part of that equation. How is that, market looking to you right now? How should we think about the probabilities or the possibilities of Eastman doing more than just Marlotherm? A – Curt Espeland: Yeah. I would say our bolt-on acquisition pipeline is active. There are several opportunities we're looking at. As always it's got to make sure you does the right diligence pay a fair price? And hopefully don't find bigger spreads. I'd say right now it's possible. You might see one or two more small acquisitions during the course of the year, but we'll see how those play out. Q – Frank Mitsch: And small -- just for definitional purposes, less than $100 million sort of a ballpark? A – Curt Espeland: Yeah. I would say, less than $100 million in that ballpark yes in aggregate. Q – Frank Mitsch: All right, all right, terrific. And Mark, you did a nice job talking about how March came back in terms of volumes and certainly you're seeing that through the month of April as well. So, I'm wondering if you can give some granularity by region on what you're seeing there. And what the expectation is for the second quarter? A – Curt Espeland: Sure. And good morning, Frank. So, the biggest hit across all regions when it comes to value was China. It's important to keep in mind that different regions have very different margin profile. So, when you look at our specialty businesses two-third of their revenue is outside the U.S. And so…

And up next we have Mike Sisson from KeyBanc. Q – Mike Sisson: Hi guys. In terms of Advanced Materials they're still may be struggling a little bit to see the growth in the second half. I did the math. The EBIT growth -- operating growth needs to be somewhere around 30%. You have three kinds of factors you noted like lower raw materials, volume and may be less FX. Can you maybe help us understand what -- are they about even in terms of the recovery for the second half? Or am I missing a couple of other variables that help to grow that? A – Mark Costa: Volume mix is a primary driver Mike. Obviously, we don't have the currency headwind that we had in the first half of the year. So, you don't have that $15 million headwind. That is on AM in the first half of the year, repeating in the second half. So, there's that. There's raw material flow tailwind. Of course with PX, that's going to help as that price comes off relative to a very high price last year. But the biggest driver by far is volume mix. You got to remember that -- what we're saying is we're going to grow volume mix, through the back half of this year relative to the first half of this year which means it's going to be materially better than 2017. And when you look at the drop in earnings in the fourth quarter of 2018, due to volume and mix and the higher raw material costs, you're going to fill that entire hole. And then add to it with some additional volume and mix especially when we got all these products like heads-up display interlayers and performance films growing at double-digits. So when we…

Got it.

Yes. I also want to emphasis asset utilization is a big deal guys. So when you have to slow the plants like we did last year in the fourth quarter to adjust the demand situation and even run them a little bit slow in the first quarter, your asset utilization, your fixed cost per kg goes up in a meaningful way. So as volume picks up that starts to accelerate how all the cost cuts we're doing can flow into a lower cost per kg and benefit earnings in the back half of the year.

Okay. Great. And then a quick follow-up. You spent a lot of time over the years moving your portfolio into more specialty areas. If you look at the first -- the fourth and first quarter results for the specialty businesses, I'm still a little bit surprised the earnings got hit so much. So when you think about the performance that you expect to see and I understand it's -- there are much higher-margin businesses, but what's kind of the takeaway you want us to see in terms of supporting the notion that your portfolio is much more special than it was?

Yes. So I mean, the growth in the specialties has really been a tremendous success story. If you even just go back and look at history here from 2014 to now, we've done a series of acquisitions here. We've delivered a significant amount of innovation growth on top of that. And we've grown the EBITDA from these two segments by over $500 million from 2014 and if you put on our constant-currency basis over $600 million. So this is a great story of delivering a phenomenal amount of earnings growth in the last five years all to -- due to our growth model and our innovation that allows us to sustain our spreads and drive volume and importantly mix upgrade. And I don't think anything of that story has changed from a long-term point of view as I look forward. No question, we in our portfolio have a high exposure to consumer discretionary spend. Transportation B&C, consumer durables, it's about 45% of the company's total revenue. So if you have a situation where there is a correction and demand in those spaces and that is clearly what we saw in 4Q, 2Q and for 4Q and 1Q and a little bit still dragging on into 2Q for AFP. When you lose that very high variable margin demand with destocking to correct to the sort of trade economic situation, you're going to take a hit given the value of those kgs relative to the company average. But the good news is, we've already seen demand coming back in March and April. So that demand comes back, the economies improve and that value that we've created over the last five years through volume and mix growth comes back in a pretty dramatic fashion on the other side of the equation just like it went away comes back the same way. And so there's sort of sensitivity we have to consumer discretionary. I don't think that's a secret about our portfolio. And the good news is we make a lot of money in China. And I believe long term China is going to be an attractive growth market to continue to deliver a lot of growth in the future.

Mike one other just takeaway as you think about all those long-term benefits that Mark talked about. On a short-term basis, don't forget that these specialties have a long supply chain. And so when you have a disruption like these trade wars that's where you have some of the negative impact like you see in the fourth quarter and first quarter. Those will return to more normal levels and we have -- also might have a bounce back at some point as those supply chains fill back in. So just keep in mind short-term, it's been impacted by those supply chains in those of market dynamics.

Got it. Thank you.

Our next question today is from Laurence Alexander from Jefferies.

Hi, guys. It's Dan Rizzo on for Laurence. How are you?

Good morning.

Good morning.

I just really just have one question, the softness in auto and tire has been well documented. Can you just tell us what you're seeing in your construction and ag end markets?

So on the ag market, obviously things are a little bit slower with the wet weather in the first quarter and we saw some of that impact particularly in CI. But everything we can see in those markets are all coming back as we'd expect. So we feel good about the ag market this year on a full year basis and we're seeing some innovative growth with a few of our customers to help us create our own growth there as well. When it comes to the construction market, it's been relatively stable. So from an architectural interlayer’s point of view, it has been great. Vast majority of where we're selling the layers is in Europe, where they do laminated glass and we've seen strong growth there through 2018 and that's continuing on through 2019 and that's pretty visible at the back order that you can see in construction. On the architectural side, North America has been fine. Obviously, China and Europe have been a bit off but we're seeing some recovery there. One other thing I'd mentioned is environmental enforcement does create benefits as well. With this unfortunate accident that's occurred in China, we do see an impact on a few produces that we compete with being shutdown for environmental inspections and things like that. That's giving us a modest tailwind. We're not banking on much of that. But if that continues -- that enforcement continues, there will be an upside to our forecast.

All right. Thank you very much.

Duffy Fischer from Barclays is up next.

Yeah. Good morning. First question, just around the raws again. I know you've got an accounting benefit that will flow through in the back half, but a lot of your suppliers would talk about kind of the same destocking events happening that you are seeing with your products. So, if you get that back half pickup in economic activity like you're expecting, what do you think the odds are when you look at all your raw materials and kind of the supply demand that actually prices there will rise fairly rapidly and maybe we're talking about raw material headwinds in the back half of the year?

Yeah. When we look at the specific products that we buy, Duffy, I don't see there is a significant risk there. I mean, you can always get into oil price scenarios. And if demand driven where oil goes up then we'll have the demand market conditions to raise prices and we'll be fine. Supply driven events in oil is a different discussion. But we're not really worried about that with the raws that we buy, especially because the one that was a biggest problem for us in the back half of last year was PX and there's so much new capacity coming online.

Fair enough. And then just to jump to Fibers, can you breakout if you just look at say the EBITDA year-over-year kind of they're down $14 million, how much of that was China versus ex-China? And then do you think it will be difficult to get your Chinese business back once the deal is settled because obviously they are players inside China that have excess capacity they're probably back filling that today. Is that a structural step down do you think, or will that be pretty quick to come back?

Yeah. As far as the demand goes in the first quarter I would say it's sort of balanced between the China factor and sort of just customer buying patterns across the quarters for this year with another customers. In regards to your second question, there is no competitor in China backfilling us. The -- all the companies -- or the plants that make tow in China are joint ventures with CNTC, our customer. They run those plans flat out every day as best as they possibly can every year which is why imports dropped when they add that capacity over the last five years. So the imports -- and we're now down to pretty small levels are just being shifted around from plants -- to different plants that are not outside of the U.S. But we have a great relationship with our customer there and they are working with us and we believe we'll get back in.

Great. Thank you, guys.

Moving on, we'll hear from John Roberts from UBS.

Thanks. You mentioned the coming paraxylene capacity, I think it's the primary target of some of the new crude to chemical projects coming online globally. So I guess this could be a multi-year kind of weakness in paraxylene. Do you think structurally you'll end up passing some of that through because the whole polyester, I guess, complex could come under pressure with weaker paraxylene over time here?

Yeah. So there's a lot of PX coming online. The big chunks in the back half of this year are just traditional PX plants, not the sort of oil or the chemical things. But we -- there will be some passing along with some of that PX value to some of our customers which is natural and the logic -- I started with in the beginning of the Q&A session here I'll reference you back to which is you got to have a balanced approach to the customers if you want them continuing buy from you and we work with the same customers for the last decade and I hope the next decade. And so we got to have respect and trust and innovation together.

Thank you.

Let’s make the last -- the next question the last one, please.

And that will come from Kevin McCarthy from Vertical Research Partners.

Thank you for squeezing me in. Mark, I had a question for you on interlayers. In your prepared remarks, I think you referenced double-digit growth prospects for Saflex. And you threw out I believe 20% in Europe. And so I was just wondering if you could elaborate on what is driving that? The build rates have obviously been tough and my recollection is that Sekisui was adding some capacity in the Netherlands. So perhaps you could elaborate are you gaining share? Is it penetration mix heads-up displays construction what would be driving that premium?

Yeah. So, specifically that 20% applies to heads-up display interlayers in Europe not the overall interlayer business. So what you're doing is you're replacing standard interlayers with one that includes acoustics and heads-up display. And we're the world leader in that specific product, but it's a very small percentage of the overall market right now. There's not that many heads-up displays in cars yet. So we're seeing just tremendous growth as we're adding that feature because auto OEMs are always looking us a way to value up cars especially in the slow growth markets. They want more feature packages to offer -- to get more volume per car which is a great lever for us in the different kind of features we had. So that's going quite well. And I'd also add the architectural is also growing really well in Europe as well. So that gives us a way to offset the underlying auto market trends. It's very impressive that performance films and interlayers is stable in this auto market. Q – Kevin McCarthy: So Mark, how would you characterize the all-in structural growth rate in the interlayers business, I don't know over the next three-plus years or so? A – Mark Costa: Well, I think that again volume mix, we continue to expect that the Advanced Materials segment including ASP will grow sort of double the underlying market growth rates. So any one guess on what the automotive growth rate is going to be, but we're real better in there. Q – Kevin McCarthy: All right. Thank you. A – Mark Costa: Thanks Kevin.

All right. Thanks again everyone for joining us this morning. A replay of this call will be available on the website later today. And hope you all have a great day.

And that does conclude our conference today. Thank you for your participation. You may now disconnect.