Aleksey Yefremov: Thanks Mark.
Operator: Our next question comes from Mike Sison with Wells Fargo. Your line is open.
Mike Sison: Hey good morning guys. I was thinking about Advanced Materials a little bit. It feels like this year, obviously, maybe hopefully, trough adjusted EBIT. Not the sustainable date you had a couple of years ago, you had pointed to adjusted EBIT for the segment maybe closer to $700 million. Do you still think that that’s the longer-term upside? And how do you bridge sort of the gap between the two to sort of get there from these levels?
Mark Costa: Sure, Mike. And yes, we still think that’s the destination for this business. Obviously, it’s been a pretty volatile time over the last few years, from the pandemic to supply chain crisis to a recession. And as I said a bit earlier, the extremity of what’s happened in this switch from a COVID life to an experiences live and the impact of inflation, interest costs, and how people can afford to spend on goods when they’re just trying to afford everyday life and maximize their experiences at very high prices when it comes to hotels and everything else, has created a short-term constraint in how people can afford goods. And consumer durables, as an example, is one of the places that is most discretionary especially after they bought a lot during COVID.
So demands are way below anything normal in consumer durables, and then you’ve got this huge amount of destocking on top of it on a very high-value mix product. So, as that market stabilizes, you’ll see some recovery coming in the back half of the year, especially if you back out the inventory utilization headwinds. And we’ll build good momentum into next year from an underlying market point of view. And then you add on top of that recycled content, allowing us to add additional incremental value and substantial new volume from those applications. As we said, just getting started, it’s a $75 million adder to next year in EPS for the Advanced Materials segment. So that obviously is going to be significantly helpful. The fixed cost leverage in this business, as we’ve demonstrated in the last 10 years, is significant, right?
This world is always growing double digits for us, and the underlying markets are typically growing 3% because we win so many applications because of better value proposition just because of product performance and product safety. And now you’re adding on recycled content to further accelerate that curve. The problem is, in a market like this, there’s not a lot of new product launches, right? But we’re continuing to win new business. Even now that’s going to help volume in the back half of the year on top of just waiting for destocking, we’ve won a lot of applications. But they’ll really ramp up next year when things stabilize and they start launching new products. So, all that sort of brings in better value from that side. And then, of course, the last couple of years, the inflation has been really high.
We’ve been trying to keep up with it. But now we’re finally recovering our margins in this space. So, you’ve got better margins on top of this volume recovery to sort of lever you to better earnings. So as you go through 2024, 2025, driving towards that $700 million is very much what we expect to do.
Mike Sison: Got it. And just a quick follow-up for just kind of overall volume growth in 2024, which I know is long way from here. But when you look at your customers’ inventory, do you think they will need to restock? And if that’s the case, when do you think a restocking event would occur? And if not, is it possible you just sort of plug along low single-digit or some volume growth in 2024 to 2025, 2026, and maybe they don’t need to replenish?
