Mark Costa
Chairman and Chief Executive Officer at Eastman Chemical
Sure, Josh, and welcome. We expected that question. I think it's an extremely important one, which we spent a lot of time on. First, let's just recognize we're in an extremely dynamic time in this world where it is difficult to predict some of the macro. You've got China in a weak situation but likely to recover, in one article saying there's $2.2 trillion of cash out there with Chinese consumers to be deployed and how that impacts both demand and energy. And Ukrainian war, you've got inflation at four-year highs and what the Fed is going to do with it. So, there is a lot of uncertainty and the fourth quarter was a little bit challenging.
As we look at Q1, many of those challenges continue, whether it's the destocking in durables and B&C that still needs to work itself out, although not yet recovering. And the stable market is virtually getting pass destocking, but not growing yet. We will certainly see some raw material benefits in the first quarter, but not much in the way flow-through works and seasonally energy is high. So the first quarter has a number of challenges, not to mention pension and variable comp.
So, as we look at the step up into the second quarter and through the rest of the year, there's really three key elements. To your point, the one that's most directly in our control is taking out $200 million of cost net of inflation. And not much of that is really helping us in the first quarter. There are some of the unmet manufacturing activities that we're executing on, but even that is being implemented through this quarter and the operational improvements flowing the inventory, and those benefits won't flow out until they start moving into the second quarter. So, the vast majority of that $200 million gets spread across the three quarters. So that's a big step up Q1 to Q2.
The second one is how will spreads improve. Now we've had tremendous success in being disciplined and successful in managing our pricing with just great commercial excellence across all parts of the company. It's pretty extraordinary when you think about the amount of inflation that we faced. Last year, it was about $1.3 billion of inflation, where at the beginning of the year we didn't really expect that much inflation if we go back to our January call of last year. And if you look at it on a two-year basis, it's $2.4 billion of inflation, if you even go back to 2019 to '22, $2.0 billion of inflation. So, a significant amount of inflation, and we've caught up with most of that across that multi-year time frame. We certainly kept up with it through last year.
So, as you go to each segment, the story is a little bit different. So, Advanced Materials is probably the most important one to start with because it has a pretty significant tail when in spread. When you think about they had one of the most challenging raw material and energy environments across our segments with VAM and PVOH up 45% relative to '21 PX, up 40%, energy up 70%. Now they kept up with that inflation with 13% increases in price, but they didn't improve spreads. And if you go back to where we were at the beginning of last year, we had the intention of recovering spread compression in '21 of about $100 million. Now we didn't get that, but we did keep up with inflation. And we're starting now into this year at a much higher altitude with the prices that we've achieved in keeping up with this inflation.
So as we look at this year, we see that this segment is going to have a pretty substantial tailwind in raw material and energy. And we're not trying to be too optimistic about this. If we just use where raw materials have already come down in PVOH and PX for the first quarter of this year. And think about the energy off of the natural gas forward curve for the year, that's actually quite a bit more spread tailwind than what we would have thought last year of that $100 million because of the higher altitude. So that's part of it.
And again, that shows up as a step up as you move into the second quarter. There's a bit of it that flows through the first quarter, but most of that is in the second quarter through the fourth. With Fibers, much shorter cleaner story, which is you had a lot of challenges and inflation here as well, both especially in energy. And the market, the customers have moved to being worried about security and supply.
So we've been very successful in increasing prices last year as well as contractually securing much higher prices this year to make sure that margins are back to sustainable levels to support our customers. And that's $275 million outlook to earnings this year, which is a significant step-up in fact, enough to offset the spread normalization in chemical intermediates that we expect this year. And then, AFP will have modest spread improvement as well, but not as much because they managed spread quite well last year, so they have less upside this year. So you put it all together, that's a lot of spread improvement and a lot of it flows in sequentially into the second quarter. So that's a big step up.
The third segment is volume and mix, and this is more of a mix of what happens with the economy versus what's in our control. Destocking at some point is going to end. We're assuming right now that it predominantly ends by the end of this quarter for durables and B&C. And so you get a step up of demand going from destocking levels, which are pretty severe to something less than that.
In the stable markets, we cannot see it moving pass that some amount of growth from those markets. Importantly, innovation is something in our control, and we've had a lot of success last year despite of challenges in the economy and securing a lot of new business wins that are going to help this year. And again, that doesn't really happen during destocking. So you got to wait to get that past you to start seeing some of that benefit. And then, of course, there's China recovery. But we're being very conservative and not assuming much of that in our -- sort of outlook that we've provided until we see more proof of it.
So the bottom line is, there's a lot of step-up across these three factors. Many of it is in our control. But as you look at the guidance we gave you for the year, given the outlook for the first quarter, I think it's appropriate to sort of look at the lower half of that guidance or how we're going to perform until we get past this quarter and have more insight on all these factors.
