Mark Costa
Chief Executive Officer at Eastman Chemical
Good morning, Josh and thanks for the question. So there's a lot embedded in that question about the back half of the year and how that indicates where we go into next year. So first of all, I'd start with, we obviously in April, thought demand was going to be better in the back half of the year, which was principally an assumption based on destocking. Really being complete by the end-of-the second quarter, obviously we and everyone else in this sector has come to a different point-of-view that while demand at the primary level I don't think it's changing that much, it's not getting worse in our perspective, and I haven't heard anyone else suggest that.
We are expecting that there is a lot more destocking that continues to go on in some end markets, which has really been the impact to our outlook in the back half of the year. So some areas, whether it's this year or next year. For example, automotive, we have solid growth in this quarter, we expect that to continue to be solid to the back-half of the year and there is so much pent-up demand. When you think about 2024, I would expect it to continue to be a tailwind next year relative to this year. So that market aviation, same story in very good shape. You have a lot of sort of stable end-markets, where demand has been off in that sort of 3%, 4%, 5% range when you look at all the fast-moving consumer goods companies out there, fully recognizing that they are holding price and being very disciplined to expand their margins that way with raw-material tailwinds and accepting that they probably wouldn't gain much volume if they reduce price.
So, disciplined while maintaining frankly in our specialties. But in addition to that they're managing cash too and so we saw an additional sort of 8% to 12% destocking on top of that demand in the fourth quarter, first quarter but fortunately as we go in the second-quarter, lessening on that destocking and expect much less destocking in those kind of stable markets like packaging, personal care, water treatment. So that feels like it's moving in the right direction as we go to the second half and, of course, that would continue also into 2024. When you look at, the consumer discretionary markets actually, take two other stable markets just to deal with them so there's a couple that also took some sort of extreme negatives in additional destocking in Q2, which was packaging and medical in the Advanced Materials segment and that they were carrying a bunch of safety stock from last year.
Demand wasn't improving as they expected and so, you know, they really started destocking in the second quarter, but they also seem to have addressed their issues predominantly in the second quarter. So that also expected to get a bit better as we go into the back half of the year. The destocking reduces through to third quarter and certainly it seems to run its course in that by the fourth, so again improvement relative to next year, especially when you think about all these markets had a certain amount of destocking that won't repeat in 2024 that's a tailwind. So the two bigger markets that drive a huge amount of value for us on a profitability point-of-view like automotive that has the most demand impact is sort of in the consumer discretionary area as well like durables and building construction.
When you look at the durable market, that's the one that's gone through the most extensive destocking of any market and it really goes all the way back to last May of last year when the retailers sort of got 2X amount of inventory they needed. Because they were buying everything they can think of to because of supply chain crisis and then they started destocking over 14 months ago. That bullet finally hit us in the fourth quarter of last year really knocked us down about 40%, when the underlying market was only down 10% to 15%, so a lot of destocking. It got even worse -- 10% worse into the first quarter. And then, fortunately, we saw that destocking start to abate in the second quarter, it got 22% better in the second quarter versus the first quarter.
So, we saw momentum there. You just don't see the results because of the medical and packaging destocking that occurred. So that destocking will continue to lessen as we go into the back half of the year and be another tailwind as you go into it. And then of course building construction, I'd say, is one that's been doing some destocking in this year, demand is down and we expect that to be sort of flat to the first first-half. Because that market still has more action taken. There's also maybe some more hope with first home builds. So there is a spectrum of things going on. When you look at it, but it's each of them sort of add up to less destocking, but it's not as much as we had hoped for you know, In April, and that's really the predominance of how our volume forecast came down, which is the entirety of our earnings reduction when you combine that with the need to take inventory actions for this lower demand outlook to make sure we hit the $1.4 billion of cash.
So all those then feed into a year next year, that's going to look better, right. When you don't have all this destocking going on which we're assuming for 2024, you have some normal seasonality coming back into the demand outlook for next year, that's going to help improve things and you've got the recovery of all this volume in our most -- down markets are our highest-value markets, right. So it's been a huge mix hit to us this year and as we've shown in past recessions when the mix comes back and if there's a little bit of restocking, the high value of these markets drops to the bottom line pretty significantly, especially with the costs we've taken out of our fixed cost structure. So it all comes together, which is building momentum in the second half to having a much better year in 2024.
