Q4 2021 Avient Corp Earnings Call
This is the operator.
Speaking your conference is scheduled to begin shortly please continue to standby and thank you for your patience.
[music].
Good morning, ladies and gentlemen, and welcome to <unk> Corporation's webcast to discuss the company's fourth quarter 2021 results. My name is <unk> and I'll be your operator for today at this time all participants are in a listen only mode. We will have a question and answer session. Following the comps.
In his prepared remarks as a reminder, this conference is being recorded for replay purposes, I would now like to turn the call over to Jodi Salvo, Vice President Treasurer and Investor Relations. Please proceed.
Thank you Carmen and good morning, and welcome to our fourth quarter 2021 earnings call.
Before beginning wed like to remind you that statements made during this webcast may be considered forward looking statements.
Forward looking statements will give current expectations or forecasts of future events and are not guarantees of future performance.
They are based on management's expectation and involve a number of business risks and uncertainties any of which could cause actual results to differ materially from those expressed in or implied by the forward looking statements.
Also during the discussion today, we will use both GAAP and non-GAAP financial measures. Please refer to the presentation posted on the <unk> website, where the company describes non-GAAP measures and provides a reconciliation to the most directly comparable GAAP financial measures.
Joining me today is our chairman President and Chief Executive Officer, Bob Patterson and <unk>.
Senior Vice President and Chief Financial Officer, Jimmy bags I.
Now I will turn the call over to Bob for some opening comments.
Well, thanks, Joe and good morning to everyone joining us on the call. Today today, we are reporting record fourth quarter results to finish out an incredible year, where we delivered our highest level of sales and adjusted EPS in our company's history.
Our financial performance reflects the deliberate transformation of our portfolio towards specialty solutions.
As well as our focus on execution during a very challenging year.
2021 marked our first full year as Avs Corporation as you know.
We selected this new name in July of 2020, following the acquisition of Clarient color business.
Artist in our history.
Avi it truly represents who we are today as a specialty formulate or a sustainable solutions and it has served as a galvanizing force in bringing together two world leaders, who are truly better together.
We finished the year, a little better than expected with adjusted EPS of <unk> 58 for the quarter versus our prior guidance of 54.
Many themes from our prior quarter discussions carry forward as we have been able to overcome unprecedented inflation supply chain disruptions and workforce shortages to deliver bottom line growth.
From a demand perspective, we did see a decline in transportation, primarily in Europe as well as the decline in sales of outdoor high performance applications, which we expected.
Jamie will speak to that in a moment when we discuss segment performance and our outlook.
For the full year adjusted EPS was $3 five an all time record and a 58% increase over 2020.
We achieved this with sales of $4 8 million and adjusted operating income of $429 million.
Each of our three segments contributed to our results this year with strong double digit growth across the board.
Specialty engineered materials grew operating income 40 sub 40% driven by high demand for our composites and other specialty solutions, serving the consumer and healthcare markets.
Color additives and inks grew revenue by 18% and operating income by 34%.
Including $54 million in synergies from the Clarient color integration the segment expanded operating income to over 300 million for the first time.
Distribution achieved significant revenue growth of 47% and operating income expansion of 33% also to reach record level performance. This year.
Notably health care continues to be a significant driver for us and now represents 26% of distribution sales.
Our differentiated performance is the culmination of a multiyear strategy to become a truly global specialty formulated.
The bridge on slide seven shows the key drivers of revenue growth and highlights the relative margin contribution of each.
You can also see that like many companies we have experienced significant wage inflation.
Over time to serve our customers and experienced increased cost associated with supply chain disruptions.
But as you will see on slide eight we have more than covered these costs with associated pricing.
We are formulating what stands out for me this year about our performance is our ability to execute.
And the simplicity of this slide makes everything look easy, but it certainly isn't.
The magnitude of these cost increases have been substantial and so as our efforts to overcome and deliver despite them.
And this required constant dedication and collaboration.
Our entire workforce suppliers and customers.
Our global footprint flexibility in our operations and dedicated employees have been a difference maker.
We lead through these unprecedented times.
We have turn these challenges into opportunities as our teams work relentlessly throughout the year to deliver for all our stakeholders.
Want to thank them for their efforts to deliver a record year.
Over the years, we have been strategic in how we position our portfolio. Both in terms of the types of products, we create as well as where we sell them.
We are focused on specialty applications.
Advanced performance characteristics of the shifted towards end markets that have high growth potential.
Not only has this been an important contributor to our recent sales growth, but the benefits of improved mix and clarient synergy capture of meaningfully increase margins despite inflationary pressures.
The clarity of color acquisition has been a tremendous success.
The business grew our presence in our focused end markets of healthcare packaging and consumer which not only fared well during the pandemic, but also served as key growth areas for us.
When we announced the Clariant deal in December of 2019, we were acquiring a little over $130 million of EBITDA.
In 2021, which was our first full year of ownership.
Clariant and related synergy capture contributed $205 million of EBITDA of 54% increase.
Margins have expanded 400 basis points and when you look at the purchase price multiple you can see tremendous return on investment with more to come.
The integration has exceeded our high expectations with respect to how well our two teams have come together.
This has enabled us to accelerate the pace and level of synergy capture.
And for those of you who participated in our Investor day in December we provided an update to our anticipated cost synergies, which we now expect to approximate $85 million.
And these are just the cost synergies we are even more excited about the revenue synergies yet to come as we continue to integrate our commercial teams.
The shared passion for solving our customers' toughest material material science challenges.
Becoming more and more apparent every day and this really is at the heart of what we mean, when we say better together.
These material challenges continue to evolve.
And historically the questions like how do I make my products stronger or lighter or both.
Roy advanced shelf life with additives and improve shelf appeal with Colorants remains however.
However, we now get one more question, which is always how do we do these things while at the same time, improving the sustainability of our products.
For us we have invested heavily in a sustainable solutions and it's been the fastest growing part of our business over the last five years.
Light weighting has been a huge contributor to that growth.
When we say that oftentimes you think transportation and Thats true. However, light weighting has also been very important and growing and a growing role in packaging.
<unk> conscious materials have also grown tremendously because.
We help our customers use more recycled content.
And or improve the recyclability of their products.
There are eight primary ways utilizing science design and formulation that we help customers with their sustainability goals.
And in 2021, our sustainable solutions portfolio grew 16% over the prior year.
And now account for nearly 30% of color and engineered materials segment sales.
We would not be able to share this kind of success with you. If it was now for our culture.
As a leadership team we firmly believe that culture is everything.
Is the driving force behind our record financial performance.
And I am proud to report that we received our third consecutive great place to work certification in December .
Our global associates have built a truly exceptional culture here at Avion. It's.
One that is inclusive and increasingly diverse it's.
It's innovative and bold as our people bring ideas to life for a greater good and a more circular economy.
It's also a culture that loves to take care of our customers and each other which is exactly what we have done this year.
I'll have some closing comments in a moment, but now Jamie will go into more detail related to our fourth quarter results and provide our initial outlook for 2022.
Thank you Bob when he and creating shareholder value is exactly what we did in 2021.
<unk> since our fourth quarter performance highlighting the growth in our key focus areas as well as the impact of higher wages supply chain costs.
On the following slide you can see the impact of our pricing actions to more than cover these costs.
Call your attention to the demand side bar, where we have broken out the impact of normalizing demand for outdoor high performance applications and the decline in transportation sales.
Recall that in the fourth quarter of 2020, we saw a surge in demand for outdoor applications as people thought more activities outside their home during COVID-19 .
Transportation is down we believe primarily due to chip shortages.
We have a relatively small impact on overall performance.
But the preponderance of that is within our <unk> segment, which is why <unk> operating income declined in the fourth quarter. Excluding the impact of these two market operating income was up 10% year over year as we saw solid growth in other areas of the business, including demand for <unk> applications.
As we look ahead to our projections for 2022, we do so with the recent trends in mind, but also with confidence that our four key growth drivers highlighted at our Investor Day will drive significant sales and EPS growth.
And it's four areas, our sustainable solution healthcare composites and regional expansion in Asia and Latin America.
With the exception of an expected decline in demand for outdoor applications. Our projections for 2022 are in line or above the long term growth rates, we communicated in December .
Laid out in this line soon.
Sales are expected to grow to $5 1 billion, which represents a growth rate of 6% or seven 5%, excluding the impact of negative foreign exchange.
For the first quarter and full year, we expect this revenue growth will drive a 7% and 15% expansion and adjusted EPS, respectively to 95% in Q1 and $3 50 for the full year.
We expect a lower adjusted EPS growth in Q1 due to negative foreign exchange rate, which is more heavily weighted to the first half of the year as well as anticipated supply chain supply challenges as we start the year.
We provide further details of sales and operating income projections on the following slide.
We put the first quarter and full year side by side you can see the trend you'll notice wage inflation is heavily weighted towards Q1 as we lap the increases we implemented last year. The same is true for certain supply chain disruption costs and as previously noted negative foreign exchange.
As many companies have reported the omicron variant has created additional complexity to supply chain dynamics as we exited 2021 and started 2022 at.
At the end of January we had the highest level of unshipped orders, we have had in the previous 12 months.
Due to ongoing supply chain challenges, but also because of the Covid omicron variant in January we had approximately 20 plants experienced significant absenteeism.
This impacted the entire value chain exasperating raw material shortages and variability in order pattern.
For the full year, we expect strong growth from each of our key growth drivers each of our key growth platforms and additional synergies from the.
Integration.
This will substantially substantially exceed expected increased cost associated with supply chain challenges inflation and negative foreign exchange I know this is a lot to digest and we'll have time for questions at the conclusion of our prepared remarks.
My final slide summarizes our full year cash flow generation and expect at yearend leverage free.
Free cash flow is expected to be $250 million. In 2022. This is an increase of $117 million over the prior year, which included a significant increase in working capital associated with inflation and supply chain issues.
We are planning to spend $135 million of Capex $45 million of which is associated with the clearing integration and an IP upgrade we expect to kick off this year to put legacy Polliwog and legacy clearing on one system, which will further improve operational efficiency and the overall integration as one.
Now I will turn the call back over to Bob for some closing remarks.
Jamie 2021 was indeed, a year of record results and milestone achievements. Those include delivering the highest level of sales and earnings in our company's history.
The success of the Clarient integration.
We were recognized as one of America's most responsible companies by Newsweek and we earned our third consecutive great place to work certification.
We're proud of all of these accomplishments, but we have even higher expectations for the coming year.
And as we start our second full year as Avion, we expect to deliver 15% adjusted EPS growth to $3.50.
As EBITDA increases to 635 million $5 $1 billion in revenue.
As Jamie said, we anticipate free cash flow to be up this year to $250 million and that's cash that we can actively seek to put to work, adding new or complementary technologies through select acquisitions that expand our sustainable solutions and composites platforms. We are quickly de levered for one way.
First announced that clarity and color acquisition.
Confidently have the balance sheet strength to pursue both smaller bolt ons as well as more transformational targets.
As you know, we're not a volume driven company, but rather a value driven company. Accordingly, we haven't pursued revenue just for the sake of being bigger.
But we are bigger and more profitable than we have ever been.
I think reaching $5 billion in revenue will be a milestone achievement for us. This year that hopefully also puts us on more investors radar screen.
We thank you for your time and attention. This morning, the upcoming year, we will have its challenges for sure, but we have the strategy the team and the culture to build on our momentum so that we deliver another exceptional year for our customers our shareholders and our associates with that we'd now be happy to take any questions you may have.
Thank you and to ask a question you will need to press star one on your telephone to withdraw your question press. The hash key please standby, while we compile the Q&A roster.
Your first question is from Mike Sison with Wells Fargo. Your line is open.
Hey, good morning, congratulations on another nice quarter.
I guess I wanted to dig in a little bit on the revenue growth for 'twenty two.
Looks pretty impressive for all the major areas stand to lose your health care and such.
Okay.
Are those orders.
Can you, maybe just give us a little bit of color on and our order pattern. Dan as you know how much of that growth rate I guess is locked in to some degree.
I mean, we'll look as you know we don't have an extensive backlog in this business, Mike we really do have.
Order visibility out about.
30% to 45 days at any point in time.
So we do have look modest demand expectations or rather demand growth for the year probably.
Two to two 5%.
With the balance of that being.
Pricing actions, a lot of which was carryover from.
'twenty one so we certainly know what those pricing actions are.
I think demand.
Is the one thing that really kind of remains to be seen past, what we have in our order book right now.
Got it and then I guess inflation there'll be a little bit more of a headwind in the first half.
It looks like EPS growth first quarter is solid, but a little bit less is that what is that what's impacting sort of the EPS growth in the second half catch up and get a little bit more momentum there.
I think the bridge schedule, we've got the webcast slides kind of help to illustrate.
Some of the Frontload impact of wage inflation in the supply chain disruption costs and then also negative foreign exchange so far.
<unk> for US started to turn negative at the end of last year, we expect that impacts us the most.
Heavily in the first and second quarter of this year.
Got it thank you.
Thank you. Our next question comes from Frank Mitsch with Fermium Research. Your line is open.
Hi, everyone, it's aziza on for Frank.
The first question.
So my first question would be.
With net debt.
Net leverage at the two two level.
Might we see buybacks more than just to offset dilution.
But I think that really.
Obviously, where we are historically have been an opportunistic.
Buyer of our shares back I think in the third quarter or so of last year, we did say that would leverage getting down to where we expected it to be.
We could be buying shares again.
So that could happen.
Early part of this year I think.
As you know our preference is to try to put cash to work.
To invest in the business with M&A, but if the deals don't come to fruition, then we certainly could be buying shares.
Got it and then elaborating on the pricing in raws outlook through 2022.
Could you maybe provide more details then.
You still see on the high side of raws.
Hi side do you mean like.
Product families or percentage increases or what please.
More on that percent like what still is elevated as far as percentage increases, yes, maybe I'll start this way I would say to start the year there.
I'm really are only two areas, where we're seeing things start to moderate some polypropylene polyethylene.
As you know are actually relatively small percentages of our spend the poly olefins in general are relatively small everything else is still trending up when we look at everything else that we have either pigments.
Dyes and some of the performance materials that we have in engineered materials.
And right now that trending is probably mid to high single digit inflation.
Got it thank you so much.
Alright.
Our next question comes from Mike Harrison with Seaport Research Your line is open.
Hi, good morning, congratulations on the strong finish to the year.
I was wondering if you can talk a little bit more about what youre seeing in outdoor high performance. It seems like we're seeing that demand normalizing a little bit.
Just maybe some more color on what you saw in Q4, and what Youre hearing from your customers about 2022 I guess.
Kind of had a sense that there would still be some inventory replenishment.
That needed to happen, even if we saw demand come off these elevated levels. So what's going on there.
Yes, it really is actually pretty narrowly restricted too.
Firearms and just some of the hunting related.
Applications that we had that we actually saw down in the fourth quarter and expect to be down in <unk>.
'twenty two I think things like offload vehicles will actually still be very strong in 'twenty two so.
It really is kind of narrowly focused with what we see slowing down right now Mike.
Plenty of other applications that I think will be strong.
We probably talked about throughout the course of the year in conversation with our customers.
We're struggling to meet demand, particularly in the off road vehicles sector. So.
We're still hearing the same thing so in many many of those cases I think consumer will still be a good year in 'twenty two.
Alright.
I was hoping you could give an update on the expected revenue synergies from the Clarient business. Obviously, you guys raised your cost synergy outlook, but are there.
Some commensurate increases in your expectations for revenue synergies.
Maybe.
Give us a sense of.
Whether you are seeing some traction or.
And highlight some areas where you've seen.
Cross selling opportunities that have materialized already.
We are certainly seeing some early opportunities.
For us.
Commercial wins have a tendency to be fairly small in size. When you look at them on an individual basis, so order of magnitude the <unk>.
Impact in 'twenty, one was still relatively small.
We will start to see more traction in 'twenty, two and hopefully that aligns with maybe a little bit more normal market conditions.
But we haven't changed the overall level of expectations, which is around $50 million to $75 million of revenue from those synergies.
Long said that that's something we see out in years, three four and five.
Alright, if I could just sneak one more in I'm curious on the it system upgrade.
What is the total capex associated with that project could you give us a sense of that the timing of implementation and go lives.
Sure Mike So we plan on taking that project off and then that all of this year at this juncture, it's going to be a multiyear project as you can imagine I'm combining.
The magnitude of the sites that we have with <unk>.
Like I said poly wanting a legacy clarient.
Current estimates are between 50 and $70 million, we're still working through all that cost estimates it will kick that off in earnest in the middle of the year and as we refine those estimates.
By that out we did put about $25 million or so in the budget for them in the outlook that we provided today and those things will continue to get refined as we get more into the product detail.
Perfect. Thanks very much.
Thank you. Our next question comes from Ben <unk> with Baird. Your line is open.
Hey, Thanks for taking my question guys. Good morning.
I wanted to just talk about on the balance sheet.
Just what youre seeing out there in terms of acquisitions I know.
You've talked about sustainable solutions is an area of focus, but maybe just what youre seeing as far as pipeline and then about from a round valuations as well as we look forward. Thank you.
Yes, maybe I'll take the last part first I mean valuations have certainly gone up significantly in the last year.
You all are aware of the headline kind of multiples you are seeing.
Yes.
They are pretty high and so the expectations are.
Same as we're looking at deals right now.
We're not going to chase deals just for the sake of door, one we want to be prudent with our capital and make sure they make financial sense.
We have been looking at a number of deals we've had a couple that.
Were actionable that we just decided not to move forward with candidly because of valuation. So they were simply too high so I'm expecting that is going to be a challenge with respect to doing deals this year, but hopefully we can get.
Two to.
To come together in the right way you really want to focus on those two areas of sustainable solutions in composites.
Our next deal.
And then my second question just on pricing.
You guys navigated inflation very nicely during the year.
It sounds like you have some expectations into this year of doing that to observe how much room is there with customers.
To grow we will continue to raise price or is that already.
That being said already is that what you mean.
Earlier in your comments and thank you.
What I meant earlier might have been to Mike's earlier question is that.
For the most part I was just referring to the rollover impact of price increases that.
Were announced in 'twenty one.
There could be some more modest increases this year.
As I was saying a number of our raw material costs continue to increase there are a couple that seem to be down or moderating.
Candidly as long as those continue to go up we have to do the same thing with our prices.
I, just haven't quantified or modeled out what that looks like so far.
Thank you.
Yes.
Thank you. Our next question comes from Bob Court with Goldman Sachs. Your line is open.
Thank you good morning.
Bob I wanted to add.
You heard the words, you could pursue transformational deals and I guess.
There are many investors that can be somewhat chilling.
But I guess youre, one transformational deal and the <unk>.
<unk> doubled since you did it so maybe you get the benefit of the doubt but.
<unk>.
What would be transformational what more do you guys need relative to the pretty inspired growth you have in front of you and then your comment about opportunistic share purchase.
Does the stock trailing off 20% in the face of good numbers present that opportunity.
So the latter question, yes, I think it does.
With respect to the first part.
I think transformational is something probably on the composite side.
There are some things that I think would also probably be deemed such and sustainable solutions.
Be additive to that.
The color segment, so I really am and just intending to say that look with our balance sheet strength I think we can do a broad array of deal sizes. So that's primarily the result, the reason for that.
Comment that I made earlier, but obviously with what we've done with putting together.
Legacy Polliwog and legacy Clarient.
I think we would be looking to expand color primarily into additives and things that might expand the sustainable solutions.
Not some of the traditional deals we've looked at in the past.
Got you and if I could follow up.
You guys have been.
Exceptional.
<unk> control, obviously your price cost management has been great I'm wondering.
Especially formulate or I assume that.
Requires a lot of consultative selling and you've had to adjust.
Just the way you execute your business in terms of Covid and all the <unk>.
Limitations that creates do you think there is permanent seat at some of these changes as it.
Is it created some challenges or opportunities how is the business model and the way you execute that.
Strategy changed.
Permanently, but has or should we expect the cost burden coming back in.
Yeah. So I mean, if you were to look back over let's say a three to four year time horizon.
As you know you would see an increase in resources dedicated to sales marketing and technology.
We have had some offsetting cost reductions and general and administrative.
To kind of help keep that flat and obviously when we brought legacy Clarient legacy poly one together.
Our intention wasn't to.
Reduce our head count in those areas, but we have had some attrition simply.
Simply as a result of I think COVID-19 and the challenges over the last couple of years and are finding that we don't need to replace all of those positions in time so as.
As we look ahead to 'twenty two.
Don't see any reason why you see cost increases filtering in in any way.
Usual or unexpected.
I think we'll still be in really good shape with respect to how SG&A marries up to our overall.
The level of sales growth.
Got it thanks for the help.
Thank you our next question comes from.
Olin with Oppenheimer yard.
Hi, good morning.
Just to follow up on some of the comments about the digital investments that you made at the analyst day.
Trying to think about how we should be tracking the benefits of that so I'm wondering if you can talk maybe about cycle times with your customers and how those are trending for some of these newer sustainable solutions or.
Cycle times, that's something else just provide us some guardrails on how we can measure the progress digital investments that you're making.
Did you say about the investments in digital.
So we're actually seeing the most traction where it really is just how we can engage with our customers.
Either by web based interactivity.
Or simply being able to do more transactional work online.
For a lot of our customers. That's just a heavy a model work for them to assembly.
Just wanted to engage with us on where our materials what are they going to be or and as you can imagine over the last 18 months, that's been number one two and three questions.
I do think that the digital investments have helped us in that.
Regard I think more than anything else has been from an operational standpoint, I do see future opportunities, though to really help I think improve how we engage quickly with our customers.
On innovation.
I really think that we've got good system alignment with respect to how we marry up our lead into our innovation team and then ultimately circle back.
With respect to measuring that performance I think it can show up in any one of the key growth areas that we have.
Part of our investments to drive growth in all of those not something I would specifically look to in the future to say all of this.
Digital growth for example.
That's helpful.
Just to follow up on some of the commentary around composites.
Outdoor performance, despite what you're talking about is sort of a normalization next year, yes that end market has been a really strong proof point for the composites business I'm wondering if you can give us a sense.
Do you think about composites traction outside of that application developing in 2022.
Yes, I mean, so one of the things that we highlighted at the Investor Day of course was our investment in <unk>.
Fiber line that we did in 2019 and composite applications associated with <unk> build out related infrastructure.
Candidly I think that's going to be one of the fastest growing areas of composites for us and that's why we highlighted it.
What we're seeing right now with respect to the normalization of demand in the outdoor space is pretty narrowly focused it's very profitable business for us and so when you look at the bridge scheduled in the webcast slides you can see that and that's what we've modeled into 'twenty two.
But more broadly speaking I still think there's a tremendous amount of growth opportunities.
Outside of that for composites this year.
Thanks, so much congrats on the nice quarter.
Thank you.
Thank you and our next question comes from Laurence Alexander with Jefferies. Your line is open.
Good morning can you talk a little bit.
Unpack the comments around unfilled orders coming what sort of dynamics are you seeing.
Are you typically seeing churn or are you.
Getting all of that business back.
As your capacity can catch up.
And are you or do you ever see customers in the process of upgrading to different products. So you're basically.
Your churn now, but youre basically cross selling your own solutions, rather than losing it to other customers.
So look first of all.
The comments that Jamie made with respect to unshipped orders.
In January was really heavily impacted by the omicron variant and the fact that we had 28 facility. So that's one fifth of our manufacturing sites had significant apps.
Absenteeism of around 20% or more of our associates who are out.
As we look at our Calder case rate over the last gosh, almost two years now right I mean, it's really heavily weighted towards the last month or so.
So I'm across real certainly has impacted a lot of people and I think that's weighed on us most heavily.
Supply chain disruptions certainly have been a factor in that as well.
We don't believe that we're losing any business as a result of that and largely what you see is.
And ability to get those orders out in.
The next month.
But that just makes it more difficult to get the next month's orders out if you follow me so.
Candidly these supply chain disruptions are here we don't.
See an immediate end to those and I think that's going to be a dynamic year for the for the near term.
Okay. Thank you.
Thank you and as a reminder to getting the queue simply press star one on your telephone.
We have a question from the line of <unk> <unk> with Morgan Stanley . Your line is open.
Hi, Good morning. Thanks for taking my question just wanted to follow up on that last discussion around the Entre daughters. You noted that a lot of this probably has to do with the omicron and just as in PSM you were seeing in January how is that trending now in February with cases, seemingly starting to go down.
Most regions just.
As we think about potential improvements at least those two plants that are you starting to see that pick up a little bit or how should we think about I guess, what youre seeing there.
Yes, I mean, so maybe to put it in the context of.
The number of impacted facilities that is certainly.
Coming down in February .
Our case experience.
Really follows that of what you see by jurisdiction around the world. There's nothing unique about us in that regard. So I think case rates are coming down I think that helps us from a manufacturing standpoint and should allow us to.
Do better in February than we did in January .
That's helpful. Thank you and then on pricing discussion you had earlier about continuing to potentially drive a little bit more pricing to move along with kind of the non resin products have continued to see inflation in terms of the areas, where you are seeing a little bit of deflation or what kind of normalization.
Do you see any pressure to reduce prices in many areas or are you able to maintain that and can.
Could you just give us a little bit more color on that.
Yes, I mean look with respect to.
The base resins that we distribute on behalf of our suppliers and our distribution business.
That's largely just pass through pricing. So I think you will see that.
Immediately in the first quarter.
That's normal and look with respect to that as an input cost or other businesses.
Relatively small percentage of our total spend as I said the other areas are all still kind of clipping along at a mid to high single digit inflation.
And as a result of that that's why I made the comment earlier that I did that that could warrant additional price increases as we go through the year.
That's helpful. If I could sneak one last quick one just in terms of the various regions. If you could just give us more.
Color as to what Youre seeing across the board.
America et cetera.
Yes, I mean there were.
As we looked at the fourth quarter I mean first of all I think we are really starting to see some more normal seasonality in the business obviously.
2020 that was.
Models with respect to acquiring Clarient and then having this tremendous growth coming out of the pandemic.
Weren't exactly sure how that would play out in 'twenty one other than we expected Q4 to be down and it was so I think there is some seasonality elements there with Europe , typically having a stronger first half versus second half of the year.
Look from a demand standpoint, there was really only two things to kind of highlight that.
We talked about earlier, which was transportation and that was down for us.
Around the world, but most significantly in Europe , So I guess, there's a regional.
Observation to be made there and then with respect to outdoor that's primarily in North America.
So overall I mean demand was relatively flat in the fourth quarter.
With some things like healthcare being up significantly.
And then the other markets that I, just talked about being down or flat.
Great. Thank you.
Certainly because of our last question so.
We appreciate everyone's time and attention.
This morning, we look forward to updating you on our first quarter performance when we get to the time to do that in April so for now.
Take care thanks, everybody.
Thank you ladies and gentlemen. This concludes today's program. Thank you for participating and you may now disconnect.
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Good morning, ladies and gentlemen, and welcome to a B and corporation's webcast to discuss the company's fourth quarter 2021 results. My name is Carmen and I'll be your operator for today at this time all participants are in a listen only mode. We will have a question and answer session. Following the company.
His prepared remarks as a reminder, this conference is being recorded for replay purposes.
I'd now like to turn the call over to Jodi Salvo, Vice President Treasurer and Investor Relations. Please proceed.
Thank you Carmen and good morning, and welcome to our fourth quarter 2021 earnings call.
Before beginning we'd like to remind you that statements made during this webcast may be considered forward looking statements.
Forward looking statements will give current expectations or forecast of future events and are not guarantees of future performance.
They are based on management's expectation and involve a number of business risks and uncertainties any of which could cause actual results to differ materially from those expressed in or implied by the forward looking statements.
Also during the discussion today, we will use both GAAP and non-GAAP financial measures. Please refer to the presentation posted on the event website, where the company describes the non-GAAP measures and provides a reconciliation to the most directly comparable GAAP financial measures.
Joining me today is our chairman President and Chief Executive Officer, Bob Patterson and <unk>.
Senior Vice President and Chief Financial Officer, Jimmy bags and.
Now I will turn the call over to Bob for some opening comments.
Well, thanks, Joe and good morning to everyone joining us on the call. Today today, we are reporting record fourth quarter results to finish out an incredible year, where we delivered our highest level of sales and adjusted EPS in our company's history.
Our financial performance reflects the deliberate transformation of our portfolio towards specialty solutions as well as our focus on execution during a very challenging year.
2021 marked our first full year as Aviate Corporation.
As you know we selected this new name in July of 2020, following the acquisition of Clarient color business the largest in our history.
<unk> truly represents who we are today as a specialty formulate or of sustainable solutions.
And it has served as a galvanizing force in bringing together two world leaders, who are truly better together.
We finished the year, a little better than expected with adjusted EPS of <unk> 58 for the quarter versus our prior guidance of 54 cents.
Any themes from our prior quarter discussions carry forward as we have been able to overcome unprecedented inflation supply chain disruptions and workforce shortages to deliver bottom line growth.
From a demand perspective, we did see a decline in transportation, primarily in Europe as well as the decline in sales of outdoor high performance applications, which we expected.
Jamie will speak to that in a moment when we discuss segment performance and our outlook.
For the full year adjusted EPS was $3 five an all time record and up 58% increase over 2020.
We achieved this with sales of $4 8 million and adjusted operating income of $429 million.
Each of our three segments contributed to our results this year with strong double digit growth across the board.
Specialty engineered materials grew operating income 47, 40% driven by high demand for our composites and other specialty solutions, serving the consumer and health care markets.
Color additives and inks grew revenue by 18% and operating income by 34%.
Including $54 million in synergies from the Clarient color integration the segment expanded operating income to over 300 million for the first time.
Distribution achieved significant revenue growth of 47% and operating income expansion of 33% also to reach record level performance. This year.
Notably health care continues to be a significant driver for us and now represents 26% of distribution sales.
Our differentiated performance is the culmination of a multiyear strategy to become a truly global specialty formulated.
The bridge on slide seven shows the key drivers of revenue growth and highlights the relative margin contribution of each.
You can also see that like many companies we have experienced significant wage inflation over time to serve our customers and experienced increased cost associated with supply chain disruptions.
But as you will see on slide eight we have more than covered these costs with associated pricing.
We are a formula later, what stands out for me this year about our performance is our ability to execute.
And the simplicity of this slide makes everything look easy, but it certainly isn't.
The magnitude of these cost increases have been substantial and so as our efforts to overcome and deliver despite them.
And this required constant dedication and collaboration.
Our entire workforce suppliers and customers.
Our global footprint flexibility in our operations and dedicated employees have been a difference maker as we lead through these unprecedented times.
We have turn these challenges into opportunities as our teams work relentlessly throughout the year to deliver for all our stakeholders and I want to thank them for their efforts to deliver a record year.
Over the years, we have been strategic in how we position our portfolio. Both in terms of the types of products, we create as well as where we sell them.
We are focused on specialty applications with advanced performance characteristics is shifted toward end markets that have high growth potential.
Not only has this been an important contributor to our recent sales growth, but the benefits of improved mix and clarient synergy capture of meaningfully increase margins despite inflationary pressures.
The Clarient color acquisition has been a tremendous success.
The business grew our presence in our focused end markets of healthcare packaging and consumer which not only fared well during the pandemic, but also served as key growth areas for us.
When we announced the Clariant deal in December of 2019, we were acquiring a little over $130 million of EBITDA.
In 2021, which was our first full year of ownership Clarient and related synergy capture contributed $205 million of EBITDA of 54% increase.
Margins have expanded 400 basis points and when you look at the purchase price multiple you can see tremendous return on investment with more to come.
The integration has exceeded our high expectations with respect to how well our two teams have come together.
This has enabled us to accelerate the pace and level of synergy capture.
And for those of you who participated in our Investor day in December we provided an update to our anticipated cost synergies, which we now expect to approximate $85 million.
And these are just the cost synergies we are even more excited about the revenue synergies yet to come as we continue to integrate our commercial teams.
The shared passion for solving our customers' toughest material material science challenges is becoming more and more apparent every day and this really is at the heart of what we mean, when we say better together.
These material challenges continue to evolve.
And historically the questions like how do I make my products stronger or lighter or both our Ottawa advanced shelf life with additives and improved shelf appeal with Colorants remain.
However, we now get one more question, which is always how do we do these things while at the same time, improving the sustainability of our products.
For us we have invested heavily in a sustainable solutions and it's been the fastest growing part of our business over the last five years.
Light weighting has been a huge contributor to that growth and.
And when we say that oftentimes you think transportation and that is true. However, light weighting has also been very important and growing and a growing role in packaging.
Eco conscious materials have also grown tremendously as we help our customers use more recycled content <unk>.
And or improve the recyclability of their products.
There are a primary ways utilizing science design and formulation that we help customers with their sustainability goals.
And in 2021, our sustainable solutions portfolio grew 16% over the prior year and now account for nearly 30% of color and engineered materials segment sales.
Well, we would not be able to share this kind of success with you. If it was now for our culture.
As a leadership team we firmly believe that culture is everything is the driving force behind our record financial performance.
And I am proud to report that we received our third consecutive great place to work certification in December .
Our global associates have built a truly exceptional culture here at Avion is.
One that is inclusive and increasingly diverse.
It's innovative and bold as our people bring ideas to life for a greater good and a more circular economy.
It's also a culture that loves to take care of our customers and each other which is exactly what we have done this year.
I'll have some closing comments in a moment, but now Jamie will go into more detail related to our fourth quarter results and provide our initial outlook for 2022.
Thank you Bob when he and creating shareholder value is exactly what we did in 2021.
Slide 14, since our fourth quarter performance highlighting the growth in our key focus areas as well as the impact of higher wages supply chain costs.
On the following slide you can see the impact of our pricing actions to more than cover these costs.
I call your attention to the demand side bar, where we have broken out the impact of normalizing demand for outdoor high performance applications and the decline in transportation sales.
Recall that in the fourth quarter of 2020, we saw a surge in demand for outdoor applications and people thought more activities outside their home during COVID-19 .
Transportation is down we believe primarily due to kip shortage yet.
It does have a relatively small impact on overall performance.
But the preponderance of that is within our <unk> segment, which is why <unk> operating income declined in the fourth quarter. Excluding the impact of these two market operating income was up 10% year over year as we saw solid growth in other areas of the business, including demand for <unk> applications.
As we look ahead to our projections for 2022, we do so with the recent trends in mind, but also with confidence at our four key growth drivers highlighted at our Investor Day will drive significant sales and EPS growth.
And as for area, our sustainable solutions health care composites and regional expansion in Asia, and Latin America with the exception of an expected decline in demand for outdoor applications. Our projections for 2022 are in line or above the long term growth rate. We communicated in December and are laid out in this line soon.
Sales are expected to grow to $5 1 billion, which represents a growth rate of 6% or seven 5%, excluding the impact of negative foreign exchange.
For the first quarter and full year, we expect this revenue growth will drive a 7% and 15% expansion and adjusted EPS, respectively to <unk> 95 in Q1 and $3 50 for the full year.
We expect a lower adjusted EPS growth in Q1 due to negative foreign exchange rate, which is more heavily weighted to the first half of the year as well as anticipated supply chain supply challenges as we start the year.
We provide further details of sales and operating income projections on the following slide.
We put the first quarter and full year side by side. So you can see the trend.
Notice wage inflation is heavily weighted towards Q1 as we lap the increases we implemented last year.
Same is true for certain supply chain disruption costs and as previously noted negative foreign exchange.
As many companies have reported the omicron variant has created additional complexity to supply chain dynamics as we exited 2021 and started 2022.
At the end of January and we had the highest level of unshipped orders, we have had in the previous 12 months.
This is due to ongoing supply chain challenges, but also because of the Covid omicron variant in January we had approximately 20 plants experienced significant absenteeism.
This impacted the entire value chain exasperating raw material shortages and variability in order pattern.
For the full year, we expect strong growth in each of our key growth drivers each of our key growth platforms and additional synergies from the Clarient.
Integration.
This will substantially substantially exceed expected increased cost associated with supply chain challenges inflation and negative foreign exchange I know this is a lot to digest and we'll have time for questions at the conclusion of our prepared remarks.
My final slide summarizes our full year cash flow generation and expect at year end leverage free.
Free cash flow is expected to be $250 million. In 2022. This is an increase of $117 million over the prior year, which included a significant increase in working capital associated with inflation and supply chain issues.
We are planning to spend $135 million of Capex $45 million of which is associated with the clarient integration and an upgrade we expect to kick off this year to put legacy Polliwog and legacy clearing on one system, which will further improve operational efficiency and the overall integration as one and now I will turn the call back over to.
Bob for some closing remarks.
Thanks, Jamie 2021 was indeed, a year of record results and milestone achievements.
Those include delivering the highest level of sales and earnings in our company's history.
The success of the Clarient integration, we were recognized as one of America's most responsible companies by Newsweek and we earned our third consecutive great place to work certification. We are proud of all of these accomplishments, but we have even higher expectations for the coming year.
And as we start our second full year as Avion, we expect to deliver 15% adjusted EPS growth to $3.50 as EBITDA increases to 635 million and $5 $1 billion in revenue.
As Jamie said, we anticipate free cash flow to be up this year to $250 million and that's cash that we can actively seek to put to work, adding new or complementary technologies through select acquisitions that expand our sustainable solutions and composites platforms. We have quickly de levered from Huawei.
First announced that Clarient color acquisition.
Confidently have the balance sheet strength to pursue both smaller bolt ons as well as more transformational targets.
As you know, we're not a volume driven company, but rather a value driven company. Accordingly, we haven't pursued revenue just for the sake of being bigger.
But we are bigger and more profitable than we have ever been and I think reaching $5 billion in revenue will be a milestone achievement for us. This year that hopefully also puts us on more investors radar screens.
We thank you for your time and attention. This morning, the upcoming year, we will have its challenges for sure, but we have the strategy the team and the culture to build on our momentum so that we deliver another exceptional year for our customers our shareholders and our associates with that we'd now be happy to take any questions you may have.
Thank you and to ask a question you will need to press star one on your telephone to withdraw your question press the pound key please standby, while we compile the Q&A roster.
Your first question is from Mike Sison with Wells Fargo. Your line is open.
Hey, good morning, congratulations on another nice quarter.
I guess I wanted to dig in a little bit on the revenue growth for 'twenty two.
Looks pretty impressive for all the major areas stand to lose your health care and such.
Are those orders.
Can you, maybe just give us a little bit of color on in our order patterns, Dan as you know how much of that growth rate I guess is locked in to some degree.
I mean, well look as you know we don't have an extensive backlog in this business, Mike we really do have.
Order visibility out about.
30% to 45 days at any point in time.
So we do have look modest demand expectations or rather demand growth for the year probably.
Two to two 5%.
With the balance of that being.
Pricing actions, a lot of which is carryover from.
'twenty one so we certainly know what those pricing actions are.
I think demand is.
The one thing that really kind of remains to be seen past, what we have in our order book right now.
Got it and then I guess inflation it'll be a little bit more of a headwind in the first half.
It looks like EPS growth first quarter is solid, but a little bit less is that what is that what's impacting sort of.
The EPS growth in the second half he catch up and get a little bit more momentum there.
Yeah, I mean, I think the bridge schedule, we've got the webcast slides kind of help to illustrate.
Some of the Frontload impact of wage inflation in the supply chain disruption costs and then also negative foreign exchange so far.
Currencies for US started to turn negative at the end of last year, we expect that impacts us the most.
Heavily in the first and second quarter of this year.
Yeah.
Got it thank you.
Thank you. Our next question comes from Frank Mitsch with Fermium Research. Your line is open.
Hi, everyone, it's disease on for Frank.
The first question.
So my first question would be.
With net debt with net leverage at the $2 two level.
Let me see.
<unk> more than just to offset dilution.
I think that really.
Obviously, where we are and historically had been an opportunistic.
The buyer of our shares back I think in the third quarter or so of last year, we did say that would leverage getting down to where we expected it to be.
We could be buying shares again.
So that could happen in the <unk>.
Early part of this year I think.
As you know our preference is to try to put cash to work.
To invest in the business with M&A, but if the deals don't come to fruition, then we certainly could be buying shares.
Got it and then elaborating on the pricing in raws outlook through 2022.
Could you maybe provide more details then.
But you still see on the high side of raws.
By high side do you mean like.
Product families or percentage increases or what please.
More of that percent like what's still is elevated as far as percentage increases yeah, maybe I'll start this way I would say to start the year there.
There really are only two areas, where we're seeing things start to moderate some polypropylene polyethylene, which as you know are actually relatively small percentages of our spend the polyolefin in general are relatively small.
Els is still trending up when we look at everything else that we have either pigments.
Is some of the performance materials that we have in engineered materials.
And right now that trending is probably mid to high single digit inflation.
Got it thank you so much.
Alright.
Our next question comes from Mike Harrison with Seaport Research Your line is open.
Hi, good morning, congratulations on the strong finish to the year.
I was wondering if you can talk a little bit more about what youre seeing in outdoor high performance. It seems like we're seeing that demand normalizing a little bit.
Just maybe some more color on what you saw in Q4, and what Youre hearing from your customers about 2022 I guess.
We kind of had a sense that there would still be some inventory replenishment there.
Needed to happen, even if we saw demand come off these elevated levels, so what's going on there.
Yes, it really is actually pretty narrowly restricted too.
Firearms and just some of the hunting related applications that we had that we actually saw it down in the fourth quarter and expect to be down in 'twenty. Two I think things like off road vehicles will actually still be very strong in 'twenty two so.
It really is kind of narrowly focused with what we see slowing down right now Mike.
Plenty of other applications that I think will be strong.
We probably talked about throughout the course of the year in conversation with our customers.
Struggling to meet demand, particularly in the off road vehicle sector. So.
We're still hearing the same thing so in many many of those cases I think consumer will still be a good year in 'twenty two.
Alright.
I was hoping you could give an update on the expected revenue synergies from the Clarient business. Obviously, you guys raised your cost synergy outlook, but are there.
Some commensurate increases in your expectations for revenue synergies.
Maybe.
Give us a sense of.
Whether you are seeing some traction or.
And highlight some areas where you've seen.
Cross selling opportunities that have materialized already.
We are certainly seeing some early opportunities.
You know for us.
Commercial wins have a tendency to be fairly small in size. When you look at them on an individual basis, so order of magnitude the <unk>.
Impact in 'twenty, one was still relatively small.
We will start to see more traction in 'twenty, two and hopefully that aligns with maybe a little bit more normal market conditions.
Well, we havent changed the overall level of expectations, which is around $50 million to $75 million of revenue from those synergies.
Long said that that's something we see out in years, three four and five.
Alright, if I could just sneak one more in I'm curious on the it system upgrade.
What is the total capex associated with that project could you give us a sense of the timing of implementation and go lives.
Sure Mike So we plan on taking that project off in the middle of this year at this John Kerry, it's going to be a multiyear project as you can imagine I'm, combining and the magnitude of the sites that we have with legacy poly wanting a legacy clarient them.
Current estimates are between 50 and $70 million, we're still working through all those cost estimates it will kick that off in earnest in the middle of the year and as we refine those estimates well whereby that out we did put about $25 million or so in the budget for them in the outlook that we provided today and those things will continue to get refined as we get more into the project details.
Perfect. Thanks very much.
Thank you. Our next question comes from Ben Palo with Baird. Your line is open.
Hey, Thanks for taking my question guys. Good morning.
I wanted to just talk about just on the balance sheet.
Just what youre seeing out there in terms of acquisitions.
You've talked about sustainable solutions is an area of focus, but maybe just what youre seeing as far as pipeline and then about a round valuations as well as we look forward. Thank you.
Yes, maybe I'll take the last part first I mean valuations have certainly gone up significantly in the last year.
You all are aware of the headline kind of multiples you're seeing out there.
Yeah.
They are pretty high and so the expectations are.
Same as we're looking at deals right now.
We're not going to chase doing deals just for the sake of door. One we wanted to be prudent with our capital and make sure they make financial sense.
We have been looking at a number of deals we've had a couple that.
Were actionable that we just decided not to move forward with candidly because evaluated so they were simply too high so I'm expecting that is going to be a challenge with respect to doing deals this year, but hopefully we can get to.
To come together in the right way, if you really want to focus on those two areas and sustainable solutions in composites.
And our next deal.
And then my second question is just on pricing.
You guys navigated inflation.
Nicely during the year.
Sounds like you have some expectations into this year.
To observe.
<unk>.
This room is there with customers.
To grow we will continue to raise price or does that already.
Set already.
Earlier in your comments and thank you.
What I meant earlier might have been to Mike's earlier question is that.
For the most part I was just referring to the rollover impact of price increases that.
Were announced in 'twenty one.
There could be some more modest increases this year.
As I was saying a number of our raw material costs continue to increase there are a couple that seem to be down or moderating.
Candidly as long as those continue to go up we have to do the same thing with our prices.
I, just haven't quantified or modeled out what that looks like so far.
Thank you.
Yes.
Thank you. Our next question comes from Bob Court with Goldman Sachs. Your line is open.
Thank you good morning.
Bob I wanted to ask.
You entered the words, you could pursue transformational deals and I guess.
There are many investors that can be somewhat chilling.
But I guess Youre, one transformational deal and the stocks doubled since you did it so maybe you get the benefit of the doubt but.
<unk>.
What would be transformational what more do you guys need relative to the pretty inspired growth you have in front of you and then your comment about opportunistic share purchase.
Does the stock trailing off 20% in the face of good numbers present that opportunity.
So to the latter question, Yeah, I think it does.
With respect to the first part.
You know I think transformational is something probably on the composite side.
There are some things that I think would also probably be deemed such and sustainable solutions.
The additive to the color segment. So I really have been just intending to say that look with our balance sheet strength I think we could do a broad array.
Deal sizes, and so that's primarily the reason for that comment that I made earlier, but obviously with what we've done with putting together.
Legacy Polliwog and legacy Clarient.
I think we would be looking to expand color primarily into additives and things that might expand the sustainable solutions.
Some of the traditional deals we've looked at in the past.
Got you and if I could follow up.
You guys have been pretty exceptional expense control, obviously your price cost management has been great I'm wondering.
Especially formulate or I assume that requires a lot of consultative selling and you've had to it.
Just the way you execute your business in terms of Covid and all the limb.
The limitations that creates do you think there is permanent and see that some of these changes is it.
Is it created some challenges or opportunities how does the business model and the way you execute that strategy changed.
Permanently, but hazard or should we expect a cost burden coming back in.
Yes, so I mean, if you were to look back over let's say a three to four year time horizon.
As you know you would see an increase in resources dedicated to sales marketing and technology.
We have had some offsetting cost reductions and general and administrative.
To kind of help keep that flat and obviously when we brought legacy Clarient legacy poly one together.
Our intention wasn't to.
Reduce our head count in those areas, but we have had some attrition simply.
Simply as a result of I think COVID-19 and the challenges over the last couple of years and are finding that we don't need to replace all of those positions in kind. So as we look ahead to 'twenty two I don't see any reason why you.
You see cost increases filtering in in any way.
Unusual or unexpected.
I think we will still be in really good shape with respect to how SG&A marries up to our overall.
Level of sales growth.
Got it thanks for the help.
Yep.
Thank you. Our next question comes from Kristen Owen with Oppenheimer yard.
Yes.
Hi, good morning.
Just to follow up on some of the comments about the digital investments that you made at the analyst day.
Just trying to think about how we should be tracking the benefits of that.
So I'm wondering if you can talk maybe about cycle times with your customers and how those are trending for some of these newer sustainable solutions or is it not.
That cycle time is it something else just provide us some guard rails on how we can measure the progress digital investments that you're making.
Did you say about the investments in digital.
Yes, so we're actually seeing the most traction where it really is just how we can engage with our customers.
Either by web based interactivity.
Or simply being able to do more transactional work online.
For a lot of our customers. That's just a heavy a model work for them to assembly.
Just wanted to engage with us on where our materials and whether they're going to be or and as you can imagine over the last 18 months that's been the number one two and three question.
I do think that the digital investments have helped us in that.
Regard I think more than anything else is just been from an operational standpoint, I do see future opportunities, though to really help I think improve.
<unk> engaged quickly with our customers.
On innovation.
I really think that we've got good system alignment with respect to how we marry up our lead into our innovation team and then ultimately circle back.
With respect to measuring that performance I think it can show up in any one of the key growth areas that we have and it's an important part of our investments to drive growth in all of those not something I would specifically look to in the future to say all of this.
Digital growth for example.
That's helpful.
Just to follow up on some of the commentary around composite sang.
Outdoor performance, despite what you're talking about is sort of a normalization next year, yes that market has been a really strong proof point for the composites business I'm wondering if you can give us a sense.
Do you think about composites traction outside of that application developed in 2022.
Yeah, I mean, so one of the things that we highlighted at the Investor Day of course was our investment in.
Fiber line that we did in 2019 and composite applications associated with the <unk> build out related infrastructure.
Candidly I think that's going to be one of the fastest growing areas of composites for us and that's why we highlighted it then.
What we're seeing right now with respect to normalization of demand in the outdoor space is pretty narrowly focused it's very profitable business for us and so when you look at the bridge scheduled in the webcast slides you can see that and that's what we've modeled into 'twenty two.
But more broadly speaking I still think there's a tremendous amount of growth opportunities.
Side of that for composites this year.
Thanks, so much congrats on the nice quarter.
Thank you.
Thank you and our next question comes from Laurence Alexander with Jefferies. Your line is open.
Good morning can you talk a little bit or unpack the comments around unfilled orders.
Sort of dynamics are you seeing.
Are you typically seeing churn or are you.
Getting all of that business back.
As your capacity can catch up.
And are you or do you ever see customers in the process of upgrading to different products. So you basically youll.
Churn now, but youre basically cross selling your own solutions, rather than losing it to other customers.
So look first of all.
The comments that Jamie made with respect to unshipped orders.
In January was really heavily impacted by the omicron variant and the fact that we had 28 facilities. So thats one fifth of our.
Manufacturing sites had significant.
Absenteeism of around 20% or more of our associates who are out.
As we look at our Covid case rate over the last gosh.
Almost two years now right I mean, it's really heavily weighted towards the last month or so.
So I'm across real it certainly has impacted a lot of people and I think that's weighed on us most heavily.
Supply chain disruptions, certainly a benefactor of that as well.
We don't believe that we're losing any business as a result of that and largely what you see is.
And ability to get those orders out in the next month.
But that just makes it more difficult to get the next month's orders out if you follow me so.
Candidly these supply chain disruptions are here we don't.
C N immediate and to those and I think that's going to be a dynamic year for the for the near term.
Okay. Thank you.
Thank you and as a reminder to getting the queue simply press star one on your telephone.
We have a question from the line of Hum Castillo with Morgan Stanley . Your line is open.
Hi, Good morning. Thanks for taking my question just wanted to follow up on that last discussion around the Entre daughters. You noted that a lot of this probably has to do with on the ground in just the S&P isn't that you were seeing in January how is that trending now in February with cases starting.
Starting to go down in most regions.
As we think about the potential improvements at least those two plants that are you starting to see that pick up a little bit or how should we think about I guess, what youre seeing there.
Yes, I mean, so maybe to put it in the context of.
The number of impacted facilities that is certainly.
Coming down in February .
Our case experience.
Really follows that of what you see by jurisdiction around the world. There's nothing unique about us in that regard. So I think case rates are coming down I think that helps us from a manufacturing standpoint and should allow us to.
Do better in February than we did in January .
That's helpful. Thank you and then on pricing discussion you had earlier about continuing to potentially drive a little bit more pricing.
We will go on with kind of the non resin products have continued to see inflation in terms of the areas, where you are seeing a little bit of deflation or what kind of normalization.
Do you see any pressure to reduce prices in many areas or are you able to maintain that or.
Can you just give us a little bit more color on that.
Yeah, I mean look with respect to.
The base resins that we distribute on behalf of our suppliers and our distribution business.
That's largely just pass through pricing. So I think you will see that.
Immediately in the first quarter.
That's normal and look with respect to that as an input cost or other businesses.
Relatively small percentage of our total spend as I said the other areas are all still kind of clipping along at a mid to high single digit inflation.
And as a result of that that's why I made the comment earlier that I did that that could warrant additional price increases as we go through the year.
That's helpful. If I could sneak one last quick one just in terms of the various regions. If you could just give us more.
Some color as to what Youre seeing across the board.
America et cetera.
Yeah, I mean, there were.
As we looked at the fourth quarter I mean first of all I think we are really starting to see some more normal seasonality in the business obviously.
2020 that was kind of muddled with respect to acquiring Clarient and then having this tremendous growth coming out of the pandemic.
Weren't exactly sure how that would play out in 'twenty one other than we expected Q4 to be down and it was so I think there is some seasonality elements there with Europe , typically having a stronger first half versus second half of the year.
Look from a demand standpoint, there was really only two things to kind of highlight that.
When we talked about earlier, which was transportation.
And that was down for us.
Around the world, but most significantly in Europe , So I guess, there's a regional.
<unk> to be made there and then with respect to outdoor is primarily in North America.
So overall I mean demand was relatively flat in the fourth quarter.
With some things like health care being up significantly.
And then the other markets that I, just talked about being down or flat.
Great. Thank you.
Certainly because of our last question so.
We appreciate everyone's time and attention.
This morning, we look forward to updating you on our first quarter performance when we get to the time to do that in April so for now.
Take care thanks, everybody.
Thank you ladies and gentlemen. This concludes today's program. Thank you for participating and you may now disconnect.