Q2 2024 Avient Corp Earnings Call

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Shannon: Good morning, ladies and gentlemen, and welcome to Avient Corporation's webcast to discuss the company's second quarter 2024 results. My name is Shannon, and I will 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's prepared remarks. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Joe DiSalvo, Vice President, Treasurer, and Investor.

Operator: Good morning, ladies and gentlemen, and welcome to Avient Corporation's webcast to discuss the company's second quarter 24 results.

Speaker Change: Good morning, ladies and gentlemen, and welcome to AVX Corporation's webcast to discuss the company's second quarter 'twenty 'twenty four results my.

Operator: My name is Shannon, and I will be your operator for today. At this time, all participants are in listening mode; we will have a question-and-answer session following the company's prepared remarks. As a reminder, this conference is made recorded for replay purposes.

Shannon: My name is Shannon and I'll be your operator for today.

Speaker Change: At this time all participants are in a listen only mode, where we'll have a question and answer session. Following the companys prepared remarks.

Speaker Change: As a reminder, this conference is being recorded for replay purposes.

Joe Gassavo: I will now like to turn the call over to Joe Gassavo, by its President, Treasurer, and Investor Relations. Please proceed. Thank you, and good morning to everyone joining us on a call today. Before beginning, we'd like to remind you that statements made during this webcast may be considered forward-looking statements from the meaning of the Private Securities Litigation Reform Act of 1995. For looking statements, we'll be of current expectations or forecasts of future events in an accurate piece of future performance. We're based on management's expectation and involve a number of business risks and uncertainties, any of which calls actual results differ materially from those expressed in or implied by the four leafy statements.

Speaker Change: I would now like to turn the call over to Joe to Salvo, Vice President Treasurer and Investor Relations. Please proceed.

Speaker Change: Yeah.

Joe DiSalvo: Thank you and good morning to everyone joining us on the call today. Before we begin, we'd like to remind you that statements made during this webcast may be considered foregoing statements within the meaning of the Private Securities Litigation Reform Act of 1994. For looking statements, we have current expectations or forecasts of future events and are not guarantees of future performance. They're based on management's expectations and involve a number of business risks and uncertainties. Any of these could cause actual results to differ materially from those expressed in or implied by the foregoing statement.

Speaker Change: Thank you and good morning to everyone joining us on the call today.

Joe DiSalvo: We encourage you to refer to our most recent reports, including our 10-Q and any applicable amendments, for a complete discussion of these factors and other risks that may affect our future results. During the discussion today, the company used both US GAAP and non-GAAP financial measures. Please refer to the presentation posted on the investor section of the Avient website, where the company describes non-GAAP measures. Provides a Reconciliation for Historical Non-Gap Financial, showing their most directly comparable gap.

Speaker Change: Before beginning we'd like to remind you that statements made during this webcast may be considered forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.

Speaker Change: Forward looking statements will give current expectations or forecast of future events and are not guarantees of future performance.

Speaker Change: Based on management's expectation and involve a number of business risks and uncertainties any of.

Speaker Change: Which cause actual results to differ materially from those expressed in or implied by the forward looking statements.

Joe Gassavo: We encourage you to refer to our most recent reports, including our 10-Q and any applicable amendments, for a complete discussion of these factors and other risks that may affect our future results.

Speaker Change: We encourage you to refer to our most recent reports, including our 10-Q and any applicable amendments for a complete discussion of these factors and other risks that may affect our future results.

Joe Gassavo: During this discussion today, the company is both U.S. Gap and non-GAAP financial measures. These refer to the presentation posted on the investor section of the Avian website, where the company describes non-GAAP measures and provides a reconciliation for historical non-GAAP financial measures through their most directly comparable GAAP financial measures.

Speaker Change: During the discussion today the company is both U S GAAP and non-GAAP financial measures.

Speaker Change: Please refer to the presentation posted on the investors section of the website, where the company describes the non-GAAP measures and provides a reconciliation of historical non-GAAP financial measures to their most directly comparable GAAP financial measures.

Joe DiSalvo: A replay of this call will be available on the website. Information to access the replay is listed in today's press release, which is available at avient.com in the investor relations section. Joining me today is our President and Chief Executive Officer, Dr. Ashish Khandpur, and Senior Vice President and Chief Financial Officer, Jamie Beggs. I will now hand the call over to Ashish to begin.

Joe Gassavo: A replay of this call will be available on the website. In formation to access the replay is listed in today's press release, which is available at avian.com in the Investor Relations section.

Speaker Change: A replay of this call will be available on the website.

Speaker Change: Information to access the replay is listed in today's press release, which is available at Avion Dot com in the Investor Relations section.

Joe Gassavo: Joining me today is our president and chief executive officer, Dr. Asheesh Comfort. And Senior Vice President and Chief Financial Officer Jamie Begs.

Speaker Change: Joining me today is our president and Chief Executive Officer, Dr. Ashish Camper.

Jamie Bags: And senior Vice President and Chief Financial Officer, Jamie bags.

Ashish Comfort: I will now hand the call over to Asheesh to begin. Thank you, Joe, and welcome, everyone. I'm very pleased with our second quarter financial performance, which builds upon our strong post-quarter results. As I have said on previous calls, one of our main areas of focus is to deliver organic top-line growth with margin expansion, and this quarter we achieve both. Starting with the top line, we delivered sales of $815 million for the quarter, representing 3% growth over the second quarter of 2023 on an as-reported basis. Sales, however, grew 5% on an organic basis, which has produced the impact of our next change.

Speaker Change: I will now hand, the call over to Ashish to begin.

Ashish Khandpur: Thank you, Joe, and welcome, everyone. I'm very pleased with our second quarter financial performance, which builds upon our strong first quarter results. As I have said on previous calls, one of our main areas of focus is to deliver organic top line growth with margin expansion, and this quarter we achieved both.

Ashish Camper: Thank you Joe and welcome everyone.

Ashish Camper: I am very pleased with our second quarter financial performance, which built upon a strong first quarter results.

Speaker Change: As I've said on previous calls one of our main areas of focus is to deliver organic top line growth with margin expansion and this quarter, we achieved both.

Ashish Khandpur: Starting with the top line, we delivered sales of $850 million for the quarter, representing 3% growth over the second quarter of 2023 on an as-reported basis. Sales, however, grew 5% on an organic basis, which excludes the impact of foreign exchange.

Speaker Change: Starting with the top line, we delivered sales of $850 million for the quarter.

Speaker Change: Representing 3% growth over the second quarter of 2023.

Speaker Change: On an as reported basis.

Speaker Change: Sales, however grew 5% on an organic basis.

Speaker Change: It excludes the impact of foreign exchange.

Ashish Comfort: This is particularly noteworthy, because it has been seven quarters since the last time the company delivered sales growth. The organic revenue growth was brought based across all geographies and in both of our business segments, color, additive, and specialty engineering materials. Both segments benefited from gaining share, winning new product specifications, and inventory teams' ability to grow revenue, control costs, and operate efficiently, as well as raw material deflation. Help us expand, adjust it with the margins to 16.9%. That's a hundred basis point improvement versus the prior year, second quarter. This all led to adjusted earnings per share of 76 cents, which is a 21% increase versus the prior year and exceeded our prior guidance for the quarter by five cents.

Ashish Khandpur: This is particularly noteworthy because it has been seven quarters since the last time the company delivered sales growth. The organic revenue growth was broad-based across all geographies and in both of our business segments. Color Additives and Inks, and Specialty Engineering Materials. Both segments benefited from gaining share, winning new product specifications, and inventory restocking in certain end markets. Our team's ability to grow revenue, control costs, and operate efficiently, as well as raw material deflation, helped us expand adjusted EBITDA margins to 16.9%.

Speaker Change: This is particularly noteworthy because it has been seven quarters since the last time the company delivered sales growth.

Speaker Change: The organic revenue growth was broad based across all geographies and in both of our business segments.

Speaker Change: Additives and inks and speciality engineered materials.

Speaker Change: Both segments benefited from gaining share and winning new product specifications and inventory destocking in certain end markets.

Speaker Change: Our team's ability to grow revenue control costs and operate efficiently as well as raw material deflation helped us expand adjusted EBITDA margins to 16, 9%.

Ashish Khandpur: That's a 100 basis points improvement versus the prior year second quarter. This all led to adjusted earnings per share of $0.76, which is a 21% increase versus the prior year and exceeded our prior guidance for the quarter by $0.05.

Speaker Change: Thats, a 100 basis points improvement versus the prior year second quarter.

Speaker Change: This all led to adjusted earnings per share of 76 cents, which is a 21% increase versus the prior year and exceeded our prior guidance for the quarter by five times.

Ashish Comfort: Our better than expected performance was primarily driven by the color, additives, and ink sediment, which benefited from slightly better demand as well as favorable raw material costs. From an end market perspective, growth in packaging and consumer had the greatest impact on the quarter by growing 8% and 10% respectively. These are two of our largest end markets, and both benefited from some restocking, particularly in Europe. We also had strong growth in building and construction and healthcare. This was primarily due to new product specifications and gaining share to deliver above-market growth. While macro indicators for building and construction remain somewhat weak, both the SEM and colors that mentioned the US and Canada gain share and one new business.

Ashish Khandpur: Our better-than-expected performance was primarily driven by the color additives and ink segment, which benefited from slightly better demand, as well as favorable raw material costs. From an end market perspective, growth in packaging and consumer had the greatest impact on the quarter by growing 8% and 10%, respectively. These are two of our largest end markets, and both benefited from some restocking, particularly in Europe. We also had strong growth in building and construction and health care.

Speaker Change: Our better than expected performance was primarily driven by the color additives and inks segment, which benefited from slightly better demand as well as favorable raw material costs.

Speaker Change: From an end market perspective growth in packaging and consumer had the greatest impact on the quarter by growing 8% and 10% respectively.

Speaker Change: These are two of our largest end markets and both benefited from some restocking, particularly in Europe.

Speaker Change: We also had strong growth in building and construction and healthcare.

Ashish Khandpur: This was primarily due to new product specifications and gaining share to deliver above market growth. While macro indicators for building and construction remain somewhat weak, both the SEM and color segment in the U.S. and Canada gained share and won new business. On previous earnings calls, we have noted that healthcare destocking was lagging other end markets. I am pleased to report that we began to see a meaningful improvement in order patterns during the second quarter and grew healthcare sales 10% on a year-over-year basis.

Speaker Change: This was primarily due to new product specifications and gaining share to deliver above market growth.

While macro indicators for building and construction remain somewhat weak both the SCM and colors that you mentioned the U S and Canada gain share and win new business.

Ashish Comfort: On previous earnings calls, we have noted that healthcare destocking was lagging other end markets. I am pleased to report that we began to see a meaningful improvement in order patterns during the second quarter and through healthcare sales 10% on a year-over-year basis. Not only do we believe the stocking has run its course, we are well positioned to capitalize in certain medical applications that are currently on trend, most notably in areas of drug delivery and monitoring devices. We have strategically partnered with key pharmaceutical companies and OEMs developing these devices, and we are growing with them as they benefit from strong underlying demand.

On previous earnings calls, we have noted that health care Destocking was lagging other end markets.

Speaker Change: I am pleased to report that we began to see a meaningful improvement in order patterns. During the second quarter and grew healthcare sales, 10% on a year over year basis.

Ashish Khandpur: Not only do we believe de-stalking has run its course, but we are well positioned to capitalize on certain medical applications that are currently on trend, most notably in the areas of drug delivery and monitoring devices. We have strategically partnered with key pharmaceutical companies and OEMs developing these devices, and we are growing with them as a benefit from strong underlying demand. In the defense end market, demand has been driven by overseas conflicts and specific NATO programs.

Speaker Change: Not only do we believe Destocking has run its course, we are well positioned to capitalize in certain medical applications that are currently on trends, most notably in areas of drug delivery and monitoring devices.

Speaker Change: We have strategically partnered with key pharmaceutical companies and Oems developing these devices and we are growing with them as they benefit from strong underlying demand.

Ashish Comfort: In the defense end market, demand has been driven by overseas conflicts and specific NATO programs. Our second quarter sales were up modestly over the prior year, second quarter, and we continue to expect full year sales growth to be in the lower double digits.

Speaker Change: In the defense end market demand has been driven by overseas conflicts and specific NATO programs.

Ashish Khandpur: Our second quarter sales were up modestly over the prior year's second quarter, and we continue to expect full year sales growth to be in the low double digits. Telecommunications and energy, which together constitute 7% of our sales, remain the more challenged end markets, with sales down double digits in the second quarter. The telecommunications end market is primarily impacted by destocking in the U.S. and continued weak demand in Europe. As we start the third quarter, U.S. demand, which accounts for more than 60% of our sales, is improving, and we expect overall telecommunications sales to return to modest growth in the second half of the year. We see improving trends as we start the third quarter, in particular for applications designed to harden the electrical transmission grid.

Speaker Change: Our second quarter sales were up modestly over the prior year second quarter, and we continue to expect full year sales growth to be in the low double digits.

Ashish Comfort: Telecommunication and energy, which together constitute 7% of our sales, remain the more challenged end markets, with sales down double digits in the second quarter. The telecommunications end market is primarily impacted by destocking in the US and continued weak demand in Europe. As we start the third quarter, US demand, which accounts for more than 60% of our sales, is improving, and we expect overall telecommunication sales to return to modest growth in the second half of the year. It is a similar story in the energy end market where customers have been managing down inventory levels in the first half of the year.

Speaker Change: Telecommunications and energy, which together constitute 70% of our sales remained the more challenged end market with sales down double digits in the second quarter.

Speaker Change: Telecommunications end market is primarily impacted by Destocking in the U S and continued weak demand in Europe.

Speaker Change: As we start the third quarter U S demand, which accounts for more than 60% of our sales is improving and we expect overall telecommunication sales to return to modest growth in the second half of the year.

Speaker Change: It is a similar story in the energy end market, where customers have been managing down inventory levels in the first half of the year.

Ashish Comfort: We see improving trends as we start the third quarter, in particular for applications designed to harden the electrical transmission grid. Our composites business provides innovative materials in applications such as cross arms and insulator rods, which play an important role in ensuring the reliability of the grid in a sustainable manner.

Speaker Change: We see improving trends as we start the third quarter in particular for applications designed to harden the electrical transmission grid.

Speaker Change: Our composites business provides innovative materials and applications, such as cross arms, and insulator rods, which play an important role in ensuring the reliability of the grid in a sustainable manner.

Jamie Beggs: We expect the broad category of energy to grow in importance over time, and we will continue to focus on developing innovative. I will now hand it off to Jamie to discuss our second quarter results in more detail and to provide an update on our 2024 outlook. Thank you, Ashish. This is expanded 100 basis points over the second quarter of 2023. Margin expansion was held by strong, operational, and cost-controlled discipline by our teams, as well as raw material depletion. Our adjusted EPS of 76 cents translates to 21% growth versus the prior year. In addition to the EBITDA growth, adjusted EPS also benefited from lower interest expense, resulting from the $100 million paydown in August of 2023, as well as repricing of a term loan at that time and again in April of 2024.

Speaker Change: Yeah.

Speaker Change: We expect the broad category of energy to grow in importance over time, and we will continue to focus on developing innovative solutions in this space.

Speaker Change: I will now hand, it off to Jamie to discuss our second quarter results in more detail and to provide an update on our 2020 for outlook.

Jamie Bags: Thank you Ashish I was also pleased with our strong performance this quarter, which unfolded largely as expected.

Jamie Bags: Ashish highlighted total company sales grew 3% on an as reported basis and 5% on an organic basis, excluding the impact of foreign exchange.

Jamie Bags: Adjusted EBITDA grew 9% and adjusted EBITDA margins expanded 100 basis points over the second quarter of 2023.

Jamie Bags: Margin expansion was helped by strong operational and cost control discipline by our teams as well as raw material deflation.

Jamie Bags: Our adjusted EPS of <unk>, 76% translates to 21% growth versus the prior year.

Jamie Bags: In addition to the EBITDA growth adjusted EPS also benefited from lower interest expense.

Resulting from the $100 million Paydown in August of 2023, as well as repricing of our term loan at that time and again in April of 2024.

Jamie Beggs: To share some perspective on regional sales performance, we have provided this slide to reflect organic sales growth by region. Beginning with the US and Canada, which makes up 41% of our total sales, the team delivered 5% growth versus the prior year. New product specifications and share gains underpin the growth in our largest region. The consumer end market was also strong, benefiting from re-socking of personal care products and household goods. We expect to build on this growth in the US and Canada in the second half of the year, as we are also seeing increasing momentum from composite applications that replace conventional building materials and improving trends in the US telecom and energy end market.

Jamie Bags: To share some perspective on regional sales performance. We provided this slide to reflect organic sales growth by region.

Jamie Bags: Beginning with the U S and Canada, which makes up 41% of our total sales the team delivered 5% growth versus the prior year.

Jamie Bags: New product certifications and share gains underpinned the growth in our largest region.

Jamie Bags: The consumer end market was also strong benefiting from restocking of personal care products and household goods.

Jamie Bags: We expect to build on this growth in the U S and Canada in the second half of the year. As we are also seeing increasing momentum for composite applications that replace conventional building materials and improving trends in the U S Telecom and energy end market.

Jamie Beggs: Latin America, while only comprising 6% of parts' total sales, had a very strong quarter and grew sales by 19%. Packaging is the primary end market we serve in this region, which benefited from strong demand and applications used in food and beverage, as well as cleaning supplies. The increased demand for such products was likely influenced by recent flooding in South Brazil, as well as high temperatures and drought conditions in Mexico. Our President in Latin America is also strategic, allowing us to serve global OEMs and brand owners who are looking to near shore their supply chains in light of political uncertainty with trade flows and tariffs.

Ashish Khandpur: Latin America, while only comprising 6% of our total sales, had a very strong quarter and grew sales by 19%. As such, we expect year-over-year growth will likely remain muted for the region as we move through the balance of the year. Accordingly, we expect Asia to grow during the second half of the year. However, if we were to refinance this debt during 2024, we do not expect it to have a material impact on our full-year interest expense guidance of $150,000. First, there is our reduction in greenhouse gas emissions.

Jamie Bags: Latin America, while only comprising 6% of our total sales had a very strong quarter and grew sales by 19%.

Jamie Bags: Packaging is the primary end market, we serve in this region, which benefited from strong demand and applications used in food and beverage as well as cleaning supplies the.

Jamie Bags: The increased demand for such products with likely influenced by recent flooding in south, Brazil, as well as high temperatures and drought conditions in Mexico.

Speaker Change: Our President and Latin America is also strategic allowing us to serve global Oems and brand owners, who are looking to near shore their supply chains in light of political uncertainty with trade flows and tariffs.

Jamie Beggs: We are well positioned to participate in this trend and expect to see continued long-term growth in this region. Sales in AMIA grew 4% as the region benefited from re-socking and packaging, particularly in food and beverage, as well as in the consumer end market. This was partially offset by weaker demand for telecommunication applications. The sales growth in AMIA is a positive sign that we remain cautious. Whether has been some favorable inflation signals correlated with a June interest rate cut by the European Central Bank, the manufacturing PMI dropped from May to June, which made way on business and consumer confidence in the near term.

Speaker Change: We are well positioned to participate in this trend and expect to see continued long term growth in this region.

Speaker Change: Sales in EMEA grew 4% as the region benefited from restocking in packaging, particularly in food and beverage as well as in the consumer end market.

Speaker Change: This was partially offset by weaker demand for telecommunications applications.

Speaker Change: The sales growth in EMEA is a positive sign that we remain cautious.

Speaker Change: There has been some favorable inflation signals correlate it with a gene of interest rate cut by the European Central Bank. The manufacturing PMI dropped from May to June, which may weigh on business and consumer confidence in the near term.

Jamie Beggs: As such, we expect year-beer growth will likely remain muted for the region as removed through the balance of the year. In Asia, sales grew 1% as new business gains in healthcare was largely offset by weakness and building a construction. While economic uncertainty in China remains, we are seeing share gains and encouraging trends in the order book for the region's two largest end markets, which are packaging and consumers. Akkordyn Lee, we expect Asia to grow during the second half of the year.

Speaker Change: As such we expect year over year growth will likely remain muted for the region as we move through the balance of the year.

Speaker Change: In Asia sales grew 1% as new business gains in healthcare was largely offset by weakness in building and construction.

Speaker Change: While economic uncertainty in China remain we're seeing share gains and encouraging trends in the order book for the region's two largest end markets, which are packaging and consumer.

Speaker Change: Accordingly, we expect Asia to grow during the second half of the year.

Jamie Beggs: Turning to a review of segment performance, I'll start with color additives and inks, which grew 5%, including the impact of foreign exchange. The packaging in market, which represents about a third of segment sales, was a pie single digester in the quarter. Most of this growth in the in-market stem from Europe and Latin America, as discussed previously. Building a construction also contributed to color performance during the quarter. This growth was primarily driven by new business wins using our functional additive solutions and construction materials, as well as some modest restocking by U.S. customers. The segment was able to maintain net price benefit from continued raw material deflation, along with a focus on cost reduction, particularly in Europe, which helped expand overall EBITDA by 15% and EBITDA margins by 200 space points.

Speaker Change: Turning to a review of segment performance I'll start with color additives, and inks, which grew 5% excluding the impact of foreign exchange.

Speaker Change: The packaging end market, which represents about a third of segment sales was up high single digits during the quarter.

Speaker Change: Most of this growth in the end market stemmed from Europe, and Latin America as discussed previously.

Speaker Change: Building and construction also contributed to <unk> performance during the quarter. Please.

Speaker Change: This growth was primarily driven by new business wins, using our functional additives deletions and construction materials as.

Speaker Change: As well as a modest restocking by U S customers.

Speaker Change: The segment was able to maintain net price benefit from continued raw material deflation along with our focus on cost reductions, particularly in Europe, which help expand overall EBITDA by 15% and EBITDA margins by 200 basis points.

Jamie Beggs: The specialty engineered material segment grew sales 4% organically. The sales growth was primarily driven by restocking in the consumer and healthcare end market, as well as share gains in wiring cable applications, which helped grow building and construction sales. Consumer sales primarily benefited from restocking in personal care and household goods, as well as for composite applications used for outdoor sports and other high performance composites fabrics. SM's base healthcare business, which was impacted by destocking for several quarters, started to see momentum with new orders during the quarter. Examples of applications that showed order pickup included materials for respiratory care and monitoring devices.

Speaker Change: Specialty engineered materials segment grew sales 4% organically.

Speaker Change: The sales growth was primarily driven by restocking in the consumer and health care end market.

Speaker Change: As well as share gains in wire and cable applications, which helped grow building and construction sales.

Speaker Change: Consumer sales, primarily benefited from restocking in personal care and household goods as well as for composite applications used for outdoor sports and other high performance composites fabrics.

Speaker Change: SaaS based healthcare business, which was impacted by Destocking for several quarters started to see momentum with new orders during the quarter exam.

Speaker Change: Examples of applications that showed order pickup included materials for respiratory care and monitoring devices.

Jamie Beggs: Weaker demand and telecommunications and energy partially offset the growth in consumer healthcare and building and construction. Adjusted EBITDA grew 7% and EBITDA margins expanded by 80 basis points driven by raw material deflation and favorable mix from consumer and healthcare applications which have a creative margins.

Speaker Change: Weaker demand in telecommunications and energy, partially offset the growth in consumer healthcare and building and construction.

Speaker Change: Adjusted EBITDA grew 7% and EBITDA margins expanded by 80 basis points, driven by raw material deflation and favorable mix from consumer and health care applications, which have accretive margins.

Jamie Beggs: Turning next to guidance, we're providing SM's today for the third quarter and an update to our full year 2024 guidance range. We expect third quarter earnings per share of 62 cents, which reflects a 9% increase over the prior year. We expect the second quarter trend of year-over-year growth to continue in the third quarter. Regarding input costs in the first half of the year, we realized approximately 35 million in raw material deflation, which was in line with our expectations. However, this benefit is not expected to repeat in the second half of the year, as we are seeing modest levels of inflation across the majority of our raw material baskets, including hydrocarbon-based materials such as polyethylene and polypropylene, as well as pigments and certain performance additives.

Speaker Change: Turning next to guidance, we are providing estimates today for the third quarter and an update to our full year 2024 guidance range.

Speaker Change: We expect third quarter earnings per share of <unk> 62.

Speaker Change: Which reflects a 9% increase over the prior year, we expect our second quarter trend of year over year growth to continue in the third quarter.

Speaker Change: Regarding input costs in the first half of the year, we realized approximately $35 million and raw material deflation, which was in line with our expectations.

Speaker Change: This benefit is not expected to repeat in the second half of the year as we are seeing modest levels of inflation across the majority of our raw material basket, including hydrocarbon based materials, such as polyethylene and polypropylene as well as pigments and certain performance additives.

Jamie Beggs: Additionally, as previously discussed, we have also factored in a 30 million year-over-year headwind from variable compensation in the second half of the year. Taking all of this into consideration, expectations for the back half of 2024 are largely unchanged from our previous outlet provided in May. As such, we are adjusting our full year guidance range to reflect a better than expected second quarter results in increasing adjusted EBITDA to a range of 515 million to 540 million and adjusted earnings per share to a range of $2.55 to $2.70. Jason, our four-year adjusted EPS guidance now represents 8% to 14% growth over the prior year.

Speaker Change: Additionally, as previously discussed we are also factored in a $30 million year over year headwind from variable compensation in the second half of the year.

Speaker Change: Taking all of this into consideration expectations for the back half of 2024 are largely unchanged from our previous outlook provided in may.

Speaker Change: As such we are adjusting our full year guidance range to reflect the better than expected second quarter results and increasing adjusted EBITDA to a range of $515 million to $540 million and adjusted earnings per share to a range of $2 55.

Speaker Change: The $2 70.

Speaker Change: Our full year adjusted EPS guidance now represents 8% to 14% growth over the prior year.

Jamie Beggs: Interest expense expectations are unchanged at approximately 105 million for the four-year 2024. We do have a portion of our debt maturing in May of '25, and we look forward to opportunistically refinance it in the near term, subject to market conditions. If we were to refinance this debt during 2024, we do not expect it to have a material impact on our four-year interest expense guidance of 105 million. We continue to expect our adjusted effective tax rate to be between 23 and 25%, and our capital expenditures to be roughly 140 million, which are also unchanged versus our prior guidance.

Speaker Change: Interest expense expectations are unchanged at approximately $105 million for the full year 2024.

Speaker Change: We do have a portion of our debt maturing in may of 'twenty, five and we look forward to opportunistically refinance it in the near term subject to market conditions.

Speaker Change: Were to refinance this debt during 2024, we do not expect it to have a material impact to our full year interest expense guidance of $105 million.

Speaker Change: We continue to expect our adjusted effective tax rate to be between 23, and 25% and our capital expenditures to be roughly $140 million, which are also unchanged versus our prior guidance.

Jamie Beggs: Before turning the call back over to Ashish for closing remarks, I wanted to draw attention to the release of our 2023 Sustainability Report. We just published our updated report online in the details our latest performance metrics and provides examples of sustainability in action at Avient. I like to call out a few highlights that we are particularly proud of, and that I know are important to all of our stakeholders. First is our reduction in greenhouse gas emissions. Since 2019, we have reduced our scope one and two emissions by 48% and are quickly approaching our goal of a 55% reduction.

Speaker Change: Before turning the call back over to Ashish for closing remarks, I wanted to draw attention to the release of our 2023 sustainability report we.

Speaker Change: Just published our updated report online and a detailed our latest performance metrics and provides examples of sustainability and action at AVN.

Speaker Change: I'd like to call out a few highlights that we are particularly proud of that I know are important to all of our stakeholders.

Speaker Change: First is a reduction in greenhouse gas emissions since 2019, we have reduced our scope one and two emissions by 48% and are quickly approaching our goal of a 55% reduction.

Jamie Beggs: And second are the independent rating agencies that recently updated our scores. Since our last report, Ikavadas increased Avient to gold, moving us in the top 5% of all reporting companies, and CDP increased our score to an A-minus, which showcased our alignment with the Task Force and climate-related financial disclosures. I like to thank our employees to contribute to improving our underlying sustainability performance and help us earn these top tier scores.

Speaker Change: And second are the independent rating agencies that recently updated our scores.

Speaker Change: Since our last report <unk> increased EBIT to gold, leaving us in the top 5% of all reporting companies and TDP increased our score to an a minus which showcased our alignment with the task force on climate related financial disclosures.

Speaker Change: Like to thank our employees, who contributed to improving our underlying sustainability performance and helped us iron These top tier scores.

Ashish Comfort: I will now turn it back over to Ashish, who are sharing some exciting news about our upcoming Investor Day.

Speaker Change: I will now turn it back over to Ashish, who will share some exciting news about our upcoming Investor day.

Ashish Comfort: Thank you, Jamie. Since joining the company, I have been speaking with many stakeholders, including customers, employees, and investors.

Ashish Camper: Thank you Jamie.

Ashish Camper: Since joining the company I have been speaking with many stakeholders, including customers employees and investors.

Ashish Comfort: Those conversations, along with collaboration among my leadership team, are forming the basis of a strategic plan that we are finalizing and will share with investors on December 4 in New York today. Registration details will be forthcoming, but for now, please save the date.

Ashish Khandpur: Those conversations, along with collaboration among my leadership team, are forming the basis of a strategic plan that we are finalizing and will share with investors on December 4th in New York City.

Ashish Camper: Those conversations along with collaboration among my leadership team are forming the basis of our strategic plan that we are finalizing and we've shared with investors on December four in New York City.

Ashish Camper: Registration details will be forthcoming but for now please save the date.

Ashish Comfort: I want to close by saying a big thank you to the global Avient team who worked tirelessly to deliver a strong second quarter. I am particularly proud of our teams for delivering organic growth for Avient after our long seven quarters while expanding margins on the bottom line.

Ashish Camper: I want to close by saying a big Thank you to the global AVM team.

Ashish Camper: Worked tirelessly to deliver a strong second quarter.

Ashish Camper: I am, particularly proud of our teams for delivering organic growth for avian after a long seven quarters, while expanding margins on the bottom line.

Ashish Comfort: That concludes our prepared remarks for today.

Speaker Change: That concludes our prepared remarks for today.

Operator: Operator, we are now ready to begin the question-and-answer session of today's call. Thank you. To ask a question, please press Star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press Star 1-1 again. Please stand by when we compile the Q&A roster.

Speaker Change: Operator, we are now ready to begin the question and answer session of today's call.

Speaker Change: Thank you.

Speaker Change: I ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again please.

Speaker Change: Please standby, while we compile the Q&A roster.

Michael Harrison: Our first question comes from the line of Mike Harrison with Seaport Research Partners. Your line is now open. Hi, good morning. Congrats on a nice quarter. Thank you. I know.

Speaker Change: Our first question comes from the line of Mike Harrison with Seaport Research Partners. Your line is now open.

Mike Harrison: Hi, good morning, and congrats on a nice quarter.

Speaker Change: Thank you Michael.

Michael Harrison: I was hoping that maybe you could share some of your thoughts about visibility into the second half. It sounds like your outlook on demand hasn't really changed a whole lot from where it was a few months ago. But I'm curious what you're hearing from customers and maybe what you're seeing in order patterns and some of your key markets that helps to provide some confidence that you can continue to see some growth momentum into the second half. Thank you. Stuart Mike, I mean, as you know, on an organic sales growth basis, we finished Q2 at 5%, and when we look at our order book and how we finished July, we feel like, you know, we are right on track with our meeting our range that has been provided for revenue growth for the year.

Speaker Change: Ashish I was hoping that maybe you could share some of your thoughts about visibility into the second half.

Speaker Change: Sounds like your outlook on demand Hasnt really changed a whole lot from where it was a few months ago.

Speaker Change: But im curious what youre hearing from customers and maybe what youre seeing in order patterns in some of your key markets.

Ashish Comfort: So, you think about it in first half and second half of the year. First half we have grown as printed sales by 0.5%, and so, you know, if you think about it, that so it's a second half range accordingly comes down to from low single digits to high single digits. So, let's take the mid-point as mid-singer digits is the expectation. So, that's where we finished Q2, and then as we are looking into Q3 with some momentum and an order book, that's the kind of, you know, that's very consistent with what we are providing for guidance here.

Ashish Comfort: I just want to also talk a little bit about, you know, in Q1, sorry, in Q2, we had seven of our nine segments that grew year over year, and that's more than 90% of our revenue mix. And then, as we look into Q3 and Q4, we expect that trend to continue. So, we are coming from a place where we are seeing some market demand come back, we are seeing some restocking taking place, but also we are seeing our team take more share and win new programs and develop new applications, which is really helping our growth to go into these, you know, mid-singer digits in the second half of the year.

Speaker Change: In Q1 and Q2, we had.

Speaker Change: Seven of our nine settlement.

Speaker Change: That grew year over year, and thats more than 90% of our revenue mix.

Ashish Khandpur: And then, as we look into Q3 and Q4, we expect that trend to continue.

Speaker Change: And then as we look into Q3 and Q4, we expect that trend to continue so we are coming from from.

Speaker Change: Place where.

Speaker Change: We are seeing some market demand.

Speaker Change: Come back we are seeing some restocking taking place, but also we are seeing our teams take more share and win new programs and develop new applications, which is really helping our growth to go into these.

Speaker Change: Mid single digits in the second half of the year.

Ashish Comfort: All right, thank you, and then I was hoping that you could talk a little bit about what you're seeing in healthcare. It sounds like maybe the stocking processes run its course, but maybe more than that, it sounds like you're seeing some growing opportunities around drug delivery and monitoring. Can you talk a little bit about some of the partnerships that you've developed and kind of how you see the healthcare segment evolving over the next quarters and maybe next couple of years? So, Mike, you know, as you said healthcare, you know, the destocking we believe is finally over and we are seeing restocking both in our equipment maker accounts or OEMs as well distribution. You know, we're seeing resales grow on both those channels, so that's a good sign indicating the stocking is largely over.

Speaker Change: Alright, thank you.

Speaker Change: And then was hoping that you could talk a little bit about what youre seeing in health care. It sounds like maybe the Destocking process has run its course, but maybe more than that it sounds like you're seeing some growing opportunities around drug delivery.

Speaker Change: And monitoring can you talk a little bit about some of the partnerships that you've developed and kind of how you see the health care.

Speaker Change: Segment evolving over the next quarter.

Speaker Change: Quarters, and maybe next couple of years.

Mike Harrison: Sure Mike.

Speaker Change: I just had health care. The Destocking, we believe is finally or and and we are seeing restocking both in our.

Ashish Comfort: We are also, you know, our teams have also pivoted to winning more share and new applications in some of the high growth areas, especially around drug delivery of obesity and, you know, monitoring, glucose monitoring, drugs kind of applications, and so that pivot to winning applications in areas which are growing in healthcare fast is really helping our healthcare sales to grow at double digits as we showed in Q2. Now, when I look into what's happening and both, by the way, both CAI providing additives and color but and as well as SCM side are growing in healthcare, so that's a good Sine.

Ashish Khandpur: Now, when I look into what's happening, and both, by the way, both CAI providing additives and color, but as well as SEM side, are growing in healthcare, so that's a good. Type devices, so which is our conventional stuff. So we are winning in what I would call our core businesses, but we are also building some new applications in this fast row of drug delivery devices. And, just as a context in point, we have been growing our Healthcare equipment and drug delivery business at a rate of 14% since 2019 So it has been a good, healthy business. It's quite profitable, and it is growing fast, and we continue to innovate

Ashish Comfort: And on the specific devices side, medical equipment and devices side, we are seeing good, robust demand; again, restocking for our catheters and healers and other drug delivery, like syringes type devices, which is our conventional stuff. So we are winning, which what I would call our core businesses, but we are also building some new applications in these fast road drug delivery devices. And just as a context in point, we have been growing our healthcare equipment and drug delivery business at the category of 14% since 2019. So it has been a good, healthy business. It's quite profitable, and it's growing fast.

Speaker Change: Delivery business.

Speaker Change: At the CAGR of 14% since 2019, so it has been a good healthy business, it's quite profitable and it's growing fast and we continue to innovate in that area.

Ashish Comfort: And we continue to innovate in that area.

Michael Harrison: All right, very helpful.

unknown: All right, very helpful. Thanks very much.

Speaker Change: Alright very helpful. Thanks very much.

Michael Harrison: Thanks very much.

Frank Mitsch: Thank you. Our next question comes from the line of Frank Mitsch with Fermion Research LLC. You want to open.

Speaker Change: Okay. Thank you.

Speaker Change: Our next question comes from the line of Frank Mitsch with Fermium Research LLC. Your line is now open.

Frank Mitsch: I'm assuming that's the legal drug delivery type of businesses that you're referring to, because when you see such high margins, one has to wonder. Thank you for clarifying that for us. Absolutely.

Frank Mitsch: I'm, assuming that's the legal drug delivery type of businesses that you're referring to because when.

Frank Mitsch: When you see such high margins you one has to wonder.

Speaker Change: It does.

Speaker Change: Thank you for clarifying that for us.

Speaker Change: Absolutely.

Ashish Comfort: You know, the star in one key was that 38% growth in defense. And you mentioned that it was up modest year of year in the second quarter. Can you provide a little more color there and what your expectations are for the balance of the year in that business? Yeah, sure, Frank. So, as you know, Q1 was very strong in defense, and that helped not only our growth, but also our margins. But Q2 sequentially was down, but year over year was modestly up versus last year. As we look into Q3, we still see strong growth in that area.

Speaker Change: The star and <unk> was at 38% growth in defense and you mentioned that it was up modest year over year in the second quarter can you provide a little more color there.

Speaker Change: And what your expectations are for the balance of the year in that business.

unknown: Yeah, sure, Frank. So, as you know, Q1 was very strong in defense, and that helped not only our growth but also our margins. But Q2, sequentially, was down, but year over year it was modestly up versus last year. As we look into Q3, we still see strong growth in that area. And, you know, more in line with what our results have been in Q2 from a revenue perspective. But since the comps last year were quite weak, we see double-digit plus growth in Q3. And for the rest of the year included, for the full year, we expected to finish, as Jamie said in our prepared remarks, at double digits.

Frank Mitsch: Yes sure Frank.

Speaker Change: So as you know Q1 was very strong in defence and that help not only our growth, but also our margins.

Speaker Change: But Q2 sequentially.

Speaker Change: Was down.

Speaker Change: But year over year was modestly up versus last year.

Speaker Change: As we look into Q3, we still see strong.

Speaker Change: Growth in that area.

Ashish Comfort: And you know, more in line with what our results have been in Q2 from a revenue perspective. But since the calms last year were quite weak, you know, we see double-digit plus growth in Q3 for defense. And that's for the rest of the year included. For full year, we expected to finish as Jamie said in our prepared marks remarks at double-digit levels. Again, good solid momentum in that business.

Speaker Change: <unk>.

Ashish Comfort: We are winning new programs, not just with the NATO countries, but also with specific programs with local law enforcement agencies, capital police, as well as some new applications both in Germany and Spain, apart from the other NATO countries that we have orders from. So it's a good momentum there.

unknown: New applications in both Germany and Spain, apart from the other NATO countries that we have ordered.

Frank Mitsch: Very helpful. Thank you.

Jamie Beggs: And Jamie, you talked about raw materials being a positive for QQ, but then expecting inflating the impacts in the balance of the year. Is there any way to quantify that? I think order of magnitude was deflation, something like a 10 million benefit in the second quarter. And, you know, expectations are on 3Q as to what you're going to see. So Q2's deflation number was about 15 million, so for the first half, it's about 35, closer to 38 million for the first half. The back half, we're expecting between five to ten million dollar headwind. Right now the way the curves look and they hit a little bit more on Q4 versus Q3, but that's our current outlook.

unknown: All right, so I flattened 3-Q.

Jamie Beggs: All right, so flattened, flattened 3Q. I would expect some, I'm sorry, some inflation in Q3, but to me, that's on the lower end of the side. I think we're going to see a little more on Q4.

unknown: Very helpful. Thank you so much.

Jamie Beggs: Very helpful.

Jamie Beggs: Thank you so much.

Michael Sison: Thank you. Our next question comes from the line of Michael Sison with Wells Fargo. You want us to open.

unknown: Hey, good morning, nice quarter. In terms of the second half outlook for sales growth at mid single digits, will that mostly be volume growth?

Michael Sison: Hey, good morning, nice quarter. In terms of the second half outlook for sales growth at mid single digits, will that mostly be volume growth? It sounds like you have good momentum in the third quarter; hopefully the Guardians can keep up there as well. And then just follow up in terms of R&D and she's any changes that you've made that you're starting to see some momentum there in your product development or such. Yeah, my phone on the first one on a second half outlook just so that even for Q2, all our growth, as you see, is volume-related growth.

Speaker Change: Nice quarter.

Speaker Change: In terms of the second half outlook for sales growth at mid single digits will that mostly be volume growth.

Speaker Change: It sounds like you have good momentum in the third quarter hopefully the guardians can keep up there as well and then just a follow up in terms of R&D Ashish.

Speaker Change: Any changes that you've made that you're sort of seeing some momentum there and new product development or such.

Speaker Change: Yeah, Mike.

Mike Harrison: On the first one on our second half outlook.

Speaker Change: Even for Q2, all our growth as you see is volume related growth very strong volume growth that we have.

Ashish Comfort: So it's very strong volume growth that we have seen. And then that momentum will continue in the second half, and second half growth is again volume related. So that momentum will continue, and so we are seeing strong program wins, new application wins. And then go back to your second question, really, with respect to what changes we have done and how anything is it sharing any results yet. So we have done a lot of pivot around, you know, our sales team really changing our strategy with respect to how we are addressing different regions of the world.

Speaker Change: <unk> seen and then.

unknown: And then that momentum will continue in the second half, and second half growth is again volume related. So that momentum will continue. And so we are.

Speaker Change: That momentum will continue in second half and second half growth is again volume related so that momentum will continue and so we are seeing strong.

Speaker Change: Program wins, new application wins.

Ashish Khandpur: And that goes back to your second question, really, with respect to what changes we have done and how, if anything, is it bearing any results yet? Strategy with respect to how we are addressing different regions of the world. So, for example, in Asia, we shifted to going to more local key accounts. Apart from the multinational accounts that we were serving, for example, in China, because we were seeing the business move away from some of those, you know, between those two local versus global multinational accounts. And so our team pivoted there and one share there. In EMEA, which is, as you know, a low growth area, a low GDP growth area.

Speaker Change: And that goes back to your second question really with respect to what changes you have done and and and and how.

Speaker Change: If anything as its bearing any results yet so.

Speaker Change: We have done a lot of feedback.

Speaker Change: Figure out around you know our.

Speaker Change: Our sales team really tending are.

Ashish Comfort: So, for example, in Asia, we pivoted to going to more local key accounts apart from the multinational accounts that we were serving, for example, in China, because we were seeing the business move away from some of those, you know, between those two local versus global multinational accounts. And so our teams pivoted there and one share there. We in me, which is as you know, is a low growth area, low GDP growth area. Our team's focus is now on winning share, and we are doing that with new applications as well as just basic blocking and tackling in the business.

Ashish Khandpur: Our team's focus is now on winning share, and we are doing that with new applications as well as just basic blocking and tackling in the business. And then in the US, we are seeing momentum with respect to some secular trends, with the hardening of the electric grid taking place and other applications like that. And we are, our teams are winning there as well with new products and new applications. So I think what you are seeing for our volume growth is a combination of not just restocking, some market demand coming back in certain areas of the world, but also a significant amount of growth coming from new product development and new application development. Sharewinds that is happening across.

Ashish Comfort: And then in US, we are seeing momentum with respect to some secular trends, with hardening of the electric grid taking place and other applications like that. And we are our teams are winning there as well with new products and new applications. So I think what you are seeing for our volume growth is a combination of not just a restocking, some market demand come back in certain area of the world, but also a significant amount of growth coming from new product development and new application development. and Sherwin, that is happening across the globe.

Michael Sison: Got it, thanks.

Ashish Khandpur: Got it. Thanks. And then in terms of the strategic plan, I know you're probably going to keep a lot of that, and there's still a lot of it to develop. But what what metrics do you think are most important for investors to think about and that you're focused on that you'll maybe kind of highlight at the investor day in December? And, and any thoughts, any thoughts about sort of longer-term earnings power? As you've been there for, you know, since the beginning of the year? Yeah, so.

Ashish Comfort: And then, in terms of the strategic plan, I know you're probably going to keep a lot of that, and you're still developing a lot of it. But what metrics do you think are most important for investors to think about and that you're focused on that you may be kind of highlighting at the investor day in December, and any thoughts about sort of the long term earnings power as you've been there since the beginning of the year. Yeah, so obviously I mean I would ask for some patience for until December 4th when we actually come back and give the numbers. But just so that you know, my canals we have highlighted in our past earnings calls, you know the three top of mine areas for me is really growing organically the top line while expanding the margins on the bottom line, amplifying innovation which will feed into that top line and profitable bottom line growth.

Ashish Khandpur: Yeah, so obviously, I mean, I would ask for some patience until December 4th when we actually come back and give the numbers. But just so that you know, Mike, and as we have highlighted in our past earnings calls, the three top of mind areas for me are really growing organically the top line while expanding the margins on the bottom line, amplifying innovation, which will feed into that top line and profitable bottom line growth.

Ashish Khandpur: And then the third thing is building leadership and talent for Avient. And our strategic plan is really going to address all those things. And really, that's what I can share at this point in time, but that's where we're focused on how to grow, how to build, and make innovation a central part of our growth strategy so that not only are we growing the top line in a sustainable way, but we also differentiate ourselves from competition and improve our margins.

Speaker Change: Really growing organically the topline while expanding the margins on the bottom line.

Speaker Change: Amplifying innovation, which will feed into that top line and profitable bottom line growth and then the third thing is building the leadership and talent for his review of the future.

Ashish Comfort: And then the third thing is building the leadership and talent for Avient of the future. And our strategic plan is really going to address all those things, and really that's what I can share at this point in time. But that's what we're focused on: how to grow, how to make innovation as a central part of our growth strategy so that not only are we growing the top line in a sustainable way, but also differentiate ourselves from competition and improve on margins.

Speaker Change: And our strategic plan is really going to address all of those things.

Speaker Change: And.

Speaker Change: Really that's what I can share at this point in time, but but that's what we're that's where we're focused on how to grow how to.

Speaker Change: Make innovation is a central part of our growth strategy. So that not only are we growing the top line in a sustainable way, but also differentiate ourselves from competition.

Speaker Change: Improve our margins.

Michael Sison: Great.

David Huang: Thank you. Our next question comes from the line of David Huang with Deutsche Bank. Your line is now open. Good morning. Hey Ashish, I did see that you're hiring a Chief Technology Officer and another person to be in charge of marketing and business development. Can you remind us how those organizations are currently structured in your company? And I guess what do you wish to change your chief with these new hires? So, you know, the CTO part currently, you know, we are structured both, the R&D structured both in the businesses as well as a central team of technology.

Speaker Change: Great. Thank you.

Speaker Change: Thank you. Thank you.

unknown: Our next question comes from the line of David Huang with Deutsche Bank. Your line is now open.

Speaker Change: Our next question comes from the line of David Huang with Deutsche Bank. Your line is now open.

David Huang: Good morning, he Ashish I did see that Youre hiring a chief technology officer, and another person's you've been in charge of marketing and business development.

David Huang: Can you remind us how you know those organizations are currently structured.

Speaker Change: And your company and I guess, what do you wish to change your you know achieve with these new hires.

Speaker Change: Sure David So you know.

Speaker Change: The CTO part currently you know we are structured.

Ashish Comfort: And so it's kind of most of the R&D folks are in the business right now and somewhere in the center of the corporation. So we want to just actually, when we bring the CTO, we are also trying to see how we can really build a flywheel of innovation that continues to deliver. So we think in terms of horizon. So horizon one could be sitting in business, for example, and horizon two and three could be, you know, either in the business or, you know, being incubated, you know, a little bit away from the business. So, while still connected very directly to the customers.

Ashish Khandpur: So while still connected very directly to the. I think that's an R&D model that we are trying to get going, and we have started actually consolidating some of our R&D structures, especially in high-growth areas, to build capacity and capability. So, we have some of this R&D scattered around different parts of the company because it came into the company through different acquisitions, but we have now started pulling them together to build enough scale in areas where we really want to grow fast. So, we have started doing some organizational changes on that front, and the CTO would obviously be part of that story.

Ashish Comfort: So I think that's an R&D model that we are trying to get going. And we have started actually consolidating some of our R&D structures, especially in high growth spaces, to build capacity and capability. So we have some of this R&D scattered around different parts of the company because they came into the company through different acquisitions. But we have now started pulling them together to build enough scale in areas where we can, where we really want to grow fast. So we have started doing some organization changes on that front.

Ashish Comfort: And the CTO would obviously be part of that story. Ray. Then on the marketing side, we are, as we look into some of the new, the world is really changing fast, and technology trends are changing the world fast. So if you think about what is happening with artificial intelligence, it's really going to create a lot of usage for electric power, distribution, and generation. And that has a derivative effect on our businesses because we can supply in those areas. Similarly, semi-conductors are needed for AI, and we need to, you know, we are a material provider and we can play in that past road area once again.

Ashish Khandpur: Then on the marketing side, as we look into some of the new, the world is really changing fast, and technology trends are changing the world fast. So if you think about what is happening with artificial intelligence, it's really going to create a lot of usage for electric power distribution and generation. And that has a derivative effect on our businesses because we can supply in those areas. Similarly, semiconductors are needed for AI, and we need to, you know, we are a material provider, and we can play in that fast-growth area once again.

Ashish Khandpur: So all these trends are happening, whether it's mobility, whether it's electrification, and so on and so forth, and we can become part of those fast-growing markets. And so we need to understand those markets in a better way and also our go-to-market models. So there's a lot of technology, but sometimes how do we approach those markets to commercialize these things? is equally important. So this new marketing position that we have advertised is going to be helping out with that.

Ashish Comfort: So all these trends are happening, whether it's mobility, whether it's electrification, and so on and so forth. And we can become part of those fast growing markets, and so we need to understand those markets in a better way and also our go-to-market models. We have a lot of technology, but sometimes how we approach those markets to commercialize these things is equally important. So this new marketing position that we have advertised is going to be helping out in that area.

David Huang: Got it. And then just going back to the share against you mentioned, I guess how much does your against contribute to the volume growth in the quarter? Sounds like they're more related to, you know, sustainable solutions and composites. I guess if you look at the organic volume growth for those two platforms, where are they today? And I guess, is there any fundamental underlying competitive dynamic change that's contributed to some of the share against? Yeah, so I think the share gains actually were not as much in composites this time as they were in our traditional engineered materials on the SCM side.

Ashish Khandpur: Got it. And then just going back to the shearer gains you mentioned, I guess, how much did shearer gains contribute to the volume growth in the quarter? Sounds like they're more related to, you know, sustainable solutions and composites. I guess, if you look at the organic volume growth for those two platforms, where are they today? And I guess, is there any fundamental underlying competitive dynamic change that

Speaker Change: That's contributed to some of the share gains.

Ashish Khandpur: Yeah, so I think the share gains actually were not as much in composites this time as they were in our traditional engineered materials on the SEM side. Clearly, on the color narrative side, we saw broad-based share gains and market share gains.

Speaker Change: Yeah. So I think those share gains actually were not as much in composites. This time.

Speaker Change: As they were in our traditional engineered materials on the SCM side.

Ashish Comfort: Clearly, on the color narrative side, we saw broad-based share gains and taking market. I think we expect composites to play bigger levels, mentioning earlier in my comments with respect to winning share in defense and other things with NATO countries. So composites were going to kick in there. Also, we are seeing, you know, some product in building and construction area with respect to, you know, panels and composite materials that are used in construction homes that we are seeing momentum in.

Speaker Change: Barely on the Colorado side, we saw broad based share gains and are taking market.

Ashish Khandpur: I think we expect composites to play bigger, as I was mentioning earlier in my comments with respect to winning a share in defense and other things with NATO countries. Composites are going to kick in there. Also, we are seeing some products in the building and construction area with respect to panels and composite materials that are used in the construction of homes that we are seeing momentum in. So, I think composites is going to be largely a second half story for us, and so, but in general, we have seen share gain on the traditional engineering material side. With respect to your second question, which

Speaker Change: I think we expect composites to play a bigger and as I was mentioning earlier in my comments with respect to winning share in defense and other things with NATO countries. So composites, we're going to kick in there also we are seeing Ah Ah.

Speaker Change: Some of our products and building and construction area with respect to you know.

Speaker Change: <unk> panels and composite materials that are used in construction of homes.

Speaker Change: That we are seeing momentum in.

Ashish Comfort: So I think composites is going to be largely a second half story for us. And so, but in general, we have seen shared rain on traditional engineered materials side.

Speaker Change: So I think composites is going to be largely a second half story for us.

Speaker Change: And so.

Speaker Change: So but in general we have seen share gain on.

Speaker Change: Traditional engineering materials side with respect to your second question.

Ashish Comfort: With respect to your second question, which was so David, maybe just add a bit more because I think you're looking for a specificity between on the 5% how much was related to share gain, how much was related to new business wins, and then also we had restocking as well. And like I said, I think the applications that you call that with composites and for sustainable solutions, that's really more on the new business gain side. Like for instance, in building and construction for the company, it was up 15% and that really is because of the new applications either in the functional additive space or in certain applications on the composite side that really started to take, you know, win with new applications.

Speaker Change: Which was.

Speaker Change: Unfortunately.

Speaker Change: There was a second question, David maybe just add a bit more because I think they're looking for specificity between on the 5% how much was related to share gain how much was related to our new business wins and then also we had restocking as well and like I said I think the applications that you called out with composites and sustainable solutions that is really more on the new business gain side.

Ashish Khandpur: So David, maybe just add a bit more, because I think you're looking for specificity between the 5% of how much was related to share gains, how much was related to new business wins, and then also we had restocking as well. And like Ashish said, I think the applications that you call that with composites and for sustainable solutions are really more on the new business gain side. Like for instance, in building and construction for the company, it was up 15%, and that really is because of the new applications either in the functional additive space or in certain applications on the composite side that really started to win with new applications.

Ashish Khandpur: And then in other cases, also in building and construction, for instance, in the wire and cable space, that's more of a share gain. And then if I go into something like your packaging, which is up 11% within the region, that really was driven highly by restocking in that space because of the underlying marketing. It really is a mix between all three of those buckets for how organic growth grew within the quarter.

Ashish Comfort: And then in other cases, also in building construction, for instance, in the wire and cable space, that's more of a share gain. And then if I go into something like in Europe packaging, which is up 11% within the region, that really was driven highly by resocking in that space because the underlying marketing conditions wouldn't suggest that be the case. So really the mix between all three of those buckets for how organic growth grew within the quarter.

unknown: Thank you. Our next question comes from the line of Lawrence Alexander of Jeffries. Your line is now open.

Lawrence Alexander: Our next question comes from the line of Lawrence Alexander of Jeffries. You want us to open?

unknown: Hey, good morning. This is Kevin S. Duck on for Lawrence.

Kevin: Hey, good morning. This is Kevin. I stuck on for Lawrence. I just about mix.

unknown: I guess about mix. I guess I'm just wondering how you guys expect your mix to evolve in the short to medium term. So maybe the back half of this year and maybe into 2025, 2026. Thank you.

Kevin: I guess I'm just wondering how you guys expect your mix to evolve in the short to medium term. So maybe back half of this year and maybe into 2025, 2026. Thank you. Yeah, from a back half perspective, we're not expecting a whole lot from price mix to come through, as the she's mentioned earlier. It's really a volume story in the back half of the year. There may be some mix that comes through because if defense comes a little bit stronger in the back half, that may help with margin expansion, but we're not expecting price mix to be material for the back half.

unknown: From a back half perspective, we're not expecting a whole lot from price mix to come through. As Ashish mentioned earlier, it's really a volume story in the back half of the year. There may be some mix that comes through because if defense comes up a little bit stronger in the back half, that may help with margin expansion, but we're not expecting price mix. We haven't come up with estimates for 2025 and 2026.

Jamie Beggs: We haven't come up with estimates for 25 and 26. As she mentioned before, we are interested in amplifying innovation, and those programs start to take more hold. We do expect margin expansion to continue.

unknown: As Ashish mentioned before, we are interested in amplifying innovation, and as those programs start to take more hold, we do expect margin expansion. So we expect that to be positive, but we'll get more specifics when we get to December 4th.

Jamie Beggs: So we expect that to be positive, but we'll give more specifics when we get to December 4th.

Jamie Beggs: Okay, understood. And I guess you talked a little bit about pricing, but I mean, you know, just the raw materials coming down. I'm just curious.

unknown: Okay, understood. And I guess you talked a little bit about pricing.

Jamie Beggs: Let's say if that trend were to continue into 2025, I mean, would you expect any kind of knock-on effects from, let's say, pricing pressures coming from customers, you know, further downstream. Or do you expect to keep up with that?

unknown: But I mean, you know, just with raw materials coming down, I'm just curious, let's say, if that trend were to continue into 2025. Would you expect any kind of knock-on effects from, let's say, pricing pressures coming from customers, you know, further downstream? Or do you expect to keep all of that? Well, pricing is actually going up in the.

Jamie Beggs: Well, pricing is actually going up in the back half of the year. So like I answered with Frank, we expect five to $10 million in the back half of the year. We have a strong history. If you go back for the last 8 to 10 quarters of being able to have a net price benefit, regardless if it's an inflationary or deflationary environment, the teams have done a really nice job with that. Expect that to continue to be the case.

unknown: Well, pricing is actually going up in the back half of the year. So, like I answered with Frank, we expect five to $10 million in the back half of the year. We've had a strong history, if you go back for the last eight to 10 quarters, of being able to have a net price benefit regardless if it's an inflationary or deflationary environment. The teams have done a really nice job with that. I expect that

Vincent Andrews: Our final question comes from the line of Vincent Andrews of Morgan Stanley. Your line is now open. Thank you and good morning.

unknown: Our final question comes from the line of Vincent Andrews of Morgan Stanley. Your line is now open.

unknown: Thank you and good morning. This is Turner Hendricks on for Vincent. Can you help us understand what's going on from a cash flow perspective and what you expect from working capital for the year?

Vincent Andrews: This is Turner Hendricks on for Vincent. Can you help us? Can you help us understand what's going on from a cash flow perspective and what you expect from working capital for the year? Sure, maybe just a little bit of a comparison to prior years. We had a little over 185 million of free cash flow. And as we look into 2024, our capital expenditures for the year are slightly higher. Then last year, we estimated about 140 million. So taking that to effect, we do expect two things to change for 2024. One is the capital. We do expect the higher sales level to also be a cash use versus we had about 40 million dollars of a cash good guy in 2023, which won't beat in 24 because of the sales good guy.

unknown: There may be just a little bit of a comparison to prior years. We had a little over $185 million of free cash flow. And as we look into 2024, our capital expenditures for the year are slightly higher than last year. We estimate about $140 million. So taking that into effect, we do expect two things to change for 2024. One is that working capital, sorry; one is the CapEx, and the other is working capital.

unknown: We do expect the higher sales level to also be a cash use versus – we had about $40 million of a cash good guy in 2023, which won't repeat in 2024 because of the sales bad guy. Maybe as a reminder, our working capital as a percentage of sales averages between 12% and 13%. We expect that to continue through the back of the year.

Jamie Beggs: Maybe, as a reminder, our working capital percentage of sale averages. between 12 and 13 percent. We expect that to continue through the back half of this year, too.

Jamie Beggs: Great.

unknown: Great, thank you. One additional question that I had, what parts of the Ross basket are driving the expectation for additional inflation in the fourth quarter relative to the third quarter? And is this something that you all could see continuing?

Jamie Beggs: Thank you.

Jamie Beggs: One additional question that I had. What parts of the RAW's basket is driving expectation for additional inflation in the fourth quarter relative to the third quarter? And is this something that you all could see continuing? Yeah, so what we're seeing in the back half really relates to pigments, certain performance added as well as our hydrocarbon basket, which is primarily driven by polyethylene, polypropylene, and TPE. That's really what we're seeing in the current curves. I mean, obviously that's dependent on kind of the evolution of as we kind of go through the back half, but that's the best visibility that we have at this point.

unknown: Yeah, so what we're seeing in the back half really relates to pigment, certain performance additives, as well as our hydrocarbon basket, which is primarily driven by polyethylene, polypropylene, and TPE. That's really what we're seeing in the current curves. I mean, obviously, that's dependent on kind of the evolution as we kind of go through the back half, but that's the best visibility that we have at the moment. Great, thanks, I appreciate the color.

Jamie Beggs: Great. Thanks. Appreciate color.

unknown: Great, thanks. I appreciate the color.

Speaker Change: Great. Thanks, I appreciate the color.

Speaker Change: Okay.

Operator: Okay, with that, I think we'll conclude today's call. Thank you, everyone, for joining us, and we'll see you next quarter.

unknown: Okay, with that, I think we'll conclude today's call. Thank you everyone for joining us, and we'll see you next quarter.

Speaker Change: Okay with that I think we'll conclude today's call. Thank you everyone for joining us and we'll see you next quarter. Thank you.

Operator: Thank you.

Operator: This concludes today's conference call. Thank you for your participation.

unknown: This concludes today's conference call. Thank you for your participation. You may now disconnect.

Speaker Change: Yes.

Speaker Change: This concludes today's conference call. Thank you for your participation you may now disconnect.

Operator: You may now disconnect. Thank you.

Speaker Change: [music].

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: [music].