Q3 2024 Avient Corp Earnings Call
Speaker Change: Good morning, ladies and gentlemen and welcome to Avent Corporations Weft Casted Discussed to Company 3rd Quarter 2020 for Results.
Michelle Nubbavir: My name is Michelle Nubbavir, 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 remark.
Michelle Nubbavir: As reminder this conference is being recorded for replay purposes, I would now like to turn the conference over to Joe Disavo, Vice President, and Ambassador Relations. Please go ahead, sir.
Joe Disavo: Thank you and good morning to everyone joining us on the call today. Before beginning, we'd like to remind you that Samus may dig in this webcast may be considered for looking statements from the meaning of the private securities litigation reform act of 1995.
Speaker Change: For a book he statements will give current expectations or forecasts to future events and are not guaranteed to feature performance. They're based on management's expectations and involve a number of business risks and uncertainties, any of which because actual results are different materialy from those expressed in or implied by the forward-looking statement.
Speaker Change: We encourage you to review our most recent reports, including our 10Q or any applicable amendments for a complete discussion of these factors and other risks that may affect our future results.
Speaker Change: During this discussion today, the company who used Wolf Gap and 9 Gap Financial Mushers.
Speaker Change: Please refer to the presentation posted on the Investor Relations section of the Even website, where the company describes the 9GAT measures and provides the reconciliation for their historical 9GAT financial measures to the most directly comparable GAT financial measures.
Speaker Change: A replay this call will be available on our website. Information to access the replay is listed in today's press release, which is available at AVN.com in the Investor Relations section.
Speaker Change: Joining me today is our President and Chief Executive Officer, Dr. Ashish Khandpur.
Speaker Change: and Senior Vice President and Chief Financial Officer, Jamie Beggs.
Speaker Change: and when I'll turn the call over to Ashish to begin.
Ashish Khandpur: Thank you Joe and welcome everyone. I am very pleased with our third quarter financial performance, which proves to be our second consecutive quarter of organic sales growth.
Ashish Khandpur: We delivered sales of $815 million for the quarter, representing 8% growth over the third quarter of 2023, on an as-reported basis, and 8.5% organic sales growth, excluding the impact of foreign exchange.
Speaker Change: Both segments, colour, additive and in and specialty engineering materials, Bruce Aels.
Speaker Change: The growth was brought based across all geographies and most end markets.
Speaker Change: The drivers behind the above market growth were consistent with what we discussed last quarter. We once shared, we were specced in new product launches from our customers, and they continued to be some restocking in certain end markets.
Speaker Change: On the bottom line, the team delivered adjusted EBISDA of $130 million, which reflected 6% growth over the prior year third quarter.
Speaker Change: Both segments expanded, Ibid Dam Argins by 40 basis points each, driven by favorable mix, as well as operating leverage from increased volumes.
Speaker Change: Our commercial and operational efforts more than offset the year over year had been replaced in the quarter, related to the variable compensation accruals that we have previously communicated.
Speaker Change: A registered earnings per share grew double digits up 14% over the prior year to 65 cents, which exceeded our prior guidance for the quarter by three cents.
Speaker Change: This was due to better than expected demand and new product specifications for our color business in Latin America, as well as timing of these end-orders.
Speaker Change: Our teams are executing well across the globe, and we are winning business by focusing on customized tactics tailored to each of the regions.
Speaker Change: In the US and Canada, we have been focused on going deeper with our key global accounts and building new businesses related to some of the macro trends.
Speaker Change: In IMAIA, we have been winning share by enhancing our customer focus and simplifying our go-to-market strategy.
Speaker Change: In Asia and Latin America, we are expanding our customer base through more local account penetration.
Speaker Change: In short, we have adjusted and deployed our commercial teams in ways to capitalize on the specific opportunities presented in each region. And we have had success.
Speaker Change: As we all by the company and start executing our new strategy, we have made some key organisational and structural changes in the recent months.
Speaker Change: First, we have streamlined our color, aratism and ink sediments under a single global leader and eliminated organizational complexity, particularly in Europe.
Speaker Change: We want to make it easier for our customers to do business with A-Vient and start seeing things from their lens.
Speaker Change: We want to provide them solutions and options to help solve their problems.
Speaker Change: It's an important step as we become more customer centric and age-eye, all differentiators and enablers who are expectations of organic growth.
Speaker Change: We have reorganized select parts of R&D and consolidated certain talents from across the organization to enhance our capacity and capability in specific areas prioritized for growth.
Speaker Change: This consolidation also enables our technical expertise to be broadly leverage across the entire company versus just serving individual business.
Speaker Change: Additionally, we continue to strengthen and build our leadership team that will help execute our strategy and take A-V-N into the future.
Speaker Change: Since my joining the company, we have hired a new chief legal officer, chief information officer, chief technology officer, and created and hired for a new role of senior vice president for new business development and marketing excellence.
Speaker Change: These important changes are directly aligned to our strategy to grow profitably and then build new businesses of scale, while also leveraging digital tools to drive productivity and growth for the company.
Speaker Change: Furthermore, we are prioritizing the company's portfolios with differentiated expectations and resourcing them based on where the businesses are on their life cycle curves.
Speaker Change: Lastly, starting next year, we are changing our compensation structure to more directly align to driving the company's strategy and desired behaviors to win in the market.
Speaker Change: We will share more at our investor day in December. But I want you to share a few items and some perspectives today on how we have been working to drive both top line growth and margin expansion for our future.
Speaker Change: Before I turn the call over to Jamie to cover the details of our third quarter results, I also wanted to highlight that earlier this month, we did increase our dividend by 5% to an analyzed playout of $1.08 per share.
Speaker Change: This marks the 14th consecutive year the company has increased the dividend since its inception in 2011.
Speaker Change: I view this as a reflection of our confidence in the company's underlying earnings growth and commitment to returning cash to shareholders.
Speaker Change: Now I will turn the call over to Jamie.
Jamie Beggs: Thank you, Ashish. The team continues to execute well and deliver another strong quarter with robust organic growth, which slightly exceeded the guidance we provided back in August.
Jamie Beggs: As Ashish mentioned earlier, total company sales group 8% driven by underlying buying growth of 7% and positive price mix of 1.5% which are slightly offset by FX headwind.
Jamie Beggs: The underlying growth in the positive net price benefit, more than offset the reset, a variable incentive compensation expense, resulting in adjusted eva digroath of 6% versus the prior year.
Jamie Beggs: A JEST at EPS of 65 cents reflects 14% growth versus the prior year.
Jamie Beggs: In addition to EBITDA growth, adjusted EPS also benefited from lower interest expense from the 100 million of debt pay-down that we completed in August of 2023 and the opportunistic repricing of our term loan at that time and then again an April of 2024.
Jamie Beggs: Before reviewing segments results for the quarter, let's take a look at our regional performance.
Jamie Beggs: Beginning with the US and Canada, which accounts for 41% of our total sales, the team delivered 9% growth versus the prior year with nearly every end market growing.
Jamie Beggs: Building a construction sales in the region grew 21% led by strong demand for our composite panel, which are replacing conventional building materials. Also, note worthy for the region with healthcare, where sales were up 15% driven by restocking, as well as strong demand for drug delivery and monitoring devices.
Jamie Beggs: Our technologies and relationships with key strategic OEMs allow us to participate in the secular growth trends, the Al-Pay's General Market Group.
Jamie Beggs: Lot America once again had a very strong quarter growing organics sales by 27%. Packaging is the primary in market we serve in this region, and it benefited mostly from new business wins for applications used in personal care.
Jamie Beggs: Our presence in Latin America is also strategic, allowing us to serve global OEMs and brand owners who are looking to near-store their supply chains and light a political uncertainty with trade flows and tariffs.
Jamie Beggs: We are well positioned to participate in the trend and expect to see continued growth in this region.
Jamie Beggs: Salvo and EMEA grew 5% driven by restocking from packaging customers, particularly in food and beverage, as well as continued strong demand for defense applications.
Jamie Beggs: This is partially offset by weaker demand and transportation, linked to lower automotive production and in the telecommunication application.
Jamie Beggs: which for the time being remain challenging.
Jamie Beggs: The Eurozone Academy continues to be sluggish with a manufacturing PMI at its lowest to nine months. Accordingly, we are cautious on business and consumer confidence in the near term and remain focused on what we control, serving our customers in the best way and winning share.
Jamie Beggs: In Asia, sales grew 11% driven by new product launches and consumer applications, as well as strong demand for drug delivery devices and healthcare.
Jamie Beggs: Turning to a review of segment performance, are start with color additive and inks, which grew sales 7%.
Jamie Beggs: The packaging in market, which represents about a third of segment sales, was up low-devil digit during the quarter. Most of the growth in the send market stem from the Americas, particularly Latin America, where we want new businesses for applications used in personal care packaging.
Jamie Beggs: It's also important to note that packaging continues to show recovery in Europe, we're creating sustainable products or a high focus area of our customers.
Jamie Beggs: Building a construction sales also contributed to colors growth during the quarter, growing double digits. This is driven by re-sucking in certain applications, new business wins, and share gains, particularly an EMEA.
Jamie Beggs: The increase in demand, favorable mix, as well as some raw material deflation, grew adjusted even by 9% and expanded EpoD margins by 40 basis points.
Jamie Beggs: Moving to our specialty engineered material segment, sales group 10% organically. Approximately 1-3rd of the sales growth was driven by increased demand for dynamic applications used in protective equipment for the military and law enforcement.
Jamie Beggs: Another one third of the segment sales growth came from composite materials using the building in construction and energy markets.
Jamie Beggs: Our composite materials are replacing conventional building materials used in residential housing to improve strength, while reducing weight, and in some cases the overall cost of construction.
Jamie Beggs: These attributes are also play well in the energy market as the need for reliable energy distribution combined with the increase in storm activity continues to the pressure on the electrical grid. Composites use the insulators and utility poles all for high strength solutions to support the hardening of the grid.
Jamie Beggs: The remaining one third of the segment sales growth is primarily related to demand and consumer and healthcare in markets where we continue to see strength.
Jamie Beggs: All in, SEMs adjusted EBITDA group 12% and EBITDA margins expanded by 40 basis points, driven by favorable sales next from increased composite and healthcare sales.
Jamie Beggs: Turning next to the guidance, we're providing updated ranges for our full year outlook.
Jamie Beggs: Specifically, we are nearing our ranges in line with our prior midpoint guidance as the year continues to unfold as we expected.
Jamie Beggs: Our revised guidance for adjusted EBDA is a range of 525 million to 530 million and adjusted earnings per share to arrange up $2.63 to $2.67.
Jamie Beggs: Our full year, adjusted EPS guidance now represents 11% to 13% growth over the prior year.
Jamie Beggs: As we start the fourth quarter, we are seeing similar demand trends in the U.S. and Canada, as well as in Asia. In EMEA, we expect muted sales growth due to weakness in the automotive market, and a difficult comparison for defense sales given the strong fourth quarter last year.
Jamie Beggs: The full year, adjusted EPS guidance, reflects a range of 46 cents that 50 cents per share for the fourth quarter.
Jamie Beggs: Similar to the third quarter, the fourth quarter includes a 15 million or 12-cent headwind related to variable compensation accrual.
Jamie Beggs: and Giuseppe's expenses to be approximately 104 million for the full year, slightly lower than our previous guidance of 105 million.
Jamie Beggs: Join the third quarter, we refinance our senior notes maturing in May of 2025, extending the maturity to 2031 with a new interest rate of 6 in 1 quarter percent.
Jamie Beggs: The additional interest expense associated with the slightly higher coupon on the new debt was more than offset by lower interest on our variable rate debt due to the recent rate cuts by the Fed.
Jamie Beggs: Our expected effective tax rate and investments remain unchanged from our previous guidance.
Speaker Change: I will now turn the call back over to Ashish for closing remarks.
Ashish Khandpur: Thank you, Jamie.
Ashish Khandpur: During our last earnings call, we communicated that we will be having an investor day in December.
Ashish Khandpur: I'm pleased to announce that we will be hosting this meeting at the New York Stock Exchange on the morning of December 4.
Ashish Khandpur: I'll be joined by Jamie and other members of our leadership team, where you will hear first hand the in-depth details about our new strategy and long-term expectations to deliver profitable organic growth into the future.
Ashish Khandpur: Registration Details will report coming soon and we look forward to seeing you there.
Ashish Khandpur: Finally, I want to close by saying a big thank you to the Global Aviant team, who once again delivered top and bottom line rope this quarter.
Ashish Khandpur: I am confident in our collective ability to finish by year's calm.
Ashish Khandpur: That concludes our prepared remarks for today. Operator, we are now ready to begin the question and answer portion of today's call.
Speaker Change: Thank you to ask a question, please press star 1-1 on your telephone and wait for your name to be announced.
Speaker Change: To withdraw the question, please press star one one again. And one moment please for a first question. And the first question will come from Frank Mitch from Permium Research. Your line is now open.
Frank Mitch: Hey, good morning and congrats on being able to see the year unfold as...
Frank Mitch: As you had expected, that's a rarity these days.
Frank Mitch: I wanted to drill into the end markets. You mentioned the last quarter that's seven of the nine segments grew in the second quarter. How is that in the third quarter? You called out telecom as being challenging, but I'm just curious if there were others that were challenging and not able to grow.
Speaker Change: Thanks for the question. I think the same story kind of repeated seven of the nine still remain in the right growth stage. Actually, we saw pretty good growth in pretty much all seven of them.
Speaker Change: I would say the two that remain challenged, Archie Lee Com, as we had previously had already grabbed and that continues to be the case and will probably be the case going into the future for a couple of more quarters at least.
Speaker Change: and then also transportation, you know, you are expecting it to.
Speaker Change: Flip around, you saw the global car bears, quite have been reduced as a lot of inventory on the parking lots with the cars and with the interest rates high.
Speaker Change: and especially what's happening in Europe and then what's China and I'm mixed as well. You know, overall we were seeing the transportation, I did not grow for us. So, a pattern transportation and telecom all the markets are short pretty healthy growth for us.
Speaker Change: Thank you very helpful. If I could come back to building a construction, you mentioned composite panels being particularly good and immediately my mind, I was thinking, oh commercial, data center or something like that, but you have you.
Speaker Change: You highlighted on the residential side. Now, if I'm building a new house, I'm not sure I'm putting in composite panels, but I guess I would be. Can you talk a little bit more about that application?
Speaker Change: Yes, sure. So it's a new business development that our team is leading, our composite team is leading Frank. And obviously there is a trend of building housing fast, as you can imagine, the US is a lot of shortage in housing market.
Speaker Change: So, there are companies now that are building pods or modular, you know.
Speaker Change: Rome's suit.
Speaker Change: We are about to be a kitchen whatever, using all these panels and then bringing them
Speaker Change: into the...
Speaker Change: Otherwise completed the shell of the building.
Speaker Change: and so we expect that to be a trend. Also we are seeing the ballets being used more and more. I will try to decking applications and things like that.
Speaker Change: which is also going into residential markets. And then also, you know, this whole area is, it seems to be a trend for us and we are seeing a lot of interest from our customers and we are building some new businesses in this area which we did not play in before.
Speaker Change: Very helpful, thank you.
Speaker Change: Thanks for watching.
Speaker Change: And our next question will come from David Wong with GoToBank, your line is open.
David Wong: Hi, good morning.
David Wong: That's first question. If I look at Gris Margins for C.A.I., it's still up 90 bits in the quarter, but the expansion was smaller than the first half. It's just a function of less rheumatoid deflation. And I guess for Q4, do you expect that expansion to be even smaller given maybe some rheumatoid inflation here?
Speaker Change: Yeah, you have it right David, to part of it has to do with robbing your own inflation coming down in the back half. They only had about $3 million come through in the third quarter.
Speaker Change: versus a mature mountain at first quarter, so that's a piece of it. In addition, we have this incentive of a cruel reset, but also it's impacting the back half of the year.
Speaker Change: As we mentioned on the call for the total company, it was 15 million and Q3, 15 million, Q4. So as the percentage of sales, as we look at seasonality, going from Q3 to Q4, we do exactly slightly lower gross margin for color as we head into the back half of the year.
Speaker Change: Good, good. And then secondly, I guess how do you think about, you know, if we assume no change in underlying demand, how do you think about blowing the growth that can be delivered through new product in it?
Speaker Change: Through a new probably introduction and share again in 2025. And if we think about the bridge from 2024 to 2025, any other, you know, pleasant takes that you can help us do bridge to a number for 25.
Speaker Change: I think we are not going to provide any guidance for 2025 at this stage. That will be probably not a very call when we make a Q4 earnings report. But let me just answer your question in a different way. If you look at our growth, this 8% growth that we had in Q3.
Speaker Change: About 50 to 60 percent is coming from underlying market demand as well as restocking. We saw some restocking in certain areas. And the remaining 42 to 50 percent is coming from new share gains as well as new business in areas that we were not playing in before.
Speaker Change: So, I think clearly our expectations are to grow faster than the macro by, you know, leveraging our new product development and innovation.
Speaker Change: and that's particularly that part of the top of mind things that I've talked about before. And you know, market share are you seeing the teams are doing, for the last two course, a great job, winning applications.
Speaker Change: and without giving any price by the way. So, we did not give any price in Q3 and we got still winning applications and gaining market share. So, that is an exceptional execution by our commercial teams in the field.
Speaker Change: So, I would say that is the trend we are on and we would like to continue to be awesome.
Speaker Change: and the train.
Speaker Change: Okay, cut, thank you.
Speaker Change: Thank you.
Speaker Change: And the next question comes from Michael Susson with Wells Fargo. Your line is now open.
Michael Susson: Hey, morning, nice quarter and outlook. She's, yeah, I've been a herd a lot of companies talking about restocking for what it's worth and, and you're organic growth is pretty impressive. Why do you think?
Michael Susson: Companies are re-stocking. Most of the outlooks we've seen from other companies are looking for things to deselerate or have deselerate. I'm just curious, maybe by end market and why they are re-stocking and...
Michael Susson: You know, why is fundamental to me and seem better for you guys and a lot of other just chemical companies?
Michael Susson: Ok.
Speaker Change: So, you know, a couple of areas of restocking we saw was a building and construction was one area, especially in the U.S. and Canada. You know, we have some applications in Bibles and for things, area where we saw some restocking happening.
Speaker Change: and then also we saw restocking in healthcare area, both in United States and Canada as well as in Asia. This is more for our respiratory application areas but also catheter and tubing.
Speaker Change: and Health Care. And then overall some restocking happening in consumer and packaging as well, both in Europe, but also in the United States. So we are seeing, you know, you know, you know, you know, you know, you know,
Speaker Change: If you look at some of our customers that are in Latin America, where we grew very well, some of our customers performed very well as well. So they are seeing improvement in that area and we are there to supply them.
Speaker Change: There is an issue on where these customers are located and where the manufacturer.
Speaker Change: in Latin America and there are sometimes a drought and an shipment to those places become difficult. And so some of our customers are also talking advance to make sure they don't run out of inventory to serve the local demand.
Speaker Change: and that was also part of the restocking. That's all and packaging and consumer areas for Latin America as well.
Speaker Change: I think one thing to add is that as we look at back in 2023 there was a substantial amount of these docking that happens. The part of this is...
Speaker Change: Less desocking comparisons, and so that's helping with some of the comps on a year or be your basis.
Speaker Change: Got it. And then Ashish maybe you alluded to this in prepare remarks, but there seems to be...
Speaker Change: The state cultural changes that you made over the last year. Can you maybe highlight some of those, particularly on the growth front? And then maybe what you think we should be?
Speaker Change: Looking for your analyst day in December. Besides, it's a really good giveaway.
Speaker Change: Okay.
Ashish Khandpur: On the Custles, you know, the company has a great culture on execution and financial prudence. And so we are trying to just build on the strengths of the company and see what else can we add to what was already a strength. You know, we have...
Ashish Khandpur: Really, Shakorn Arpensil on the commercial side and you're focusing, you know, getting into a more...
Ashish Khandpur: You know in person calls with customers increasing the number of in person calls and also the execution rhythm we are focusing on that on a commercial side as we mentioned in the, you know, remarks.
Ashish Khandpur: The customized tactics for local regions seems to be playing out well and there's something that is our strength. We are in every geography and we have to use that local relationships and local customization. And understanding of local customer nuances that can really differentiate us from competition.
Ashish Khandpur: And then the third thing we are trying to do is...
Ashish Khandpur: Really trying to get more into macro trends which are secular in nature and are typically tend to be much higher growth market segments.
Ashish Khandpur: versus the plastic markets that we play in. And so how can we intersect those market trends with our technologies?
Ashish Khandpur: to really increase ourselves in those areas and new businesses even in those areas. So those are from a commercial side.
Ashish Khandpur: We are trying to do those things and we have more into the culture. We are starting to see things from a customer perspective more and more. Sometimes a few of our teams would call on the same customer.
Ashish Khandpur: and we are trying to make it.
Ashish Khandpur: is here for a customer should do business with us and so
Ashish Khandpur: Now we are...
Ashish Khandpur: Real exemplifying our odd structures and removing oddization complexities in certain areas too.
Ashish Khandpur: Starting things from what the customer wants and how we can serve them as one bigger A.B. And that was the whole back-and-consolidation on R&D that we mentioned. You know, we are seeing convergence off.
Ashish Khandpur: For example, color and composers coming together to think about decking as an example, how's decking, you know, we supply colors.
Ashish Khandpur: For the decking material, we supply functional narratives that help to process all materials and make.
Ashish Khandpur: Dexter of the Mineral Faster Way, and then we also supply composite filament tapes and laminated which.
Ashish Khandpur: Reinforce the decking material. So, if you see from a market perspective.
Ashish Khandpur: They need the whole solution of both the composite side and the color side. And we need to start seeing things from that perspective versus individual teams going and selling their parts of the product. And so, as we have practice, our markets, which you will see.
Ashish Khandpur: in the investor day coming to your second part of the question. We are going to be building teams and going after certain markets which we have identified as hired road for us.
Ashish Khandpur: and we are going to be organizing our structure to serve those markets and win those markets in a fast way.
Ashish Khandpur: The other comment I would just make for the investor day mic is that
Ashish Khandpur: You know, I'm talking about top of mind things for aviant, for me is top-line growth with margin expansion on bottom line, amplifying innovation.
Ashish Khandpur: and building leadership and talent for AV and of the future where we want to take it.
Ashish Khandpur: And so these are not discrete things, but they are three interconnected and I would say interdependent things, and you will hopefully see them come alive in our strategy on the investor day, where how the strategy will connect to all those three pieces.
Ashish Khandpur: and how we will bring it to life going forward. So, maybe I leave it at there and more to come on December 4th.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: And our next question comes from Lawrence Alexander with Jeffree. Your line is open.
Speaker Change: Good morning, I'm just have a couple of questions. You know, one is, can you break out a little bit, you know, you have some more granularity on what's driving the growth in Asia and Europe?
Speaker Change: and particularly the Angle I'm interested in is.
Speaker Change: You're too what extent do you think?
Speaker Change: You should be at a benefit from any cyclical acceleration in those markets, or are there more secular markets you're chasing? I'm not going to give you the same cyclical left, so just want to understand the trade off there.
Speaker Change: and then the second one is with reference to the discussion you just had about shifting the culture.
Speaker Change: At larger chemical multinationals or multindustrial multinationals when these sorts of initiatives happen, there's a lot of huffing and popping to get like 50 to 100 basis points to better growth.
Speaker Change: But when you look at the segment levels, you often see much more dramatic acceleration, but there's always an issue around cannibalization and turn and giving up some businesses that are atrifying.
Speaker Change: What's your impression with aviant as the how much of a drag you'll see or should we be thinking kind of 5 to 10 years out as significantly different margins structure and growth algorithm?
Speaker Change: Okay, that's all.
Speaker Change: Loaded question, Lawrence, I'll try to adjust both of them. So on Asia and Europe, you know, Asia for us is about $515 million and about 55% of that is.
Speaker Change: China and another 25% or so is Southeast Asia. So between China and Southeast Asia, you're talking 80% of our revenues there.
Speaker Change: and the three driving forces, the three areas where we really did very well in Asia was consumer, especially consumer discretionary area, you know, health care and industrial.
Speaker Change: and you know so we grew just for example.
Speaker Change: If I did look at the greater China area, we grew 6% last quarter in Greater China area and this quarter we grew 11%. And those numbers are much higher than the GDP growth of the area. So we are growing up of the macro in those that in that area.
Speaker Change: you know, glucose monitoring devices and so we are seeing, this is new business of course and we are seeing growth in that business as the whole market is going very fast there.
Speaker Change: On the consumer side we have seen some...
Speaker Change: Samov Bill.
Speaker Change: Performance stimulus, the art trickling and especially in the...
Speaker Change: Some Certain Consumer Discrational Eidems.
Speaker Change: and people are seeing some increase spending especially in the appliance area and we are gaining share there.
Speaker Change: And then also when I look into, I…
Speaker Change: China going forward in Q4, we expect an Asia to be expecting that to be in high single, mid to high single, budget growth for Q4 as well as a trend. So, we expect our continued performance in those areas and the areas that are going to grow are going to be the same in the area that I just mentioned.
Speaker Change: With respect to Europe, it's an interesting story. It's more about taking markets share there, but also certain secular markets like healthcare. I mentioned Google monitoring devices, drug delivery devices.
Speaker Change: but also respiratory care and stuff like that. We are waiting healthcare in Europe for us. Healthcare was 18% growth, for example in Q3. Defense was another big thing in Europe for us, 28% growth in defense and...
Speaker Change: with all the war and Ishuse is going on there. That has been a tailwind for us from a business perspective.
Speaker Change: and then also taking some share and building and construction areas, especially in the Middle East, Asia, Asia, where we are gaining some share in certain applications related to.
Speaker Change: Artificial Turford and so on and so forth. We did get some packaging and consumer tailwinds as well. Some of that was re-stalking, but also we once shared in packaging applications in EMEA.
Speaker Change: So I think when I look into Q4 for Amy and I said, by the way, Amy I grew up 4% in Q4.
Speaker Change: 3 Q2 and 5% in Q3.
Speaker Change: and when we look into Q4, I think the color side of the build must be still growl, single digits, continued in that consumer packaging area that we are seeing.
Speaker Change: But the SCM side of the business which will getting more tailwinds from the defense application that will disappear and so overall we see.
Speaker Change: A little bit of muted growth in Europe for Q4, largely because of tele-transportation and telecom still being big head went for us there.
Speaker Change: Now, from a closer perspective, the second question that you asked, what should expect going forward. I think that as you are trying to set is that,
Speaker Change: We believe we are getting a gasey fast-robed because we are winning share. Obviously, you know, you think about what are the different sources of growth there is underline market demand.
Speaker Change: Then there is some erosion, business erosion that always happens because you're losing share somewhere or, you know, and then there's a new product development which will get amplified into the future, which will create new businesses even for us. And then there is a market share game.
Speaker Change: And then there could be M&A but that's not in the near future for us. It's more longer than strategy when it's the time is right for us, but right now we are more focused on gaining market share as well as building new platforms for growth, especially in high growth spaces.
Speaker Change: and leveraging our technologies to come up with its solutions approach from a customer perspective, you know what are these platforms that we want to develop.
Speaker Change: So, that's how we are thinking about it Lawrence. I think that should over time give us differentiation. The innovation should result into margin expansion because differentiation leads to price differentiation and that leads to margin expansion.
Speaker Change: So, apart from increase volumes that will also have a run-out blind spot.
Speaker Change: Thank you.
Speaker Change: Thank you, Lars.
Speaker Change: and the next question comes from Vincent Andrews with Morgan Stanley, your line is open.
Vincent Andrews: Thank you for morning everyone. Maybe Ashish on the reorganization announcement that you made, I assume that's coming with some cost savings. So I'm wondering whether your plan is to let those fall for bottom line or whether you're going to reinvest those for growth.
Speaker Change: Yeah, I mean, you know, honestly we are doing this mostly because, you know, to grow the business and getting more streamlined around the customer needs.
Speaker Change: and so that has been our focus. Some of those savings have been coming as we have reorganized and we are seeing that as part of the margin expansion that we are seeing.
Speaker Change: But I think mostly the reorganization is around the strategy of what we are trying to deliver to grow the top line and the bottom line.
Speaker Change: I think most probably savings and productivity will come as the implement our digital strategy and we hired a CIO and end.
Speaker Change: and some folks who are expert in that digital area as well and as we and there is some low hanging fruit here with respect to.
Speaker Change: We are not talking necessarily artificial intelligence only, which is also part of the strategy, but even though hanging food up now we can use digital endangered operations for diaper activity in the company.
Speaker Change: and NNR Manufacturing Plan. So that should start implementing into more bottom line expansion into the future years. But I think for 2024, the restructuring is really not around.
Speaker Change: The cost savings it is more around growing the business and serving the customer right.
Speaker Change: Very good. Jamie, if I could ask you on free cash flow just looking at the nine months to date.
Speaker Change: Castle of Statenman, you know there's been a big, another big, I mean there's been.
Speaker Change: and increasing working capital. So I'm just wondering how that's going to settle out in the fourth quarter. If you can just give us a sense of what's free cash flow might be. And then just a specific question on the working capital.
Speaker Change: The Acute Expenses and other assets and liabilities. What's in there that's making that go up about 30 million year to date?
Speaker Change: There, yeah, so here today we've had $55 million of the free cash flow. Keyboard is typically a quarter of a regenerative, a lot of cash. If you look back to Keyboard last year, we released 110.
Speaker Change: William William.
Speaker Change: That really has to do with how working capital plays out as the seasonality continues, is it's the back half of the year. Working capital from a school year perspective runs about 12 percent, and because of the net growth that we've had, you're over year we expect that to be about a 10 to 50 percent.
Speaker Change: [inaudible]
Speaker Change: 24, because the crew was low in 2023.
Speaker Change: Okay, thanks very much.
Speaker Change: Hey, welcome.
Speaker Change: And our next question comes from Kristen Owen with Open Heimer. Your line is now open.
Kristen Owen: Good morning. Thank you for taking the question. Ashish, you touched on this in a number of your responses, but maybe to put a fine wrapper around it. A lot of the commentary, I think you said, 50% of the growth in the quarter is coming from new business lanes and share gains.
Kristen Owen: Just help us unpack how much of that is coming from some of the commercial actions that you've already described, sort of the alignment of those actions and thinking about full solutions rather than point solutions.
Kristen Owen: versus what's coming down the innovation pipeline? Are you getting into these new categories because you've got new products to serve? So help us unpack those two and then I'll have follow up.
Speaker Change: I would say that out of that 50% about half is coming from new business development in these high growth areas that we are going after and about half is coming from market share games because of commercial activity.
Speaker Change: and there could be 46 or 60 or 40, 11 or another. But just in that ballpark and so we feel pretty good how RTU is getting.
Speaker Change: More and more engaged in some of these high growth trends and and and actually they have been working with our customers for some time as well and now we are we are just making the bed bigger and bolder and going in a bigger way after some of these things
Speaker Change: So, I think that starting to show some traction, especially as the economy improves and more money flows in areas like building and construction and grades and electric grades and these are secular trends. Again we are changing secular trends.
Speaker Change: and so we are seeing more momentum in those areas. And winning share is going to be an ongoing thing. I mean that's something that we have to do every day and get better at our commercial activity. And as we implement digital tools and things like that, we should continue to start creating differentiation.
Speaker Change: and fun with.
Speaker Change: And there. But that, you know, obviously the share winning is not a linear function and after a while, you will see some tapering in with this amount of share that we can get. But I think it's something that we need to, again, we are playing to win, we are not playing to defend. I guess that's the message I tell my team every day.
Speaker Change: That's great, thank you.
Speaker Change: So on that secular trend piece, you've talked about telecom being this drag for several quarters, understanding that there's some legislative red tape that is causing that, but it seems like fiber line since the acquisition has really just been slower to evolve and to become what was intended when that was initially bought into the portfolio.
Speaker Change: You'll end if you're thinking about deploying capital towards those areas of growth.
Speaker Change: and given the outline that you've described for fiberline, like how you think about that telecom business in the context of future avian where you want to deploy capital is that something that you would look to maintain in the portfolio just given the relatively minimal synergies that it has with the rest of the avian portfolio.
Speaker Change: Yeah, so Christian, I think first of all, Fiverline has been down for a few quarters now as you pointed out and again we are seeing
Speaker Change: You know we are beginning to laugh.
Speaker Change: In the US, we were 20% or so in...
Speaker Change: and U.S., but that's not because the volumes are growing, it's because they're lapping for a comms and last. So nothing to write home about. I think our bigger issue in Puyberline has been in the area, Europe, specifically where we have been seeing.
Speaker Change: and Lord of...
Speaker Change: Mattis Alcoming in from China, highly reduced prices and subsidized prices that we cannot compete against basically. So, that has been a bigger problem on the fiber line apart from the bid money or had not flown yet at a project level within U.S., and not expected to flow maybe till the end of next year.
Speaker Change: So I think it's a...
Speaker Change: It's a really interesting thing that we are watching closely. Our teams are taking actions and have been taking actions throughout and we have been looking at our structure and our plan structures and everything like that in that context to see.
Speaker Change: We can best optimize and end.
Speaker Change: A Play the Game. This is a one-time business. And so when we are thinking about the avian of the future, obviously, we are...
Speaker Change: Certain businesses are more cyclical than others and we have to make sure that we balance.
Speaker Change: That to come up with a more reduced variability in our portfolio and as well as our output of financial results.
Speaker Change: So in that context we have to manage this accordingly. We haven't, you know, it will be part of the portfolio but but maybe the bigger stress would not be, you know, on this side of the business given how the market is looking right now in the volatility in the...
Speaker Change: The competition we are seeing from China and this.
Speaker Change: Thank you.
Speaker Change: And our last question comes from Mike Harris in the Seaport Research. Your line is now open.
Mike Harris: Hi, good morning. Was hoping...
Mike Harris: That we could go through Latin America and maybe the same level of detail as we talked about Asia and Europe. I'm particularly curious if you can talk about how your position in Latin America in terms of capacity and commercial resources in some of the key countries.
Mike Harris: And is this a region that you feel like you can continue to grow organically or at some point does an acquisition make sense?
Speaker Change: I'll start Mike so, Latin America is primarily packaging.
Speaker Change: and we do have leather and market exposure as well.
Mike Harris: and we have plants, boats, and Mexico, as well as in other parts of southern America as well including Brazil and a few other places.
Mike Harris: Plenty of capacity to be able to take on growth there.
Mike Harris: At this juncture, we're not looking at any M&A activities or acquisitions because of our manufacturing locations and how we're able to serve customers. We get expect healthy growth there. This is an area that we continue.
Mike Harris: and you need to look at in terms of...
Mike Harris: Taking our technologies that we've been very successful in other parts of the world and really translating it to that region.
Mike Harris: which has a head as much exposure to it.
Mike Harris: And then in addition to that, it's just a faster girl, reaching. Part of that would be related to mere shortening and the other part being it's just...
Mike Harris: i
Speaker Change: All right, and then, maybe another question for you, Jamie. The balance sheet is below three times net that to EBITDA at this point. Can you talk about whether we might start to see some share repurchases?
Speaker Change: I know it sounds like you're de-emphasizing M&A activity right now. But just, is Sherry Persons going to become a bigger priority for capital deployment? And can you also remind us what your target leverage range is going forward?
Jamie Beggs: Our target leverage range is actually closer to 2.5, Mike's so until we get to that point, share repurchases are at least on a meaningful way or not on the table. What happens historically, not in the last two years just because of the M&A activity, have offset share dilution, we share repurchases, that could be on the table, but no meaningful share repurchases.
Jamie Beggs: is at this job, so we get our balance sheet at a healthier level.
Speaker Change: Alright, thanks very much.
Speaker Change: This concludes today's conference call. Thank you so much for participating. You may now disconnect.