Q1 2025 Avient Corp Earnings Call

May 6, 2025

[inaudible]

Speaker Change: Good day ladies and gentlemen and welcome to the Avient Corporations webcast to discuss the company's first quarter 2025 results.

Tanya: My name is Tanya, 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.

Tanya: As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Joe DeSalvo, Vice President, Treasurer, and Investor Relations. Please go ahead.

Joe DeSalvo: Thank you, and good morning, everyone, to joining us on the call today. Before beginning, we'd like to remind you that statements made during this webcast may be considered for looking statements within the meaning of the private security litigation reform act of 1995.

Joe DeSalvo: Four-looking statements will give current expectations or forecast the future events and are not guaranteed to use a future performance.

Joe DeSalvo: They're based on management's expectation and involve a number of business risks and uncertainties. Any of which causes actual results to differ materially from those expressed in or implied by the for-looking statement.

Joe DeSalvo: We encourage you to review the 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.

Joe DeSalvo: During today's discussion, the company will also use GAP and non-GAAP financial measures. Please refer to the presentation posted on the Investor Relations section of the Avian website, where the company describes the non-GAAP measures and provides a reconciliation for historical non-GAAP financial measures to their most directly comparable GAAP financial measures.

Joe DeSalvo: 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.

Joe DeSalvo: Joining me today is our President and Chief Executive Officer, Dr. Ashish Khandpur.

and Senior Vice President and Chief Financial Officer, Jamie Beggs.

Joe DeSalvo: and will now hand the call over to Ashish to begin.

Thank you, Joe, and good morning, everyone.

Ashish Khandpur: I'm pleased to report we delivered our fourth consecutive quarter of organic growth where both sales and registered EPS were in line with expectations.

Ashish Khandpur: Excluding the impact of foreign exchange, we achieved top and bottom line growth while expanding

Ashish Khandpur: Specifically, organic sales grew 2% in the quarter driven by resilient demand in packaging.

Ashish Khandpur: Adjusted with the group 4%, excluding the impact of foreign exchange due to higher organic sales and lower-year-over-year costs as we tighten our belts across the company to closely manage discretionary spending.

Ashish Khandpur: Ajusted Ibidha margins expanded 20 basis points to 17.5%, which is particularly notable given the strong comparisons of our highly profitable defense business, which had grown 38% year over year in the first quarter of 2024.

Ashish Khandpur: Overall, we delivered adjusted EPS of 76 cents which represents 4% growth when excluding the unfavorable impact of foreign exchange.

[inaudible]

Ashish Khandpur: The evolving trade policy has led to uncertainty impacting demand in select markets and geographies, particularly in the US.

Ashish Khandpur: As you can see on this slide, organic sales for the US and Canada declined 3%, primarily due to the weak demand in our consumer and transportation and market.

Ashish Khandpur: Partially offsetting this was continued strong growth in health care, driven by demand in medical medical supplies, categories, and modest growth in packaging applications.

Ashish Khandpur: Emea, who grew 2% in the quarter, which is the fourth consecutive quarter of organic growth for this region.

Ashish Khandpur: We continue to streamline our structure and operations there to better serve our customers. This renewed focus is helping our teams to win new business and share anemia.

Ashish Khandpur: Our Asia business continues to show strength, increasing organic sales 9% in the quarter with growth across most end markets including transportation.

Ashish Khandpur: Lastly, our team in Latin America continues to significantly outpace martyred growth, increasing organic sales by 17%.

Ashish Khandpur: This marks the fourth consecutive quarter of double digit organic growth for the region.

Ashish Khandpur: We continue to win share with global OEMs and brand owners in the packaging and consumer space.

Ashish Khandpur: As the level of macroeconomic uncertainty has increased, we are well positioned to help our customers across the globe by executing our playbook which focuses on what we can influence.

Ashish Khandpur: As Jamie will share, our in-depth analysis shows that the direct tariff impact on our sales and raw materials is not anticipated to be significant.

Ashish Khandpur: Our local presence and global reach is a competitive advantage that enables us to serve our customers where and how they want to be served.

Ashish Khandpur: Our teams are staying close to our customers and helping them navigate the changing business landscape.

Ashish Khandpur: We have an agile global manufacturing footprint to accommodate shifting customers' supply chains and are able to respond quickly to meet our customers' evolving needs.

Ashish Khandpur: This is helping us to gain their trust and is also creating opportunities where we can win share from competition as they become less cost attractive for certain applications.

Ashish Khandpur: Internally, we have an enhanced focus on cost control and productivity.

Ashish Khandpur: This includes our Lean Six Sigma Initiatives, Optimization of our Manufacturing Footprint and Discipline on Discretionary Spending.

Ashish Khandpur: In addition, we are focused on maximizing cash with effective working capital management and balanced capex decisions.

Ashish Khandpur: We expect to generate strong free cash flow and deploy it in ways that maximize values for our shareholders.

Ashish Khandpur: One such way is our decision on paying down our debt by 100 to 200 million dollars this year.

Ashish Khandpur: Jamie will cover more on this topic later in the guidance portion of the call.

Ashish Khandpur: With respect to tariffs, we expect minimal direct impact as we primarily source raw materials and manufacture our products locally in the regions that we serve.

Ashish Khandpur: To the extent there are exposures, we are working closely with our customers and suppliers to mitigate the impact.

Ashish Khandpur: This includes optimizing our raw material purchases and using our formulation expertise to identify material substitutions where possible.

Ashish Khandpur: and we're needed. We have been implementing pricing actions to offset any inflationary impacts.

Ashish Khandpur: Finally, as a team, we are fully focused on day-to-day execution but also on advancing our company strategy by prioritizing investments and resources for our growth vectors.

Ashish Khandpur: This applies to both catalyzing our court, where our health care and defense portfolios are expected to outperform the broader market.

Ashish Khandpur: and to building platforms of scale in fast growing markets supported by secular trends, like use of composites in energy infrastructure and building and construction markets.

Ashish Khandpur: I will now hand it over to Jamie to discuss the quarter's financials in more detail, as well as discuss our guidance for the year.

Jamie: Thank you Ashish, and good morning everyone. Our playbook has served us well during the quarter and it enabled us to deliver 76 cents of adjusted earnings per share in line with our expectations and flat to last year's results.

Speaker Change: Impacting this quarter was unfavorable effects of three cents per share, as well as slightly higher depreciation, and a higher effective tax rate, which impacted EPS by two cents.

Speaker Change: As Ashish mentioned earlier, we grew both the top lines and bottom line, excluding FX. This performance was driven primarily by growth in the color, additives, and ink segments, as well as broad cost-control discipline across the company.

Speaker Change: Starting with color, the segment grew organic sales 3%, and adjusted EBDA by 7%, excluding the impact of foreign exchange.

Speaker Change: Bells and Packaging Materials, the segment's largest in market, contributed significantly to growth as resilient demand for personal care and food and beverage applications grew across all reasons.

Speaker Change: In addition, virtually every and market grew year-over-year, with the exception of transportation, where we saw double-digit declines in the U.S. and EMEA related to weaker vehicle production and these geographies.

Speaker Change: Keller expanded adjusted EBITDA margins by 50 basis points through sales growth, favorable mix, and cost improvement initiatives, including plant footprint optimization and streamlining the organization to better serve our customers.

Speaker Change: Our specialty engineering material segment delivered organic cells that were flat to prior year while adjusted EBITDA's decline 4% excluding the impact of foreign exchange.

Speaker Change: Healthcare grew double digits with strong demand and medical devices and medical supply portfolios. Energy was also strong during the quarter due to increased demand for composites for energy infrastructure projects and the ropes for marine applications.

Speaker Change: These gains were more than offset by lower sales and transportation and defense markets.

Ashish Khandpur: As Ashish mentioned, due to the lumpiness of sales and personal protection, the first quarter of 2024 was a record quarter for our defense business, making for a difficult year of a year comparison.

Ashish Khandpur: Overall, for the segment, the lower sales and defense during the quarter resulted in unfavorable mix and modestly lower EBDA versus the prior year.

Ashish Khandpur: While defense was down 5% during this most recent quarter, our overall outlook for this project remains robust. Last earnings call, we highlighted our latest innovation, a third generation of Danyema, that provides unmatched ballistic protection at the absolute lightest possible weight currently

Ashish Khandpur: We have launched our special soft flexible grade for both law enforcement and Army vest and now have secured orders in Europe and Australia for these advanced technology based materials.

Ashish Khandpur: These are just some examples of riding momentum and confidence and are full year outlook for the defense business.

Ashish Khandpur: On this next slide, I wanted to provide some context to our direct exposure to tariffs. As Ashish previously highlighted, we primarily source raw material and manufacture our products locally, and the regions that we serve to expect our exposure is not significant.

Ashish Khandpur: We estimate that less than 100 million of our sales and less than 100 million of our raw materials are exposed to tariffs.

Ashish Khandpur: As the percentage of total sales, that's approximately 3% that are exported from the US or imported into the US from other countries.

Ashish Khandpur: and as a percentage of our total raw materials, it represents less than 8% of what we purchase. This excludes materials that are currently exempt by annexed to and USMCA provisions.

Ashish Khandpur: For Croc Border Trade with China, specifically, we have exposure of approximately $10 million of sales, and approximately 20 million in raw material spent.

Ashish Khandpur: While the direct impact from tariffs is not expected to be significant, we cannot underestimate the impact tariffs can have on overall market demand.

Ashish Khandpur: Several public reports have confirmed its slowing demand environment in the U.S., which is also corroborated by some of our customers, especially in consumer building a construction and transportation in markets.

Ashish Khandpur: As we look out to the second quarter and for the four year, we have taken this into consideration while also balancing it with parts of our business that continues to grow as well as the self-help initiative that we are taking to manage profitability.

Ashish Khandpur: Starting with Q2, we expect second quarter adjusted EPS of 79 cents, which represents growth of 4% over the prior year quarter.

Ashish Khandpur: We expect to grow organically in areas of our portfolio that we have prioritized, such as healthcare and defense, which are aligned to secular trends and support higher margin and higher differentiation materials.

Ashish Khandpur: We also expect to see a continuation of growth and packaging, which is our largest in market. Partially offsetting this growth will likely be weak US consumer demand, as well as transportation sales in the US and Europe .

Ashish Khandpur: For the full year, we modeled different scenarios, taking into consideration the factors we've lifted on the slide.

Ashish Khandpur: The underlying premise for all of these assumptions is trying relating how demand will respond in the back half of the year. The evolving trade policy changes have increased the level of uncertainty since we last gave guidance, but our current operational performance is in line with expectations.

Ashish Khandpur: and there has not been a notable change in our order patterns that would significantly change the range we provided in February .

Ashish Khandpur: As we have limited visibility into demand for the second half of the year, we also model scenarios with mid-singles digit sales declines in the back half of the year.

Ashish Khandpur: If that were to occur, we believe full year 2025 earnings would be in line with our 2024 results.

Ashish Khandpur: With that being said, we are well positioned to help our customers navigate the changing macro environment, and we are deploying our playbook of controlling what we can influence as Ashish

Ashish Khandpur: Therefore, we are leaving our guidance range unchanged for adjusted Epida of 540 to 570 million and adjusted EPS of $2.70 to $2.94.

Ashish Khandpur: Regarding free cash flow, we are keenly focused on maximizing cash and strengthening our balance sheet.

Ashish Khandpur: As we've demonstrated in the past, we have a track record of discipline working capital management.

Ashish Khandpur: We are being strategic with our capital programs, where we are investing surgically and prioritize growth factors, while also delaying other spend as appropriate due to the uncertainty and demand.

Ashish Khandpur: We now expect Capix for the year to be closer to 110 million and free cash flow to range from 190 to 210 million dollars.

Ashish Khandpur: Furthermore, given our strong cash position and expectations for free cash flow this year, we end to pay down between a hundred to two hundred million dollars of debt by year end.

Ashish Khandpur: With that, Ashish and I would like to end with a thank you to all of our avian employees who have worked tirelessly to deliver these results.

Ashish Khandpur: We are not ready for the Q&A portion of today's call.

Hello.

Ashish Khandpur: Yes, again, to ask a question, please press star 1-1 on your touchtone telephone. To remove yourself from the queue, please press star 1-1 again. Our first question will be coming from Frank Mitsch of Farmium Research, your line is open Frank.

Thank you so much. Good morning, everyone.

Speaker Change: On the defense side, frankly, only a 5% decline in one two seems lower than, or less of a negative impact.

Speaker Change: then probably expected after the 38% growth in a year ago. So I believe the last call you were thinking that that business micro, mid-single digits, can you talk a little bit more about what your expectation is for that high margin business for the rest of the year?

Ashish Khandpur: Yeah, Frank, this is Ashish, thanks for the question. You know, I think depends has been on a strong growth pattern for us. Last year it grew constant dollars in a 14%. So, totally, I was aware that it grew up last year and we continue to see strength.

Ashish Khandpur: coming into the first half of this year. And, you know, I'll mention some of the innovations that are launching now in that area is helping us gain new businesses as well apart from, you know, some of the...

a diversification that the team has been focused on.

Ashish Khandpur: with respect to going beyond military application, going into law enforcement and other things like that, border control. So, we are seeing strength and defense in first half, we expect the world is kind of growth in first half and high single digits maybe for the total year this year.

Apart from Draveris, Drotkiss Alastair. [inaudible]

Speaker Change: Terrific. Thank you so much. And then on the flip side of the equation transportation obviously called out negative for both.

Speaker Change: You provided a Dow or Outlook for 2Q, can you give any more color on what your order books are and are you basically matching the bill rates or your volumes higher or lower than the auto build rates on the transportation side?

Speaker Change: Yeah, transportation for first half for us will be Frank and in a low negative mid-single digit kind of range, you know, so, and which is, you know, similar to the build rate drops that we are seeing, especially in Europe and in US.

Speaker Change: Obviously, that part depends on the spec in particular models that the team has or doesn't have so we feel we are within the other bars of what the build rates are. [inaudible]

Speaker Change: With respect to Asia, we had the world's growth in Asia, it grew 16%.

Speaker Change: You know, the new energy wake also they call them is getting shared. So

Speaker Change: So we expect transportation. Now one more thing on transportation is that you know we will continue to start lapping the negative comps in second half because it started dropping significantly in Q3 last year. And so although the first half is expected to be mid-singer, the negative growth for us.

Speaker Change: The second half, we expect it to be flatish to slightly positive depending on how the market goes.

Territik, thank you so much Ashish.

Thank you.

Andrews. [inaudible]

Speaker Change: and our next question will be coming from Mike Harrison, a seaport research partner,

Hi, good morning.

Speaker Change: You noted some weakness in the consumer end market in Q1 and it sounds like that's expected to continue at least in the Q2, you just give us a little more color on what you're seeing is that pretty broad based weakness. [inaudible]

Speaker Change: when you look at the US and Canada, or are there some consumer staples applications that may be holding up better than more discretionary applications?

Speaker Change: Yeah, I mean, so overall, consumer was flatish for us, this, this water.

Speaker Change: We had double digit declines in U.S. Canada in consumer and they were pretty much double digit in both

Speaker Change: and then we had pretty good strength in all other regions. So, Imiya was the world digit up, Latin America was the world digit up, and Asia was.

Thank you very much.

Thank you. Bye.

Speaker Change: and Q2, we expect the same trend to continue strength in all other regions except US and Canada.

Speaker Change: All right, that's very helpful. And then you mentioned some sharegames and some new business wins in India. I was hoping that you could give some examples or maybe additional color on which end markets or product lines are helping drive some of those wins.

I'm sorry, I'm sorry, I'm sorry, I'm sorry, I'm sorry

Speaker Change: Yes, so if you think about Emea, you know, we had pretty strong, a strong strengthen in healthcare markets and consumer and in defense.

and the consumer part was pretty strong both.

Speaker Change: in discretionary and staples and you know so some wins that we had wasn't with some toys manufacturers.

Speaker Change: But also, we are winning share in the energy infrastructure area in Imiya, that is Avent, and then with respect to just...

Day-to-day, winning share versus competition. We are...

Speaker Change: We are basically able to, in our core business of color we are gaining some momentum there as well, apart from the things that I mentioned.

Speaker Change: So color and erratives was a strong growth for us in India because of the sheer gain.

All right, thank you very much.

Speaker Change: One moment from our next question. We'll be coming from Gansham Punjabi, a beard, your line is open.

Thank you, operator. Good morning, everybody.

Speaker Change: Just going back to your comments on packaging, you know, the CAI segment and strength and personal care and food and beverage, et cetera. Just trying to get a little bit more color on that, you know, because most of the CPGs that are reported.

Speaker Change: Arporting pretty sluggish volumes, negative in many cases, many of your patching companies as customers are also reporting the same, so what is driving that out performance for that segment?

Speaker Change: I think the biggest driver for packaging for us is personal care and that's where we are winning share with some of the...

Speaker Change: Lodge OEMs that are winning the share, you know, not everybody is [inaudible]

Speaker Change: Winning some are losing share and some are winning share and so we are [inaudible]

Speaker Change: You know, on the right side of him, in this case, as I would say.

Speaker Change: and so that's one of the biggest drivers and the second biggest driver is mid-singer digit kind of growth in beverage. So in personal care, we are double digits up in packaging which is about 20% of the category for us.

Speaker Change: And in beverage, which is again around 20% or so, we are like mid-singer digits up. Those are the two biggest driver gunsham. We have packaging that grew everywhere in the world, every region of the world. So a low single digits for Emia and Yusak, but Asia and Latin America double digits growth.

Speaker Change: Okay, thanks for that. And then in terms of, you know, the strength in Asia plus 9% during the quarter. [inaudible]

Speaker Change: Do you have a sense as it relates to whether there was any pre-buy that contributed towards that? And then separately maybe a question for Jamie as it relates to the, you know, call it 8% increase or exposure, if you will, excuse me, on tariffs on the cost of goods sold. What are the mitigation strategies associated with that?

David Huang, David Huang, David Huang, David Huang,

Speaker Change: Asia, we don't have any reason to believe that there was any pre-vise going on, actually the customers have gotten really smart with the COVID experience and

Speaker Change: and everybody understands that the supply chain cycle times have shortened significantly and companies can provide materials quickly. So, we are not seeing any pre-biased that we can understand and that's what we can get based on what we are seeing with our customers.

Speaker Change: So that's the first part, Jamie, on the second part. Sure, on the mitigating strategies, Gancham, it's really three primary things that we're focused on. One, we're working with our customers where we see opportunities to replace raw materials and reformulate those.

Jamie: There's formulations to be able to mitigate the impact of tariff.

Speaker Change: The second piece would be our sourcing group figuring out what other options would be more local to be able to do that replacement and then lastly if we're not able to find those alternatives look at pricing options.

Speaker Change: and so on. There's really the three primary ways that we're trying to mitigate the tariff at this point, so we don't expect it to be...

Mature of the Year.

Okay, it's terrific. Thank you both.

Thank you.

Speaker Change: And our next question will be coming from David Begg lighter of Doce Bank, David your line is open.

David Begleiter: Thank you, good morning. Ashish S. Junet was down about 4% in Q1. Is that good run rate for a full year?

David Begleiter: I would say that we are first of all the cost actions that we are talking about. We are put in place so that we can offset the

David Begleiter: So overall, you should expect as DNA to be flatish, you know, quite flat to last year. And obviously there is quarter to quarter variations because there is some seasonality with respect to things like merit process and also the time of our variable compensation accruals.

David Begleiter: So I think in overall you should expect a flatish SENA spend for us versus last year which will be actually about 40 to 50 basis points I'm hoping you know that range of reduction year over year as a percentage because our sales are excellent.

Thank you for watching.

David Begleiter: Very good, and just on EBITDAM margins, and especially engine materials, they're down in Q1 obviously, but can they be flat for the full year, or should they be down for the full year in SEM?

Thank you.

David Begleiter: Can you grow SME Bada margins in 25? Or should they be flat to down given the declining Q1? Yeah, so both both our

here.

David Begleiter: And, you know, the SCM margin was down largely because of the big defense.

38-person growth that we saw year-over-year last quarter, last year.

in Q1 2024.

David Begleiter: and so that was a primary driver by the margins were squeezed and when we look at total defense we just talked about earlier to Frank Mitsch's question, we are expecting high-singer digits growth or so in defense, overall that will be offset and we expect margins to grow.

Thank you.

Thank you, and one moment for our next question.

Speaker Change: which will be coming from Kristen Owen of Oppenheimer, Yalena's Open Christian.

Hi, good morning. Thank you for taking the question. To me, you—

Speaker Change: I'm going to ask you to stand on something and come up and one of the prior questions, but you guys have talked about.

Speaker Change: Just wondering if you can maybe speak to some of the innovation briefs that you might be receiving as your customers are thinking about reformulating. Does any color you can provide there on those innovation briefs?

Speaker Change: I would say just in general, Kristen, this is something that we do on a continuous basis with our customers as we look at what their needs and what their driving value from. We always look at ways to reform. So this isn't something that's new for Avians in particular. There are some easy substitutions.

Speaker Change: You know, sometimes our customers have our preference on a certain type of formulation. But part of what we do is actually take a look at our database, which is very vast in terms of other materials that could provide the same level of performance as well as the same.

Quality that they're looking for.

Speaker Change: So I would say I can't call any specific innovations just because there's so many different ways that we help our customers be able to do that and I would say in general the majority that exposure on the sales side is primarily on the SEM side.

Speaker Change: and that's where we're really focused on and ensuring that we can mitigate the impact of any residual tariffs so we don't have to do pricing actions to be able to cover it.

Speaker Change: and then just following up on the supply chain, I heard you say no real indications of pull forward or channel building. Can you just speak to where you're seeing customer channel inventory levels? Are they lean? Are they a little bit over? Just any color on the channel. Thank you.

Speaker Change: Yeah, I can say two things, and Jamie, if you want to add to that as well. So, you know, I think the, in general, we are not seeing any channel inventory build right now. Our customers are really, you know, in a way, at NC mode, and sometimes they don't know which countries they will produce, you know.

you know cars or whatever the case might be.

and so it's an evolving situation.

Speaker Change: It's the advantage that we hold is that we can supply them in either region of the world that they want but they themselves are sometimes not at a point to make that decision and they're waiting for more you know certainty or or

Speaker Change: More clarity, I would say, on what the tariffs are going to be. So, but from a channel inventory point of view, it's very lean and everybody is basically in a way to see more from us.

Speaker Change: Yeah, I think that's been illustrated, but just how short our order book visibility has gotten over the last, I would say, year.

in terms of customer is just being cautious before ordering, so.

Speaker Change: We typically have seen historically 45 days of visibility that's shortened to 20 to 30 days. That's not new in this environment. That's how our customers are viewing it, which also means that there are inventories have to be...

Speaker Change: I would say comfortable for them to be able to manage that kind of volatility. The only place I would say that we're seeing a little bit more of that caution is in transportation. There's a lot of volatility specifically in the US and Q1 where we did see a dramatic pullback because they didn't really know what was happening because of the dynamics with tariffs. [inaudible]

Speaker Change: But as of that, it's been pretty much a normal course of business for the last year where customers are just waiting to see how demand is going to evolve for themselves.

Thank you very much [inaudible]

Thank you.

Speaker Change: And our next question will be coming from Michael Sison of Wells Fargo. Michael, your line is open.

Hey, good morning. My start to the year.

Speaker Change: You know, she's a lot of companies, you know, have kind of struggled to keep their outlook in pace and have modeled in more of a sort of a downturn here. How do you think the portfolio would react in the event that we do head into a recession type of scenario this year?

[inaudible]

Speaker Change: Yes, so Mike, I mean, obviously we gave you several scenarios and you know, one of the scenarios that Jamie talked about was, you know, negative mid-singer, digit growth, which...

Speaker Change: It was clearly an extreme situation, which we don't believe it's going to happen. That would put us...

Speaker Change: Similar on our earnings to last year basically, so that would be that was a case that we pointed out. We however don't believe that we think there's a slowdown in the US economy.

Speaker Change: and you know, between one and a half percent range, GDP growth this year, that's our model assumption.

and then also for-

China

Speaker Change: We are modeling between four to four and a half percent, you know.

Speaker Change: and so those are the two biggest economies and so if you think about that then that's what is giving us the comfort of where we are in the range. Obviously, there is another piece to it that we are playing here which is driving more cost control. [inaudible]

Speaker Change: and self-help, as we say, to make sure that we are able to make our second half where it should be, and so if you think it from that perspective

Speaker Change: And if you do the model, then the amount of, if it's the growth required in the second half versus first half, only one third of that growth needs to be demand based. The two thirds is going to come from basically cost control and the effects delta that we are seeing. Right.

on the show.

We feel we should be in that range.

Speaker Change: So maybe just to add Mike, you know, we spent a lot of time with the last decade really transforming our portfolio. And there's a couple of end markets that really stand out for us in terms of being resilient in different economic conditions.

Speaker Change: We've seen double-digit growth in the first quarter for healthcare. We expect that to continue to be strong for the four-year. Depends at the same way, while it was a hard year of your comp and Q1, we do expect there to be high single-digit growth for that, regardless of what's going on in the economy.

Speaker Change: Packaging, which is primarily related to food and beverage. It's also strong. It was 6% in Q1. We expect that.

Speaker Change: to continue through the back half of the year. And then the other piece that we haven't really mentioned is our Strength and Composite.

And so, in addition to what we're seeing in defense...

Speaker Change: You know, we also have some growth platforms that are associated with building a construction. We highlight it some of those and ours.

Speaker Change: and our strategy with modular construction and so on. We also see quite a bit on the energy side. As that continues to be aligned to the cyclotor trends that are growing.

Ashish Khandpur: that we think will be quite resilient as we look going forward. With that being said, though, as Ashish mentioned, we do have exposure to consumer as well as industrial and other building construction applications.

Speaker Change: which could be more negatively impacted. So that's why we ran mid-single-digit declines as a modeling scenario to see what would happen to the full portfolio, if that were to be the case. But overall, the transformation of the portfolio should be outperformed to what we've seen historically for Avient.

Speaker Change: Right, and I think it's my follow-up to see the companies who really struggled seeing

Speaker Change: Yeah, the companies who have been able to hold their outlook tend to be a little bit more downstream, some of the pain companies and stuff.

Speaker Change: So, when you think about what investors are missing, your stock has struggled.

Speaker Change: with others. What do you think investors are missing in terms of…

Speaker Change: You know, more stability that you've shown thus far. And as you look at the outlook, it does seem a little bit more, I guess, stable relative to the commodity folks.

Speaker Change: Yeah, so Mike obviously this is a really interesting time and so stock price is probably not an indication of the quality of the work that goes on in.

Speaker Change: Many companies, not just ours, and you know, we've seen very good companies beaten up in this environment. So, but you know, we don't we don't obviously consider ourselves commodity at all. And so we feel like our value is is.

Speaker Change: who is creating growth through innovation and working with our customers. So, we feel that

Speaker Change: We need to consistently deliver our earnings quarter after quarter. This is the fourth quarter. Conjective growth for us and we are expanding margins as well. We are getting very diligent about cash generation.

We are maintaining our costs.

Speaker Change: And so those are the things that if we continue to do quarter after quarter, I don't think it's just a matter of time that investors will not be able to ignore us and...

Speaker Change: We are just focused on driving the businesses day-to-day and changing our portfolio transformation and as we talked about in our strategy but also driving more innovation in the company and that's why we continue to feed the growth vectors even in this tough time because it's a priority for us. So we are more focused on running the company day-to-day rather than what the stock price is doing because we think that will fall in place soon.

and much more later.

All right. Thank you.

Speaker Change: Thank you. And our next question will be coming from Vincent Andrews of Morgan Stanley , Vincent that your mind is open.

Speaker Change: Thank you, and good morning. Jamie, I'm wondering if you could give a little more context on that down mid single digit scenario. Is that specifically for 2025? And if so, does that assume the first half is in line and then the downturn plays out in the back half or is that a? [inaudible]

Speaker Change: What would happen on a 12-month basis if we had a downturn for 12 months? And in either case, could your bridges from being down 5% on the top line to being flat from an earnings perspective is that operating income or is that EPS, whatever the leverage you're going to pull to offset a mid-single decline in the top line. Thank you.

Thank you.

Speaker Change: We do expect based on our order books today to be in line with the guidance that we brought it today, really the uncertainty is how that unfolds in the back half of the year, which we have less visibility to.

Speaker Change: So that's where that plays in terms of how we did the modeling and we only gave that four or twenty-one.

2025 in total.

Speaker Change: We are being very diligent about our investments, how we are prioritizing, you know, where we are investing in growth vectors, but also where we can find cost in other areas to continue.

Speaker Change: and you need to expand margins. So that's across the board. Those cost productivity measures would include things from our sourcing initiatives as well as footprint optimization. And then lastly, we're needed to cut back discretionary spend across the company not just within the segments but also incorporate as well.

Speaker Change: Okay, thank you. And Ashish, last quarter we talked about the change in the incentive policy that you've put in place and then this quarter, the cashless statement has a $53 million use of cash related to incentive accruals. So can you just put those two things together and I don't know if at the timing thing or just, you know, some some some noise in terms of how it's going to show up in one particular quarter, but what's going on there and how does it play out over the balance of the year on the cashless statement?

Speaker Change: Yeah, I think it's mostly coming from the Q1 incentive payout that took place last year and so I think that's the 53 million you're referring to

As you know, we have a pretty strong...

Speaker Change: Sites to $192,200,000 of cash pre-cash pro-generation this year. And in Jimmy, you want to provide more details on any specific things around.

Speaker Change: 25, and we typically do build cash in the back half of the year if you go back to the quarters.

Speaker Change: You'll see that we pretty much always have a draw on the Q1 as well as the first half and we start to build it as we get to the back half. That's primarily due because we also have working capital from Q4 sales being low into Q1s. We have to build back inventory. So there's probably the two primary areas of Y Cash Flow is lighter in the first half, but this is the second half and hopefully that answers your question.

Yep, very good. Thank you so much.

Thank you.

Speaker Change: And our next question will be coming from Laurence Alexander of Jeffries. Laurence, your line is open.

Lawrence Alexander: So good morning. Just wanted to catch up on two details. One is, can you just give your current impressions on your trends in your raw material basket. And the second is if you go across the portfolio, all of the markets that are up more than 10% currently.

Speaker Change: What percentage of sales would that be roughly? And how much of that is like a legacy effect from pricing?

Speaker Change: And would you expect that a fade over the course of the year or is that just real sustainable double-digit growth?

Well, maybe I'll start Laurence with the raw material baskets.

Speaker Change: We expect there for the four year to be as one to two percent of inflation in Q1. We did see a little bit of an inflation. The exact number is closer to $4 million that came through. We see that in pigments, certain performance added as in flame retardants which are trending slightly up. We did see polypropylene and polyethylene and some of our other hydrocarbons trending down. So net net was about a $4 million impact, like I said, for Q1 and then four year likely at this juncture, one to two percent.

Speaker Change: and著了三 hemisphere. It gives you some information about the unemployment tract. For example, you can turn this page and you will notice that there is a graph where we shown that there was one percent smartphones a year, the militaryhone that we saw was also one percent of the lower income of the US. Along the way, there are some ratios.

Speaker Change: Yeah, I mean, so I think your other question was about where are we seeing the world digital growth? So Q1, the only area where we saw the world digital growth was healthcare but we had several mid-single digits or even high single digital growth. So we saw high single digital growth in telecom.

Speaker Change: Packaging was quite strong, I would say with the mixing or digital growth.

Speaker Change: And defense was negative 5% but I don't think it's an indication of the strength of that market. Laurence, because as we said, that's because of the lumpy sales comparison.

Speaker Change: versus Q1 2024. I would put defense in that high to double digit kind of growth scenario as well. It's a growth market for us and we'll continue to be this.

Speaker Change: Pierre. So at this point, I would say, and then energy is expected to pick up as well, you know, toward the second half of the year with energy infrastructure programs that we have with our customers.

Speaker Change: So those are the areas of friends we are seeing right now.

Thank you.

Speaker Change: and ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may now disconnect.

Jamie Beggs: and Jamie Beggs and Jamie Beggs and Jamie Beggs and Jamie Beggs and Jamie Beggs

thank you for helping me make the Movement.

Music Music Music Music Music Music

Speaker Change: Good day ladies and gentlemen and welcome to the Avient Corporations Webcast to discuss the company's first quarter 2025 results.

Speaker Change: As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Joe DeSalvo, Vice President, Treasurer, and Investor Relations. Please go ahead.

Speaker Change: Thank you, and good morning everyone, adjoining us on the call today. Before beginning we'd like to remind you that statements made during this webcast may be considered for looking statements within the meaning of the Private Security's litigation reform act of 1995.

Speaker Change: Four looking payments will be of current expectations or forecast the future events and are not guaranteed to use a future performance.

Speaker Change: They're based on management's expectation and involve a number of business risks and uncertainties. Any of which causes actual results to differ materially from those expressed in or implied by the four-looking statement.

Speaker Change: We encourage you to review the 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 today's discussion, the company will also use Gap and non-GAAP financial measures.

Speaker Change: Please refer to the presentation posted on the Investor Relations section of the Avian website where the company describes the nine-gab measures and provides a reconciliation for her historical nine-gab financial measures to their most directly comparable GAAP financial measures.

Speaker Change: 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.

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

and Senior Vice President and Chief Financial Officer, Jamie Beggs.

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

Thank you, Joe, and good morning, everyone.

Ashish Khandpur: I'm pleased to report we delivered our fourth consecutive quarter of organic growth where both sales and adjusted EPS were in line with expectations.

Ashish Khandpur: Excluding the impact of foreign exchange, we achieved top and bottom line growth while expanding

Ashish Khandpur: Specifically, organic sales grew 2% in the quarter driven by resilient demand in packaging.

Adjusted if it that grew 4%, excluding the impact of foreign exchange.

Ashish Khandpur: Due to higher organic sales and lower-year-over-year costs, as we tightened our belt across the company, to closely manage discretionary spending.

Ashish Khandpur: Ajusted Ibiza margins expanded 20 basis points to 17.5%, which is particularly notable given the strong comparisons of our highly profitable defense business, which had grown 38% year over the year in the first quarter of 2024.

Ashish Khandpur: Overall, we delivered adjusted EPS of 76 cents which represents 4% growth when excluding

Ashish Khandpur: The evolving trade policy has led to uncertainty impacting demand in select markets and geographies, particularly in the US.

Ashish Khandpur: As you can see on this slide, organic sales for the US and Canada declined 3%, primarily due to the weak demand in our consumer and transportation and market.

Ashish Khandpur: Partially offsetting this was continued strong growth in healthcare, driven by demand in medical devices and medical supplies, categories, and modest growth in packaging applications.

Ashish Khandpur: Imiya grew 2% in the quarter, which is the fourth consecutive quarter of organic growth for this region.

Ashish Khandpur: We continue to streamline our structure and operations there to better serve our customers.

Ashish Khandpur: This renewed focus is helping our teams to win new business and share an e-mail [inaudible]

Ashish Khandpur: Our Asia business continues to show strength, increasing organic sales 9% in the quarter with growth across most end markets including transportation. [inaudible]

Ashish Khandpur: Lastly, our team in Latin America continues to significantly outpace market growth, increasing

Ashish Khandpur: This marks the fourth consecutive quarter of double digit organic growth for the region.

Ashish Khandpur: We continue to win share with global OEMs and brand owners in the packaging and consumer space.

Ashish Khandpur: As Jamie will share, our in-depth analysis shows that the direct parrot impact on our sales and raw materials is not anticipated to be significant.

Ashish Khandpur: Our local presence and global reach is a competitive advantage that enables us to serve our customers where and how they want to be served.

Ashish Khandpur: Our teams are staying close to our customers and helping them navigate the changing business landscape.

Ashish Khandpur: This is helping us to gain their trust and is also creating opportunities where we can win share from competition as they become less cost attractive for certain applications.

Ashish Khandpur: Internally, we have an enhanced focus on cost control and productivity.

Ashish Khandpur: This includes our Lean Six Sigma Initiatives, Optimization of our Manufacturing Footprint, and Discipline on Discretionary Spending.

Ashish Khandpur: We expect about $30 million of savings from these initiatives in 2025.

Ashish Khandpur: In addition, we have focused on maximizing cash with effective working capital management and balanced capital decisions.

Ashish Khandpur: We expect to generate strong free cash flow and deploy it in ways that maximize values for our shareholders.

Ashish Khandpur: One such way is our decision on paying down our debt by 100 to 200 million dollars this year.

Ashish Khandpur: Jamie will cover more on this topic later in the guidance portion of the call.

Ashish Khandpur: With respect to tariffs, we expect minimal direct impact as we primarily source raw materials and manufacture our products locally in the regions that we serve.

Ashish Khandpur: This includes optimizing our raw material purchases and using our formulation expertise to identify material substitutions where possible.

Ashish Khandpur: and we're needed. We have been implementing pricing actions to offset any inflationary impacts.

Ashish Khandpur: Finally, as a team, we are fully focused on day-to-day execution, but also on advancing our company strategy by prioritizing investments and resources for our growth vectors.

Ashish Khandpur: This applies to both catalyzing our court, where our health care and defense portfolios are expected to outperform the broader market.

Ashish Khandpur: and to building platforms of scale in fast growing markets supported by secular trends, like use of composites in energy infrastructure and building and construction markets.

Ashish Khandpur: I will now hand it over to Jamie to discuss the quarter's financials in more detail, as well as discuss our guidance for the year.

Jamie Beggs: Thank you Ashish, and good morning everyone. Our playbook has served us well during the quarter, and it enabled us to deliver 76 cents of adjusted earnings per share in line with our expectations and flat to last year's results. Impacting this quarter was unfavorable effects of three cents per share as well as slightly higher depreciation and a higher effective tax rate, which impacted EPS by two cents.

Jamie Beggs: As Ashish mentioned earlier, we grew both the top lines and bottom lines, excluding FX. This performance was driven primarily by growth in the color, additives, and ink segments, as well as broad cost-controlled discipline across the company.

Jamie Beggs: Starting with color, the segment grew organic sales 3% and adjusted EBIDA by 7% excluding the impact of foreign exchange.

Jamie Beggs: Sells and Packaging Materials, the segments largest in market, contributed significantly to growth as resilient demand for personal care and food and beverage applications grew across all reasons.

Jamie Beggs: In addition, virtually every and market grew year over year, with the exception of transportation where we saw double-digit declines in the U.S. and EMEA related to weaker vehicle production in these geographies.

Jamie Beggs: Keller expanded adjusted EBITDA margins by 50 basis points through sales growth, favorable mix, and cost improvement initiatives, including plant footprint optimization and streamlining the organization to better serve our customers.

Jamie Beggs: Our specialty engineering material segment delivered organic cells that were flat to prior year while adjusted EBITDA's decline 4% excluding the impact of foreign exchange.

Jamie Beggs: Healthcare Group doubled digits with strong demand and medical devices and medical supply

Jamie Beggs: Energy was also strong during the quarter due to increased demand for composites for energy infrastructure projects and dynamo ropes for marine applications.

Jamie Beggs: These gains were more than offset by lower sales and transportation and defense markets.

Ashish Khandpur: Overall for the segment, the lower sales and defense during the quarter resulted in unfavorable mix and modestly lower EBDA versus the prior year.

Ashish Khandpur: While defense was down 5% during this most recent quarter, our overall outlook for this growth vector remains robust. Last earnings call, we highlighted our latest innovation, a third generation of Danyema, that provides unmatched, ballistic protection at the absolute lightest possible weight currently

Ashish Khandpur: These are just some examples of riding momentum and confidence and are full-year outlook for the defense business.

Ashish Khandpur: On this next slide, I wanted to provide some context to our direct exposure to tariffs.

Ashish Khandpur: As Ashish previously highlighted, we primarily source raw material and manufacture our products locally in the regions that we serve so we expect our exposure is not significant.

Ashish Khandpur: We estimate that less than a hundred million of our sales and less than a hundred million of our raw materials are exposed to tariffs.

Ashish Khandpur: As a percentage of total sales, that's approximately 3% that are exported from the US or imported into the US from other countries.

Ashish Khandpur: and as a percentage of our total raw materials, it represents less than 8% of what we purchased.

Ashish Khandpur: This excludes materials that are currently exempt by annexed to and USMCA provisions.

Ashish Khandpur: For Croc Border Trade with China, specifically, we have exposure of approximately $10 million of sales, and approximately 20 million in raw material spend.

Ashish Khandpur: While the direct impact from tariffs is not expected to be significant, we cannot underestimate the impact tariffs can have on overall market demand.

Ashish Khandpur: Several public reports have confirmed a slowing demand environment in the US, which is also corroborated by some of our customers, especially in consumer building a construction and transportation in markets.

Ashish Khandpur: As we look out to the second quarter and for the four year, we have taken this into consideration while also balancing it with parts of our business that continues to grow, as well as the self-help initiative that we are taking to manage profitability. [inaudible]

Ashish Khandpur: Starting with Q2, we expect second quarter adjusted EPS of 79 cents, which represents growth of 4% over the prior year quarter.

Ashish Khandpur: We also expect to see a continuation of growth and packaging, which is our largest end market.

Ashish Khandpur: Partially offsetting the growth will likely be weak US consumer demand as well as transportation sales in the US and Europe .

Ashish Khandpur: For the full year, we modeled different scenarios taking into consideration the factors we've lifted on the slide.

Ashish Khandpur: The underlying premise for all of these assumptions is trying, relating how demand will respond in the back half of the year. The evolving trade policy changes have increased the level of uncertainty since we last gave guidance, but our current operational performance is in line with expectations.

Ashish Khandpur: and there has not been a notable change in our order patterns that would significantly change the range we provided in February .

Ashish Khandpur: Accordingly, the low end of our range reflects flat demand and the second half on a year-by-year basis, while the high end assumes mid-single-digit growth

Ashish Khandpur: As we have limited visibility into demand for the second half of the year, we also model scenarios with mid-singles, digit sales declines in the back half of the year.

Ashish Khandpur: If that were to occur, we believe full year 2025 earnings would be in line with our 2024 results.

Ashish Khandpur: Therefore, we are leaving our guidance range unchanged for adjusted Epida of 540 to 570 million and adjusted EPS of $2.70 to $2.94.

Ashish Khandpur: Regarding free cash flow, we are keenly focused on maximizing cash and strengthening our balance sheet.

Ashish Khandpur: As we've demonstrated in the past, we have a track record of discipline working capital management. We are being strategic with our capital programs where we are investing surgically and prioritize growth vectors while also delaying other spend as appropriate due to the uncertainty and demand.

Ashish Khandpur: We now expect Capix for the year to be closer to 110 million, and free cash flow to range from 190 to 210 million dollars.

Ashish Khandpur: Furthermore, given our strong cash position and expectations for free cash flow this year, we tend to pay down between a hundred to two hundred million dollars of debt by year end.

Ashish Khandpur: With that, Ashish and I would like to end with a thank you to all of our avian employees who have worked tirelessly to deliver these results.

Ashish Khandpur: We are not ready for the Q&A portion of today's call.

Hello.

Speaker Change: Yes. Again, to ask a question, please press star 1-1 on your touchtone telephone. To remove yourself from the queue, please press star 1-1 again. Our first question will be coming from Frank Mitsch, a fermium research, your line is open Frank.

Thank you so much. Good morning, everyone.

Speaker Change: On the defense side, frankly, only a 5% decline in one two seems lower than, or less of a negative impact.

Speaker Change: then probably expected after the 38% growth in a year ago. So I believe the last call you were thinking that that business micro-mid single digits, can you talk a little bit more about what your expectation is for that high margin business for the rest of the year?

Ashish Khandpur: Yeah, Frank, this is Ashish, thanks for the question. You know, I think defense has been on a strong growth pattern for us. Last year it grew constant dollars in a 14%. So, total year was over, the did growth last year, and we continue to see strength.

Ashish Khandpur: Coming into the first half of this year. And, you know, I'll mention some of the innovations that are launching now in that area is helping us gain new businesses as well apart from, you know, some of the. [inaudible]

Ashish Khandpur: or the total year this year, apart from the driver's digital piece of last year.

Speaker Change: Terrific. Thank you so much. And then on the flip side of the equation transportation obviously called out negative for both SEM and colors though up in up in Asia. You provided a dour outlook for for two q. Thank you.

Ashish Khandpur: Can you give any more color on what your order books are and are you basically matching the bill rates or are your volumes higher or lower than the auto build rates on the transportation side?

Speaker Change: Yeah, transportation for first half for us will be Frank and in low negative mid-single digit kind of range, you know, so, and which is, you know, similar to the build rate drops that we are seeing in, especially in Europe and in US.

Speaker Change: Obviously, that part depends on the spec in particular models that the team has or doesn't have so we feel we are within the other bars of what the build rates are. [inaudible]

Speaker Change: You know, the new energy wake also they call them is getting shared so.

Speaker Change: So, we expect transportation. Now, one more thing on transportation is that, you know, we will continue to start lapping the negative comps in second half because it started dropping significantly in Q3 last year. And so, although the first half is expected to be mid-singer, is it negative growth for us?

Speaker Change: The second half, we expect it to be flatish to slightly positive depending on how the market goes.

Saratek, thank you so much, Ashish.

Thank you.

Speaker Change: and our next question will be coming from Mike Harrison, a seaport research partner,

Bye, good morning.

Mike Harrison: You noted some weakness in the consumer end market in Q1 and it sounds like that's expected to continue at least in the Q2, you just give us a little more color on what you're seeing is that pretty broad-based weakness.

Mike Harrison: When you look at the US and Canada, or are there some consumer staples applications that may be holding up better than more discretionary applications?

Mike Harrison: Yeah, I mean, so overall, consumer was flatish for us, this, this water.

Mike Harrison: We had double digit declines in US Canada in consumer and they were pretty much double digit in both staples and discretionary.

Mike Harrison: and then we had pretty good strength in all other regions. So Imiya was the world digit up Latin America was the world digit up and Asia was.

Mike Harrison: You know, mid to high single digits up in consumer. So really, the issue on consumer is coming from U.S. or U.S. and Canada, and we are seeing it, you know, declines in both discretionary and staple side of it.

Thank you for your time. Bye for now.

Mike Harrison: and Q2, we expect the same trend to continue strength in all other regions except U.S. and Canada.

Speaker Change: All right, that's very helpful. And then you mentioned some sharegames and some new business wins in Amia. I was hoping that you could give some examples or maybe additional color on which end markets or product lines are helping drive some of those wins.

Speaker Change: Yes, if you think about Emea, you know, we had pretty strong, a strong strengthen in healthcare markets in consumer and in defense.

and the consumer part was pretty strong both.

Speaker Change: in discretionary and staples and you know so some wins that we had wasn't with some toys manufacturers.

Speaker Change: But also, we are winning share in the energy infrastructure area in Imiya, that is a win. And then with respect to just

Day-to-day, winning share versus competition. We are...

Speaker Change: We are basically able to in our core business of color we are gaining some momentum there as well, apart from the things that I mentioned.

Speaker Change: So color areas was a strong growth for us in enemy because of the sheer gain.

All right. Thank you very much.

Speaker Change: One moment for my next question. We'll be coming from Gansham Punjabi, a beard, your line is open.

Thank you, operator. Good morning, everybody.

Speaker Change: Just going back to your comments on packaging, you know, the CAI segment and strength and personal care and food and beverage, etc., just trying to get a little bit more color on that, you know, because most of the CPGs that are reported are porting pretty sluggish volumes negative in many cases, many of your packaging companies as customers are also reporting the same. So what is driving that out performance for that segment? Thank you very much.

Speaker Change: I think the biggest driver for packaging for us is personal care and that's where we are winning share with some of the...

Speaker Change: Large OEMs that are winning the share, you know, not everybody is winning, some are losing share and some are winning share and so we are.

Speaker Change: and so that's one of the biggest drivers and the second biggest driver is

Speaker Change: Mid-Singer, just kind of growth in beverage. So, in personal care.

We, we are talking about the tips of in packaging.

which is about 20% of the category for us.

Speaker Change: And in beverage, which is again around 20% or so, we are like mid-singer digits up. Those are the two biggest driver gunsham. We have packaging that grew everywhere in the world, every region of the world. So, a low single digits for Emia and Yusak, but Asia and Latin America double digits growth.

Speaker Change: Do you have a sense as it relates to whether there was any pre-buy that contributed towards that and then separately maybe a question for Jamie as it relates to the you know call it 8% increase or exposure if you will excuse me on tariffs on the cost of goods sold. What are the mitigation strategies associated with that?

Jamie Beggs: Asia, we don't have any reason to believe that there was any pre-byes going on, actually the customers have gotten really smart with the COVID experience and

Jamie Beggs: and everybody understands that the supply chain, cycle times are shortened significantly and companies can provide materials quickly. So we are not seeing any pre-buy that we can understand and that's what we can get based on what we are seeing with our customers.

Jamie Beggs: So that's people who spark Jamie on the second part. Sure on the mitigating strategies, Ghansham, it's really three primary things that we're focused on. One, we're working with our customers, what we see opportunities to replace raw materials and reformulate those

Jamie Beggs: There's formulations to be able to mitigate the impact of tariffs.

Jamie Beggs: The second piece would be our sourcing group, figuring out what other options would be more local to be able to do that replacement, and then lastly, if we're not able to find those alternatives, look at pricing options.

Jamie Beggs: and so on. There's really the three primary ways that we're trying to mitigate the tariffs at this point so we don't expect to be mature over the year.

Okay, it's terrific. Thank you both.

Thank you.

David Begleiter: And our next question will be coming from David Begg lighter of Doce Bank, David your line is open.

David Begleiter: Thank you. Good morning. Ashish, SGNA was down about 4% in Q1. Is that good run rate for a full year?

Thank you.

So, all you should expect as DNA to be flatish.

David Begleiter: You know, quite flat to last year and obviously there is quarter to quarter variations because there is some seasonality with respect to things like merit process and also the time of our variable compensation accrual.

David Begleiter: So I think in overall you should expect a flatish SE&S pen for us versus last year.

David Begleiter: which will be actually about 40 to 50 basis points. I'm hoping you know in that range of reduction year over here as a percentage because our sales are expected to grow.

David Begleiter: Very good, and just on EBITDAM margins and especially injured materials, they were down in Q1 obviously, but can they be flat for the full year, or should they be down for the full year in SEM?

Thank you.

David Begleiter: Can you grow SEM EBITDA margins in 25? Or should they be flat to down given the declining Q1? Yeah, so both both our

David Begleiter: And, you know, the SCM margin was down largely because of the big defense, 38% growth that we saw year over year last quarter, last year in Q1 2024. And so, that was a primary driver by the margins, worst squeeze and...

David Begleiter: And when we look at total defense, we just talked about earlier to Frank Mitsch's question. We are expecting high single digit growth or so in defense. Overall, that will be offset and we expect margins to grow.

Thank you.

Thank you and one moment for our next question.

Speaker Change: which will be coming from Kristen Owen of Oppenheimer, Yalena's Open Kristen.

Christian Owen: Hi, good morning. Thanks for taking the question. Jamie, you-

Jamie Beggs: I would say just in general, Kristen, this is something that we do on a continuous basis with our customers as we look at what their needs and what they're driving value from. We always look at ways to reformulate. So this isn't something that's new for Avians in particular.

Jamie Beggs: There are some easy substitutions. Sometimes our customers have our preference on a certain type of formulation, but part of what we do is actually take a look at our database, which is very vast in terms of other materials that could provide the same level of performance, as well as the same. [inaudible]

Quality that they're looking for.

Jamie Beggs: It's primarily on the SEM side and that's where we're really focused on and ensuring that we can mitigate the impact of any residual tariffs so we don't have to do pricing actions to be able to cover it.

Speaker Change: and then just following up on the supply chain, I heard you take no real indications of pull forward or channel building. Can you just speak to where you're seeing customer channel inventory levels? Are they lean? Are they a little bit over? Just any color on the channel. Thank you.

Speaker Change: Yeah, I can say a few things, and Jamie, if you want to add to that as well, so

Speaker Change: You know, I think the, in general, we are not seeing any channel inventory bill right now. Our customers are really...

Thank you.

You know, cars or whatever the case might be?

and so it's an evolving situation.

Speaker Change: The advantage that we hold is that we can supply them in either region of the world that they want but they themselves are sometimes not at a point to make that decision and they are waiting for more certainty or more clarity, I would say, on what the tariffs are going to be. [inaudible]

Speaker Change: So, but from a channel inventory point of view, it's very lean and everybody is basically in a way and see more from come.

Speaker Change: Yeah, I think that's been illustrated, but just how short our order book visibility has gotten over the last, I would say, year.

Jamie Beggs: in terms of customers just being cautious before ordering. So we typically have seen historically 45 days of visibility that's shortened to 20 to 30 days. That's not new in this environment. It's just not how our customers are viewing it, which also means that there are inventories have to be...

and the team at ground level.

Jamie Beggs: But other than that, it's been pretty much the normal course of business for the last year where customers are just waiting to see how demand is going to evolve for themselves.

Thank you very much.

Thank you.

Speaker Change: And our next question will be coming from Michael Sison of Wells Fargo. Michael, your line is open.

Michael Sisson: Hey, good morning, my start to the year. You know, she's a lot of companies, you know, have kind of struggled to keep their outlook in pace and have modeled in more of a sort of a downturn here. How do you think the portfolio would react in the event that we do head into recession type of scenario this year?

Ashish Khandpur: Yes, so Mike, I mean obviously we gave you several scenarios and you know one of the scenarios that Jamie talked about was, you know, a negative mid-singer, digit growth, which...

Michael Sisson: It was literally an extreme situation which we don't believe it's going to happen. That would put us...

Michael Sisson: similar on our earnings to last year basically. So that would be that was the case that we pointed out. We however don't believe that we think there's a slowdown in the US economy. [inaudible]

Michael Sisson: And, you know, between one and a half percent range, GDP growth this year, that's our module assumption.

and then also for…

China

Michael Sisson: We are modeling between four to four and a half percent, you know.

Michael Sisson: and self-help as we say to make sure that we are able to make our second half where it should be, and so if you think it from that perspective

Michael Sisson: And if you do the model, then the amount of, if it's the growth required in the second half versus first half, only one third of that growth needs to be demand based. The two thirds is going to come from basically cost control and the effects delta that we are seeing. Right?

about the virus.

We feel we should be in that range.

Michael Sisson: So maybe just to add Mike, you know, we spent a lot of time with the last decade really transforming our portfolio and there's a couple of end markets that really stand out for us in terms of being resilient in different economic conditions.

Michael Sisson: We've seen double-digit growth in the first quarter for healthcare. We expect that to continue to be strong for the four-year defense is the same way while it was a hard year of your comp in Q1. We do expect there to be high single-digit growth for that regardless of what's going on in the economy. We've seen double-digit growth in the first quarter for healthcare. We've seen double-digit growth in the first quarter for healthcare.

Michael Sisson: Packaging, which is primarily related to food and beverage, is also strong. It was 6% in Q1. We expect that.

Michael Sisson: to continue through the back half of the year. And then the other piece that we haven't really mentioned is our Strength and Composite.

And so, in addition to what we're seeing in defense...

Michael Sisson: We also have some growth platforms that are associated with building a construction. We highlight some of those in ours.

Michael Sisson: and our strategy with modular construction and so on. We also see quite a bit on the energy side. But as that continues to be aligned to the secular trends that are growing.

Speaker Change: that we think will be quite resilient as we look going forward. With that being said, though, as Ashish mentioned, we do have exposure to consumer, as well as industrial and other building construction applications, which could be more negatively impacted. So that's why we ran on mid-single-digit declines as a modeling scenario to see what would happen to them fully, if that was to do.

Speaker Change: to be the case, but overall, the transformation of the portfolio should be outperformed to what we've seen historically for Avient.

Speaker Change: Right, and I think it's my follow-up to see, you know, the companies who really struggled seem to move more commodity-like and...

Speaker Change: Yeah, the companies who have been able to hold their outlook tend to be a little bit more downstream, some of the pain companies and stuff.

Speaker Change: So when you think about what investors are missing, your stock has struggled with others, what do you think investors are missing in terms of more stability that you've shown thus far?

Speaker Change: and as you look at the outlook, it does seem a little bit more, I guess, stable relative to the commodity folks.

Speaker Change: Yeah, so Mike obviously this is a really interesting time and so stock price is probably not an indication of the quality of the work that goes on in.

Many companies in the North just ours.

Speaker Change: and you know we've seen very good companies beaten up in this environment so but you know we don't we don't obviously consider ourselves commodity at all and so we feel like our value is

Speaker Change: and creating growth through innovation and working with our customers. So we feel that

Speaker Change: We need to consistently deliver our earnings quarter after quarter. This is the fourth quarter. Conjective growth for us. We are expanding margins as well. We are getting very diligent about cash generation. [inaudible]

We are maintaining our costs.

Speaker Change: It's just a matter of time that investors will not be able to ignore us

Speaker Change: and we'll be in favour again. So we are just focused on driving the businesses day to day and changing our portfolio transformation as we talked about in our strategy.

Speaker Change: But also driving more innovation in the company and that's why we continue to feed the growth vectors even in this tough time because it's a priority for us. So we are more focused on running the company day today rather than what the stock price is doing because we think that will fall in place soon or later.

Great. Thank you.

Speaker Change: Thank you. And our next question will be coming from Vincent Andrews of Morgan Stanley , Vincent that your mind is open.

Vincent Andrews: Thank you, and good morning. Jamie, I'm wondering if you could give a little more context on that down mid single digit scenario. Is that specifically for 2025 and if so, does that assume the first half is in line and then the downturn plays out in the back half or is that a? [inaudible]

Vincent Andrews: What would happen on a 12-month basis if we had a downturn for 12 months? And in either case, could you register from being down 5% on the top line to being flat from an earnings perspective, is that operating income or is that EPS? What are the levers you're going to pull to offset a mid-single decline in the top line? Thank you.

Vincent Andrews: and what we mentioned on the call was actually just a second half of the man environment. Is that being done in single digits?

Vincent Andrews: We do expect based on our order books today to be in line with the guidance that we brought it today, really the uncertainty is how that unfolds in the back half of the year, which we have less visibility to.

Vincent Andrews: So that's where that plays in terms of how we did the modeling and we only gave that four or twenty...

Vincent Andrews: You know, where we are investing in growth factors, but also where we can find costs in other areas to continue.

Vincent Andrews: Lee, to expand margins. So that's across the board. Those cost productivity measures would include things from our sourcing initiatives as well as footprint optimization. And then lastly, we're needed to cut back discretionary spend across the company.

Vincent Andrews: not just within this segment, but also incorporate as well.

Vincent Andrews: Okay, thank you. And Ashish, last quarter we talked about the change in the incentive policy that you've put in place. And then this quarter, the cashless David has a $53 million use of cash, related to incentive accruals. So can you just put those two things together? And I don't know if at the timing thing or just, you know, some some some noise in terms of how it's going to show up in one particular quarter, but but what's going on there and how does it play out over the balance of the year on the cashless statement?

Vincent Andrews: Yeah, I think it's mostly coming from the Q1 incentive payout that took place last year and so I think that's the 53 million you are referring to as we have got pretty strong side to 19,200 million dollars of cash pre-cash pro-generation this year.

and Jamie, you want to provide more details on...

Any specific things around?

2025.

Vincent Andrews: You'll see that we pretty much always have a draw on the Q-1 as well as the first half and we start to build it as we get to the back half. That's primarily due because we also have working capital from Q-4 sales being low into Q-1s, we have to build back inventory. So there's probably the two primary areas of Y Cash Flow is lighter in the first half but this is the second half and hopefully that answers your question.

Yep, thank you so much.

Speaker Change: And our next question will be coming from Laurence Alexander of Jeffries. Laurence, your line is open.

Lawrence Alexander: So good morning, just wanted to catch up on two details. One is, can you just give your current impressions on your trends and your raw material basket. And the second is if you go across the portfolio, all of the markets that are up more than 10% currently.

Lawrence Alexander: What percentage of sales would that be roughly? And how much of that is like a legacy effect from pricing?

Lawrence Alexander: and would you expect that a fade over the course of the year, or is that just real sustainable double-digit growth?

Well, maybe I'll start Laurence with the raw material baskets.

Lawrence Alexander: We expect there for the four year to be as one to two percent of inflation. In Q1, we did see a little bit of an inflation, the exact number is close.

Lawrence Alexander: and four million dollars that came through. We see that in pigments, certain performance added as inflamed retardants, which are trending slightly up. We did see polypropylene and polyethylene and some of our other hydrocarbons trending down. So net net was about a four million dollar impact, like I said, for Q1, and then four-year likely as this juncture, one to two percent inflation as we look up for the four-year.

Thank you.

if you want to.

Lawrence Alexander: Yeah, I mean, so I think your other question was about where are we seeing the world digital growth? So Q1, the only area where we saw the world digital growth was healthcare, but we had several mid-single digits or even high single digits growth. So we saw high single digits growth in telecom.

Lawrence Alexander: Packaging was quite strong, I would say with them, you know, mixing our digital growth.

Speaker Change: And defense was negative 5% but I don't think it's an indication of the strength of that market. Laurence because as we said, that's because of the lumpy sales comparison.

Speaker Change: versus Q1 2024. I would put defense in that high to double digit kind of growth scenario as well. It's a growth market for us and we'll continue to be this.

Speaker Change: Pierre. So at this point, I would say, and then energy is expected to pick up as well, you know, toward the second half of the year with

with energy infrastructure programs that we have with our customers.

Speaker Change: So those are the areas of friends we are seeing right now.

Thank you.

[inaudible]

Speaker Change: and ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may now disconnect.

Q1 2025 Avient Corp Earnings Call

Request a DemoDemo

AVNT

Avient

Earnings