Q2 2025 Avient Corp Earnings Call
Good morning, ladies and gentlemen, and welcome to Avant corporation's webcast to discuss the company's second quarter 2025 results. My name is Latif and I will be your operator for today.
At this time, all participants are in listen-only mode.
We will have a question-and-answer session following the company's prepared remarks.
As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Joe Salvo, Vice President, Treasurer, and Investor Relations. Please go ahead.
Thank you and good morning to everyone joining us on the call today.
Before we begin, we'd like to remind you that statements made during this webcast may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements will give current expectations or forecasts of future events and are not guarantees of future performance.
They are based on management's expectation and involve a number of business risks and uncertainties.
Any of which could cause actual results to differ materially from those expressed in or implied by the forward-looking statements.
We encourage you to review our most recent reports including our 10q or any applicable amendments for a complete discussion of these factors or other risks that may affect our future results.
During the discussion today, the company mentioned that we use both GAAP and non-GAAP financial measures.
Please refer to the presentation posted on the investor relations section of the Avient website. The company describes non-GAAP measures and provides a reconciliation to their most directly comparable GAAP financial measures.
A replay of the call will be available on our website.
Information to access the replay is listed in today's press release, which is available at avant.com in the Investor Relations section.
Joining me today is our Chairman, President, and Chief Executive Officer, Dr. Ashish Kor.
And Senior Vice President and Chief Financial Officer, Jamie Beggs.
I will now hand the call over to Ashish to begin.
Thank you, Joe.
And good morning, everyone.
I'm pleased to report second quarter organic sales growth of 0.6% in an uncertain macro environment, where customers in most markets and regions are waiting for clarity on trade policy.
Strong operational performance and cost controls.
Help adjusted EPS to grow 5% to 80 cents.
Slightly ahead of our guidance of $0.79.
We also expanded margins on the bottom line with adjusted EBITDA of 17.2%.
This 30 basis points of margin expansion was driven by favorable mix, productivity initiatives, and disciplined discretionary spending.
All things we continue to control tightly.
As we enter the second half of 2025,
Market trends are not necessarily improving and uncertainty Still Remains around trade policy.
Q3 is expected to be a continuation of Q2 in this regard.
Our customers remain in a wait and see mode.
With consumer markets, in particular, showing weakness across the globe.
Thus far we have been able to more than offset consumer weakness by strong demand and defense and health care which remain as bright spots for our business.
Overall, for the first half of the Year, organic sales grew about 1%.
And we expect a similar demand environment for the second half of the year.
We had shared our operational pay book for the current low demand High uncertainty and our last earnings call.
As a result of our actions from this Playbook, we are well underway to realize approximately $40 million in benefits in 2025 versus last year.
That is an increase of 10 million from our original estimate of 30 million that we communicated last quarter.
These benefits come from a combination of sourcing. Lean 6, Sigma plant productivity initiatives.
Optimization of our manufacturing footprint and discretionary spending control.
The first half of 2025.
The remaining $23 million will be realized in the second half, primarily from additional sourcing initiatives and further reductions in discretionary spending.
These efforts more than offset both inflation, primarily from wages.
And our investments in growth vectors that are critical for advancing our strategy.
With respect to tariffs, any direct impact remains largely mitigated and consistent with what we discussed last quarter.
We primarily source raw materials and manufacture our products locally in the region that we serve.
Direct pnl impacts to date have been minimal because we can optimize our raw material purchases across regions.
Use our formulation expertise to identify material substitutions.
And, where appropriate, proactively implement pricing actions.
As we are on our journey to evolve Aven from a specialty formulator to an innovator of material solutions.
I would like to highlight progress, we continue to make along the way.
The second quarter results marked the fifth consecutive quarter of organic growth for us.
for the first half of 2025, we have grown sales and adjusted EPS by 1.2% and 4% respectively, excluding the impact of foreign exchange
As a reminder, we grew 4% organically in fiscal year 2024.
on the bottom line so far in the first half this year, we have already expanded adjusted, Ibiza, margins by 20 basis points,
We expect incremental year-over-year margin expansion in the second half and full year adjusted. Ibiza? Margins should expand in excess of 30 basis points.
And this would be following 20 basis points of margin expansion we realized in 2024.
Our strong cash position and consistent ability to generate cash through an uncertain macroeconomic backdrop.
Allowed us to pay down 50 million dollars of debt during the quarter.
We are on track with the plan. We communicated last quarter to reduce debt in total by 100 to 200 million dollars by year end.
We are deleveraging the balance sheet while making investments in our businesses, based on our prioritized portfolio.
Growth Vector selections and a strategic initiatives.
As you may recall, we made strategic structural changes to our R&D organization to ...
A share in Transplant Technologies from one business to another, and B.
To hybridize multiple technologies from the same or different businesses to create differentiated products and solutions for our customers.
Although early, we seem to be getting good traction on these fronts, which is helping us innovate more purposefully and differently than in the past.
Patent filings increased by 50% in 2024 versus 202023.
And in 2025, we are on Pace to exceed year-over-year pattern filings again.
We are also collaborating on new launches with our customers offering them unique and differentiated products.
Some examples include.
Our low temperature chemical forming agents for composite decking and flexible film packaging applications.
where we use a proprietary blend to optimize the reaction point of the foaming activity, with the melting point of the plastic resin,
This results in consistent high quality lightweight materials with improved product performance, that help, our customers, reduce their materials and energy usage while making their operations more productive.
Another example from our engineered materials portfolio is our ability to create inherently lubricious characteristics in healthcare materials that promote patient comfort.
Our patented technology delivers lower friction, and enhanced processability in polyurethane tubing, which is expected to have utility in a wide range of important, Healthcare applications, including catheters, peristaltic pumps, CPAP machines and potential extensions to bio pharmaceutical Manufacturing.
A final example is our patent pending Advanced flame, retardant materials for enhanced fire safety.
Here, we leverage our glass, fiber and resin capability to create an inherent inorganic, flame barrier, when exposed to high, temperatures greater than 400 degrees Celsius.
This product line was launched earlier this year at the International Builder Show.
Potential future expansion to other high-value applications in different markets.
before I hand it over to Jamie to discuss the details of the quarter's results and our updated guidance for the year,
I wanted to provide a special thank you to our global teams.
They continue to persist and execute well with eyes and focus on delivering both short-term quarterly results while doing the things to build for the mid and long-term future.
That will make our businesses and capabilities stronger.
And more relevant to the changing world.
And in turn, we will be able to grow both our Top Line and bottom lines in a sustainable manner.
Thank you, Ash, and good morning, everyone. Executing our strategy and playbook for the current environment enabled Avient's success this quarter to deliver both sales and adjusted EPS growth while expanding our EBITDA margins.
Looking at the color additive and ink segment, adjusted EBITDA grew 4% on 2% lower organic sales.
Weaker, demand and consumer Transportation, building, and construction markets. More than offset, strong growth and Healthcare.
Sales for packaging materials in the segment's largest market were muted, as growth in the U.S. and Canada was offset by lower demand in Asia and Latin America.
Despite lower sales, the segment expanded ibida margins, 100 basis points through favorable mix and cost Improvement initiatives.
This included, ongoing plant footprint optimization and streamlining the segments, organizational structure to better serve our customers.
Our specialty engineered materials segment group organic cells. 6% driven by strong growth in defense and healthcare.
Healthcare grew double digits with continued, demand in our medical device, equipment, and supplies portfolios.
Defense returned to double-digit growth after the tough first quarter year-over-year comparison. In fact, our defense sales were a quarterly record supported by the recent new product innovations that we highlighted in our February earnings call.
Semmes, Eva, with down slightly versus prior year, primarily due to plan maintenance and our Avient protective materials business.
The maintenance will primarily impact the second quarter, and we anticipate the sem segment to deliver margin expansion and the second half of the year.
Looking at regional performance, I'll start with the U.S. and Canada, where sales increased 1% year-over-year.
Growth was led by Healthcare where we continue to win in medical devices and Drug delivery applications as well as strength and defense.
This growth more than offset the impact of weaker, demand and consumer transportation and building a construction markets.
Anemia sales are down slightly versus the prior year.
While Healthcare and defense sales were robust, packaging sales. The Region's largest in Market accounting. For 26% of the emia sales.
Did not experience the typical second quarter, seasonal benefit.
Asia delivered 3% organic growth, marking the fifth straight quarter of growth in the region.
Strength was evident across most markets, notably in healthcare and transportation.
Latin America grew 6%, marking six consecutive quarters of growth. This is also notable considering its comparison to a period where the region grew 19% in the second quarter last year.
This consistent performance is attributable to our local team, who is winning new business and gaining share with global OEMs and in the packaging application space.
Turning to our guidance for the remainder of the year, we are nearing our range, the new Range reflects the mixed demand conditions. We experienced through the first half of the year as well as anticipated demand levels for the second half.
Beginning with Q3 we expect third quarter adjusted, EPS of 700 cents, which represents 8% growth over the prior year quarter.
The earnings growth will be driven largely by higher margins from favorable mix and productivity initiatives.
For the full year, we are nearing the range for adjusted EBITDA to $500 million to $560 million, and adjusted EPS to $2.77 to $2.87.
This considers our positive performance to date and productivity gains that will have a larger benefit in the second half of the year.
This also assumes a year-over-year tailwind from foreign currencies of approximately $2 million in the second half, which compares to a $2 million headwind in the first half of the year.
From a demand perspective, the low end of the range assumes a low single-digit revenue decline year-over-year in the second half.
They high end of the range assumes low single digit growth in the second half.
In the second quarter.
We still expect capex for the year of approximately, 110 million and free cash flow. Deranged from 190 to 210 million.
With that, she and I will be happy to take any of your questions. Operator, please begin the Q&A session.
As a reminder, to ask a question, you will need to press star 1 1 on your telephone.
To remove yourself from the queue. Please press star 1 1 again.
Please limit yourself to 1 question and 1 follow-up.
Please stand by while we compile the Q&A roster.
Our first question comes from the line of Frank. Mich of fermion research. Please go ahead, Frank.
Hi guys. Good morning. This is Ean for Frank. Um, my first question was around uh the tariffs. Do you guys see any pre-b buying activity, you know, pulling um some of uh, sales from 2q um, from 2 Q into 2 q and just how are you guys thinking with pre buying in general?
Yeah, either this is Ashish. Um, you know, we um, don't believe we have seen any preempting in our business. Uh, you know, coming out of customers have gotten very smart with respect to managing their inventory tightly, especially in uncertain demand environments. And that's exactly what we are seeing now as well.
Um, going forward, we expect the same, you know, we have very little visibility to, uh, our sales because uh, you know, our our orders because, um, you know, our customers expect fast turnaround and as they're managing the inventory, very tightly. So we are still looking at 20 to 30 days of order, um, visibility but based on what we can tell uh, from everything the order book and and the trends that we have uh seen in Q3 so far as well, we don't expect. We don't see any preying kind of activity going on.
And Aziza maybe to add on the majority of what we do is for local um production in in region. Um so we think our exposure in that regard would also be more limited than maybe others in the space.
Got it. Thank you for that. Um, and Jamie, I'm sorry if I missed it when you were talking about the Outlook, but um...
could you guys elaborate on what you guys are thinking on Ras for the year? I know it's uh we were thinking maybe for the year 1 to 2% uh raw material inflation. Is there any update on that view?
Yeah, that view is basically the same, um, we expect 1 to 2% inflation. Um, and the raw material basket. We have seen hydrocarbons come down, um, slightly but we also seen some increases and pigments and Flame retardants. And as a reminder about 35% of our raw material basket is from hydrocarbons. So while we get a little bit of benefit, we have to make sure that the rest of the basket's not also increasing. So no substantial change from what we provided in the last quarter update.
Great. Thank you guys.
Thank you.
Thank you. Uh, next question.
Comes from the line of Michael Sissan of Wells Fargo. Please go ahead, Michael.
Hey guys, nice quarter. Um,
For the second half, I just wanted to get a better feel of what your outlook for volume is. A lot of companies...
Have, uh, sort of guided to a little bit of a difficult second half. Um, customers are destocking some cases. So, um, I know you have a lot of good new product programs and, and, and such. So, just any thoughts on how your volumes should look in, in the in in the second half would be great.
Markets and, and, and try to answer your question also in the process. So, you know, if you think about our big 2 consumer and packaging, uh, you know, that's about 40% of our portfolio. Um, it you know, each one, they are like, consumers down 4%, packaging is up 3%. And we expect that to be, you know, in the second half, um, kind of a continuation of that scenario. So that the ending point is, you know, minus 2% to minus 3% for Consumer and plus 2% to plus 3% for Packaging. So we think those 2 things offset each other more or less, uh, given packaging of.
Slightly bigger business for us.
Then the growth drivers for us are um, you know, Healthcare defense and Telecommunications. And, and those um, you know, in in first half of the Year defenses are 5%, Healthcare is of 14% and Telecommunications is up 7%.
And those 3 markets as well. So, you know, we we, we plan to finish that. 20% of the portfolio in that high single digits to double digit range
And then uh the remaining 4 markets, which is industrial Transportation building and construction and energy are in that minus 1 0 + 1, kind of range and they kind of offset each other. We expect a flattish finished on that side.
So overall I think, uh, you know, you you think about it? What driving are telegraphed growth in second half, which is we what we said in our call is similar to our first half? Uh is is uh the the 3 uh Healthcare defense and telecommunication markets uh growing at high single digits to double digits
From a volume perspective. Specifically, uh, I think, uh, we are expecting, uh, better volume uh, in in in second half of the Year, especially for the sem business. Uh, color will be probably more similar to, uh, the first half of the year, but on the sem side, we expect, uh, you know, even in second quarter, sem had positive volume, uh, plus uh, positive price, mix. And and I think that Trend gets stronger as we move into the second half of the year.
Got it. And then as a quick, follow-up.
Um, I think your portfolio is currently looking more stable than others. I think your outlook for Evita is still up year-over-year, where, you know, several are going to be down quite a bit. When do you think about volume demand getting better? If Ever I was hoping it gets better. Um, you know, what type of leverage do you think you'll get off that volume and EBIT, dog? Growth longer term.
So, um, you know, obviously, um, demand is going to help us a lot as you see right now. Um, a lot of our is with the increase in our projections is driven also by productivity, which will continue to be part of the Playbook going forward. You know, if you think about our productivity of 40 million dollars, that's about 1.2% of sales. So that's something that we should expect here after a year from from a company like ours. And and so um on on the organic side, um, you know, the the as our portfolio is changing to a Better Mix, uh, because of our uh, growth vectors which are more profitable. I expect that uh, a higher leverage to the bidda margins is going to come down. So over time, as the volume grows, we expect the mix to get better and are with the margins to get better from that as well.
You know how much. Great, thank you.
Thank you, Mike.
Thank you.
Our next question.
Comes from the line of GM. Punjabi, a beard, please go ahead. Gotcha.
Thank you, operator. Good morning, everybody. Um, I guess just building on the last question on the consumer weakness, can you just give us a sense as to how that has evolved as the year has unfolded? You know, from a high-level standpoint, have the number of categories you sell in been too broad as it relates to the weakness, or is it a shift geographically, or a combination of the two?
Yeah, so I mean, at a macro level for Ave and consumer was flat in in first quarter, and it is down, 8% in second quarter. And if you look at at specifically consumer, as a market, you know, United States Canada is our biggest consumer Market, which was down double digits in both q1 and Q2.
So, that's what's driving the consumer results. But essentially, we are seeing weakening account consumer because, in the first quarter, consumer work was positive in the remaining geographies except the United States and Canada.
Uh, but in this quarter, um, you know, apart from Latin America, we are seeing weakness in consumer in all other three geographies. So consumer is certainly getting worse, uh, from our customers talking to our customers. And being seen that, we are seeing that in our numbers. And that's how we have projected, uh, in the second half of the year as well. We expect consumer to stay.
Uh, negative year-over-year. Uh, and and that's that's built into our numbers.
Okay, thanks for that. And then, um, I'm sorry if I missed this, but did you quantify the impact of the maintenance on a EBITDA basis for the SEM segment? And then just separately on the debt pay down, target of $100 million to $200 million. Why is that range so wide? Um, in context of your free cash flow generation for the year, net of the dividend?
Being a little bit conservative of ensuring that the macro environment plays out like we want to. And so our goal is to definitely um continue to pay down debt in the back half of the year. But we're also going to be cautious with our balance sheet and just ensure that that cash does come in. We're confident in that, that's why we can that's why we made the pay down in um the second quarter of fionn dollars and expect more to come as we um, get to the back half.
Okay, very helpful, Jamie. Thank you.
Thank you.
All right, the next question comes from the line of Christian Owen of Oppenheimer & Company. Please go ahead, Christian.
Hi, good morning, thank you for the question. Um, so I wanted to follow up on the tariffs but maybe from a a slightly different angle, you know, I understand that your tariff exposure is relatively limited but with the uncertainty only increasing, I'm wondering if you're seeing pressure from your customers to help absorb more of their tariff costs. You know, I know Aven has been good at historically pricing for Value but I'm I'm just wondering if that's becoming any more difficult in this environment.
So, um, you know, maybe I can take a, a a stop at it and then give me if you want to add something, um, essentially, you know, if you think about our RM buckets. So overall, yes. The answer is, yes, we are seeing pressure on on the pricing and and to lower pricing because of this increased status coming and we are doing everything from working with our suppliers.
And for our customers to either qualify new materials or alternatives, or try to bring down the cost. Somehow, in some cases, we are not able to do that.
Um, if you look at from a RM basket perspective, you know, you know, the the the commodity polymers, the polyethylene and polypropylene, uh, raw material side. We are not seeing much price increases on that front. Actually, there's excess capacity. So we are seeing uh, a slight positive, favorable, uh price, um, piece on that part.
The piece where we are seeing more pressure is on the pigment side and and uh uh as well as uh certain performance materials, both of which are about 15% each of our portfolio of our RM purchases and uh there we are seeing, you know uh low to mid single digits kind of price increases.
Uh, in case of specifically a flame retardants which is a very specific material that goes into uh, our wire and cable business but other pieces as well. Uh, we are seeing significant increases because of Supply Supply constraints and their, uh, we are not able to offset that but those price increases working with our our, our suppliers and and so we are passing that on to our customers and their the price increase. We are talking about is almost more than 3 times versus last year and more than 6 times versus
Is the year prior. So and that's purely driven because that that material is largely comes out of China and and there's a tight Supply uh,
Situation there. So, in in most cases, we are trying to work very closely, uh, with our, with our suppliers and customers to keep the pricing same. Uh, we are however, uh, not able to take care of everything, uh, you know, by by doing the substitutions and in cases, where we are not able to do that. We are able to pass on the price to our customers.
That's really helpful. Thank you.
For that. Um, and then this is for Jamie. It's a little bit in the weeds but just following up on the, the balance sheet piece of this. Um, you guys took out a new, uh, revolver in the quarter and, you know, my impression when that came out was that, that that was over was perhaps a little bit, misunderstood by the markets, what the function of that was, can you just provide a little bit of background on that instrument? What what that does?
Thank you.
We basically converted our asset based loan to a cash flow revolver. And part of that was just an evolution of our debt profile. Um, when we had our distribution business, we had a lot more. I would say, uh, receivables and inventory to be able to secure the asset based loan. And with that the best that you're, it actually took down the total capacity that was available. So, in order to ensure that we had, um, I would say adequate liquidity, um, a cash flow revolver, where the better option for
For us. And so, in essence, it actually did increase our, um, like available liquidity, which was to the same amount that the asset based loan would have been with the distribution business, being in the business. So, um, the cost between those facilities or roughly the same, it was just a measure to ensure that we had, um, the liquidity that's, uh, commiserate with the size and the exposure that avian has
Thank you very much.
Thank you.
Our next question.
Comes from the line of Mike Harrison of Seaport Research Partners. Your line is open, Mike.
Hi, good morning. Um, she was wondering if we could dig in a little bit on uh the the health care uh, portion of your business. And maybe can you can you give us some color on what portions of that market? Uh, you're seeing the best growth and I'm also curious, um, you you noted some new product introductions, how long does it take to qualify new materials in healthcare? Uh as opposed to maybe some of the less regulated markets that you serve?
Yeah, so um thank you for the question. Mike several things.
Uh, overall trend for healthcare has been quite positive for us last year. We grew 11% Health Care year over year year over year constant, all my numbers are constant dollars. So, and and then q1, we grew 11% and Q2, we are at uh, uh, 17%. I yeah, 17%. So, um, uh, pretty strong Trend in healthcare. We are seeing growth both in our SCM side of business, as well as uh, the color side of business in healthcare. Uh, if you think about it from a portfolio perspective, 80% of our portfolio. Uh in healthcare is in 3 specific markets which are uh,
You know, medical, um, equipment, uh, uh, and then I our medical devices. So these could be like things, like, continuous glucose monitoring kind of devices, uh, or or uh, CPAP machines or things like that. Uh, and the, the other 2 are, uh, medical supplies. So, these would be catheters and tubings, for example, and then the third part is drug delivery. So these could be injector pens and inhalers, those kinds of things. So these 3 things constitute about more about 80% of our, our Healthcare portfolio and we have grown 20% uh Plus in each 3 of these categories in Q2. So pretty, strong momentum and and it's all connected to the. The macro Trends you are seeing with respect to obesity drugs and continuous glucose monitoring kind of situation. So we feel like we're in good shape. There are these aspect in products. So so we have good visibility uh, and and the demand continues to be strong in these areas. Uh, with respect to specifically
Uh, you know, obviously a lot of, uh, stuff in healthcare since their FDA regulated products, go through a longer cycle time and on regulatory side, and, and qualification. And so our teams have been working, uh, in some cases as much as for the last 5, 6 years, uh, and and uh, continue to it's a continuous process. And we are always working with our customers on the next cycle of things that they are going to be launching. So that there's a pipeline that is, uh, in the process and going on. So,
So that's how uh, we manage this long cycle time or long regulatory qualification part of healthcare. Uh, but um, you know uh with respect to other materials in in non-healthcare, you know, qualification could be as short, as few months, but in regulatory case, it could be 2 to 6 years even. So,
Uh very helpful uh and then uh on your uh your guidance slide here. You you noted uh 1 of your potential deciliter is uh a slowing in Asia, let by China. Um can you talk about the trends that you're seeing in key markets in China right now? I guess what are some of the signals that you're watching for that that may indicate a need for caution in the second half?
Yeah, I I think the the there's 2 pieces. I mean, the color business in China is the 1 under a little bit pressure and, you know, there is a, as you might have heard a little bit. What's going on in China, is the government is trying to uh, get more optimized with respect to capacity. So it is uh the people are not cutting each other and and creating unnecessary, deflation and material. So the the China government has come up with this thing called supplier structural reform policy that they're enforcing and which is leading to consolidation of, for example, Automotive EVS, which are, you know, excessive people making them in in cars, making in China and and things like that and and same things on the capacity.
Does it have as it is evolving through the economy? So, I think that part of the business, we continue to monitor. We will, we predict that in Q3 as well? We will continue to see those pressures, uh, uh, uh, on, on in China. Uh, but uh, offsetting that is, uh, some good stuff going on on the sem side, where we are seeing a lot more growth happening on the high performance Computing, with all these artificial intelligence and things going on. And we are trying to gain more share in that part of the market. So that we can offset any, uh, you know, downside on the color side, from the SCM side in the in the high performance Computing Market.
All right. Thank you very much.
Thank you.
Our next question comes from Lawrence. Alexander of Jeffrey's, please go ahead, Lawrence.
Hey guys. Uh, just a question about someone, we talked about in healthcare and just a new products in general. I was wondering with those, those longer lead time products. If they have higher incremental margins, or if margins in general incremental, margins for newer products are substantially higher than the other ones. Is it like 40% versus 30%, or, or just how it kind of plays out?
Yeah. Lawrence I I think the, the answer is yes, in in, in, and that's 1 of the main reasons. Why, you know, we, when we presented our strategy at the investor day, we identified Healthcare as 1 of our growth vectors, uh, you know, specifically, um, uh, the drug delivery part and, and also the medical part, the core part of it. And, uh, and obviously, it's a, it's a sticky business once you get specified. Uh, you know, you can you you kind of, uh, keep the business as long as that version of that device or that material is there? Uh, it's a business that is also, uh, if you maintain good quality and and uh, uh good, um, service to the customer apart from the regulatory approval. Uh, it's a, it's, it's a competitive Advantage for us because we do that very well in, in Ai and and then overall margins perspective, it is, uh, very accretive to our business. And, uh, and, and that's uh, also very nice for us.
Have you ever Quantified? What the difference is for, for newer products? I mean, is it?
Uh, you know, 10% higher or 10,000 basis points higher? How should we think about it, just in terms of modeling with new products becoming more prevalent?
Yeah, I mean I I I think overall Our intention of developing new products is to to this to, to have margin accretive products. So I won't, I won't talk percentages here. But that's exactly how we are going to improve our margins. Um, both by Innovation and then also charging, uh, you know, the value that we create for the customer uh, through through margin expansion. So for for me, I mean, I think that's the primary reason why we feel apart from that and and operational leverage why we think our margins will continue to expand
Thank you very much.
Thank you.
Our next question comes from Vincent Andrews of Morgan Stanley.
Please go ahead. Vincent.
Hi, this is Turner Henriks on for Vincent. Um, I was wondering if you could provide a little bit more context for um, the durability of some of the uh, growth vectors between, you know, Healthcare, Defense, and Telecom. Um, for instance, like are there some, you know, reasons to believe that the Healthcare um, outgrowth, which has been really fantastic, as you all um, described, um, you know, is going to continue over, you know, the near to medium term? Or, you know, like how can you provide uh, some context um, so that we can uh, get a better handle on, you know, the go-forward outlook for uh, these growth drivers?
Hi, Turner. As we look at the underlying applications that we sell into Healthcare, those things would be, for instance, Respiratory Care, glucose monitoring devices, drug delivery labware, catheter syringes and so on all of those, um, particular, um, submarkets within their do provide, I would say a long-term growth potential. Um, so while I can't promise it will be growing double digits every single year. This has been a good growth opportunity based on some of the Innovative platforms that aish mentioned earlier. Uh, we do feel that there is a strong growth potential that will continue into the, uh, foreseeable future.
Great great to hear um 1 other 1 um unrelated. So margins are down um roughly uh 220 uh bibs to your over year in sem. If I remove
3 million dollars of maintenance.
either mix or, you know, spreads in that, uh, segments or, you know, like, what's driving, um, just the, uh, you know, margin, uh, margin reduction, um, you know, like, on a normalized basis just so we can get a better sense, um, for you know, like where margins should be, um, on uh, in the in the second half in particular,
Yeah. From a, from a margin perspective, the majority of the decrease on a year-over-year basis is because of the plan maintenance, we also had some higher cost inventory that flew through that. Also um compressed margins to some degree. As we look into the back, half of the year, we do expect margin expansion. In fact, I is it like 4. It would be likely be closer to 100 basis points on a year-over-year basis. And when we get to the second half of the year, um, obviously for the 4 year that may be tamped down because of the Q2 plan maintenance. Um, but we do expect that to um, like I said, continue to expand because we don't have these 1 timers that happened in Q2.
Great. Thanks so much.
Thank you, ladies and gentlemen that does conclude avian corporations conference call. Thank you for participating. You may now. Disconnect