Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Avient Corp (AVNT, Financial) achieved 3% sales growth on an as-reported basis and 5% on an organic basis, marking the first sales growth in seven quarters.
- Adjusted EBITDA margins expanded by 100 basis points to 16.9%, driven by cost control and raw material deflation.
- Adjusted earnings per share (EPS) increased by 21% year-over-year, exceeding prior guidance by $0.05.
- Healthcare sales grew by 10% year-over-year, indicating the end of destocking and strong demand in drug delivery and monitoring devices.
- The company saw strong performance in key end markets such as packaging and consumer, with growth rates of 8% and 10% respectively.
Negative Points
- Telecommunication and energy end markets remain challenged, with sales down double digits in the second quarter.
- Raw material costs are expected to rise in the second half of the year, impacting margins.
- The European market remains cautious due to weak manufacturing PMI and potential impacts on business and consumer confidence.
- Despite strong performance, the company faces a $30 million year-over-year headwind from variable compensation in the second half of the year.
- Sales growth in Asia was modest at 1%, with weakness in building and construction offsetting gains in healthcare.
Q & A Highlights
Q: Ashish, could you share your thoughts on visibility into the second half? What are you hearing from customers and seeing in order patterns that provide confidence in continued growth momentum?
A: We finished Q2 with 5% organic sales growth and our order book for July is on track. We expect mid-single-digit growth in the second half, driven by market demand recovery, restocking, and share gains. Seven of our nine segments grew year-over-year in Q1 and Q2, and we expect this trend to continue.
Q: Can you elaborate on the healthcare segment, particularly around drug delivery and monitoring? What partnerships have you developed, and how do you see this segment evolving?
A: Healthcare destocking is largely over, and we are seeing restocking and sales growth in both OEMs and distribution channels. We are winning new applications in drug delivery and monitoring devices, such as glucose monitoring. Our healthcare business has grown at a CAGR of 14% since 2019, and we continue to innovate in this profitable segment.
Q: Can you provide more color on the defense segment, which saw 38% growth in Q1 and modest year-over-year growth in Q2? What are your expectations for the rest of the year?
A: Q1 was strong in defense, helping both growth and margins. Q2 was modestly up year-over-year, and we expect double-digit growth in Q3 and for the full year. We are winning new programs with NATO countries and local law enforcement agencies, maintaining solid momentum in this segment.
Q: Jamie, you mentioned raw materials being a positive in Q2 but expecting inflation impacts in the second half. Can you quantify this?
A: Q2 saw about $15 million in deflation, with $35 million for the first half. We expect a $5 million to $10 million headwind in the second half, with more impact likely in Q4.
Q: Regarding the second half outlook for sales growth at mid-single digits, will this be mostly volume growth? Any changes in R&D that are driving momentum?
A: Yes, the growth is volume-related, driven by new program wins and application developments. We have pivoted our sales strategy in different regions, focusing on local key accounts in Asia and share gains in EMEA and the US. Our R&D efforts are also contributing to this growth.
Q: What metrics should investors focus on for the upcoming strategic plan? Any thoughts on longer-term earnings power?
A: Our strategic plan will focus on organic top-line growth, margin expansion, and amplifying innovation. We aim to grow sustainably and differentiate ourselves from the competition. More details will be shared at our Investor Day on December 4.
Q: How are your R&D and marketing organizations currently structured, and what changes do you wish to achieve with new hires?
A: We are consolidating R&D structures to build scale in high-growth areas and creating a flywheel of innovation. The new marketing position will help us understand fast-changing markets and improve our go-to-market strategies.
Q: How much did share gains contribute to volume growth in the quarter? Are there any fundamental competitive dynamics driving these gains?
A: Share gains were significant in traditional Engineered Materials and Color Additives. We expect composites to play a bigger role in the second half. The growth is driven by new applications and market share wins across various regions.
Q: How do you expect your mix to evolve in the short to medium term?
A: We expect volume growth to drive our mix in the back half of the year, with some margin expansion. We will provide more specifics on our long-term outlook at the Investor Day.
Q: With raw materials coming down, do you expect any pricing pressures from customers further downstream?
A: Raw material prices are expected to rise in the second half. We have a strong history of maintaining net price benefits, regardless of inflationary or deflationary environments, and expect this trend to continue.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
