Avantor, Inc. (AVTR) Earnings

Management highlights

First, revival is already having a positive impact on Avantor with improved execution and increased accountability. Second, improved execution has translated into improved and more stable operational performance, notably within the VWR platform and BNP manufacturing, and strength in the order book and demand funnel. Third, moved with speed to recruit exceptional leaders and enhance leadership structure, with approximately 25% of the senior leadership group refreshed. Fourth, completed over eight weeks of Kaizen events across operational network in Q1, and established a CapEx Council to plan, review, sanction, and monitor capital commitments.

Guidance

Reaffirmed 2026 guidance. Expect adjusted EPS of between 19 and 20 cents per share in Q2. Middle East conflict creates approximately $10 - $20 million incremental headwind to 2026 operating income. VWR's growth rate reached a trough in Q1 and expected to improve gradually with positive organic growth in second half of 2026. BMP's year-over-year organic growth in Q2 will be worse than Q1 by more than 500 basis points. Expect adjusted operating margins of both segments to increase sequentially from Q1 to Q2. Debt reduction remains top capital allocation priority with aim to reduce adjusted net leverage ratio sustainably below three times.

Segment performance

VWR distribution and services generated $1.15 billion of revenue in the first quarter, down 5% organically versus the prior year. Adjusted operating income for VWR was $105 million in the quarter, representing an adjusted operating margin of 9.2%. BNP revenue was $431 million in the first quarter, down 2% organically versus the previous year. Adjusted operating income for BMP was $103 million in the quarter, representing an adjusted operating margin of 23.8%.

Risks & headwinds

Inflationary pressures from Middle East conflict on raw materials and services. Soft market conditions in Europe and adverse winter weather in US impacting VWR. Idiosyncratic customer ordering patterns and shipments creating headwinds for BMP's growth.

Analyst Q&A

• Q: Can you talk a bit more about any countermeasures you're taking to offset incremental inflation?

  A: Have a task force in place, new chief procurement officer, evaluating impact and seeing what can be passed through customers.

• Q: Talk about the significance of that book to bill and the BMP segment and what is the lead time required to translate that greater than 1.1 book to bill to revenue growth?

  A: Order in process chemical was strong in Q1, products have lead times of 30 - 90 days, encouraged commercial team to work on S&OP process for visibility.

• Q: Just a few more specifics on 2Q, helpful to hear the VWR and BMP pieces. Can you just talk about overall organic growth and then also the margins for each and how we should think about that margin cadence for 2Q and going forward?

  A: VWR expected to improve sequentially, BMP has lower organic growth due to idiosyncratic comp, better fixed cost absorption and modest margin increase expected.

• Q: What you're hearing from customers on BMP side? Are there certain segments you're seeing a little more strength?

  A: Biopharma market healthy, particular in bioproduction, order book strong, funnel strong, academy and government market stable.

• Q: Heard the term confidence in the business bottoming out. When you think about VWR bottoming out in Q1, what gives you the confidence in that VWR is bottomed out?

  A: Strong reset of VWR last year, stabilized situation, good order trend, contract conversion, new contract win, strong e-commerce execution.

• Q: As you look across your manufacturing and logistics footprint, what portion of facilities would you say are in good shape today versus still needing some investment?

  A: Generally have excellent sites, every site has projects to improve productivity, 12 projects sanctioned in Q1 with more to come.

• Q: Walk through how the BMP idiosyncratic order pattern comp space throughout the year?

  A: Idiosyncratic gets a little better in back half, primary driver on back half is headwinds in electronic materials, sequential improvement expected.

• Q: Walk through the price versus volume performance in the quarter? You said pricing was positive in BNP, so assuming that was down in VWR, so some more color on pricing in the quarter and updated pricing expectations for the year?

  A: Broadly, sequentially, volume decrementals offset by pricing actions, price-cost spread negative due to BWR margin reset, expect grinding up of gross margin during year.

• Q: Just talk briefly about free cash flow performance in the quarter? You did $25 million here in one queue, but reaffirmed the $500 to $550 million guide. So just curious if the free cash in the first quarter was in line with your expectations.

  A: Consistent with expectations, guide before restructuring expenses, significant prebate had impact, expect similar ramp throughout year.

• Q: On the VWR business, you talked about some market softness in Europe. Did that region deteriorate sequentially, or is that just a year-over-year comment? And the 50 basis points of weather impact in the U.S. in the quarter, I guess I would have thought you would have made up those orders at some point in the quarter. Did those get pushed out into 2Q? How do I think about the impact of that?

  A: Europe softness is year-over-year, VWR Q1 was spot on in expectations, weather impact was felt but team delivered as expected.

• Q: You alluded to prebates a number of times. I'm just wondering if you could expand on that, just sort of The magnitude in the quarter, was that unusual for 1Q? Just sort of, you know, the impact that had on numbers, just how to think about that going forward?

  A: Pre-bates associated with enterprise contracts, anticipated, had significant impact on cash flow, expected in guidance, looked at as positive if not renewing and winning contracts.

• Q: On the VWR business, I hear your comments about 1Q. You expect that to be the organic low point, and you talked about some improvements to 2Q and beyond. You've got easier comps in the second half, but still, you did post a negative 5 organic print on a negative 3 comp. So could you just talk about share dynamics, share gains, share losses, maybe touching on the prebates and the enterprise customers there, just confidence that that's really stabilized and um there's going to be less and less of an issue going forward?

  A: Stabilizing, at tail of share losses, renewing contracts, winning contracts, stabilizing commercial activity, Q1 is bottom.

• Q: Just curious, how much of the plastic wear portfolio within VWR is yours versus OEM?

  A: Don't have data in front of us, have new sourcing leaders in VWR working on negotiating best deals.

• Q: Are you, does the operational improvement that you feel like you have confidence in right now, does that give you confidence that EBITDA margins will be up next year?

  A: Premature to talk about 2027, but confident revival will have greater impact, optimistic 2027 will be growth year.

• Q: Just on the distribution business, Could you just zoom out and talk to what you're seeing in kind of the broader market? You know, there's a lot of uncertainty what's happening with pharma spending, certainly in the U.S., academic government trends. I'm just wondering, versus what you're delivering, kind of how's the broader market doing? And then related to that, like, are you guys assuming positive price in the back half of the year?

  A: Broader market has academic and government stable, education question mark, Europe industrial struggling, modest price baked into plan, expecting back to growth in second half.

• Q: I know you called out that material headwind in Q2 from the BNP across those different businesses. Is there any more? It sounds like it's idiosyncratic, very company-specific, but it's pretty big. Could you provide any more color on that, like the new SIL serum, and then it sounds like, Brent, that the current materials is a headwind in the back half of the year.

  A: New SIL serum and EM business provided headwinds in front and back half, making segment comps difficult, process chemicals unburdened by those comp pieces.