AVIENT CORP Q1 FY2025 earnings call

• The company delivered its fourth consecutive quarter of organic growth with sales and adjusted EPS in line with expectations. Organic sales grew 2% in the quarter, driven by packaging demand. Adjusted EBITDA grew 4% excluding FX due to higher organic sales and cost management. Adjusted EBITDA margins expanded 20 basis points to 17.5%.
• US & Canada organic sales declined 3% due to weak consumer and transportation end markets, but healthcare and packaging saw growth. EMEA had 2% organic growth (4th consecutive quarter of organic growth), Asia saw 9% organic sales growth, and Latin America had 17% organic sales growth (4th consecutive quarter of double-digit growth).
• The company is well-positioned to help customers navigate macroeconomic uncertainty, with an agile global manufacturing footprint and focus on cost control, lean initiatives, and growth vectors like healthcare, defense, and composites.

The company has two main segments: Color, Additives & Inks (CAI) and Specialty Engineer Material (SEM). For CAI, organic sales grew 3% in the quarter, with adjusted EBITDA growing 7% excluding foreign exchange (FX). The largest end market, packaging, saw resilient demand in personal care and food & beverage applications. Adjusted EBITDA margins for CAI expanded by 50 basis points. For SEM, organic sales were flat to prior year, while adjusted EBITDA declined 4% excluding FX. Healthcare and energy segments grew, but transportation and defense markets were down. Defense had a tough year-over-year comparison due to the lumpiness of sales in personal protection, as the first quarter of 2024 was a record quarter for the defense business.

• Q2 adjusted EPS is expected to be $0.79, representing 4% growth over the prior year quarter. Growth is expected in healthcare, defense, and packaging, but offset by weak US consumer demand and transportation sales in the US and Europe.
• Full year adjusted EBITDA is guided to $540 million to $570 million, and adjusted EPS is guided to $2.70 to $2.94 (unchanged from February guidance). CapEx is expected to be ~$110 million, free cash flow is expected to range from $190 million to $210 million, and the company expects to pay down $100 million to $200 million of debt by year end.

• Tariffs could impact market demand, particularly in the US consumer, building & construction, and transportation end markets. The direct tariff impact on sales and raw materials is not anticipated to be significant, but tariffs can affect overall market demand.
• Macroeconomic uncertainty poses risks to demand in certain end markets, which the company is accounting for in its guidance.

Q: On the defense side, Frank Mitsch asked about the expectation for the defense business for the rest of the year.

A: Ashish Khandpur said defense has been on a strong growth pattern, with double-digit growth last year, expecting double-digit growth in the first half of 2025 and high single-digits for the full year, driven by innovations and diversification.

Q: Mike Harrison asked about consumer end market weakness.

A: Ashish Khandpur said consumer was flattish in Q1, with double-digit declines in US and Canada consumer, but strength in other regions like EMEA, Latin America, and Asia. Q2 is expected to have the same trend.

Q: Ghansham Punjabi asked about packaging strength in CAI.

A: Ashish Khandpur said personal care and beverage are the biggest drivers, with double-digit growth in personal care packaging and mid-single-digit growth in beverage packaging, and growth in all regions.

Q: David Begleiter asked about SG&A.

A: Ashish Khandpur said SG&A is expected to be flattish to last year, offsetting cost actions and investments in growth vectors.

Q: Kristen Owen asked about supply chain and channel inventory.

A: Ashish Khandpur said channel inventory is lean, customers are in wait-and-see mode, and order book visibility is shortened to 20-30 days.

Q: Michael Sison asked about portfolio reaction in a recession.

A: Ashish Khandpur and Jamie Beggs said the company has resilient segments like healthcare, defense, and packaging, and has cost control measures to offset potential declines.

Q: Vincent Andrews asked about the down mid-single-digit scenario and incentive accruals.

A: Jamie Beggs explained the modeling of the down mid-single-digit scenario and Ashish Khandpur discussed incentive accruals related to timing of bonus payouts.

Q: Laurence Alexander asked about raw material trends and double-digit growth areas.

A: Jamie Beggs talked about raw material inflation expectations, and Ashish Khandpur mentioned double-digit growth areas like healthcare, defense, and energy.