AVNT

Overall Company Performance

• The company delivered a strong Q2 2026, with 4.3% total organic sales growth, 96 cents adjusted EPS (9 cents ahead of analyst expectations), and a record adjusted EBITDA margin of 18.3% (up 110 basis points year-over-year).
• 20% adjusted EPS growth was achieved year-over-year, supported by operating leverage from revenue growth and company-wide productivity initiatives.
• Strong operating cash flow allowed $50 million in debt repayment in Q2, bringing total 12-month debt reduction to $200 million as of quarter-end.
• Asia was a top-performing region, delivering 18% year-over-year organic sales growth and 20% sequential organic growth, with double-digit growth across both business segments.

End Market Performance

• Packaging (23% of total company sales, the largest end market): Delivered double-digit Q2 growth, driven by strong pricing execution, new business wins, and growing customer demand for non-PFAS polymer processing aids for food, personal care, and beauty packaging.
• Consumer: Delivered mid-single-digit Q2 growth, with demand stabilizing and share gains driven by global key account prioritization and expansion with large local Asian customers.
• Defense: Demand remains healthy, with Q2 growth achieved even against a strong 19% comp from Q2 2025, supported by a strong project pipeline across the U.S. and Europe.
• Building and Construction: Delivered double-digit Q2 growth, driven by share gains and new business development, benefiting from data center and broad infrastructure investment trends.
• Healthcare: Underlying secular demand growth remains intact, but customer inventory rebalancing (particularly for drug delivery and remote monitoring devices) weighed on H1 2026 results. Management expects growth to resume in H2.
• Industrial: Returned to modest Q2 growth led by strength in Asia, with management expecting momentum to continue through H2 on more favorable year-over-year comparisons.
• Transportation: Demand remains soft due to lower vehicle production and weak marine demand; this trend is expected to persist through H2 2026.
• Energy and Telecom: Demand trends are improving, with growing activity tied to high-performance computing and electronics, and U.S. electrical infrastructure projects supporting energy demand; management expects high single-digit to double-digit growth in Q3.

Strategic and Innovation Highlights

• The company's multi-year 2024+ strategy has delivered consistent margin expansion, earnings growth, strong cash flow, and a stronger balance sheet annually, even amid volatile market conditions.
• In EMEA, a focused profitability improvement strategy (streamlining, complexity reduction, productivity, and portfolio actions) is on track to deliver over 400 basis points of adjusted EBITDA margin expansion from 2023 to 2026, bringing regional margins to over 18% in line with the broader company portfolio.
• The company recently launched a new line of PrePerm dielectric materials designed for radomes in humanoid robots and intelligent driving vehicles, solving performance and manufacturing limitations of traditional glass fiber-reinforced materials. The company is currently developing custom solutions for multiple manufacturers and expanding the material platform for additional applications.

• Full year 2026 guidance is raised: adjusted EBITDA is now guided to $575 million to $603 million, adjusted EPS to $3.10 to $3.25 per share, and free cash flow to $210 million to $230 million. The guidance update reflects stronger than expected H1 performance and momentum into H2.
• Capital expenditure guidance is lowered to $120 million to $130 million (from $140 million prior) due to project timing shifts, and this does not change the company's commitment to strategic growth investments; capex will still remain above 2025's $107 million level.
• Full year 2026 total debt repayment is expected to reach $100 million to $150 million (inclusive of the $50 million repaid in Q2), bringing full-year end net leverage to 2.2x to 2.4x.
• Q3 2026 adjusted EPS is expected to be approximately 80 cents per share, representing 14% year-over-year growth.
• For SEM, management expects 100 basis points of year-over-year margin expansion in H2 2026, driven by favorable mix and ongoing productivity gains.
• The company expects full-year total company and both business segments to deliver positive year-over-year margin expansion in 2026.

1. Color Additives and Inks (CAI): Delivered 5% organic sales growth (excluding foreign currency impact) and 9% adjusted EBITDA growth. Segment adjusted EBITDA reached $125 million, with adjusted EBITDA margin expanding 80 basis points to 21.7%. This segment contributed approximately 62.2% of total company segment adjusted EBITDA in Q2 2026.
2. Specialty Engineering Materials (SEM): Delivered 3% organic sales growth, driven by strength in high-performance computing, electronics, and infrastructure end markets. Segment adjusted EBITDA reached $76 million, a 20% year-over-year increase, with adjusted EBITDA margin expanding 310 basis points. 100 basis points of this expansion came from lapping $3 million in 2025 Q2 planned maintenance expense. This segment contributed approximately 37.8% of total company segment adjusted EBITDA in Q2 2026.

• The company faces continued macroeconomic uncertainty, including ongoing inflationary pressure on raw material costs and ongoing geopolitical volatility.
• Soft demand in the transportation end market, driven by lower global vehicle production and weak marine demand, is expected to persist through the entire second half of 2026, acting as a drag on overall company growth.
• End market demand volatility and seasonality in the fourth quarter create reduced visibility for full year results, requiring a wider range for full year guidance.
• Large-scale customer material qualification processes for new innovative product lines (such as non-PFAS processing aids) require long lead times, limiting near-term revenue growth from these high-potential opportunities.

Q: For the 4.3% total Q2 organic growth, what was the split between volume and price, how is this split expected to change going forward, and how much price can the company retain if raw material costs decline? / A: Of Q2's 4.3% organic growth, one-fourth came from volume and three-fourths came from price. This ratio will shift to ~70% volume / 30% price by Q4, with Q3 falling in between. The company expects to retain nearly all implemented pricing, similar to its experience post-COVID, with only negligible amounts expected to be rolled back. The company will remain net price positive each quarter for 2026.

Q: What drove the larger-than-expected Q2 earnings upside, and was Q2 volume growth driven by customer pre-buying rather than underlying demand? / A: The primary driver of upside was stronger than expected volume: management previously projected a 1-2% year-over-year volume decline, but volume instead came in ~1% positive. Pricing was in line with projections, with only a small minor favorable FX impact. Management sees no meaningful pre-buying or customer inventory building; July sales started Q3 in line with projections and remain strong, so Q2 growth reflects underlying demand.

Q: How large is the data center market opportunity for Avins, and how fast is the company's exposure to this space growing? / A: Avins' total directly addressable opportunity across the entire electronics/digital value chain (from chip manufacturing through data center servers) is approximately $2 billion. The company will generate ~$100 million in revenue from this area in 2026, with ~$60 million of that from electronics specifically. The company has already doubled its electronics business in the last three years and expects another doubling over the next 2-3 years, driven by ongoing industry CapEx and growing product portfolio relevance.

Q: Now that net leverage is guided to the 2.2x-2.4x target range, how is the company thinking about capital allocation going forward between debt paydown, buybacks, and M&A? / A: The company prioritized debt reduction and balance sheet strengthening, which is now approaching the target range. Organic growth investments and dividends remain core priorities. With the healthier balance sheet, all three options (additional debt paydown, share buybacks if the stock is undervalued, and small tuck-in M&A to expand the growth portfolio) are now on the table. There are no imminent transactions to model at this time.