Yahoo Finance Avient Corp (AVNT) Q1 2024 Earnings Call Transcript Highlights: Strong Start with Robust EPS ...
Adjusted EPS: $0.76, up 21% year-over-year, exceeding guidance by $0.08.
Adjusted EBITDA: $143 million, up 7% year-over-year.
Adjusted EBITDA Margin: Increased by 150 basis points to 17.3%.
Organic Sales: Down 1.5% for the quarter.
U.S. and Canada Sales: Grew 2% in the first quarter, driven by consumer packaging, defense, industrial, and building and construction market segments.
EMEA Sales: Down 6% year-over-year in the first quarter.
Asia Sales: Flat in the first quarter, excluding foreign exchange impact; China sales up 6%.
Color Additives and Inks Segment: Adjusted EBITDA up 7% on a 4% sales decline; adjusted EBITDA margin improved by 180 basis points to 18.8%.
Specialty Engineered Materials Segment: Adjusted EBITDA up 14% from the prior year on a 1% sales increase; adjusted EBITDA margins expanded by 240 basis points to 23.2%.
Q2 Guidance: EPS expected at $0.71, reflecting a 13% increase over the prior year.
Full Year 2024 Guidance: Adjusted EBITDA range of $510 million to $535 million; adjusted EPS range of $2.50 to $2.65, representing 6% to 12% growth over the prior year.
Release Date: May 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Avient Corp (NYSE:AVNT) reported a strong start to the year with a 21% increase in adjusted EPS to $0.76, surpassing the first quarter guidance by $0.08.
The company experienced robust sales growth in defense applications, benefiting from geopolitical tensions and additional defense customer programs.
Avient Corp (NYSE:AVNT) saw positive momentum in the healthcare sector, particularly in drug delivery devices like auto injectors, partnering with key pharmaceutical companies.
Management highlighted effective cost control and operational efficiency, which contributed to a 7% increase in adjusted EBITDA to $143 million.
Avient Corp (NYSE:AVNT) is well-positioned in China, with 70% of operations serving the local market, which could lead to growth as the Chinese government continues fiscal stimulus.
Negative Points
Organic sales for Avient Corp (NYSE:AVNT) were down 1.5% for the quarter, indicating some challenges in market demand.
The company noted significant and ongoing destocking in the telecommunications sector, with no expected meaningful rebound until 2025.
Sales in Europe were sluggish, decreasing by 6% year-over-year due to weak consumer confidence and contracting manufacturing indicators.
The raw material deflation benefit, which positively impacted the results, is expected to diminish in the latter half of the year, potentially affecting profitability.
Avient Corp (NYSE:AVNT) faces challenges in the telecommunications and energy sectors, with sales in these areas continuing to decline significantly into the second quarter.
Q & A Highlights
Q: Nice start to the year and obviously, like while on 35% growth in defense. Can you talk about where we are on a utilization basis? A: (Ashish Khandpur - President & CEO, Avient Corp) Thanks, Frank. It's so good to hear your voice, and I just wanted to set on things about utilization here. I think defenses obviously are very well utilized. I mean, I actually got a chance to see though online actually running in Europe when I was visiting there. So it's running full swing and utilization rates are great, and we are able to produce whatever is and the demand forecast right now. So we don't see any capacity limitations to meet our orders this year at all in future. Of course, over time, we will continue to evaluate the situation. These kinds of mines take some time to build. And, you know, typically one to two years is the typical timeframe. And so we have to prepare in advance for those kinds of situations. And we are on top of that with respect to our CapEx budget as well as buying the capacity expansions where we are seeing the demand growing, but better APM or Dynamo line is just one of the examples we actually with respect to other high-growth areas as well as we amplify our innovation in certain growth areas which have got secular trends and are expected to grow faster.
Q: Good morning. I first wanted to get your perspective on the M&A environment, what kind of opportunities you might have available and if multiples are coming down to more reasonable levels? A: (Ashish Khandpur - President & CEO, Avient Corp) And on the M&A side, Laurence, we mentioned last call and again, you know, one part of our strategy is to focus on driving organic up front profitable growth and margin expansion. So in the near term, M&A is really not a a priority for us. I'm not ruling out M&A altogether, but if we do anything at all, it's going to be small and probably bolt-on in nature. So but we right now we continue to maintain a pipeline and on the M&A side, and I think and you know, some of the areas that we continue to probe deeper are the ones where we are putting a strategy for our growth. And if you look at our four growth vectors of sustainable solutions, composites, healthcare and the two areas of Asia and Latin America, those are the four areas. And so our our M&A focus is largely around those areas. And still we feel the premiums are pretty high. But again, it's not something that we are looking very aggressively at right now.
Q: Hi, good morning. Congrats on a nice start to the year. I wanted to start out by asking about the Engineered Materials business, that gross margin of 34% is I don't know if it's an absolute high watermark, but certainly since you've acquired the Dyneema, it's a high watermark. And I assume a lot of that strength is driven by the strength that you're seeing in defense. So I'm just trying to get a little bit better sense of as we go through the year? Is it something in that low to mid 30s, a range for our Engineered Materials, gross margin, a sustainable level? A: (Ashish Khandpur - President & CEO, Avient Corp) Yes. Thank you, Mike. I think you know, obviously seven in all, our EBITDA adjusted EBITDA margins were 17.3% overall for the Company and specifically for our Specialty Engineered Materials, about 23% is really quite exciting for us as well because as part of our strategy of top-line profitable top-line growth and margin expansion, it's good to see the margin expansion coming, as you know, and we mentioned in our prepared remarks, as well. You know, Q1 benefited a lot from a better mix coming from different increased defense sales and also, you know the RM deflection now the defense orders are typically lumpy. They are large and they are timing based. We have to ship them out in a certain amount of time. So that dynamic is not expected to repeat going into Q2 or and further. And if it all repeat is going to be at a much different level or a much smaller level, our hope would be if you see anything of that. So I would say Q1 was really a good quarter for us where we saw a good boost in our margins coming from from defense, but also from RMB inflation as well. So as we go through the year, our expectations is that we will continue to grow margin and expand margins in SCEM business, but also in the CAI. or color and additives and inks business. And but but not to the extent that we are seeing it in Q1 and I think overall for our company, we expect margin expansion anywhere between zero to 50 basis points for the year at this point in time.
Q: Yes, hey, good morning. Nice start to the year from. I assume it sounds like 2Q sales is going to be up sequentially from the first quarter. I think you noted some momentum in some of the markets, why wouldn't it EBITDA would be up sequentially or EPS? Just were there a couple of things that were maybe better than our one-time items in the first quarter, I mean margins were pretty good. So just curious if sales are up, why when EBITDA and earnings be? A: (Ashish Khandpur - President & CEO, Avient Corp) Yes, Mike, you're right. I mean sales are about $6 million EBITDA in our expectations. And I think that the EBITDA is down a little bit. Is that largely because I think the raw material deflation impact sequentially is about $5 million and then we have another million or so in NAM, some investments in the IT area, which are kind of the main reason why EBITDA is down.
Q: Thank you and good morning, everyone. I'm wondering if you could drill in a little bit more to telecom a couple of stores. First, Ashish, I think I heard you say your customers are saying it's not going to get better until 2025. So what is it that they're telling you in that regard? And from our perspective on the outside, what do we need to see to kind of help us understand that, that inflection is finally going to come there? A: (Ashish Khandpur - President & CEO, Avient Corp) Yes. So that's that specific comment was for telecommunication and you know, and in the telecommunications area, we see it is really a two-piece situation. If you look at the market, it's the biggest markets are in US and Canada and then also in Europe. And we are seeing that market stabilize. The telecom market stabilize, not yet grow but stabilized in U.S., but Europe continues
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
