Avient Corporation (NYSE:AVNT) Q2 2024 Earnings Conference Call August 6, 2024 8:00 AM ET Company Participants Joe Di Salvo - Vice President, Treasurer and Investor Relations Ashish Khandpur - President and Chief Executive Officer Jamie Beggs - Senior Vice President and Chief Financial Officer Conference Call Participants Mike Harrison - Seaport Research Partners Frank Mitsch - Fermium Research LLC Michael Sison - Wells Fargo David Huang - Deutsche Bank Turner Hinrichs - Morgan Stanley Operator Good morning ...

Core Insights - Avient reported revenue of $849.7 million for the quarter ended June 2024, reflecting a year-over-year increase of 3.1% and surpassing the Zacks Consensus Estimate by 1.01% [1] - Earnings per share (EPS) for the quarter was $0.76, up from $0.63 in the same quarter last year, exceeding the consensus estimate of $0.72 by 5.56% [1] Revenue Performance - Specialty Engineered Materials sales were $308.10 million, slightly below the average estimate of $310.58 million, with a year-over-year increase of 2.4% [3] - Color, Additives and Inks sales reached $542 million, exceeding the average estimate of $531.63 million, marking a year-over-year growth of 3.3% [4] - Corporate sales reported a loss of $0.40 million, better than the estimated loss of $0.95 million, but reflecting a significant year-over-year decline of 55.6% [5] Operating Income - Operating income for Color, Additives and Inks was $86.10 million, surpassing the average estimate of $80.32 million [6] - Operating income for Specialty Engineered Materials was $42.80 million, slightly below the average estimate of $44.40 million [7] - Corporate operating loss was $56.40 million, worse than the average estimated loss of $38.10 million [8] Stock Performance - Avient's shares have returned -3.2% over the past month, compared to a -6.7% change in the Zacks S&P 500 composite [8] - The stock currently holds a Zacks Rank 3 (Hold), indicating potential performance in line with the broader market in the near term [8]

Company Performance - Avient reported quarterly earnings of $0.76 per share, exceeding the Zacks Consensus Estimate of $0.72 per share, and up from $0.63 per share a year ago, representing an earnings surprise of 5.56% [1] - The company posted revenues of $849.7 million for the quarter ended June 2024, surpassing the Zacks Consensus Estimate by 1.01%, and an increase from $824.4 million year-over-year [1] - Over the last four quarters, Avient has surpassed consensus EPS estimates three times and topped consensus revenue estimates three times [1] Future Outlook - The immediate price movement of Avient's stock will largely depend on management's commentary during the earnings call and the company's earnings outlook [2][3] - The current consensus EPS estimate for the upcoming quarter is $0.60 on revenues of $801.23 million, and for the current fiscal year, it is $2.61 on revenues of $3.22 billion [4] - The estimate revisions trend for Avient is mixed, resulting in a Zacks Rank 3 (Hold), indicating expected performance in line with the market in the near future [4] Industry Context - The Chemical - Diversified industry, to which Avient belongs, is currently in the bottom 8% of over 250 Zacks industries, which may impact stock performance [5] - Another company in the same industry, Kronos Worldwide, is expected to report quarterly earnings of $0.21 per share, reflecting a year-over-year change of +400%, with revenues anticipated to be $504.19 million, up 13.8% from the previous year [5][6]

Core Viewpoint - Avient Corporation reported strong second quarter results for 2024, with sales reaching $850 million, a 3% increase year-over-year, and a 5% organic growth excluding foreign exchange impacts. The company also raised its full-year adjusted EPS guidance due to robust performance across all regions and segments [1][4]. Financial Performance - Second quarter sales were $849.7 million compared to $824.4 million in the prior year quarter, marking a 3% increase [1]. - GAAP EPS from continuing operations was $0.36, up from $0.24 in the prior year quarter, while adjusted EPS was $0.76, exceeding guidance of $0.71 and increasing 21% year-over-year [2][4]. - The company increased its full-year adjusted EPS guidance to a range of $2.55 to $2.70, reflecting an 8% to 14% growth over the previous year [1][4]. Segment Performance - The Color, Additives and Inks segment and the Specialty Engineered Materials segment both contributed to consolidated sales growth, with particular success in packaging and consumer markets [3]. - Organic sales growth was reported across all regions, with the US and Canada growing by 5% and Latin America by 19% [3]. Sustainability Initiatives - Avient published its 2023 Sustainability Report, highlighting progress towards its 2030 Sustainability Goals and improved ESG performance ratings, including a Gold rating from Ecovadis and an A- from CDP [5]. Future Outlook - The company anticipates adjusted EPS of $0.62 for the third quarter, a 9% increase over the prior year, and expects continued organic sales growth in both segments [4]. - An Investor Day is scheduled for December 4th in New York City to discuss the company's strategy [1][4].

Avient Second Quarter 2024 Financial Results [Financial & Operational Highlights](index=1&type=section&id=Financial%20%26%20Operational%20Highlights) Avient reported strong second-quarter 2024 results, with a 3% increase in sales to $850 million and a 5% organic increase, as adjusted EPS of $0.76 significantly beat guidance and grew 21% year-over-year, driven by broad-based organic revenue growth, favorable input costs, and lower interest expense, marking the first consolidated sales expansion in seven quarters Q2 2024 Key Financial Metrics vs. Q2 2023 | Metric | Q2 2024 | Q2 2023 | Change | | :--- | :--- | :--- | :--- | | Sales | $849.7M | $824.4M | +3.1% | | GAAP EPS (from continuing operations) | $0.36 | $0.24 | +50.0% | | Adjusted EPS | $0.76 | $0.63 | +20.6% | - Organic sales grew **5%** year-over-year when excluding the impact of foreign exchange[1](index=1&type=chunk) - Consolidated sales expanded for the first time in seven quarters, with contributions from both the Color, Additives and Inks, and Specialty Engineered Materials segments[3](index=3&type=chunk) [Management Commentary](index=1&type=section&id=Management%20Commentary) Management highlighted broad-based growth across all geographic regions and most end markets, with particular success in the packaging and consumer sectors, as all regions delivered year-over-year organic sales growth, led by strong performance in the Americas, which benefited from improving demand, new specifications, and market share gains Q2 2024 Regional Organic Sales Growth (YoY) | Region | Organic Sales Growth | | :--- | :--- | | Latin America | 19% | | US and Canada | 5% | | EMEA | 4% | | Asia | 1% | - Growth was driven by improving underlying demand trends and winning new specifications, particularly in the Americas[4](index=4&type=chunk) - Growth in Europe and Asia was largely attributed to restocking and share gains, especially in the packaging end market[4](index=4&type=chunk) [2024 Business Outlook](index=2&type=section&id=2024%20Business%20Outlook) Avient has raised its full-year 2024 guidance due to strong second-quarter results, now expecting full-year adjusted EPS to be between $2.55 and $2.70, and third-quarter adjusted EPS projected at $0.62, representing a 9% increase over the prior year - Third-quarter 2024 adjusted EPS is expected to be **$0.62**, a **9%** increase year-over-year[5](index=5&type=chunk) Full-Year 2024 Updated Guidance | Metric | Revised Guidance | Prior Guidance | | :--- | :--- | :--- | | Adjusted EBITDA | $515M - $540M | $510M - $535M | | Adjusted EPS | $2.55 - $2.70 | $2.50 - $2.65 | - The revised full-year adjusted EPS guidance reflects an **8% to 14%** growth over the prior year[1](index=1&type=chunk) [Corporate Updates](index=1&type=section&id=Corporate%20Updates) Avient has published its 2023 Sustainability Report, showcasing progress towards its 2030 goals and upgraded ESG ratings, and announced it will host an Investor Day on December 4, 2024, in New York City to discuss its strategy - The company released its 2023 Sustainability Report, highlighting upgraded ratings to **Gold** from Ecovadis and **A-** from CDP[7](index=7&type=chunk) - An Investor Day will be held on **December 4, 2024**, in New York City to highlight the company's strategy[1](index=1&type=chunk)[5](index=5&type=chunk) Financial Statements & Reconciliations [Consolidated Statements of Income](index=7&type=section&id=Consolidated%20Statements%20of%20Income) For the second quarter of 2024, sales increased to $849.7 million from $824.4 million in the prior-year period, with operating income growing to $72.5 million and net income attributable to Avient shareholders rising to $33.6 million, or $0.36 per diluted share Condensed Consolidated Statements of Income (in millions, except per share data) | Metric | Q2 2024 | Q2 2023 | Six Months 2024 | Six Months 2023 | | :--- | :--- | :--- | :--- | :--- | | Sales | $849.7 | $824.4 | $1,678.7 | $1,670.1 | | Gross Margin | $257.6 | $240.7 | $535.8 | $488.3 | | Operating Income | $72.5 | $62.3 | $166.5 | $119.4 | | Net Income (to Avient shareholders) | $33.6 | $22.1 | $83.0 | $42.0 | | Diluted EPS (from continuing ops) | $0.36 | $0.24 | $0.90 | $0.47 | [Consolidated Balance Sheets](index=10&type=section&id=Consolidated%20Balance%20Sheets) As of June 30, 2024, Avient's total assets were $5.91 billion, with cash and cash equivalents at $489.4 million (a decrease from $545.8 million at the end of 2023), total debt at approximately $2.08 billion, and total shareholders' equity at $2.33 billion Key Balance Sheet Items (in millions) | Account | June 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $489.4 | $545.8 | | Total current assets | $1,459.1 | $1,407.6 | | Total assets | $5,907.8 | $5,968.5 | | Total current liabilities | $1,498.2 | $773.6 | | Long-term debt | $1,420.8 | $2,070.5 | | Total equity | $2,334.2 | $2,338.0 | [Consolidated Statements of Cash Flows](index=11&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) For the first six months of 2024, the company generated $63.1 million in cash from operating activities, a significant turnaround from a $24.7 million use of cash in the same period of 2023, with cash used in investing and financing activities at $54.5 million and $54.8 million, respectively, leading to a net decrease in cash of $56.4 million Six Months Ended June 30 Cash Flow Summary (in millions) | Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided (used) by operating activities | $63.1 | $(24.7) | | Net cash used by investing activities | $(54.5) | $(38.6) | | Net cash used by financing activities | $(54.8) | $(48.3) | | **Decrease in cash and cash equivalents** | **$(56.4)** | **$(112.4)** | [Business Segment Performance](index=12&type=section&id=Business%20Segment%20Performance) In the second quarter of 2024, both of Avient's segments demonstrated year-over-year growth, with the Color, Additives and Inks segment's sales increasing to $542.0 million and operating income rising to $86.1 million, while the Specialty Engineered Materials segment also grew, with sales of $308.1 million and operating income of $42.8 million Q2 2024 Segment Performance vs. Q2 2023 (in millions) | Segment | Metric | Q2 2024 | Q2 2023 | | :--- | :--- | :--- | :--- | | **Color, Additives and Inks** | Sales | $542.0 | $524.5 | | | Operating Income | $86.1 | $68.0 | | **Specialty Engineered Materials** | Sales | $308.1 | $300.8 | | | Operating Income | $42.8 | $39.7 | [Non-GAAP Reconciliations](index=7&type=section&id=Non-GAAP%20Reconciliations) The company's Q2 2024 adjusted EPS of $0.76 was reconciled from a GAAP EPS of $0.36 by excluding $0.24 per share in special items and $0.16 per share in amortization expense, with adjusted EBITDA for the quarter at $143.3 million, up from $131.3 million year-over-year, and an adjusted EBITDA margin of 16.9% Q2 2024 GAAP to Adjusted EPS Reconciliation | Item | Per Share Amount | | :--- | :--- | | GAAP Diluted EPS from continuing operations | $0.36 | | Special items, after-tax | $0.24 | | Amortization expense, after-tax | $0.16 | | **Adjusted EPS** | **$0.76** | Q2 2024 Adjusted EBITDA Reconciliation (in millions) | Item | Q2 2024 | Q2 2023 | | :--- | :--- | :--- | | EBITDA from continuing operations | $116.5 | $109.7 | | Special items, before tax | $28.1 | $21.7 | | Adjustments for Interest & D&A in special items | $(1.3) | $(0.1) | | **Adjusted EBITDA** | **$143.3** | **$131.3** | - Special items before tax in Q2 2024 totaled **$28.1 million**, primarily consisting of environmental remediation costs, restructuring charges, and legal costs[27](index=27&type=chunk)

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