Avient (US:AVNT)2020-11-04 06:35Financial Data and Key Metrics Changes - The company reported third quarter adjusted EPS of $0.54, excluding the impact of purchase accounting step-up depreciation and amortization, and $0.46 inclusive of the step-up D&A, which is $0.03 better than expected and exceeds last year's $0.44 [8][13] - Total company revenue increased by $219 million to $925 million, primarily due to the Clariant Masterbatch acquisition [13] - Adjusted free cash flow for the third quarter was $107 million, exceeding estimates, with a full year projection increased to $270 million [20] Business Line Data and Key Metrics Changes - The Specialty Engineered Materials (SEM) segment achieved record third quarter operating income of nearly $25 million, a 27% increase over last year, driven by strong demand for composites [10][17] - The Color business reported $77 million in EBITDA, with the Clariant Masterbatch acquisition contributing $33 million, offset by pandemic-related weakness in automotive and inks [18] - The Distribution segment's sales were down 6% in the third quarter, but volumes remained flat year-over-year, indicating improved demand in automotive and consumer discretionary markets [19] Market Data and Key Metrics Changes - In the Americas, sales declined 7% in the third quarter compared to 21% in the second quarter, reflecting a recovery in automotive production and increased demand for consumer discretionary applications [16] - European pro forma sales were down 14%, a modest improvement from a 18% decline in the second quarter, with the pandemic significantly impacting automotive and industrial markets [15] - Asia businesses grew 11% over the prior year third quarter, with strong demand in health care applications related to COVID-19 [16] Company Strategy and Development Direction - The company is focused on integrating the Clariant Masterbatch business and has increased its synergy target from $60 million to $75 million due to positive integration progress [9] - The strategic emphasis is on higher value end markets such as packaging, consumer, and health care, which now represent nearly 60% of total sales [9] - The company aims to maintain operational efficiency and cash generation through effective working capital management [20] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the economic recovery based on October and November orders, despite ongoing uncertainties related to COVID-19 [24] - The company anticipates a fourth quarter adjusted EPS of $0.40, which is 17% higher than the previous year, indicating confidence in the quality of its portfolio [25] - Management acknowledged the challenges posed by the pandemic but emphasized the strength of their diverse portfolio and the successful integration of Clariant [22][27] Other Important Information - The company published its second sustainability report, detailing performance on ESG matters and setting sustainability goals for 2030 [23] - The company is a founding member of the Alliance to End Plastic Waste, contributing to global efforts to eliminate plastic waste [24] Q&A Session Summary Question: Free cash flow and potential buybacks - Management indicated that once net debt leverage is below 3x, they could consider share buybacks [35] Question: Fourth quarter inventory management - Management noted that December is unpredictable, but they have a conservative estimate for EBITDA growth [37][38] Question: Clariant business seasonality and revenue trends - Management stated that Clariant's performance in Q4 would likely mirror historical trends, with some COVID-related impacts [40][41] Question: Growth potential for 2021 - Management refrained from providing specific guidance but indicated synergy expectations of $30 million run rate by the end of next year [46] Question: Impact of 5G on sales - Management noted that 5G is just starting to impact sales, with expectations for growth as more locations adopt the technology [78] Question: Automotive production outlook - Management expressed a positive outlook for North American auto production, contrasting it with a slower recovery in Europe [80]