Avient eyes further sales growth in defense, narrows 2024 earnings guidance

HOUSTON (ICIS)–Following a better-than-expected 2024 first quarter, US compounder and formulator Avient raised its full-year guidance for adjusted earnings before interest, tax, depreciation and amortization (EBITDA) by $5 million at the low end.

Sales into the defense market, along with raw material deflation, were the key earnings drivers in Q1 and Avent expects both to support earnings through 2024, CEO Ashish Khandpur and CFO Jamie Beggs told analysts during the company’s Q1 earnings call on Tuesday.

New 2024 guidance	Previous 2024 guidance	Pro forma 2023 adjusted EBITDA
$505 to $535 million	$510 to $535 million	$501.8 million

SALES IMPROVING IN MOST END MARKETS
Avient sees demand conditions “generally improving across all regions”, with improved momentum in consumer, packaging, healthcare, defense and industrial end markets, the executives said.

After a 35% year-on-year increase in Q1, defense sales amid the ongoing geopolitical tensions, Avient expects those sales to continue growing through 2024, albeit not at the first quarter’s hot pace, they said.

Avient’s Dyneema-brand fiber technology is used in the personal protection of soldiers and law enforcement and border control officers.

While Avient’s utilization rates in defense are high, the company is able to meet forecast demand growth and expects no capacity limitations this year.

However, it may add capacities in the future, depending on demand, which can be “lumpy” in that market, they said.

Defense accounted for 7% of Avient’s total 2023 sales of $3.14 billion, with more than half of those sales in the US. Avient acquired the Dyneema business from DSM in 2022.

Telecommunications and energy, however, are among the weaker end markets, with first-quarter sales down double-digit and weakness continuing into the second quarter.

Destocking in the capital-intensive telecommunications market continued in Q1, with no meaningful rebound in that market expected until 2025, the executives said.

Telecommunications accounted for 4% of Avient’s 2023 sales.

BY REGION
Regionally, Avient sees good momentum in the US in markets such as consumer packaging, defense, building and construction, industrial and infrastructure.

“Destocking in those markets is over”, Khandpur said.

With the exception of telecommunications and energy, overall demand in North America is “coming back quite well”, he said.

However, persistent inflation is delaying the timing of interest rate cuts, which could weigh on sales in end markets such as building and construction, transportation and industrial, the executives said.

In China, about 70% of Avient’s sales go into the local market, putting the company into a good position as that country’s economic policies transition to focus on the domestic market, the executives said.

In Europe, demand in packaging and healthcare is improving, but Avient expects the region’s overall year-on-year sales growth to be soft.

Consumer confidence in Europe is weak and eurozone manufacturing continues to signal contraction, they noted.

Meanwhile, the stronger US dollar has become a headwind, they added.

Sales by region in 2023:

RAW MATERIAL DEFLATION
Raw material deflation will continue to support margin expansion in the second quarter, albeit to a lesser extent than in the first quarter, the executives said.

In the first quarter, Avient saw better-than-expected pricing for non hydrocarbon-based raw materials such as pigments and certain performance additives.

Primary raw materials used in Avient’s manufacturing operations include polyolefin and other thermoplastic resins, titanium oxide (TiO2), inorganic and organic pigments, specialty additives and ethylene.

Pricing, net of raw materials, should help drive year-on-year earnings growth in 2024, the executives said.

Also, the company expects additional margin expansion due synergies and plant closures related to its acquisition of Clariant’s masterbatch business back in 2020, Beggs noted.

M&A NOT A PRIORITY
In the near-term, Avient will focus on organic growth and margin expansion whereas growth through mergers and acquisitions (M&A) is not a priority.

While Avient is not ruling out M&A, any deals would be “small and bolt-on in nature”, in areas like healthcare, sustainable solutions or composites, with focus on Asia and Latin America, Khandpur said.

“Premiums are pretty high” in M&A, he added.

Thumbnail photo of Ashish Khandpur, who took over as Avient’s CEO and president on 1 December 2023; photo source: Avient