Avient Corporation — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; filed February 20, 2024. This is an annual report, not a standalone fourth-quarter report. Avient formulates specialty and sustainable materials, operating through Color, Additives and Inks and Specialty Engineered Materials. Continuing-operations sales were $3.14 billion; approximately 61% of sales were outside the United States.
Financial performance
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Sales | $3,142.8 million | $3,396.9 million | Down 7.5% |
| Gross margin | $892.5 million; 28.4% of sales | $882.7 million; 26.0% | Margin up 2.4 percentage points |
| Operating income | $196.8 million | $243.3 million | Down 19.1% |
| Continuing-operations net income | $76.3 million | $83.1 million | Down 8.2% |
| Diluted EPS from continuing operations | $0.83 | $0.90 | Down $0.07 |
| Operating cash flow | $201.6 million | $398.4 million | Down $196.8 million |
| Capital expenditures | $119.4 million | $105.5 million | Up $13.9 million |
| Cash and cash equivalents | $545.8 million | $641.1 million | Down $95.3 million |
| Total debt | $2,080.0 million | $2,178.9 million | Down $98.9 million |
Net income attributable to Avient shareholders was $75.7 million in 2023 versus $703.1 million in 2022. The prior-year figure included a $550.1 million after-tax gain on the Distribution business sale; that business is presented as discontinued operations. Cash dividends declared were $1.00 per share, up from $0.96.
Gross margin improved mainly from favorable pricing and mix, a full year of APM acquisition results, and raw-material deflation. Operating income fell despite higher gross margin, reflecting lower demand and destocking, higher selling and administrative costs, and increased environmental remediation expense. The 2023 effective tax rate was 12.6%, versus a 2022 tax benefit rate of 30.2%; both periods included significant tax items.
Segments and cash flow
- Color, Additives and Inks: Sales of $2,007.4 million, down 14.8%; operating income of $259.9 million, down 13.7%. Lower demand, customer destocking and foreign exchange weighed on results; pricing carryforward, raw-material deflation and cost actions partly offset the decline.
- Specialty Engineered Materials: Sales of $1,138.2 million, up 9.0%, principally reflecting APM; operating income was $142.5 million, up 1.7%. APM’s contribution was partly offset by weaker demand, destocking and foreign exchange.
- Operating cash flow decreased mainly due to lower earnings and taxes paid related to the Distribution sale, partly offset by lower working capital. Financing cash outflow was $201.7 million, including $105.8 million of debt reduction and $90.2 million of dividends paid.
Liquidity, debt and commitments
Year-end liquidity was $745.5 million: cash of $545.8 million plus $199.7 million available under the revolving credit facility, on which there were no borrowings. Approximately 69% of cash was held outside the United States. Total debt was $2.08 billion; the 2023 balance-sheet current portion was $9.5 million. The $500 million revolving facility matures in 2026, and term-loan debt was refinanced to an August 2029 maturity. The 2029 term loan’s weighted-average interest rate was 7.88%. Avient reported covenant compliance at year-end.
Contractual obligations include $2.11 billion of principal debt, $680.1 million of estimated debt interest and $157.2 million of environmental obligations. Management expects cash, operating cash flow and available borrowing capacity to fund operations, debt service, dividends and other needs for at least the next twelve months. 2024 capital expenditures are estimated at approximately $140 million.
Outlook, commentary and material risks
- No specific 2024 revenue, earnings or margin guidance is provided in the filing. Management identifies sustainable solutions, composites, healthcare and emerging regions as growth drivers, and plans continued investment in acquisitions, strategic projects and a cloud-based S/4HANA ERP implementation.
- The Clariant Color integration restructuring is expected to be primarily implemented by the end of 2024. Avient anticipates approximately $75 million in total charges; $60.3 million had been incurred by year-end 2023. Additional restructuring actions related to slower demand generated $18.3 million of 2023 costs.
- Environmental remediation is a major uncertainty. Total environmental accruals were $157.2 million, including $148.9 million for the Calvert City site. Avient recorded $69.6 million of environmental expense in 2023; it says additional costs could be material but cannot currently be estimated. Potential insurance recoveries are uncertain in amount and timing.
- Goodwill was $1.72 billion. No impairment was recorded, but APM reporting-unit fair value exceeded carrying value by only 7%; Dyneema trade-name fair value exceeded carrying value by 9%. Adverse operating or market changes could increase impairment risk.
- Principal disclosed risks include weak end-market demand and destocking, raw-material and energy price or supply volatility, pricing pressure, foreign-exchange movements, international political and regulatory exposure, environmental and plastics regulation, operational hazards, cybersecurity, ERP implementation and acquisition integration, and debt-service or refinancing risk.
Avient sold its Distribution business in November 2022 for total proceeds of $935.5 million; $7.3 million was received in 2023. APM, including the Dyneema brand, was acquired in September 2022 for approximately $1.4 billion net of cash acquired. Ashish Khandpur became CEO in December 2023. Management and the auditor reported effective internal control over financial reporting, with no material weaknesses identified.
Important facts for investors to verify
- Whether demand and customer destocking recover, particularly in Color, Additives and Inks, and whether price/mix and cost actions sustain margins.
- Actual 2024 operating cash generation and capital spending versus the $140 million estimate, including impacts from taxes, working capital, dividends and debt service.
- Progress and cost evolution at Calvert City, the adequacy of the $157.2 million environmental accrual, and any insurance or third-party recoveries.
- APM and Dyneema performance against the assumptions supporting their narrow impairment headroom.
- Execution, cost and operational effects of the restructuring plan and S/4HANA implementation, alongside upcoming debt maturities and interest costs.