Avient Corporation — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. Avient provides specialty materials, color and additive systems, and polymer distribution through three reportable segments.
Financial performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Sales | $1,293.8 million | $1,162.3 million |
| Gross margin | $293.7 million; 22.7% of sales | $302.4 million; 26.0% of sales |
| Operating income | $128.6 million; 9.9% of sales | $120.4 million; 10.4% of sales |
| Net income attributable to Avient shareholders | $84.2 million | $79.3 million |
| Diluted EPS | $0.91 | $0.86 |
| Operating cash flow | $18.9 million | $3.6 million |
| Capital expenditures | $13.3 million | $16.5 million |
- Sales rose 11.3%, primarily from price increases passed through for raw-material inflation, plus growth in healthcare and selected composite applications. Management said these gains offset weaker demand in China and Europe and unfavorable foreign exchange.
- Cost of sales increased faster than sales, and gross margin fell 3.3 percentage points. The filing attributes the pressure to raw-material inflation, higher wages and logistics costs, and lower environmental insurance recoveries.
- Selling and administrative expense declined $16.9 million, mainly due to weaker foreign exchange and lower incentive accruals. Operating income nevertheless increased 6.8%.
- Net cash from operations improved year over year, but remained modest relative to earnings. Receivables increased $118.8 million and inventory increased $15.1 million during the quarter; accounts payable increased $90.5 million.
Segments and balance sheet
- Color, Additives and Inks: Sales $649.5 million, up 6.6%; operating income $94.5 million, up 6.4%. Operating margin was 14.5% versus 14.6%.
- Specialty Engineered Materials: Sales $244.7 million, up 13.0%; operating income $39.7 million, up 16.1%. Operating margin improved to 16.2% from 15.8%.
- Distribution: Sales $432.9 million, up 19.4%; operating income $24.2 million, essentially flat. Margin declined to 5.6% from 6.6%, with higher-cost inventory compressing margins.
- Cash was $562.6 million at March 31, down from $601.2 million at year-end. Reported liquidity, including $464.4 million of revolving-credit availability, was $1,027.0 million.
- Total debt principal was $1,870.8 million ($1,857.7 million net carrying amount). The $607.5 million current debt balance largely reflects the $600 million senior notes due in 2023. The company had no revolver borrowings and reported compliance with debt covenants.
- Cash dividends declared were $0.2375 per share, versus $0.2125 a year earlier. Avient repurchased $15.8 million of shares in the quarter.
Outlook, material developments and risks
- The filing provides no specific earnings or sales guidance. Management cautions that quarterly results are not necessarily indicative of full-year results.
- After quarter-end, Avient signed a protocol to acquire DSM’s Dyneema protective-materials business for €1.38 billion, subject to consultation, regulatory approvals and other closing conditions. Financing commitments announced were $640 million of senior secured term loans and a $900 million unsecured bridge facility; Avient said it intended to issue senior unsecured notes instead of using the bridge. The filing separately says it expects approximately $1.39 billion of additional debt for the transaction.
- Avient plans to explore a potential sale of its Distribution business in connection with the intended acquisition. The transaction may not close, and integration, financing, leverage and regulatory risks are disclosed.
- Management cited COVID-related disruption, China lockdowns, the war in Ukraine, inflation in raw materials, wages and logistics, foreign exchange, and supply-chain conditions as factors affecting results and potentially future performance.
- Environmental accruals totaled $122.5 million at March 31, 2022, including a $110.7 million reserve for the Calvert City matter. The company recognized $2.0 million of remediation expense and received $0.6 million of insurance recoveries in the quarter. Additional costs beyond recorded accruals are possible but cannot currently be estimated.
- Management reported no impairment indicators at March 31, 2022; sustained adverse operating or macroeconomic conditions could result in future impairment. Disclosure controls were assessed as effective.
Key facts for investors to verify
- Whether pricing actions can recover input, labor and logistics inflation without further margin deterioration.
- Working-capital trends, particularly collections of receivables and inventory levels, and their impact on cash generation.
- Dyneema closing conditions, final purchase price and funding mix; reconcile the stated $1.54 billion financing commitments with the filing’s approximately $1.39 billion expected additional-debt disclosure.
- Potential Distribution-business sale plans and any resulting strategic or financial effects.
- Environmental remediation outcomes and whether eventual costs exceed the recorded accruals.
- Near-term debt refinancing or repayment plans for the $600 million notes due in 2023, alongside the planned acquisition-related leverage.