Avient Corporation — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Amounts are in U.S. dollars; financial statement figures are in millions except per-share data.
Business context and reporting period
Avient formulates specialty engineered materials, performance fibers, advanced composites, and color and additive systems. It reports two segments: Color, Additives and Inks, and Specialty Engineered Materials. Results exclude the Distribution business, sold in November 2022 and reported as discontinued operations. The 2022 comparable periods were retrospectively adjusted for that classification. The 2022 comparison includes the DSM Protective Materials (APM) acquisition from September 1, 2022.
Key financial metrics
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Sales | $753.7 | $823.3 | $2,423.8 | $2,606.5 |
| Gross margin | $195.3 (25.9% of sales) | $195.4 (23.7%) | $683.6 (28.2%) | $710.7 (27.3%) |
| Operating income | $34.3 | $40.6 | $153.7 | $242.9 |
| Continuing-operations income (loss) | $5.1 | $(27.8) | $48.7 | $99.7 |
| Net income attributable to Avient shareholders | $5.1 | $(10.3) | $47.1 | $158.6 |
| Diluted EPS | $0.06 | $(0.11) | $0.51 | $1.72 |
| Net interest expense | $30.3 | $37.3 | $88.5 | $70.4 |
For the nine months, cash provided by operating activities was $47.1, capital expenditures were $75.0, and cash used in investing and financing activities was $65.4 and $176.0, respectively. Cash declined by $201.5 to $439.6. The operating cash flow comparison was affected by $104.1 of taxes paid on the Distribution sale.
At September 30, cash was $439.6 and revolving-credit availability was $198.2, for reported liquidity of $637.8 (versus $887.3 at December 31, 2022). Total debt principal was $2,112.5; balance-sheet debt, net of discounts and issuance costs, was $2,080.3. The revolving facility had no borrowings. Avient reported compliance with debt covenants. Quarterly dividends declared were $0.2475 per share.
Material changes versus comparable periods
- Q3 sales fell 8.5%; nine-month sales fell 7.0%. Management attributed declines primarily to lower global demand and customer destocking. APM increased sales, but did not offset those pressures.
- Q3 gross margin percentage improved to 25.9% from 23.7%, and the nine-month rate rose to 28.2% from 27.3%, primarily due to mix and raw-material deflation. Higher environmental remediation costs partly offset improvement.
- Operating income declined 15.5% in Q3 and 36.7% year to date. Nine-month selling and administrative expense increased $62.1, primarily reflecting APM; corporate costs also rose, including higher remediation and restructuring charges.
- Color, Additives and Inks sales declined 14.0% in Q3 and 17.0% year to date. Specialty Engineered Materials sales increased 3.8% and 18.1%, respectively, with APM contributing significantly; segment operating income was lower in Q3 but higher year to date.
- Q3 net income improved from the prior-year loss, while nine-month net income attributable to shareholders fell 70.3%. Nine-month net interest expense increased $18.1, reflecting acquisition-related debt and higher rates on variable-rate debt.
Outlook, commentary, risks and unusual items
- Management said cash on hand, operating cash flow and available revolving credit are expected to fund anticipated needs for at least the next twelve months and the foreseeable future. The filing provides no specific sales or earnings guidance.
- Avient refinanced its term loans in August 2023, aligning term-loan maturities to August 2029 and setting rates at Adjusted Term SOFR plus 2.50% or Base Rate plus 1.50%. It recorded a $1.9 charge for writing off unamortized issuance costs and discounts.
- Calvert City environmental remediation accruals were increased by $36.2 after construction bids were received. The site accrual was $138.5 at September 30; total environmental accruals were $147.6. The company said additional costs above accrued amounts could be material, but cannot currently be estimated. Q3 and nine-month remediation costs were $38.1 and $52.5, respectively.
- The Clariant Color integration restructuring plan is expected to continue through 2024, with approximately $75.0 of total charges anticipated; $59.5 had been incurred by September 30. The filing also reports personnel-reduction charges of $0.7 in Q3 and $15.7 for the nine months.
- Principal risks include weak demand and destocking, raw-material and energy cost or supply changes, foreign-exchange and interest-rate exposure, environmental liabilities, acquisition integration, regulatory changes, cyber risks, and the ability to maintain pricing and dividends. Management reported no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether demand and customer destocking improve, particularly in Color, Additives and Inks, and how that affects sales and operating income.
- Future Calvert City remediation costs, the adequacy of the $138.5 site accrual, and the timing or amount of any insurance recovery; neither recovery amount nor timing is known.
- Cash generation and liquidity after the $104.1 tax payment, capital spending, dividends, and debt service.
- Debt cost and refinancing exposure, including variable-rate borrowings and the $659.5 of principal maturities shown for 2025.
- Execution and remaining costs of the Clariant Color restructuring and integration of APM.