Avient Corporation — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Avient provides specialty engineered materials, color and additive systems, advanced composites, and polymer distribution. Results include the Clariant masterbatch business acquired July 1, 2020; therefore, reported year-over-year growth is not fully comparable.
Financial performance
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Sales | $1,235.2 million | $609.1 million | $2,397.5 million | $1,320.6 million |
| Gross margin | $288.7 million; 23.4% | $149.7 million; 24.6% | $591.1 million; 24.7% | $321.2 million; 24.3% |
| Operating income / margin | $108.1 million; 8.8% | $38.0 million; 6.2% | $228.5 million; 9.5% | $90.8 million; 6.9% |
| Net income attributable to Avient shareholders | $68.8 million | $22.8 million | $148.1 million | $55.6 million |
| Diluted earnings per share | $0.74 | $0.25 | $1.60 | $0.62 |
- Q2 sales rose 103% and first-half sales 82%; management attributed growth to the Clariant acquisition, recovering end-market demand, and price increases tied to raw-material inflation. On a pro forma basis including Clariant in both periods, Color, Additives and Inks sales increased 21% in the first half.
- Q2 gross margin percentage declined year over year, as higher raw-material costs more than offset improved mix. First-half gross margin percentage improved modestly. Operating income increased substantially, with growth across all three segments; Specialty Engineered Materials had the strongest reported segment margin improvement.
- First-half effective tax rate was 22.5%, versus 25.9% in 2020. Net interest expense increased to $38.8 million from $25.6 million, primarily reflecting the 2020 senior-notes offering.
- Operating cash flow was $68.1 million, compared with $76.0 million in the first half of 2020. Increased receivables and inventory to support demand were significant cash uses. Capital expenditures were $42.1 million; dividends paid were $38.8 million.
- At June 30, cash was $616.2 million and revolving-credit availability was $351.6 million, for reported liquidity of $967.8 million. Total debt was $1,887.8 million principal ($1,871.0 million net of discounts and issuance costs); cash less net debt was approximately negative $1.25 billion. The company reported covenant compliance.
- Current assets were $1,858.1 million against current liabilities of $934.3 million. Cash was down from $649.5 million at year-end 2020; receivables and inventories increased to $705.2 million and $412.5 million, respectively.
Material changes, outlook, and risks
- Year-over-year comparisons reflect both recovery from the pandemic-affected 2020 period and the Clariant business, which was not included in the prior-year reported results. Management said COVID-19 recovery continued in Q2 but pandemic duration, variants, and global vaccine distribution remained uncertain.
- Management described raw-material and conversion-cost inflation as a pressure, partly offset by pricing, improved mix, and integration synergies. No specific full-year earnings or revenue guidance is provided in the filing text.
- Environmental remediation is a significant contingency: reserves totaled $124.2 million at June 30, including $111.5 million for the Calvert City site and approximately $2.5 million for the Passaic River matter. Environmental expense was $13.0 million for the first half, partly offset by $4.5 million of insurance recoveries. Additional costs beyond recorded accruals are reasonably possible but cannot currently be estimated.
- On July 1, 2021, Avient completed the acquisition of Magna Colours for approximately $48 million, net of cash acquired. The business will be reported in Color, Additives and Inks.
- Other disclosed risks include supply-chain and logistics disruption, raw-material availability and price volatility, foreign-exchange and regulatory risks, acquisition integration, litigation and environmental matters, and cyber and systems risks. Approximately 80% of cash was held outside the United States.
Important facts for investors to verify
- Separate the effects of the Clariant acquisition, pandemic recovery, pricing, and underlying volume or mix when assessing growth and margins.
- Monitor working-capital cash consumption, particularly receivables and inventories, and conversion of earnings into operating cash flow.
- Review debt maturities, interest costs, covenant headroom, and liquidity after the Magna acquisition and planned cash uses.
- Track environmental reserve adequacy, future remediation estimates, and insurance recoveries, especially for Calvert City.
- Assess whether pricing and integration synergies can offset continued input-cost inflation and whether the recovery persists across end markets.