Avient Corporation — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparisons are with Q1 2023 unless otherwise noted. Avient formulates and manufactures specialty engineered materials, performance fibers, advanced composites, and color and additive systems.
Financial performance
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Sales | $829.0 million | $845.7 million |
| Gross profit / margin | $278.2 million / 33.6% | $247.6 million / 29.3% |
| Operating income / margin | $94.0 million / 11.3% | $57.1 million / 6.8% |
| Net income from continuing operations | $49.7 million | $21.3 million |
| Net income attributable to Avient common shareholders | $49.4 million | $19.9 million |
| Diluted earnings per share | $0.54 | $0.22 |
| Net cash used by operating activities | $42.8 million | $22.2 million |
Gross margin improved primarily from raw-material deflation, lower restructuring charges, and favorable mix. Selling and administrative expense fell $6.3 million, largely due to lower restructuring charges, partly offset by higher employee costs. Net interest expense declined $2.2 million, primarily reflecting prior-year term-loan prepayment and refinancing. The effective tax rate was 25.3%, compared with 26.6%.
Segments and year-over-year changes
- Color, Additives and Inks: Sales decreased 4.0% to $515.3 million, mainly from weaker European demand. Operating income increased 14.0% to $74.8 million, mainly due to raw-material deflation.
- Specialty Engineered Materials: Sales increased 1.5% to $314.4 million, supported by defense demand, partly offset by weakness in telecommunications and unfavorable foreign exchange. Operating income rose 23.9% to $53.4 million, reflecting demand, mix, and raw-material deflation.
- Corporate costs: Decreased $17.4 million to $34.2 million, primarily due to $20.8 million of lower restructuring charges.
- Consolidated sales fell 2.0%, primarily because of lower sales in Europe; increased defense-end-market demand provided a partial offset. Net income also benefited from the absence of the prior-year discontinued-operations loss.
Cash flow, liquidity and debt
- Operating cash use was $42.8 million. Management attributed the year-over-year increase in cash used to a $43.8 million working-capital investment, partly offset by $29.3 million of higher earnings; receivables increased $81.9 million during the quarter.
- Capital expenditures were $24.4 million; investing cash use was $24.5 million. Financing cash use was $28.1 million, mainly reflecting $23.5 million of dividends paid. Cash declined $101.5 million to $444.3 million.
- Liquidity, including $250.5 million of undrawn revolver availability, was $694.8 million at March 31, 2024. Approximately 77% of cash was held outside the United States. Management expects cash on hand, operating cash flow, and available revolver capacity to be sufficient for expected needs for at least the next 12 months.
- Principal debt totaled $2,107.8 million; reported net debt carrying amount was $2,079.0 million. Long-term debt on the balance sheet was $2,069.4 million, with $9.6 million classified as short-term/current. No revolver borrowings were outstanding, and the company reported compliance with debt covenants.
- Scheduled principal maturities include $659.6 million in 2025. On April 9, 2024, after quarter-end, Avient amended its term loan, reducing its interest-rate margins by 50 basis points; other terms, including maturity, were substantially unchanged.
Outlook, risks and notable items
- The filing provides no quantified sales or earnings guidance. Management identifies 2024 cash uses including interest, taxes, dividends, environmental remediation, and capital expenditures.
- The Clariant Color integration restructuring plan is expected to be completed by the end of 2025, with approximately $75 million of total charges anticipated; $57.6 million had been incurred as of March 31, 2024.
- Environmental liabilities are a significant contingency. Total environmental accruals were $151.7 million at quarter-end, including $143.7 million for the former Goodrich Calvert City site. Additional costs above the accrual could be material but cannot currently be estimated. Potential insurance recoveries could benefit a future period, but amount and timing are unknown. Q1 environmental remediation expense was $4.0 million, versus $1.4 million a year earlier.
- Disclosed risks include demand and economic uncertainty, foreign exchange and other international risks, raw-material and energy costs or availability, supply-chain and operating disruptions, regulatory changes, litigation and environmental matters, restructuring execution, and cybersecurity. The company reported no material changes to previously disclosed risk factors and no material changes in market-risk exposures.
- Disclosure controls were assessed as effective; no material change in internal control over financial reporting was reported. No common shares were repurchased during the quarter.
Important facts for investors to verify
- Whether improved margins and segment operating income persist if raw-material deflation or favorable mix reverses, particularly amid continued European demand weakness.
- Whether working-capital investment and receivables growth convert to cash, given Q1 operating cash use despite higher earnings.
- How Avient will address the 2025 debt maturity and the effect of the April term-loan amendment on interest expense and liquidity.
- Whether Calvert City remediation costs remain within the $143.7 million site accrual, and the potential timing and amount of any insurance recovery.
- Progress, remaining costs, and expected savings from the Clariant Color restructuring plan through its targeted 2025 completion.