Avient Corporation 2026 Q2 Earnings Call

Good morning to everyone joining us on the call today. Before we begin, we would like to remind you that statements made during this webcast may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements will give current expectations or forecasts of future events and are not guarantees of future performance. They're based on management's expectation and involve a number of business risks and uncertainties, any of which could cause actual results to differ materially from those expressed in or implied by the forward-looking statements. We encourage you to review our most recent reports, including our 10-K or any applicable amendments for the complete discussion of these factors and other risks that may affect our future results. During the discussion today, the company will use both GAAP and non-GAAP financial measures.

Please refer to the presentation posted in the investor relations section of the Avient website, where the company describes the non-GAAP measures and provides a reconciliation for historical non-GAAP financial measures to their most directly comparable GAAP financial measures. A replay of this call will be available on our website. Information to access the replay is listed in today's press release, which is available at avient.com in the investor relations section. On the call today is our Chairman, President, and Chief Executive Officer, Dr. Ashish Khandpur, and Joe Di Salvo, Senior Vice President, Chief Financial Officer. I will now hand the call over to Ashish to begin.

Thank you, Patrick. Good morning, everyone. I want to begin by acknowledging the hard work of the entire Avient team and thank them for delivering a strong quarter, which was a story of successful execution, managing inflation, and navigating supply chain disruptions. Our team continues to perform with discipline, poise, and determination under a very dynamic and volatile environment. In the second quarter, our team delivered $0.96 of adjusted EPS, $0.09 ahead of expectations, driven by better-than-expected volume growth. Organic sales grew 4.3%, with double-digit increase in adjusted EBITDA year-over-year. By remaining close to our customers, we delivered profitable growth across the portfolio. Market share gains, new product innovations, and pricing actions contributed to positive organic sales, including volume growth in both business segments.

Asia was a particular standout, growing organic sales 18% over the prior year quarter, driven by secular tailwinds in electronics and high-performance computing, as well as new business gains in functional additives. Both business segments showed double-digit organic growth in Asia. Operating leverage from revenue growth, combined with our continued focus on company-wide productivity initiatives, drove Q2-adjusted EBITDA margins to a record 18.3%, an expansion of 110 basis points year-over-year. These results contributed to 20% adjusted EPS growth year-over-year, validating the success of our strategy while also demonstrating the consistency of our team's operational execution. Strong cash flow generation in the quarter enabled debt paydown of $50 million as we continue to prioritize strengthening our balance sheet.

Our first half results, shown on the right-hand side of the slide, reflect the compounding power of our business model, where 1.2% organic sales growth and 70 basis points of margin expansion generated 4.7% adjusted EBITDA growth and 9.1% adjusted EPS growth, excluding the impact of foreign currency translation. The underlying demand environment continues to vary by end market, but our strategy and execution are enabling us to outperform those conditions in many areas. Let me walk through the trends we are seeing across our businesses. Packaging, our largest end market, representing 23% of company sales, grew double digits in the second quarter. Along with solid pricing execution, we continue to see growth from innovation and new business wins. We are seeing strong customer interest in our non-PFAS polymer processing aids for personal health and beauty and food packaging applications, as well as continued growth in electronics.

Given the strength of our project pipeline, we expect our packaging business to keep the growth momentum in the second half of the year. In consumer, demand trends are stabilizing. Sales grew mid-single digits in the second quarter, driven by the U.S. and Asia, and for both consumer discretionary and staples sub-markets. At the same time, our global key accounts prioritization and focus on winning business with large local Asia customers continue to create share gains and business growth for us. We expect growth to continue in the second half, supported by improving market demand, ongoing share gains, and favorable comparisons as the year progresses. As we mentioned last quarter, demand in defense remains healthy, supported by a strong project pipeline spanning both the United States and Europe.

After a slower start in the year in the first quarter, activity picked up in the second quarter, where our defense business grew even against a strong comparison of 19% growth in the second quarter of 2025. We expect this business to grow mid to high single digits for the year. Building and construction continued its strong performance in the second quarter, with double-digit growth driven by share wins and new business development. This business is benefiting from data center and broader infrastructure investment trends, as well as new application development by our teams for composite lightweighting for residential markets. We expect the strong momentum to continue in the second half of the year. Our healthcare business grew double digits in each of the prior two years.

As we highlighted in our last earnings call, we are seeing some rebalancing of inventory levels by our customers, especially for drug delivery and remote monitoring devices. While this dynamic weighed on first half results, the underlying demand and secular trends supporting growth remain intact. Our teams continue to build a strong project pipeline, working closely with leading pharmaceutical and medical device and equipment companies. We expect growth to return in the second half, led by demand strength, especially in the medical devices and equipment applications. Industrial also improved in the second quarter, returning to modest growth led by strength in Asia. With more favorable comparisons ahead, we expect that growth momentum to continue through the balance of the year. Transportation demand remains soft, reflecting lower vehicle production rates and weaker demand in marine applications.

We do not expect this trend to change in the third quarter or perhaps for the entire second half of the year. In energy and telecom, demand trends continue to improve, supporting our expectation for growth in second half of the year. Within telecom, we are seeing increasing activity tied to high-performance computing and electronic applications. Our energy business is expected to benefit from electrical infrastructure projects in the United States. We expect both energy and telecom to grow high single digits to double digits in the third quarter. Overall, we are encouraged by the improving demand trends across much of our portfolio. Combined with continued execution of our strategy to focus on customers, innovation, commercial excellence, and targeted share wins, these trends support our confidence in our updated full-year guidance.

Importantly, much of our progress in first half was driven by factors within our control rather than being dependent on a broader macro recovery. That focus on execution has enabled us to deliver consistent improvements across the business despite a volatile operating environment. As we update our outlook for the year, we also think it is important to step back and look at the broader picture since we adopted our new strategy beginning in early 2024. This slide highlights the financial outcomes our strategy has delivered over the past three years and the progress we have made in building a stronger, more resilient business at Avient. We have systematically expanded margins, grown earnings, generated strong cash flow, and strengthened our balance sheet each year, all while continuing to invest in innovation and our prioritized growth vectors.

These results demonstrate the effectiveness of our strategy, the compounding power of our business model, and our ability to drive operational performance through actions within our control, even amid volatile and uncertain market conditions. A good example is Europe, where we have been executing a focused strategy to improve profitability by streamlining structure, reducing complexity, driving productivity and operational discipline, and executing portfolio actions. As a result, EMEA adjusted EBITDA margins are expected to improve by more than 400 basis points from 2023 to 2026, reaching more than 18%, with systematic improvement each year along the way. This brings the region's margins in line with the broader portfolio and demonstrates our ability to create value even in more challenging demand environments. Importantly, these results are not driven by any single initiative.

They reflect the combined impact of customer focus, innovation, portfolio management, and targeted share gains with key accounts while collaborating across our two business segments to represent one Avient to our customers. Innovation remains a critical component of our growth strategy, and we believe there remains substantial opportunity ahead as our commercialization and innovation capabilities continue to mature. The next slide highlights how we are leveraging innovation and customer collaboration to capture attractive growth opportunities in high-value applications that intersect with important secular trends across our prioritized markets. We recently launched a new range of dielectric materials under our PREPERM portfolio, specifically for humanoid robots and intelligent driving vehicles. Robots and autonomous cars are increasingly reliant on their radar systems to detect and respond quickly to their surroundings, other cars, pedestrians, and objects. Traditionally, radar housings or radomes have relied on glass fiber reinforced materials.

These materials distort signals at higher frequencies typical of these new and emerging applications and are susceptible to warpage during manufacturing, resulting in lower yields and higher production costs. PREPERM materials are designed to offer extremely low loss or signal distortion in higher electromagnetic frequencies, and are preferred by robot and car radar manufacturers for enabling cleaner signal transmission at higher rates and low latency delays. In addition to meeting and exceeding customer requirements on performance, PREPERM materials also provide easier manufacturability with greater impact resistance, low warpage, and laser assembly compatibility. We are currently developing radome solutions for various humanoid robot and autonomous vehicle radar manufacturers, customizing properties to best fit their applications, and easily adapting to their existing manufacturing processes. We continue to expand this materials platform for a variety of applications and manufacturing processes supporting this fast-growing area.