Avient Corporation

Good morning, ladies and gentlemen, and welcome to the Poly1 Corporation first quarter 2019 conference call. My name is Brian, and I will be your operator for today. At this time, all participants are in a listen-only mode. We will have a question-answer session at the end of the conference. As a reminder, this conference call is being recorded for replay purposes. At this time, I would like to turn the call over to Joe DeSalvo, Vice President, Treasurer, Investor Relations. Please proceed.

Thank you, Brian. Good morning, and welcome to everyone joining us on the call today. Before beginning, we would like to remind you that statements made during this conference call may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements will give expectations or forecasts of future events and are not guarantees of future performance. They are based on management's expectations 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 statement. Some of the risks and uncertainties can be found in the company's filings with the Securities and Exchange Commission as well as in today's press release. During the discussion today, the company used both GAAP and non-GAAP financial measures. Please refer to the earnings release posted on the Poly1 website where the company describes the non-GAAP measures and provides a reconciliation from the most comparable GAAP financial measures. Operating results referenced during today's call will be comparing the first quarter of 2019 to the first quarter of 2018, unless otherwise stated. Joining me today on our call is our Chairman, President, and Chief Executive Officer, Bob Patterson, and Executive Vice President and Chief Financial Officer, Brad Richardson. Now I will turn the call over to Bob.

Thanks, Joe, and good morning, everyone. Today we reported adjusted earnings per share of $0.64 for the first quarter, which compares to $0.68 for the first quarter of last year. This is only the second time in nearly 10 years since we've had a year-over-year decline in quarterly EPS. Like many companies in our space, our results for the first quarter were negatively impacted by weaker demand in certain end markets and regions, and unfavorable foreign exchange. Most notably, a decline in automotive-related demand in China and Europe, where the primary drivers of an overall sales decline of 6 and 8 percent, respectively, in those regions, which impacted our color and engineering materials segments. In addition, Construction and appliance-related sales in North America fell significantly, primarily impacting our performance products and solutions segment. Weather likely played a role as customers believed the construction cycle was delayed due to colder than normal temperatures in the U.S. However, underlying our results in the challenging macro conditions are several encouraging proof points that the investments we have been making better position us to navigate these challenges and but more importantly, position us for long-term growth with expanding margins. Since 2014, as you know, we have made investments to diversify our product portfolio with innovative and sustainable solutions, but we have also expanded our commercial resources by over 30%. These investments were primarily made as enablers to our growth strategy, and in challenging times like we experienced in the first quarter, these same investments also aided in offsetting the weaker demand. A clear case in point is our composites platform. We began our investment in this space back in 2012 with an acquisition of Glassforms. Since then, we have completed additional acquisitions and invested in commercial resources to drive growth and expand their reach into new markets. For the quarter, organic sales of composites increased 10%. When combined with our recent acquisition of FiberLine, the composite businesses added $3.5 million of operating income to engineered materials, more than offsetting the weakness previously cited in Europe and Asia. You know, composites win with new business in replacing metal, glass, and wood, or reinforcing existing structures. Certainly, it's a high-performing, more sustainable technology that is serving the emerging and unmet needs of our customers. especially in the outdoor high-performance industry, where in 2018 we had our best year ever. This year also is promising as sales were up 24% in the first quarter, also our best ever. Our recent success in this space is enabled by our composite technology and strong collaborative relationships with our customers. This past quarter alone, we closed multiple new business wins in wide-ranging, high-performance applications such as off-road vehicle seats and body components in archery and shooting sports accessories. The opportunities within these demanding applications are limitless. And this is all good, but what I really like are the translation opportunities. For example, our team successfully identified an application to improve performance of high-end ergonomic office chairs, and did so using a similar composite technology to that which is used in the archery market. The same performance characteristics of strength, stiffness, and fatigue resistance are needed for both. Electrical is yet another end market where we've leveraged our composite investments and expertise. With recent wind with insulator rods, essential composite components used for power transmission and distribution infrastructure around the world. And now, with the addition of FiberLine, we have leapt into the fiber optic space and are well positioned to benefit from the build-out of current infrastructure and soon-to-come 5G expansion. We've also increased our investments in other sustainable solutions. While I believe plastics are inherently sustainable, I'm specifically referring to the FTC definition. And if you read our annual report, you'll see that we sold $480 million of these solutions last year alone. A key application and growth area for us is in next-generation packaging for perishable food and beverages, such as yogurt, milk, and juices. Our product portfolio of additives serve as oxygen scavengers and UV stabilizers, which allow customers to use thinner gauge materials, which are also more easily recyclable. In addition, our solutions help to keep the food and beverages fresher longer. Increasing shelf life not only adds value to our customers, but provides a sustainable benefit to consumers and the environment by reducing food waste and spoilage. Sales for these products, albeit smaller, are growing fast, most notably in Asia, which was up 34% over the prior year in the first quarter, and that primarily benefited our color, additives, and inks segment. And lastly, as I reflect on the positives for the quarter, color and distribution had good growth in health care, and distribution operating income increased 7% on improved pricing and mix. This increase in operating income was driven by the margin expansion from both of these industries, as well as the outdoor high-performance ad market I previously mentioned. I'll have some additional comments and make some observations about our outlook for the balance of the year. But first, I'll turn the call over to Brad from some further details on our first quarter results.