Avient Corporation

Good morning, ladies and gentlemen, and welcome to AV Incorporation's webcast to discuss the company's third quarter 2023 results. My name is Victor, and I'll be your operator for today. At this time, all participants are in a listen-only mode. We will have a question and answer session following the company's prepared remarks. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Joe DeSalvo, Vice President, Treasurer, and Investor Relations. Please go ahead.

Thank you, Victor. Good morning to everyone joining us on the call today. Before beginning, I'd like to remind you that statements made during this webcast may be considered forward-looking statements. 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 statement. Please refer to the investor presentation for this webcast for a number of factors that could cause actual results to differ. During the discussion today, the company will use both GAAP and non-GAAP financial measures. Please refer to the presentation posted on the Aviant website where the company describes the non-GAAP measures and provides a reconciliation to their most directly comparable GAAP financial measures. Joining me today is our Chairman, President, and Chief Executive Officer, Bob Patterson, and Senior Vice President and Chief Financial Officer, Jamie Beggs. I will now hand the call over to Bob to begin.

Thanks, Joe, and good morning. Today we reported our third quarter results and adjusted EPS was slightly ahead of our guidance despite lower than projected sales. We also updated our guidance for the full year to reflect our current view of the demand environment and weaker foreign exchange. Our prior guidance assumed we would start to see a modest recovery in the fourth quarter, but based on our current orders, that is not the case that we are lowering our demand expectations as we finish out the year. While we have adjusted our revenue projections, you'll see that we are expecting to grow fourth quarter earnings by 12% on a year-over-year basis as margin expansion more than offsets lower sales. Jamie will cover specifics in a moment, but I wanted to start with some general observations about the economy and markets and what we're hearing from our customers. Destocking appears to be nearing an end in many industries, with the exception of a couple that I'll touch on first, and I'll start with health care. Historically, this is an industry where we see growth nearly every year without fail. So it's unusual to be reporting health care sales are down, and I would further characterize this year as unprecedented. Sales in the quarter to health care was down about 25%. Our customers are telling us that this is related to their efforts to reduce inventory levels to more normalized pre-pandemic levels. And they simply built up too much over the last couple of years as a result of COVID response and the supply chain challenges that followed. In the third quarter, you can see the impact of negative mix for engineering materials when Jamie covers our results. We expect destocking and healthcare to continue in the next year. But the good news is that ultimate demand for healthcare services remains positive, and we continue to view it as one of our four key long-term growth drivers. The other industries where we expect weaker demand conditions to continue are those that are sensitive to interest rates, like building and construction and infrastructure projects, which slowed down in the second half of the year. In general, I certainly think there's uncertainty about the impact of higher interest rates, and whether or not countries like the U.S. find themselves in a recession that extends beyond manufacturing and industrials. Fortunately, employment has remained relatively strong, and we view that as a positive. Now, in the good news categories, defense and energy continue to perform well, and so far, transportation is also holding up. We've benefited in the Americas with composite applications in these end markets. We also believe we're benefiting from reshoring trends, particularly in Mexico, where we have been able to move production with ease based on where our customers ask us to. And lastly, I believe destocking and packaging, our largest end market, is nearing an end. A recent Wall Street Journal article highlighted that P&G expects a return to volume growth in 2024. That bodes well for us, and specifically for our European businesses, where 30% of our sales are to packaging customers. I had the chance to meet with our teams in Europe a couple weeks ago and overall the sentiment was more positive than it has been in some time. While the war continues in Ukraine, there is much less concern about energy availability in sharp contrast to a year ago when the region was worried about having enough natural gas stored to get through the winter. In total, we are expecting to deliver positive EBITDA growth in EMEA for the first time in a year over year in the fourth quarter. In fact, Europe will be contributing significantly to our bottom line results and the 12% increase in adjusted EPS we are projecting for Q4. Margin expansion is substantial as we have rationalized our footprint in the region, reduced administrative costs, and we are seeing lower raw materials. And I think this is a positive development in earnings momentum as we look ahead to next year. I also spent time with the AVM protective materials team while I was in Europe to celebrate the one year anniversary of our acquisition of Dyneema. Our composites portfolio makes up more than half of our specialty engineering materials segment and is one of our fastest growing areas of our portfolio. The integration of APM continues to go very well. Culturally, APM leaders share our commitment to investing in sustainable innovation and a strong desire to leverage all of our technologies to best serve customers and translate in those into new areas. And there are natural cross-selling opportunities between the businesses, and year two of integration will focus on accelerating those among our commercial and technical teams, and I'd like to share some examples with you. Half of Dyneema's business is in protective materials, providing lightweight, ballistic protection, and applications such as vests and helmets. But as you can see, helmets today not only provide important safety and protection, they also serve as a structural foundation for other components that aid in communications, audio and visual capabilities, and other equipment that assist with the mission. The customer relationships and expertise that APM has in this space represents a great opportunity for the broader Avian portfolio to further enhance the value we bring to the customers. As shown here, there are multiple components on a helmet that can benefit from our portfolio of colorants, additives, and NGR materials, with some examples including high-strength, lightweight mounting brackets, materials for electronic and communication components, and soft-touch thermoplastic elastomers for ease of fit and use. Defense was not an end market that we have served historically, but with our acquisition of Dyneema, we find a valuable foothold in the industry upon which we can grow. And it's also positive that we are a U.S. headquartered company where we believe we will have further opportunities with the U.S. military. The helmet you see here is just one example, and our portfolio is very well aligned for other applications in law enforcement and military-related products. We also have high durable strength materials currently enabling rugged outdoor equipment like tents, packs, and portable essentials, where we not only see growth opportunities in consumer, but the ability to translate those into military-grade specified versions. The slide here illustrates a combination of legacy aviant and Dyneema applications, and the beauty of cross-selling is that it goes both ways. Consider that aviant has long had a strong representation and outdoor high performance applications and leveraging these relationships we see further growth opportunities to cross sell and bring Dyneema technology to consumer. We're early in our exploration process but we're extremely excited about the potential that this presents and look forward to sharing more with you in the future in this regard. I'll now turn it over to Jamie to provide details on the third quarter results and our fourth quarter outlook before I make some closing remarks.