Avient sees end to destocking, raw material deflation to continue in H1 – execs

HOUSTON (ICIS)–While customers are managing inventories tightly as they monitor demand, Avient sees destocking coming to an end in key markets, with underlying demand starting to improve, the top executives of the US-based polymer materials company said on Wednesday.

• Demand improving in largest end markets, packaging and consumer, and in defense applications.

CEO Ashish Khandpur and chief financial officer Jamie Beggs, speaking during Avient’s Q4 earnings call, said that packaging and consumer already benefited from slowing destocking in Q4 and that destocking “has largely come to an end” in those markets.

DEMAND BY SECTOR
The two markets account for more than 40% of Avient’s total sales of $3.14 billion in 2023 (Q4: $719 million).

Although packaging and consumer sales were down year on year in Q4, they declined at a slower pace than in the previous quarters.

Sequentially, packaging sales were down “only” 4% from Q3 and consumer sales were down 3%, despite the typical Q4 seasonality in Avient’s business, Khandpur said.

At the same time, the pace of destocking in the healthcare end market has also started to slow, although Q4 sales into that market were down 9% year on year.

Sequentially, Avient’s sales in healthcare were up 3% from Q3 as underlying demand from consumers in that sector remained steady, and Avient expects to see further improvements in demand in 2024.

In building & construction and industrial, Avient sees continued softness. Those sectors are capital intensive and interest-rate sensitive.

Telecommunications, which was the weakest end market for Avient in Q4, will likely remain soft through the first half of 2024.

Meanwhile, Avient’s sales into the defense market continue to be strong, “in light of continued geopolitical tensions”, Khandpur said.

DEMAND BY REGION
Regionally, markets in the US and Canada, which account for 41% of Avient’s total sales, should continue to improve as consumer sentiment appears to be resilient, despite the higher interest rates.

However, Avient has slightly more exposure to healthcare in the US and Canada than elsewhere, which could imply “potentially sluggish growth” in the near term, the CEO said.

In the US telecommunications market, Avient expects to see stronger sales because of the $42 billion Broadband Equity Access and Deployment Program (BEAD) to expand high-speed Internet access.

The boost in demand from telecoms should begin in the second half of 2024 and become more significant in 2025.

Meanwhile, in the Europe, Middle East and Africa (EMEA) region (36% of Avient sales) demand is affected by consumers being cautious because of the geopolitical issues, high interest rates, and the lack of government stimulus and infrastructure spending, compared with the US.

However, defense is a “bright spot” in EMEA, and destocking in packaging in the region seems to have ended. Packaging is Avient’s largest EMEA end market.

For Asia (18% of Avient sales) the company has a cautious outlook due to the uncertainties in China. The company is waiting to see the effect on the economy of China’s government stimulus measures.

Latin America, which currently accounts for only 5% of Avient’s sales, is an important region as the company’s customers are shifting production to Mexico and other countries amid the reshoring/near-shoring trend.

Avient will follow its customers and if Latin America becomes a bigger manufacturing hub, the company will scale up is operations there, Khandpur said.

Packaging is Avient’s largest end market in Latin America. Those sales were up year on year in Q4 and the company expects further sales growth in 2024.

RAW MATERIALS
Beggs noted that raw material price deflation, which supported margins in Q4, should continue to provide a benefit in the first half of 2024.

The primary raw materials used in the company’s segments – Color, Additives and Inks; and Specialty Engineered Materials – include polyolefin and other thermoplastic resins, titanium dioxide (TiO2), inorganic and organic pigments, specialty additives and ethylene.

NO BIG M&A
Meanwhile, Avient will focus on organic growth and is not likely to engage in big acquisitions as it still works to fully integrate two acquisitions. However,  Khandpur would not rule out smaller, bolt-on deals.

Three months ended 31 December:

	Q4 2023	Q4 2022	+/- %
Sales	719.0	790.4	-9.0%
Cost of goods sold	510.1	618.4	-17.5%
Gross margin	208.9	172.0	21.5%
Income/loss from continuing operations	27.6	-16.6
Net income	28.6	544.5	-94.7%

Net income fell as Q4 2022 included a gain from discontinued operations of $561.5 million related to the sale of Avient’s distribution business.

Thumbnail photo of Ashish Khandpur, who took over as Avient’s CEO and president on 1 December 2023; photo source: Avient