Avient's Q3 2025 Earnings Call: Mixed Signals on SEM Growth, Defense Markets, and Consumer Demand

Business Commentary:

* Earnings Performance: - Avient Corporation reported adjusted EPS of $0.70 for the third quarter, in line with guidance, despite weaker sales than anticipated. - The company expanded adjusted EBITDA margins by 60 basis points to 16.5%, driven by increased productivity and cost containment efforts.

• Market Conditions:
• Consumer and packaging markets were subdued, with packaging demand lower than anticipated, particularly in EMEA.

• Energy sales were significantly below expectations due to delays in grid modernization and green energy projects, affected by pauses in government funding.

• Regional Performance:

• Sales in the U.S., Canada, and EMEA decreased by 5% and 3% respectively, impacted by trade policy uncertainty and inflation.

• Asia saw a slight decline in sales, primarily due to consumer demand, but packaging and healthcare sectors showed growth.

• Defense and Healthcare Growth:

• Defense, healthcare, and telecommunications markets remained strong with high single-digit growth, driven by increased demand and new product innovations.
• Avient's healthcare sector benefited from innovative materials for medical devices and equipment.
  

Contradiction Point 1

SEM Segment Volume Growth Expectations

It involves differing expectations for volume growth in the Specialty Engineered Materials (SEM) segment, which is crucial for Avient's revenue projections.

What growth algorithm do you expect for 2026 if the current environment persists? - Michael Sison (Wells Fargo)

2025Q3: And we expect better volume growth in our specialty engineered materials in the second half. - [Dr. Ashish Khandpur](CEO)

How do you expect your volume to trend in the second half, given many companies are guiding to a challenging second half and customers are destocking, considering your new product programs? - Michael Joseph Sison (Wells Fargo Securities, LLC)

2025Q2: So SEM is expected to have better volume growth in the second half. - [Ashish K. Khandpur](CEO)

Contradiction Point 2

Defense Market Growth Expectations

It involves differing expectations for the defense market, which is a significant component of the company's sales and growth strategy.

Have you noticed changes in defense order patterns related to the U.S. government shutdown? - Frank Mitsch(Fermium Research)

2025Q3: Defense orders remain robust, and demand is expected to continue. No immediate impact from the shutdown is anticipated, but potential delays could occur if it extends. - [Dr. Ashish Khandpur](CEO)

Given last year's significant growth, how will the defense segment perform for the rest of the year? - Frank Mitsch(Fermium Research)

2025Q1: Defense is expected to grow at high single digits for the total year, after double-digit growth last year. - [Ashish Khandpur](CEO)

Contradiction Point 3

Packaging Market Performance

It involves different portrayals of the packaging market performance, which affects the company's growth potential and market positioning.

Can you provide an update on changes in packaging costs and any positive developments in specific areas? - Vincent Andrews(Morgan Stanley)

2025Q3: Year-to-date packaging growth is slightly positive, with strength in Asia due to semiconductor packaging. Packaging was negative in the Americas and EMEA, with specific weakness in Latin America's food and beverage sector. - [Dr. Ashish Khandpur](CEO)

What is driving the outperformance in CAI segment packaging materials despite sluggish CPG volumes? - Ghansham Punjabi(Robert W. Baird)

2025Q1: Packaging growth is driven by personal care, up double digits, and beverage, up mid-single digits. - [Ashish Khandpur](CEO)

Contradiction Point 4

Consumer Market Demand and Sales

It highlights differing perspectives on consumer market demand and sales, which directly impacts the company's sales performance and growth prospects.

Can you reconcile the September consumer sales recovery with weaker sequential consumer reports? - Josh Vetzlian(Baird)

2025Q3: September showed improvement, with consumer staples seeing positive growth. Consumer sales were better year-over-year as easier comparisons and improved demand in certain staples contributed. - [Dr. Ashish Khandpur](CEO)

Can you explain the weakness in the consumer market in Q1, especially in the US and Canada? - Mike Harrison(Seaport Global Securities)

2025Q1: Consumer demand weakness is primarily in the US and Canada, with declines in both discretionary and staples. - [Ashish Khandpur](CEO)

Contradiction Point 5

Defense Sales Growth Expectations

It directly impacts expectations regarding the growth trajectory of defense sales, which is a key revenue stream for the company and crucial for investor forecasting.

Have there been any changes in defense order patterns due to the U.S. government shutdown? - Frank Mitsch (Fermium Research)

2025Q3: Defense is another headwind that we're watching. As you know, the defense business has been strong for us in the past few years. I'm sure you've all seen the shutdown that happened in the U.S. government. We do not anticipate an immediate impact, but nothing is guaranteed, and we're watching that closely. - [Dr. Ashish Khandpur](CEO)

Can you explain the impact of the Generation 3 Dyneema product, your expectations for defense given its 7% sales share and the challenging Q1 comparison, and your 2025 outlook? - Frank Mitsch (Fermium Research)

2024Q4: Defense sales grew 14% in 2024, but the current quarter will face a tough comparison due to last year's high sales. The teams are focused on overcoming this hurdle. - [Ashish Khandpur](CEO)