Avient Corporation (NYSE:AVNT) Q1 2025 Earnings Call Transcript

Avient Corporation (NYSE:AVNT) Q1 2025 Earnings Call Transcript May 6, 2025

Avient Corporation beats earnings expectations. Reported EPS is $0.76, expectations were $0.75.

Operator: Good day, ladies and gentlemen, and welcome to Avient Corporation’s webcast to discuss the company’s first quarter 2025 results. My name is Tanya, and I will 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 like now to turn the call over to Joe Di Salvo, Vice President, Treasurer and Investor Relations. Please go ahead.

Joe Di Salvo: Thank you, and good morning, everyone that’s joining us on the call today. Before beginning, we’d 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 be of 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 can 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-Q or any applicable amendments, for a complete discussion of these factors and other risk factors that may affect our future results.

During today’s discussion, the company will use both GAAP and non-GAAP financial measures. Please refer to the presentation posted on the Investor Relations section of the Avient website, where the company describes 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. Joining me today is our President and Chief Executive Officer, Dr. Ashish Khandpur; and Senior Vice President and Chief Financial Officer, Jamie Beggs. I will now hand the call over to Ashish to begin.

Ashish Khandpur: Thank you, Joe, and good morning, everyone. I’m pleased to report we delivered our fourth consecutive quarter of organic growth where both sales and adjusted EPS were in line with expectations. Excluding the impact of foreign exchange, we achieved top and bottom line growth while expanding EBITDA margins. Specifically, organic sales grew 2% in the quarter driven by resilient demand in packaging. Adjusted EBITDA grew 4%, excluding the impact of foreign exchange due to higher organic sales and lower year-over-year costs as we tightened our belt across the company to closely manage discretionary spending. Adjusted EBITDA margins expanded 20 basis points to 17.5%, which is particularly notable given the strong comparisons of our highly profitable defense business, which had grown 38% year-over-year in the first quarter of 2024.

Overall, we delivered adjusted EPS of $0.76, which represents 4% growth when excluding the unfavorable impact of foreign exchange. The evolving trade policy has led to uncertainty impacting demand in select markets and geographies, particularly in the US. As you can see on this slide, organic sales for the US and Canada declined 3%, primarily due to the weak demand in our consumer and transportation end markets. Partially offsetting this was continued strong growth in healthcare, driven by demand in medical devices and medical specific supplies categories, and modest growth in packaging applications. EMEA grew 2% in the quarter, which is the fourth consecutive quarter of organic growth for this region. We continue to streamline our structure and operations there to better serve our customers.

This renewed focus is helping our teams to win new business and share in EMEA. Our Asia business continues to show strength, increasing organic sales 9% in the quarter with growth across most end markets, including transportation. Lastly, our team in Latin America continues to significantly outpace market growth, increasing organic sales by 17%. This marks the fourth consecutive quarter of double-digit organic growth for the region. We continue to win share with global OEMs and brand owners in the packaging and consumer space. As the level of macroeconomic uncertainty has increased, we are well positioned to help our customers across the globe by executing our playbook, which focuses on what we can influence. As Jamie will share, our in-depth analysis shows that the direct tariff impact on our sales and raw materials is not anticipated to be significant.

Our local presence and global reach is a competitive advantage that enables us to serve our customers where and how they want to be served. Our teams are staying close to our customers and helping them navigate the changing business landscape. We have an agile global manufacturing footprint to accommodate shifting customer supply chains and are able to respond quickly to meet our customers’ evolving needs. This is helping us to gain their trust and is also creating opportunities where we can win share from competition as they become less cost-attractive for certain applications. Internally, we have an enhanced focus on cost control and productivity. This includes our Lean Six Sigma initiatives, optimization of our manufacturing footprint, and discipline on discretionary spending.

We expect about $30 million of savings from these initiatives in 2025. In addition, we are focused on maximizing cash with effective working capital management and balanced CapEx decisions. We expect to generate strong free cash flow and deploy it in ways that maximize values for our shareholders. One such way is our decision on paying down our debt by $100 million to $200 million this year. Jamie will cover more on this topic later in the guidance portion of the call. With respect to tariffs, we expect minimal direct impact as we primarily source raw materials and manufacture our products locally in the regions that we serve. To the extent there are exposures, we are working closely with our customers and suppliers to mitigate the impact. This includes optimizing our raw material purchases and using our formulation expertise to identify material substitutions where possible.

And where needed, we have been implementing pricing actions to offset any inflationary impacts. Finally, as a team, we are fully focused on day-to-day execution, but also on advancing our company strategy by prioritizing investments and resources for our growth vectors. This applies to both catalyzing our core, where our healthcare and defense portfolios are expected to outperform the broader market and to building platforms of scale in fast-growing markets supported by secular trends, like use of composites in energy infrastructure and building and construction markets. I will now hand it over to Jamie to discuss the quarter’s financials in more detail, as well as discuss our guidance for the year.

Jamie Beggs: Thank you, Ashish, and good morning, everyone. Our playbook has served us well during the quarter, and it enabled us to deliver $0.76 of adjusted earnings per share in line with our expectations and flat to last year’s results. Impacting this quarter was unfavorable FX of $0.03 per share, as well as slightly higher depreciation and a higher effective tax rate, which impacted EPS by $0.02. As Ashish mentioned earlier, we grew both the top line and bottom line, excluding FX. This performance was driven primarily by growth in the Color, Additives & Inks segment, as well as broad cost control discipline across the company. Starting with Color, the segment grew organic sales 3% and adjusted EBITDA by 7%, excluding the impact of foreign exchange.

Sales in packaging materials, the segment’s largest end market, contributed significantly to growth as resilient demand for personal care and food and beverage applications grew across all regions. In addition, virtually every end market grew year-over-year, with the exception of transportation, where we saw double-digit declines in the US and EMEA related to weaker vehicle production in these geographies. Color expanded adjusted EBITDA margins by 50 basis points through sales growth, favorable mix, and cost improvement initiatives, including plant footprint optimization and streamlining the organization to better serve our customers. Our Specialty Engineer Material segment delivered organic sales that were flat to prior year, while adjusted EBITDA declined 4%, excluding the impact of foreign exchange.

Healthcare grew double digits with strong demand in medical devices and medical supplies portfolios. Energy was also strong during the quarter due to increased demand for composites for energy infrastructure projects and Dyneema ropes for marine applications. These gains were more than offset by lower sales in transportation and defense markets. As Ashish mentioned, due to the lumpiness of sales in personal protection, the first quarter of 2024 was a record quarter for our defense business, making for a difficult year-over-year comparison. Overall for the segment, the lower sales and defense during the quarter resulted in unfavorable mix and modestly lower EBITDA versus the prior year. While defense was down 5% during this most recent quarter, our overall outlook for this growth sector remains robust.

Last earnings call, we highlighted our latest innovation, a third generation of Dyneema that provides unmatched ballistic protection at the absolute lightest possible weight currently available. We have launched our special soft flexible grade for both law enforcement and army vest and now have secured orders in Europe and Australia for these advanced technology based materials. These are just some examples providing momentum and confidence in our full year outlook for the defense business. On this next slide, I wanted to provide some context to our direct exposure to tariffs. As Ashish previously highlighted, we primarily source raw materials and manufacture our products locally in the regions that we serve, so we expect our exposure is not significant.

We estimate that less than $100 million of our sales and less than $100 million of our raw materials are exposed to tariffs. As a percentage of total sales, that’s approximately 3% that are exported from the US or imported into the US from other countries. And as a percentage of our total raw materials, it represents less than 8% of what we purchase. This excludes materials that are currently exempt by Annex II and USMCA provisions. For cross-border trade with China specifically, we have exposure of approximately $10 million of sales and approximately $20 million in raw material spend. While the direct impact from tariffs is not expected to be significant, we cannot underestimate the impact tariffs can have on overall market demand. Several public reports have confirmed a slowing demand environment in the US, which is also corroborated by some of our customers, especially in consumer, building and construction, and transportation end markets.

As we look out to the second quarter and for the full year, we have taken this into consideration while also balancing it with parts of our business that continues to grow as well as the self-help initiatives that we are taking to manage profitability. Starting with Q2, we expect second quarter adjusted EPS of $0.79, which represents growth of 4% over the prior year quarter. We expect to grow organically in areas of our portfolio that we have prioritized, such as healthcare and defense which are aligned to speculative trends and support higher margin, higher differentiation materials. We also expect to see a continuation of growth in packaging, which is our largest end market. Partially offsetting this growth will likely be weak US consumer demand, as well as transportation sales in the US and Europe.

For the full year, we modeled different scenarios, taking into consideration the factors we’ve listed on the slide. The underlying premise for all of these assumptions is triangulating how demand will respond in the back half of the year. The evolving trade policy changes have increased the level of uncertainty since we last gave guidance, but our current operational performance is in line with expectations. And there has not been a notable change in our order patterns that would significantly change the range we provided in February. Accordingly, the low end of our range reflects flat demand in the second half on a year-over-year basis, while the high end assumes mid-single-digit growth. As we have limited visibility into demand for the second half of the year, we also model scenarios with mid-single-digit sales declines in the back half of the year.

If that were to occur, we believe full year 2025 earnings would be in line with our 2024 results. With that being said, we are well positioned to help our customers navigate the changing macro environment and we are deploying our playbook of controlling what we can influence, as Ashish detailed earlier. Therefore, we are leaving our guidance range unchanged for adjusted EBITDA of $540 million to $570 million and adjusted EPS of $2.70 to $2.94. Regarding free cash flow, we are keenly focused on maximizing cash and strengthening our balance sheet. As we’ve demonstrated in the past, we have a track record of disciplined working capital management. We are being strategic with our capital programs where we are investing surgically and prioritize growth factors while also delaying other spend as appropriate due to the uncertainty in demand.

We now expect CapEx for the year to be closer to $110 million and free cash flow to range from $190 million to $210 million. Furthermore, given our strong cash position and expectations for free cash flow this year, we tend to pay down between $100 million to $200 million of debt by year end. With that, Ashish and I would like to end with a thank you to all of our Avient employees who have worked tirelessly to deliver these results. We are now ready for the Q &A portion of today’s call.

Operator: Yes. [Operator Instructions] Our first question will be coming from Frank Mitsch of Fermium Research. Your line is open, Frank.

Q&A Session

Frank Mitsch: Thank you so much. Good morning, everyone. On the defense side, frankly, only a 5% decline in 1Q seemed lower than or slightly less of a negative impact than probably expected after the 38% growth in a year ago. So I believe in the last call, you were thinking that that business might grow mid-single digits. Can you talk a little bit more about what your expectation is for that high margin business for the rest of the year?

Ashish Khandpur : Yeah, Frank. This is Ashish, thank for the question. I think defense has been on a strong growth pattern for us. Last year it grew, constant dollars, 14%. So, totally, it was double-digit growth last year. And we continue to see strength coming into the first half of this year. And I’ll mention some of the innovations that are launching now in that area is helping us gain new businesses as well, apart from some of the diversification that the team has been focused on with respect to going beyond military applications, going into law enforcement and other things like that, border control. So, we are seeing strength in defense in first half. We expect double-digit kind of growth in first half and high single-digits maybe for the total year this year, apart from double-digit growth we saw last year.

Frank Mitsch: Terrific. Thank you so much. And then on the flip side of the equation, transportation obviously called out negative for both SEM and Colors, though up in Asia. You provided a dour outlook for 2Q. Can you give any more color on what your order books are? And are you basically matching the bill rates or are your volumes higher or lower than your bill rates on the transportation side?

Ashish Khandpur : Yeah. Transportation for first half for us will be, Frank in low, negative mid-single-digit kind of range. So, and which is similar to the bill rate drops that we are seeing in especially in Europe and US. Obviously, that part depends on the spec in particular models that the team has or doesn’t have. So, we feel we are within the error bars of what the bill rates are. With respect to Asia, we had double-digit growth in Asia. It grew 16% for us in transportation, which was a highlight for us. And we expect that momentum to continue double-digit kind of growth in second half as well. And that’s largely due to our team’s spec in positions in the EV markets there, that is the new energy vehicles, as they call them, is gaining share.

So, we expect transportation — now, one more thing on transportation is that we will continue to start lapping the negative comps in second half because it started dropping significantly in Q3 last year. And so, although the first half is expected to be mid-single-digit negative growth for us, the second half, we expect it to be slightly positive depending on how the market goes.

Frank Mitsch: Terrific. Thank you so much, Ashish.

Operator: Thank you. And our next question will be coming from Mike Harrison of Seaport Research Partners. Your line is open, Mike.

Mike Harrison: Hi, good morning. You noted some weakness in the consumer end market in Q1, and it sounds like that’s expected to continue at least in the Q2. Can you just give us a little more color on what you’re seeing? Is that pretty broad-based weakness when you look at the US and Canada, or are there some consumer staples applications that may be holding up better than more discretionary applications?

Ashish Khandpur : Yeah. So, overall, consumer was flattish for us this quarter. We had a double-digit decline in US, Canada in consumer, and they were pretty much double-digit in both staples and discretionary. And then we had pretty good strength in all other regions. So, EMEA was double-digit up; Latin America was double-digit up; and Asia was mid-to-high single-digits up in consumer. So, really, the issue on consumer is coming from USAC or US and Canada, and we are seeing declines in both discretionary and staples side of it for now. And Q2, we expect the same trend to continue, strength in all other regions except US and Canada.

Mike Harrison: All right. That’s very helpful. And then you mentioned some share gains and some new business wins in EMEA. I was hoping that you could give some examples or maybe additional color on which end markets or product lines are helping drive some of those wins.

Ashish Khandpur : Yeah. So, if you think about EMEA, we had pretty strong strength in healthcare markets, in consumer, and in defense. And the consumer part was pretty strong both in discretionary and staples. And so, some wins that we had was with some toys manufacturers. But also, we are winning share in the energy infrastructure area in EMEA. That is a win. And then, with respect to just day-to-day winning share versus competition, we are basically able to, in our core business of color, we are gaining some momentum there as well, apart from the things that I mentioned. So color narratives was a strong growth for us in EMEA because of the share gains.

Mike Harrison: All right. Thank you very much.

Operator: One moment for my next question, will be coming from Ghansham Punjabi of Baird. Your line is open.

Ghansham Punjabi : Thank you, and good morning, everybody. Just going back to your comments on packaging in the CAI segment and strength in personal care and food and beverage, etc. Just trying to get a little bit more color on that because most of the CPGs that are reported are reporting pretty sluggish volumes, negative in many cases, many of your packaging companies as customers are also reporting the same. So, what is driving that outperformance for that segment?

Ashish Khandpur : Yeah. I think the biggest driver for packaging for us is personal care. And that’s where we are winning share with some of the large OEMs that are winning the share. Not everybody is winning, some are losing share, and some are winning share. And so, we are on the right side in this case, as I would say. And so, that’s one of the biggest drivers. And the second biggest driver is mid-single-digit kind of growth in beverage. So, in personal care, we are double digits up in packaging, which is about 20% of the category for us. And beverage, which is again around 20% or so, we are like mid-single digits up. Those are the two biggest drivers, Ghansham. We have packaging that grew everywhere in the world, every region of the world. So, low single digits for EMEA and USAC, but Asia and Latin America, double digits growth.

Ghansham Punjabi : Okay. Thanks for that. And then, in terms of the strength in Asia plus 9% during the quarter, do you have a sense as it relates to whether there was any pre-buy that contributed towards that? And then separately, maybe a question for Jamie, as it relates to the, call it 8% increase or exposure, if you will, excuse me, on tariffs on the cost of goods sold, what are the mitigation strategies associated with that?

Ashish Khandpur : Yeah, Asia, we don’t have any reason to believe that there was any pre-buy going on. Actually, the customers have gotten really smart with the COVID experience and everybody understands that the supply chain cycle times have shortened significantly and companies can provide materials quickly. So, we are not seeing any pre-buys that we can understand and that’s what we can get based on what we are seeing with our customers. So, that’s the first part. Jamie, on the second part.

Jamie Beggs : Sure. On the mitigating strategies, Ghansham, it’s really three primary things that we’re focused on. One, we’re working with our customers where we see opportunities to replace raw materials and reformulate those formulations to be able to mitigate the impact of tariffs. And the second piece would be our sourcing group, figuring out what other options would be more local to be able to do that replacement. And then lastly, if we’re not able to find those alternatives, look at pricing options to be able to mitigate any profitability impact. Those are really the three primary ways that we’re trying to mitigate the tariff at this point, so we don’t expect it to be material for the year.

Ghansham Punjabi : Okay, terrific. Thank you, both.

Operator: Thank you. And our next question will be coming from David Begleiter of Deutsche Bank. David, your line is open.

David Begleiter : Thank you, good morning. Ashish, SG&A was down about 4% in Q1. Is that a good run rate for the full year?

Ashish Khandpur : No, I would say that first of all, all the cost actions that we are talking about, we have put in place so that we can offset the wage inflation and also our investments in growth vectors that we are making this year. That will be offset by the cost reductions that we talked about. So overall, you should expect SG&A to be flattish — quite flat to last year. And obviously, there is a quarter-to-quarter variation because there is some seasonality with respect to things like merit process and also the time of our variable compensation accruals. So I think overall, you should expect a flattish SG&A spend for us versus last year, which will be actually about 40 basis points to 50 basis points. I am hoping in that range of reduction year-over-year as a percentage, because our sales are expected to grow.

David Begleiter : Very good. And just on EBITDA margins and specially engineered materials, they are down in Q1 obviously, but can they be flat for the full year or should they be down for the full year in SEM?

Ashish Khandpur : For SEM, you said? Sorry?

David Begleiter : Yeah, just SEM EBITDA. Can you grow SEM EBITDA margins in ’25 or should they be flat to down given the decline in Q1?

Ashish Khandpur : Yeah. So both our businesses are expected to grow top line and bottom line and margin expansion in both is expected this year. And the SEM margin was down largely because of the big defense, 38% growth that we saw year-over-year last quarter, last year in Q1 2024. And so that was a primary driver why the margins were squeezed and when we look at total defense, we just talked about earlier to Frank Mitsch’s question, we are expecting high single digit growth or so in defense. Overall, that will be offset and we expect margins to grow.

David Begleiter : Thank you.

Operator: Thank you. And one moment for our next question, which will be coming from Kristen Owen of Oppenheimer. Your line is open, Kristen.

Kristen Owen: Hi, good morning. Thank you for taking the question. Jamie, I’m going to ask you to expand on something that came up in one of the prior questions, but you guys have talked about some of the resourcing and reformulation within your own supply chain given the tariff impacts. Just wondering if you can maybe speak to some of the innovation briefs that you might be receiving as your customers are thinking about reformulating, just any color you can provide there on those innovation briefs?

Jamie Beggs : I would say just in general, Kristen, this is something that we do on a continuous basis with our customers. As we look at what their needs and what they’re driving value from, we always look at ways to reformulate. So this isn’t something that’s new for Avient in particular. And there are some easy substitutions. Sometimes our customers have a preference on a certain type of formulation. But a part of what we do is actually take a look at our database, which is very vast in terms of other materials that could provide the same level of performance as well as the same quality that they’re looking for. So I would say I can’t call any specific innovations just because there’s so many different ways that we help our customers be able to do that.

And I would say in general, the majority of that exposure on the sales side is primarily on the SEM side. And that’s where we’re really focused on and ensuring that we can mitigate the impact of any residual tariff so we don’t have to do pricing actions to be able to cover it.

Kristen Owen: And then just following up on the supply chain, I heard you say, no real indications of pull forward or channel building. Can you just speak to where you’re seeing customer channel inventory levels? Are they lean? Are they a little bit over? Just any color on the channel. Thank you.

Ashish Khandpur : Yeah, I can say a few things. And Jamie, if you want to add to that as well. So I think in general, we are not seeing any channel inventory build right now. Our customers are really in a wait and see mode. And sometimes they don’t know which country they will produce cars or whatever the case might be. And so it’s an evolving situation. The advantage that we hold is that we can supply them in either region of the world that they want, but they themselves are sometimes not at a point to make that decision. And they’re waiting for more certainty or more clarity, I would say, on what the tariffs are going to be. But from a channel inventory point of view, it’s very lean and everybody is basically in a wait and see mode from customers.

Jamie Beggs : Yeah, I think that’s been illustrated, but just how short our order book visibility has gotten over the last, I would say, year in terms of customers just being cautious before ordering. So we typically have seen historically 45 days of visibility. That’s shortened to 20 days to 30 days. That’s not new in this environment. It’s just that’s how our customers are viewing it, which also means that their inventories have to be, I would say, comfortable for them to be able to manage that kind of volatility. The only place I would say that we’re seeing a little bit more of that caution is in transportation. There was a lot of volatility specifically in the US in Q1 where we did see a dramatic pullback because they didn’t really know what was happening because of the dynamics of tariffs. But other than that, it’s been pretty much normal course of business for the last year where customers are just waiting to see how demand’s going to evolve for themselves.

Kristen Owen: Thank you very much.

Operator: Thank you. And our next question will be coming from Michael Sison of Wells Fargo. Michael, your line is open.

Michael Sison: Hey, good morning. Nice start to the year. Since a lot of companies have kind of struggled to keep their outlook in pace and have modeled in more of a sort of a downturn here, how do you think the portfolio would react in the event that we do head into a recession type of scenario this year?

Ashish Khandpur : Yes. So, Mike, I mean, obviously, we gave you several scenarios. And one of the scenarios that Jamie talked about was a negative mid-single-digit growth, which if it was really an extreme situation, which we don’t believe it’s going to happen, that would put us similar on our earnings to last year, basically. So that would be — that was a case that we pointed out. We, however, don’t believe that we think there’s a slowdown in the US economy. And between 1% and 1.5% range GDP growth this year. That’s our model assumption. And then also for China, we are modeling between 4% to 4.5% GDP growth. And so, those are the two biggest economies. And so, if you think about that, then that’s what is giving us the comfort of where we are in the range.

Obviously, there is another piece to it that we are playing here, which is, driving more cost control and self-help, as we say, to make sure that we are able to make our second half where it should be. And so, if you think it from that perspective, and if you do the model, then the amount of EBITDA growth required in the second half versus first half, only one-third of that growth needs to be demand-based. The two-thirds is going to come from basically cost control and the FX delta that we are seeing right now. So, we feel pretty comfortable overall in our range right now. And barring the fact that the whole thing collapses completely, we feel we should be in that range.

Jamie Beggs : So, maybe just to add, Mike, we spent a lot of time over the last decade really transforming our portfolio. And there’s a couple of end markets that really stand out for us in terms of being resilient in different economic conditions. We’ve seen double-digit growth in the first quarter for healthcare. We expect that to continue to be strong for the full year. Defense is the same way while it was a hard year-over-year comp in Q1, we do expect there to be high single-digit growth for that regardless of what’s going on in the economy. Packaging, which is primarily related to food and beverage, is also strong. It was 6% in Q1. We expect that type of growth to continue through the back half of the year. And then the other piece that we haven’t really mentioned is our strength in composites.

And so, in addition to what we’re seeing in defense, we also have some growth platforms that are associated with building and construction. We highlighted some of those in our strategy with modular construction and so on. We also see quite a bit on the energy side as that continues to be aligned to these secular trends that are growing that we think will be quite resilient as we look going forward. With that being said, though, as Ashish mentioned, we do have exposure to consumer as well as industrial and other building construction applications, which could be more negatively impacted. So, that’s why we ran mid-single-digit declines as a modeling scenario to see what would happen to the portfolio if that was to be the case. But overall, the transformation of the portfolio should be outperformed what we’ve seen historically for Avient.

Michael Sison: Right. And I think as my follow-up is to see, the companies who’ve really struggled seem to be more commodity-like. And the companies who have been able to hold their outlook tend to be a little bit more downstream, some of the paint companies and stuff. So when you think about what investors are missing, your stock is — has struggled with others. What do you think investors are missing in terms of more stability that you’ve shown thus far? And as you look at the outlook, it does seem a little bit more, I guess, stable relative to the commodity folks.

Ashish Khandpur : Yeah. So, Mike, obviously, this is a really interesting time. And so, stock prices is probably not an indicator of the quality of the work that goes on in many companies, not just ours. And we’ve seen very good companies beaten up in this environment. So, but we don’t obviously consider ourselves commodity at all. And so, we feel like our value is creating growth through innovation and working with our customers. So, we feel that we need to consistently deliver our earnings quarter after quarter. This is a fourth quarter consecutive growth for us and we are expanding margins as well. We are getting very diligent about cash generation. We are maintaining our costs. And so, those are the things that if we continue to do quarter after quarter, I don’t think it’s just a matter of time that investors will not be able to ignore us and we’ll be in favor again.

So, we are just focused on driving the businesses day to day and changing our portfolio transformation. And as we talked about in our strategy, but also driving more innovation in the company. And that’s why we continue to feed the growth vectors, even in this tough time, because it’s a priority for us. So, we are more focused on running the company day to day, rather than what the stock price is doing, because we think that will fall in place sooner or later.

Michael Sison: Great. Thank you.

Operator: Thank you. And our next question will be coming from Vincent Andrews of Morgan Stanley. Vincent, your line is open.

Vincent Andrews: Thank you, and good morning. Jamie, I’m wondering if you could give a little more context on that down mid-single-digit scenario. Is that specifically for 2025? And if so, does that assume the first half is in line and then the downturn plays out in the back half? Or is that what would happen on a 12-month basis if we had a downturn for 12 months? And in either case, could your bridges from being down 5% on the top line to being flat from an earnings perspective, is that operating income or is that EPS? What are the levers you’re going to pull to offset a mid-single-digit decline in the top line? Thank you.

Jamie Beggs : Sure, Vincent. What we mentioned on the call was actually just a second half demand environment. Is that been down mid-single digits? We do expect, based on our order books today, to be in line with the guidance that we provided today. Really, the uncertainty is how that unfolds in the back half of the year, which we have less visibility to. So that’s where that plays in terms of how we did the modeling. And we only gave that for 2025 in total. The other piece of how do we continue to grow if sales are basically flat in the back half of the year? And that really comes into our cost control measures that Ashish highlighted earlier. We are being very diligent about our investments, how we’re prioritizing where we are investing in growth vectors, but also where we can find costs in other areas to continue to expand margins.

So that’s across the board. Those cost productivity measures would include things from our sourcing initiatives, as well as footprint optimization. And then lastly, where needed to cut back discretionary spend across the company, not just within the segments, but also in corporate as well.

Vincent Andrews: Okay, thank you. And Ashish, last quarter, we talked about the change in the incentive policy that you’ve put in place. And then this quarter, the cash flow statement has a $53 million use of cash related to incentive accruals. So can you just put those two things together? And I don’t know if it’s a timing thing or just some noise in terms of how it’s going to show up in one particular quarter, but what’s going on there and how does it play out over the balance of the year on the cash flow statement?

Ashish Khandpur : Yeah, I think it’s mostly coming from the Q1 incentive payout that took place last year. And so I think that’s the $53 million you’re referring to. As we’ve got a pretty strong site to $190 million to $200 million of free cash flow generation this year. And Jamie, you want to provide more details on any specific things around that?

Jamie Beggs : Yeah, and I just want to be clear on the delta. So there’s two things that’s going on in 2025. We did pay out our 2024 bonuses, which we typically do in Q1. In the prior year, bonuses were not as well related to the 2023 performance. So you didn’t see as much of a cash outflow in 2024 versus in 2025. And we typically do build cash in the back half of the year. If you go back to the quarters, you’ll see that we pretty much always have a draw on the Q1 as well as the first half and we start to build it as we get to the back half. That’s primarily due because we also have working capital from Q4 sales being low into Q1, so we have to build back inventory. So those are probably the two primary areas of why cash flow is lighter in the first half versus the second half. And hopefully that answers your question.

Vincent Andrews: Yeah, very good. Thank you so much.

Operator: And our next question will be coming from Laurence Alexander of Jefferies. Laurence, your line is open.

Laurence Alexander: So good morning. Just wanted to catch up on two details. One is, can you just give your current impressions on your trends in your raw material basket? And the second is, if you go across the portfolio, all of the markets that are up more than 10% currently, what percentage of sales would that be roughly? And how much of that is like a legacy effect from pricing? And would you expect that to fade over the course of the year, or is that just sort of real sustainable double-digit growth?

Jamie Beggs: Well, maybe I’ll start, Laurence, with the raw material baskets. We expect there for the full year to be at 1% to 2% of inflation. In Q1, we did see a little bit of an inflation, the exact number is closer to $4 million that came through. We see that in pigments and certain performance additives and flame retardants, which are trending slightly up. We did see polypropylene and polyethylene and some of our other hydrocarbons trending down. So net-net, it was about a $4 million impact, like I said, for Q1. And then full year, likely at this juncture, 1% to 2% inflation as we look out for the full year. Do you want to?

Ashish Khandpur : Yeah, I mean, so I think your other question was about where are we seeing double-digit growth. So Q1, the only area where we saw double-digit growth was healthcare. But we had several mid-single digits or even high single-digit growth. So we saw high single-digit growth in telecom. Packaging was quite strong, I would say, with the mid-single-digit growth. And defense was negative 5%, but I don’t think it’s an indication of the strength of that market, Laurence, because as we said, that was because of the lumpy sales comparison versus Q1 2024. I would put defense in that high to double-digit kind of growth scenario as well. It’s a growth market for us and will continue to be this year. So at this point, I would say, and then energy is expected to pick up as well towards the second half of the year with energy infrastructure programs that we have with our customers. So those are the areas of strength we are seeing right now.

Laurence Alexander: Thank you.

Operator: And ladies and gentleman, this concludes today’s conference. Thank you for your participation. You may now disconnect.