Avient Corp

NYSE:AVNT

Earnings Call Analysis

Adjusted EPS Beats Guidance; Sales Fall

Despite lower than anticipated sales, the company's adjusted EPS in Q3 slightly exceeded guidance, bolstering expectations for a 12% year-over-year earnings growth in Q4 due to margin expansion offsetting sales decline. Healthcare sales considerably dropped by roughly 25% due to inventory normalization post-pandemic, which is projected to extend destocking into the next year. However, healthcare still remains a long-term growth driver. Demand in industries sensitive to interest rates, like construction, has softened, while defense and energy sectors are strong, and destocking in packaging nears completion. European operations forecast a positive EBITDA contribution, driving Q4 bottom-line growth. The company revised its full-year guidance downward, expecting $3.13 billion in revenue, $500 million in EBITDA, and $2.30 in adjusted EPS, due to softer demand and unfavorable foreign exchange, partially cushioned by improved margins and lower expenses.

Adjusted Earnings and Sales Performance

The company has experienced a modest surplus with adjusted EPS slightly ahead of guidance and anticipating a fourth-quarter earnings growth of 12% year-over-year due to margin expansion, which counters lower than expected sales. These results come even as the company has revised its full-year guidance downwards to adjust for dampened demand expectations, weaker foreign exchange, and a current view that no significant recovery will occur in the fourth quarter.

Performance in Key Markets and Integration Progress

Defense and energy sectors, as well as transportation, continue to hold strong, contributing positively to the company's results. The integration of APM is proceeding smoothly, laying the foundation for potential revenue growth through cross-selling opportunities and positive projections in Europe, which is expected to see EBITDA growth for the first time year-over-year and contribute significantly to the Q4 bottom line.

Margin Improvements and Debt Management

EBITDA margins, exceeding the guidance at 16.3%, indicate efficient operations and potential for continued improvement. The company surpassed EPS guidance while managing a reduction in sales through decreased expenses, including interest expense from paying down $100 million of debt, leading to substantial annual savings.

Long-term Growth and Sustainability

The company's growth outlook leans on their key drivers—sustainable solutions, composites, healthcare—and emerging regions, which form 60% of sales. Expected infrastructure investments and governmental legislative support like the Inflation Reduction Act in the US and equivalent mandates in Europe hint at a favorable future landscape for the company's products and services.

Guidance for Investors

The company has lowered its full-year revenue projection to $3.13 billion with an adjusted EBITDA of $500 million, and adjusted EPS from $2.40 to $2.30. However, they uphold the free cash flow guidance of $180 million due to anticipated gains from working capital efficiency and have expressed confidence in achieving a 6% long-term revenue growth rate along with goals to expand margins from the current 16% to 20%.

Facing Market Headwinds

Despite pressures such as high interest rates and prolonged inventory destocking in healthcare predicted to last into 2024, the company is navigating these challenges with strategic measures and continues to project EBITDA and EPS increases of 5% and 12%, respectively, over the previous year.

Earnings Call Transcript 2023-Q3

[Operator]

Good morning, ladies and gentlemen, and welcome to Avient Corporation's webcast to discuss the company's third quarter 2023 results. My name is Victor, and I'll be your operator for today. [Operator Instructions]As a reminder, this conference is being recorded for replay purposes.I would now like to turn the call over to Joe Di Salvo, Vice President, Treasurer and Investor Relations. Please go ahead.

[Giuseppe Di Salvo, executive]

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 Avient 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.

[Robert Patterson, executive]

Well, 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. So 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 is 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 prepandemic 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 Engineered Materials when Jamie covers our results.We expect destocking in health care to continue into next year, but the good news is that ultimate demand for health care services remains positive and we continue to view it as one of our 4 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 in packaging, our largest end market, is nearing an end. A recent Wall Street Journal article highlighted that P&G expects to 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 of 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 Avient Protective Materials team while I was in Europe to celebrate the 1-year anniversary of our acquisition of Dyneema. Our composites portfolio makes up more than half of our Specialty Engineered 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 those into new areas. And there are natural cross-selling opportunities between the businesses. In Year 2 of integration, we'll 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, holistic 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 assists with the mission.The customer relationships and expertise that APM has in this space represents a great opportunity for the broader Avient 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 engineered 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 Dyneemo, 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 Avient and Dyneema applications, and the beauty of cross-selling is that it goes both ways. Consider that Avient has long had a strong representation in 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.

[Jamie Beggs, executive]

Thanks, Bob. The translation opportunities we have in composites as well as in the other key growth areas provide a great segue in how the changes in our portfolio will improve margins over time.Let's start with our third quarter, where continued margin expansion was the highlight. Third quarter adjusted EBITDA margins were 16.3%, compared to our guidance of 16%. This reflects a 90-basis point improvement over the prior year.As has been the case all year, we have been able to partially offset weaker demand conditions with favorable mix from Sustainable Solutions and defense applications, which has proven resilient in the current environment. Lower raw material prices, along with cost reduction initiatives, also factored into the margin improvement.Our adjusted EPS of $0.57 was slightly better than our guidance of $0.56. While sales came in lower than projected due to slower demand and the strengthening of the U.S. dollar, margin improvement partially offset these impacts.EBITDA was short of guidance, but EPS was higher, as EPS benefited from lower depreciation expense associated with restructuring actions as well as lower interest expense.We paid down $100 million of debt during the quarter and refinanced our term loans, which not only reduced the interest rate, but also extended its maturity from 2026 to 2029. The annualized impact of this refinancing will result in $10 million of interest expense savings.The third quarter EBITDA bridge reflects the impact of demand, price and mix as well as raw material costs on a year-over-year basis. Starting with demand, customers remained cautious and closely managed inventory levels within the quarter. As Bob mentioned previously, we have started to lap some of the weakness that started in 2022, particularly in Europe, and that is reflected in overall demand, which is down less than in the second quarter.Also highlighted on this bridge is the impact of pricing and deflation. This is the second consecutive quarter we've seen raw material deflation on a year-over-year basis, and we continue to hold on to price for a net benefit.You will note that SEM had unfavorable mix during the quarter, which is primarily driven by health care applications. As Bob mentioned, health care demand has been significantly impacted this year by destocking as our customers reduced their inventory levels, which increased following the pandemic and supply chain disruptions.We recently did an analysis of our health care OEMs who are public, and their inventory as a percentage of quarterly sales is running about 80% today, versus prepandemic, these levels were closer to 60%. Most of these customers have made explicit comments about managing down their inventory levels, and we expect that destocking to extend into 2024 before it's complete.Further down the walk, you'll see the impact of certain cost reduction activities taken earlier this year, including targeted European restructuring and reduced discretionary spend, which provided a $13 million benefit in the quarter.Net price benefit and cost reductions more than covered wage inflation.When we started the year, we modeled a modest recovery in demand in the second half of 2023. We are not seeing that and have updated our guidance to reflect lower sales and weaker foreign exchange, partially offset by higher margins. For the fourth quarter, we project adjusted EBITDA and EPS of $112 million and $0.47 per share, which reflects an increase of 5% and 12%, respectively, over the prior year. Margins are expected to improve 230 basis points, which more than offsets weaker demand, to provide earnings growth for the quarter and for the first time this year. As Bob highlighted, Europe is driving a significant portion of this improvement.This results in full year revenue of $3.13 billion and adjusted EBITDA of $500 million. 2023 adjusted EPS is now projected to be $2.30, compared to $2.40, as lower EBITDA is partially offset by lower interest and depreciation expense. The negative impact of a stronger U.S. dollar accounts for $0.03 of the change in adjusted EPS from our prior guidance.We are maintaining our free cash flow guidance of $180 million, as we expect a benefit from working capital efficiency and reduced capital expenditures to offset the change in EBITDA. Through our transformational journey to a specialty company, our ability to generate strong free cash flow has remained consistent. We are confident in our ability to continue managing through the near term and about our long-term growth prospects as outlined in our Sustainability Day a month ago.In October, we increased our dividend for the 13th consecutive year, viewing this as an important element of value for our shareholders.I'll now hand the call back over to Bob for some closing remarks.

[Robert Patterson, executive]

Thanks, Jamie. Well, the year isn't over, and we're obviously focused on delivering in the fourth quarter. But as we look ahead, I'm encouraged to see destocking come to a conclusion in many end markets. There remain some question marks related to health care and interest rate-sensitive industries. But overall, we expect to return to growth in 2024.And I'm very pleased to see the EBITDA expansion in Europe in the fourth quarter and see that as a positive heading into next year.And lastly, over the last few years we have done an exemplary job of managing price, initially to overcome significant raw material inflation, and now with lower raw material costs we see that as a potential tailwind heading into next year.Our performance in this regard reflects the specialty nature of our applications and the important steps we have taken over the years to upgrade our portfolio.We're obviously very positive about our growth potential, and in September, we hosted a virtual Sustainability Day to highlight the opportunities we see in this area. The objective was to provide detailed context around the mega trends supporting long-term demand for our portfolio and specific product examples of where we are helping our customers achieve their sustainability goals.As a reminder, our 4 key growth drivers now account for 60% of total company sales. They are Sustainable Solutions, Composites, health care and emerging regions. Combined, these growth drivers support a 6% long-term revenue growth rate. These projections are based on our historical performance as well as a deep understanding of the mega trends that support the long-term advancement of these areas. This includes customer sustainability goals and government mandates that rely on our material science know-how and formulation expertise to achieve them.At our Sustainability Day, we summarized our portfolio into 3 categories, reduce, renew and preserve, and each of our segment presidents talked about the real challenges our customers face as they incorporate more sustainable solutions as well as we showcased several product examples that highlight the performance characteristics of our formulations.We also provided data from independent sources that support the key mega trends that will drive demand for these applications. For example, we believe we are well positioned to take advantage of the infrastructure investments, such as the broadband equity access and deployment program that could take hold in 2024 and increase demand for our composite applications in fiber optic cable and related applications.And the same is true for the Inflation Reduction Act, which could translate into increased demand for our existing infrastructure as well as building new renewable energy sources.Other legislation mandates and customer pull are also in play in Europe, driving the increased need for material solutions of light-weighting, reduced carbon footprint and enabled recycling.If you didn't watch our Sustainability Day live, I encourage you to go back and do so with a replay. The feedback has been consistent, in that it helps investors gain a broader appreciation for the depth of our materials and the underlying external factors that will continue to create demand for them at a rate of 8% to 12%.We also reiterated our long-term objective to expand margins. We've come a long way from the 5.4% in 2006 to the 16% margins we have today. The growth in Sustainable Solutions, Composites, health care will play a meaningful role in further expanding our margins to 20% on a total company basis. And expanding margins to 20% is just one of the strategic objectives that we have as a company, which you can see here and that we shared during our Sustainability Day.With that, we'd be happy to now open the line for any questions.

[Operator]

[Operator Instructions] Our first question will come from the line of Mike Harrison, from Seaport Research Partners.

[Michael Harrison, analyst]

Wanted to see if you could provide some more detail on what you're seeing in the packaging end market. As you acknowledged, it's a very important market for you, particularly in Europe, and it's very encouraging to hear that you expect destocking to kind of run its course. But what are you seeing in terms of order pattern trends? What are you hearing from customers? And I'm curious, are there differences between what you're seeing in the food and beverage side and personal care and maybe some other parts of that packaging market?

[Robert Patterson, executive]

Look, I think, first of all, I mean, customers have all told us that they expect the balance of this year to be weak. We kind of have that reflected in our guidance. But we are hearing from them that there is less of a focus on just inventory reduction and maybe more of a focus on inventory management. So maybe not such a specifically stated goal to try to reduce inventory beyond where it's at, which I think is a good thing.I believe, directionally, they are planning for growth. I mean, obviously, if I just referred to someone like P&G, it's just one of many customers that we have. And that, Mike, could be in the areas of personal care as well as consumer, food and beverage packaging.I think all of those are actually going to start to show a positive trend. Those are historically very resistant. The food and beverage packaging, historically recession-resistant. And I think that will prove the case when we get into the beginning of 2024.

[Michael Harrison, analyst]

All right. And then just in terms of the health care destocking that you're seeing, obviously, a very unusual dynamic, and your analysis suggests that that's going to continue. Is this a consumables issue? Is it an equipment issue? Is it both? And I guess, just maybe give us a sense of what keeps you confident that health care should continue to be one of your strategic growth areas.

[Robert Patterson, executive]

I mean, look, for the most part, what we do can be viewed as probably part of the consumable or disposable space in terms of minimally invasive catheter tubing, drug delivery devices and related packaging. We do some medical equipment, but the prior descriptions of what we're doing really makes up most of what we're doing in health care.And I mean, look, I just think, overall, the system just had too much inventory of all those things on hand, largely in response to COVID and then of course the supply chain challenges that followed.I have had some conversations in the health care industry where, look, we're encouraged. We know that people are still actually seeking medical care. I think with employment numbers being strong, that's going to continue to be the case as long as people have access to insurance and so on. So I think the real demand is actually there. And the systems, hospitals themselves as well as OEMs, are just trying to work down their inventory.

[Operator]

Our next question will come from the line of Frank Mitsch, from Fermium Research.

[Frank Mitsch, analyst]

Appreciate the level of detail. I was wondering if I could drill down a little bit more into the sales miss for 3Q and the 10% down guide for 4Q. The last conference call, Bob, you indicated that you thought pricing would be flat in the back half of the year. And in fact, that's how it looked like the third quarter came in. So that 5% delta on the sales line, can you talk a little bit more about how much of that might have been volume versus FX? Because I know I think FX was also an issue there.And then on the 10% down, I assume you're still calling for flat pricing in the fourth quarter. So then how much of that is also kind of volume and FX in terms of a decline?

[Robert Patterson, executive]

Do you want to say something on the FX [indiscernible]?

[Jamie Beggs, executive]

On the FX for the quarter, it's about $5 million of the total, and I'll have to look at that for the fourth quarter. I think that was -- in total, it's $0.03 in total from an EPS perspective in the combined back half and it's $45 million in the fourth quarter for bringing down.

[Frank Mitsch, analyst]

Okay. Okay. All right. So more sizable in 4Q. And in terms of, again on this 10% down sales for 4Q, how is your visibility on orders for the quarter? I mean, what sort of expectations are baked in, in terms of, let's say, when Europe shuts down? Or any sort of color that you can provide on how you built up into that 10% down sales would be helpful.

[Robert Patterson, executive]

I mean, look, we -- I mean, first of all, this whole year visibility has been even shorter than normal. And we're not a backlog business, but typically we've got good visibility 30 to sort of 40 days out; let's call it 30. When I look at where October orders are for November, it's aligned with our expectations and the guidance that we just gave today, with some of what you just said, Frank, acknowledging that there will be some plant shutdowns at the end of this year, Europe and so on and holidays. That's really all included in the numbers that we provided today.

[Frank Mitsch, analyst]

Okay. And then in terms of the plant shutdowns, I know you were talking about your customers, which is what I was asking about. But in terms of your own plant shutdowns, there was a 3% sequential decline in PP&E. I assume that that's a result of plant restructuring in Europe. Where do you stand on those shutdowns?

[Robert Patterson, executive]

So those are really all related to the timing of previously announced facility closures that finally came to conclusion. And now you're seeing the benefit of less depreciation expense. We're really through that. There's one last facility that we continue to work on as part of the legacy Clariant and PolyOne combination that could come into next year.And then, I'm sorry, I wanted to come back to one of the very first things that you said about price. Because that assumption is correct, that we basically have got that assumed to be flat as we go through the end of this year. We did have some unfavorable mix that we highlighted for Engineered Materials. That will probably be the case for Q4 as well. The pricing should be about a push.

[Operator]

And our next question will come from the line of Michael Sison, from Wells Fargo.Michael, your line is open. Michael, if you could please disconnect and and try dialing in using the U.S. toll number or use the Call Me feature, that would be great.We'll go ahead and move on to our next question. One moment.Our next question will come from the line of Vincent Andrews, from Morgan Stanley.

[Vincent Andrews, analyst]

Raw materials have been a good-news story in the back half of this year, in particular, helping drive some nice margin improvement. Is it fair to say that raws will probably continue to be a benefit through the first half of next year and then probably flatten out? Maybe we could just start there.

[Robert Patterson, executive]

I mean, look, I think a lot of that all of course depends on ultimately what happens with demand. But if we're still in a relatively low demand type environment, then I would expect the level of benefit that we are seeing right now does continue into the first half of next year. And obviously, when you just look at the bridge schedule that Jamie presented, that's a pretty significant benefit and tailwind. So hopefully, that is the case. But I mean, obviously, with the -- we do expect growth in 2024, which could take that down a little bit.

[Vincent Andrews, analyst]

Okay. And just as we think -- it's obviously a little early to talk about the full year of '24. But as we think about 4Q, the way that it's going to come in, do you think that's the sort of starting point for '24, that 1Q maybe is just a bit better than 4Q? Or do you think 1Q could actually have a nicer step-up from the 4Q exit rate?

[Robert Patterson, executive]

I mean, look, typically, our first quarter and second quarter are the strongest of the years. Europe is typically the strongest in the first quarter, and I'm expecting a good first quarter. So you would see a step-up from Q4 to Q1 simply because of seasonality and demand patterns that we see there.As I said in my prepared remarks, I really am sort of pleased with what we're seeing in Europe right now. I don't know if anybody else is saying that or thinking that. But a lot of it has been because of what we can control. With the facility closures, with the cost reductions and doing what we're doing with price, margins are overcoming the lower sales. So I see that as a positive going into 2024.

[Operator]

And our next question will come from the line of Kristen Owen, from Oppenheimer.

[Kristen Owen, analyst]

Wanted to follow up on that last one and just sort of outline some of the puts and takes for the margin coming into 2024. I mean, I'm looking at the adjusted EBITDA margin bridge that you provided at Sustainability Day, here on Slide 19. Just thinking about the puts and takes for 2024, sort of those items within your control on the margin side.

[Robert Patterson, executive]

I mean, so one is -- I mean, you can kind of just do the math, right? And maybe as a follow-on to my previous response, I mean, if you just look at where we are on the EBITDA bridge in Q3 and assume flat raw materials going into next year, you should see some similar comparisons until you get to really the middle of next year, which I think is true. There's a little bit of cost action that has yet to -- that will come into '24 because those actions came into fruition this year, either partway through the year or later in the year. And then lastly, just one additional facility that we're looking at that was always part of the original Clariant-PolyOne sort of synergy plan. Those are things that I look at right now, I'd say, that's in our control.I'd also say, look, so is pricing. And I think we've done a really good job of that over the last few years. I view that as a strength. I think that's a great sign in our portfolio, and I think that's in our control for next year as well.

[Kristen Owen, analyst]

Fantastic. That was part of my follow-up question. So I'll ask a different one then. We spent a lot of time talking about Europe, but I recall you mentioning some potential green shoots out of Asia earlier in the year. I'm just wondering if you can provide an update on that region.

[Robert Patterson, executive]

I mean, look, I think at the beginning of this year everybody was really optimistic that when Asia sort of came out of the COVID protocol, specifically China, that we would see a return to growth. A little bit of that, we did see at the beginning of the year. We saw an uptick in requests for color design, color match and so on, which is usually a pretty good leading indicator that additional business is coming. But China has really kind of had some fits and starts this year and has largely not reached what we thought would happen. So I kind of view that as sort of flat or unchanged probably to where we were just a few months ago. So not much to report there at this point. I know there is some discussion around government stimulus. Ultimately, that could always take place. It would be, should be a positive, I would think, if that happens. But until it does, we'll see.

[Operator]

And our next question will come from the line of Laurence Alexander, from Jefferies.

[Laurence Alexander, analyst]

So I wanted to touch on kind of the longer-term growth targets you laid out at the Sustainability Day and that you've been talking about for several quarters. How has the destocking affected your confidence in that? Maybe another way to put it is, how much of the sales lost to destocking this year do you expect to get back in '24, '25, if and when demand trends normalize? Or do you just see kind of that longer-term target now being applied to a lower base?

[Robert Patterson, executive]

Look, ultimately, I see this playing out over a cycle where the growth rates that we presented inclusive of '23 will be achievable, going forward. In some of those cases, obviously, we're down in '23.Just to give you some perspective on that, Laurence, obviously, with our guidance, you can see what total sales are down, and third quarter is down 15%. So far this year, Sustainable Solutions have been down around 5% or 6%. It's kind of hard to get excited about a negative, but obviously holding up well. So I do think that that helps to support the long-term growth rate, that it's really not down so much in '23.Look, in terms of how destocking comes to an end and what that means for demand really has yet to be seen and play out yet. And I really can't put any specific numbers to 2024 yet on how I think that plays out. But look, I'm optimistic and positive about composites and about Sustainable Solutions returning to growth next year.

[Operator]

And our next question will come from the line of Vincent Anderson, from Stifel.

[Vincent Anderson, analyst]

So not to belabor the price versus raw material conversation too much more, but as I'm working through expectations on a mix that now includes significantly more pigment than historically, I'm kind of curious if you're able to optimize your Color offerings around maybe a lower-cost pigment mix in a way where intrinsic physical properties on a resin input wouldn't allow that kind of flexibility on your part.

[Robert Patterson, executive]

Not sure I completely got that question, but...

[Vincent Anderson, analyst]

Make red cheaper.

[Robert Patterson, executive]

...what I would say -- look, what I would say is that -- I mean, first and foremost, I would say our customers are very much focused on -- and we're just talking about the Color space. So they're very much focused on Sustainable Solutions, being able to use more recycled content and making things more easily recyclable. That's certainly the brand owner focus.But they also focus on costs. So to the extent that they want to look at alternate materials that could result in some cost savings, I mean, we've always been agnostic, candidly, with the underlying base resin they want to use or the formulation. It's really just ultimately up to them with respect to what formula works for them to achieve the performance characteristics they're looking for. I don't really see that as a meaningful headwind at all really to price. I think that's still fine as long as we're delivering what they need us to, specifically, again, around those 2 areas of sustainability.

[Vincent Anderson, analyst]

Okay. All right. Helpful. And then this one will be a little bit simpler. When I think about your cross-selling opportunities in Dyneema, would you expect to focus really around expanding sales where you've already commercialized Dyneema into a specific application? Or would these be potentially more novel? And if so, just kind of curious what kind of prototyping capabilities you have or would consider investing in to drive adoption in a new application?

[Robert Patterson, executive]

I mean, look, fortunately, I do think there's a lot of opportunity there. And maybe specifically, if you're just looking at pulling Dyneema into more consumer space. It really starts with customer introduction and increasing awareness of the material and its capabilities. We have a great design team at Avient that just really looks at how to use different materials for customer needs. And so that is getting increasingly, I have to say, more incorporated into that analysis.And then from this idea of a prototyping, a lot of times our customers have that capability and like to do that just to see how materials perform themselves. So oftentimes, I'd say that's a partnership with our customers.But it really starts with awareness in terms of what the material can do and how it can benefit them, particularly as it relates to increasing strength or reducing weight.

[Operator]

And our last question will come from the line of Mike Sison, from Wells Fargo.

[Michael Sison, analyst]

Bob, did you -- I apologize if I missed this, but what was volume down in the third and implied volume for the fourth?

[Robert Patterson, executive]

So it's down about 15% in Q3. Implied is about 10% in Q4. Really, that's sales reduction and it's principally demand. There's a little bit of an FX [indiscernible], I think, there that gets you to about [indiscernible].

[Michael Sison, analyst]

Got it. And then for the fourth quarter, if I take your EBITDA outlook and annualize it, you're running fairly below 2023 levels, but it did seem like you felt you could grow EBITDA in '24. How do we think about improving on that run rate as we head into the first half of the year? And then is there anything else that you have to generate growth into '24?

[Robert Patterson, executive]

I mean, so when I look at the fourth quarter, it's obviously the first quarter this year where we are showing year-over-year EBITDA growth. I just really can't emphasize enough again, Mike, sort of how I'm feeling positive about Europe and what we've been able to do with margins there. And so I see that probably as the first thing just going into next year as a positive. And so we've got good momentum in that in that regard.I might be redundant here, but raw materials staying where they're at is also a positive going into the first part of next year.And then there's a little bit probably on the cost side, really if it just comes down to what we can control.But anecdotally, customers are giving us feedback. They do think that destocking is coming to an end. And I think that bodes well for the sales side picking up in the first quarter.

[Michael Sison, analyst]

Right. Okay. And then do you have sort of a deflation that sort of helps you in the first half of the year that just sort of flows through?

[Robert Patterson, executive]

I mean, that's what I'm saying. Like, raw materials sort of stay flat where they are, and we're just looking at year-over-year comps. I mean, you could take the EBITDA bridge that we had for the quarter and kind of look at that and know that second quarter was the first time we really had any deflation this year. Third quarter is obviously a bigger number. So you can kind of model out how that will flow into the first half of next year.We appreciate everybody's time and attention this morning, and we'll look forward to updating all of you with our year-end results when we get there. We'll be at a few conferences here this fall. So maybe get the chance to see some of you in person at that time. Thank you.

[Operator]

This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.