Ashland Inc. (NYSE: ASH) today announced financial results1 for the
second quarter of fiscal year 2024, which ended March 31, 2024, and
issued its outlook for third quarter and full-year fiscal 2024. The
global additives and specialty ingredients company holds leadership
positions in high-quality, consumer-focused markets including
pharmaceuticals, personal care and architectural coatings.
Sales in the second quarter were $575 million,
down five percent versus the prior-year quarter. Results during the
quarter reflect market-demand dynamics and underlying business
performance that were generally consistent with previously
communicated expectations. Consolidated year-over-year quarterly
volumes modestly increased for the first time since June 2022 as
demand continues to normalize within the Personal Care and
Specialty Additives segments, partially offset by unfavorable Life
Sciences volumes. Overall pricing was softer in a moderately
deflationary raw material environment, mainly within the
Intermediates and Specialty Additives segments. Foreign currency
unfavorably impacted sales by $1 million.
Net income was $120 million, up from $91 million
in the prior-year quarter. Income from continuing operations was
$121 million, up from $92 million in the prior-year quarter, or
income of $2.40 per diluted share, up from $1.68. Adjusted income
from continuing operations excluding intangibles amortization
expense was $64 million, down from $78 million in the prior-year
quarter, or $1.27 per diluted share, down from $1.43. Adjusted
EBITDA was $126 million, down 13 percent from $145 million in the
prior-year quarter, driven by unfavorable Intermediates pricing and
higher selling, administrative, research and development (SARD)
expenses, primarily related to the reset of variable compensation,
partially offset with favorable production costs and product mix.
Favorable production costs were a result of generally lower spend,
partially offset with lower absorption.
Average diluted shares outstanding totaled 51
million in the second quarter, down from 55 million in the
prior-year quarter, following the company’s share repurchase
activities over the past 12 months. Ashland has $900 million
remaining under the existing evergreen share repurchase
authorization.
Cash flows provided by operating activities
totaled $54 million, down from $56 million in the prior-year
quarter. The second quarter of fiscal year 2024 cash flows provided
by operating activities includes the favorable impact of the
Accounts Receivable Sales Programs. Ongoing free cash flow2, which
is not impacted by the Accounts Receivable Sales Programs, totaled
$4 million compared to $37 million in the prior-year quarter.
“Financial results in the March quarter yielded
adjusted EBITDA which exceeds the outlook range we issued on
January 30, 2024, with revenue at the mid-point,” said Guillermo
Novo, chair and chief executive officer, Ashland. “The improving
sales trends experienced in December and January sustained for the
second quarter as our volumes continue to converge with customer
end market demand. While still early from a trending perspective,
the breadth of our ongoing recovery as well as constructive
economic and industry data, reinforces our belief that a demand
normalization is underway within the Personal Care and Specialty
Additives segments.”
“Pricing was down as we compare against our
inflation recovery actions last year while the Ashland team works
to strike an appropriate balance of moderating costs and increased
competitive activity,” continued Novo. “Ashland prudently managed
production and inventory levels throughout the quarter as we
monitored volume trends and seasonal demand pick-up, which
ultimately came in as expected. Our portfolio optimization
activities remain on track, which we anticipate will enable a
stronger and more resilient foundation to efficiently support
greater volumes going forward,” concluded Novo.
Reportable Segment
PerformanceTo aid in the understanding of Ashland’s
ongoing business performance, the results of Ashland’s reportable
segments are described below on an adjusted basis. In addition,
EBITDA and adjusted EBITDA are reconciled to operating income in
Table 4. Free cash flow, ongoing free cash flow and adjusted
operating income are reconciled in Table 6 and adjusted income from
continuing operations, adjusted diluted earnings per share and
adjusted diluted earnings per share excluding intangible
amortization expense are reconciled in Table 7 of this news
release. These adjusted results are considered non-GAAP financial
measures. For a full description of the non-GAAP financial
measures used, see the “Use of Non-GAAP Measures” section that
further describes these adjustments below.
Life SciencesSales were $222
million, down eight percent from the prior-year quarter. Sustained
cellulosics pharmaceutical demand was more than offset by the
normalization of competitive dynamics in polyvinylpyrrolidone (PVP)
when compared to a strong prior-year period. Volumes to the
nutrition end market demonstrated moderate sequential improvement
but was weaker than the prior-year. Sales of nutraceuticals
products continue to demonstrate a strong recovery compared to the
prior-year period. Foreign currency had a negligible impact on
sales when compared to the prior-year quarter.
Adjusted operating income was $50 million
compared to $58 million in the prior-year quarter. Adjusted EBITDA
was $66 million compared to $75 million in the prior-year quarter,
primarily reflecting lower PVP sales volume, unfavorable product
mix and higher SARD expenses. Foreign currency had a negligible
impact on Adjusted EBITDA when compared to the prior-year
quarter.
Personal CareSales were $169
million, up one percent from the prior-year quarter. Higher volume
in skin care, oral care and hair care was partially offset by lower
volume in Avoca and lower pricing. Foreign currency unfavorably
impacted sales by $1 million or one percent.
Adjusted operating income was $25 million
compared to $14 million in the prior-year quarter. Adjusted EBITDA
was $45 million compared to $35 million in the prior-year quarter,
primarily reflecting the impact of higher sales volumes, favorable
product mix and production costs, partially offset with variable
compensation reset. Favorable production costs were a result of
lower spend and higher absorption. Foreign currency had a
negligible impact on Adjusted EBITDA when compared to the
prior-year quarter.
Specialty AdditivesSales were
$157 million, down two percent from the prior-year quarter,
primarily reflecting higher volumes in coatings and performance
specialties, more than offset by lower pricing, primarily in Asia
Pacific, and lower energy end market volumes. Foreign currency had
a negligible impact on sales when compared to the prior-year
quarter.
Adjusted operating income was $10 million
compared to $15 million in the prior-year quarter. Adjusted EBITDA
was $27 million compared to $34 million in the prior-year quarter,
primarily reflecting the impact of unfavorable production costs,
variable compensation reset and lower pricing in Asia Pacific
partially offset by deflationary raw materials. Unfavorable
production costs were a result of lower absorption only partially
offset by lower spend. Foreign currency had a negligible
impact on Adjusted EBITDA when compared to the prior-year
quarter.
IntermediatesSales were $40
million, down 22 percent from the prior-year quarter, driven
primarily by lower pricing partially offset with higher merchant
volumes. Captive internal butanediol (BDO) sales are recognized at
market-based pricing which was down compared to the prior-year
quarter. Foreign currency had a negligible impact on sales when
compared to the prior-year quarter.
Adjusted operating income was $9 million
compared to $17 million in the prior-year quarter. Adjusted EBITDA
was $12 million compared to $20 million in the prior-year quarter,
primarily reflecting the impact of lower pricing, partially offset
with favorable product mix and production costs as well as lower
raw material costs. Favorable production costs were a result of
lower spend, partially offset with lower absorption. Foreign
currency had a negligible impact on Adjusted EBITDA when compared
to the prior-year quarter.
Unallocated &
OtherUnallocated and other expense was $45 million
compared to $21 million in the prior-year quarter, primarily
reflecting restructuring and separation costs associated with
Ashland’s portfolio optimization strategy. Adjusted unallocated and
other expense EBITDA was $24 million compared to $19 million in the
prior-year quarter, primarily reflecting variable compensation
reset.
Financial OutlookOverall end
market demand growth is expected to be flat-to-low single digits
this year with Ashland’s full-year results driven primarily through
a convergence of our sales volume and customer end market demand
with a commensurate increase in production at our manufacturing
plants. Versus the prior year, Ashland expects higher full-year
volume and mix to approximately offset the revenue impact of
portfolio optimization actions and softer pricing.
As part of its portfolio optimization
initiative, Ashland recently announced the closure of one of its
production units at its plant in Doel, Belgium. As a result,
Ashland will be reducing its volume exposure to several lower
value, more cyclical industrial segments, including the
construction end market. Ashland will continue to operate its
remaining methylcellulose (MC) production unit to grow in higher
value segments. Ashland continues to advance its work to improve
the productivity of its hydroxyethylcellulose (HEC) business.
Ashland expects a sequential improvement in
margins during the second half of the fiscal year, primarily
reflecting a forecasted increase in sales and production volumes as
well as portfolio optimization mix benefits. Year-over-year
second-half margin improvement is expected to be significant when
compared against inventory corrective actions taken in fiscal year
2023.
Overall, for the fiscal-third quarter the
company expects sales in the range of $560 million to $580 million
and adjusted EBITDA in the range of $138 million to $148 million.
For the full fiscal year, Ashland now expects sales in the range of
$2.150 billion to $2.225 billion and adjusted EBITDA in the range
of $470 million to $500 million.
“We are encouraged by our second quarter results
which increases our confidence in achieving the full-year outlook,”
said Novo. “Buoyed by stable consumer demand, lower inventories in
the value chain and our own order patterns, we believe that we are
continuing the early stages of demand normalization. End market
growth is generally forecasted to be resilient but modest. However,
we recognize there is still uncertainty regarding the pace of a
complete normalization. We are positioned to increase production
following disciplined inventory management in our first and second
quarter and expect to deliver profit momentum in our second half. I
look forward to discussing our fiscal second quarter financial
results and outlook as well as an update on our strategic
priorities during our earnings call and webcast tomorrow morning,”
finished Novo.
Conference Call WebcastThe
company’s live webcast with securities analysts will include an
executive summary and detailed remarks. The live webcast will take
place at 9 a.m. ET on Wednesday, May 1, 2024. Simultaneously, the
company will post a slide presentation in the Investor Relations
section of its website at http://investor.ashland.com.
To access the call by phone, please go to this
registration link and you will be provided with dial in details. To
avoid delays, we encourage participants to dial into the conference
call fifteen minutes ahead of the scheduled start time.
Following the live event, an archived version of
the webcast and supporting materials will be available for 12
months on http://investor.ashland.com.
Use of Non-GAAP MeasuresAshland
believes that by removing the impact of depreciation and
amortization and excluding certain non-cash charges, amounts spent
on interest and taxes and certain other charges that are highly
variable from year to year, EBITDA, adjusted EBITDA, EBITDA margin
and adjusted EBITDA margin provide Ashland’s investors with
performance measures that reflect the impact to operations from
trends in changes in sales, margin and operating expenses,
providing a perspective not immediately apparent from net income,
operating income, net income margin and operating income margin.
The adjustments Ashland makes to derive the non-GAAP measures of
EBITDA, adjusted EBITDA, EBITDA margin and adjusted EBITDA margin
exclude items which may cause short-term fluctuations in net income
and operating income and which Ashland does not consider to be the
fundamental attributes or primary drivers of its business. EBITDA,
adjusted EBITDA, EBITDA margin and adjusted EBITDA margin provide
disclosure on the same basis as that used by Ashland’s management
to evaluate financial performance on a consolidated and reportable
segment basis and provide consistency in our financial reporting,
facilitate internal and external comparisons of Ashland’s
historical operating performance and its business units, and
provide continuity to investors for comparability purposes. EBITDA
margin and adjusted EBITDA margin are defined as EBITDA and
adjusted EBITDA divided by sales for the corresponding period.
Key items, which are set forth on Table 7 of
this release, are defined as financial effects from significant
transactions that, either by their nature or amount, have caused
short-term fluctuations in net income and/or operating income which
Ashland does not consider to reflect Ashland’s underlying business
performance and trends most accurately. Further, Ashland believes
that providing supplemental information that excludes the financial
effects of these items in the financial results will enhance the
investor’s ability to compare financial performance between
reporting periods.
Tax-specific key items, which are set forth on
Table 7 of this release, are defined as financial transactions, tax
law changes or other matters that fall within the definition of key
items as described above. These items relate solely to tax matters
and would only be recorded within the income tax caption of the
Statement of Consolidated Income. As with all key items, due to
their nature, Ashland does not consider the financial effects of
these tax-specific key items on net income to be the most accurate
reflection of Ashland’s underlying business performance and
trends.
The free cash flow metrics enable Ashland to
provide a better indication of the ongoing cash being generated
that is ultimately available for both debt and equity holders as
well as other investment opportunities. Unlike cash flow provided
by operating activities, free cash flow and ongoing free cash flow
include the impact of capital expenditures from continuing
operations and other significant items impacting free cash flow,
providing a more complete picture of current and future cash
generation. Free cash flow, ongoing free cash flow, and free cash
flow conversion are non-GAAP liquidity measures that Ashland
believes provide useful information to management and investors
about Ashland’s ability to convert Adjusted EBITDA to ongoing free
cash flow. These liquidity measures are used regularly by Ashland’s
stakeholders and industry peers to measure the efficiency at
providing cash from regular business activity. Free cash flow,
ongoing free cash flow, and free cash flow conversion have certain
limitations, including that they do not reflect adjustments for
certain non-discretionary cash flows such as mandatory debt
repayments. The amount of mandatory versus discretionary
expenditures can vary significantly between periods.
Adjusted diluted earnings per share is a
performance measure used by Ashland and is defined by Ashland as
earnings (loss) from continuing operations, adjusted for identified
key items and divided by the number of outstanding diluted shares
of common stock. Ashland believes this measure provides investors
additional insights into operational performance by providing
earnings and diluted earnings per share metrics that exclude the
effect of the identified key items and tax specific key items.
The adjusted diluted earnings per share,
excluding intangibles amortization expense metric enables Ashland
to demonstrate the impact of non-cash intangibles amortization
expense on earnings per share, in addition to key items previously
mentioned. Ashland’s management believes this presentation is
helpful to illustrate how previous acquisitions impact applicable
period results.
About Ashland
Ashland Inc. (NYSE: ASH) is a global additives and specialty
ingredients company with a conscious and proactive mindset for
environmental, social and governance (ESG). The company serves
customers in a wide range of consumer and industrial markets,
including architectural coatings, construction, energy, food and
beverage, nutraceuticals, personal care and pharmaceutical.
Approximately 3,800 passionate, tenacious solvers – from renowned
scientists and research chemists to talented engineers and plant
operators – thrive on developing practical, innovative and elegant
solutions to complex problems for customers in more than 100
countries. Visit ashland.com and ashland.com/ESG to
learn more.
Forward-Looking Statements This
news release contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended and
Section 21E of the Securities Exchange Act of 1934, as amended.
Ashland has identified some of these forward-looking statements
with words such as “anticipates,” “believes,” “expects,”
“estimates,” “is likely,” “predicts,” “projects,” “forecasts,”
“objectives,” “may,” “will,” “should,” “plans” and “intends” and
the negative of these words or other comparable terminology.
Ashland may from time to time make forward-looking statements in
its annual reports, quarterly reports and other filings with the
SEC, news releases and other written and oral communications. These
forward-looking statements are based on Ashland’s expectations and
assumptions, as of the date such statements are made, regarding
Ashland’s future operating performance, financial, operating cash
flow and liquidity, as well as the economy and other future events
or circumstances. These statements include but may not be limited
to Ashland’s expectations with respect to its ability to drive
sales and earnings growth and manage costs.
Ashland’s expectations and assumptions include,
without limitation, internal forecasts and analyses of current and
future market conditions and trends, management plans and
strategies, operating efficiencies and economic conditions (such as
prices, supply and demand, cost of raw materials, and the ability
to recover raw-material cost increases through price increases),
and risks and uncertainties associated with the following: the
impact of acquisitions and/or divestitures Ashland has made or may
make (including the possibility that Ashland may not realize the
anticipated benefits from such transactions); Ashland’s substantial
indebtedness (including the possibility that such indebtedness and
related restrictive covenants may adversely affect Ashland’s future
cash flows, results of operations, financial condition and its
ability to repay debt); severe weather, natural disasters, public
health crises, cyber events and legal proceedings and claims
(including product recalls, environmental and asbestos matters);
the effects of the ongoing Ukraine/Russia and Israel/Hamas
conflicts on the geographies in which we operate, the end markets
we serve and on our supply chain and customers, and without
limitation, risks and uncertainties affecting Ashland that are
described in Ashland’s most recent Form 10-K (including Item 1A
Risk Factors) filed with the SEC, which is available on Ashland’s
website at http://investor.ashland.com or on the SEC’s website at
http://www.sec.gov. Various risks and uncertainties may cause
actual results to differ materially from those stated, projected or
implied by any forward-looking statements. Ashland believes its
expectations and assumptions are reasonable, but there can be no
assurance that the expectations reflected herein will be achieved.
Unless legally required, Ashland undertakes no obligation to update
any forward-looking statements made in this news release whether as
a result of new information, future events or otherwise.
1Financial results are preliminary until
Ashland’s Form 10-Q is filed with the U.S. Securities and Exchange
Commission.
2The ongoing free cash flow metric excludes the
impact of inflows and outflows from U.S. and Foreign Accounts
Receivable Sales Program and payments related to restructuring and
environmental and litigation-related matters in both the
current-year and prior-year periods.
™ Trademark, Ashland or its subsidiaries,
registered in various countries.
FOR FURTHER INFORMATION:
Investor Relations: |
Media Relations: |
William C. Whitaker |
Carolmarie C. Brown |
+1 (614) 790-2095 |
+1 (302) 995-3158 |
wcwhitaker@ashland.com |
ccbrown@ashland.com |
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