Ashland Inc. (NYSE: ASH) today announced financial results1 for the
first quarter of fiscal year 2023, which ended December 31, 2022.
The global additives and specialty ingredients company holds
leadership positions in high-quality, consumer-focused markets
including pharmaceuticals, personal care and architectural
coatings.
Sales were $525 million, up three percent versus
the prior-year quarter. Sales on a constant-currency basis
increased by seven percent. Sales growth was driven primarily by
disciplined pricing across all segments leading to cost recovery
and strong demand for pharmaceutical ingredients within the Life
Sciences segment. Sales growth was partially offset by the impact
of COVID-19 policies which impacted demand in China and significant
inventory destocking within the distribution channel particularly
in China and Europe. These global dynamics primarily impacted the
company’s Personal Care and Specialty Additives segments.
Net income was $40 million, down from $48
million in the prior-year quarter. Income from continuing
operations was $42 million, up from $32 million in the prior-year
quarter, or $0.76 per diluted share, up from $0.55 in the
prior-year quarter. Adjusted income from continuing operations
excluding intangibles amortization expense was $54 million, up from
$51 million in the prior-year quarter, or $0.97 per diluted share,
up from $0.88 in the prior-year quarter. Adjusted EBITDA was $108
million, up two percent from $106 million in the prior-year
quarter. Unfavorable foreign currency and planned maintenance
turnarounds at company facilities negatively impacted adjusted
EBITDA by $14 million and $12 million, respectively, or 25 percent
on a combined basis.
Cash flows used by operating activities totaled
$29 million, compared to cash flows provided by operating
activities of $14 million in the prior-year quarter. Ongoing free
cash flow2 totaled negative $21 million compared to $26 million in
the prior-year quarter. Higher inventory levels resulted in
increased working capital which was the primary driver for the
reduction in ongoing free cash flows.
“Results in the December quarter were consistent
with earnings update we issued last week on January 25,” said
Guillermo Novo, chair and chief executive officer, Ashland. “We are
operating in a dynamic and uncertain world, and results in the
December quarter are evidence of these facts. The pricing
discipline across segments and strong demand for pharmaceutical
ingredients was partially offset by rapid inventory destocking from
distributors in Europe and impacted demand due to COVID-19 policies
in China. Despite these headwinds, we expect demand trends to
stabilize, and we are taking actions to offset incremental costs
incurred during the quarter. Although demand in the first quarter
was below our expectations, our financial outlook for the fiscal
year is still within our original guidance ranges and we expect to
have greater visibility in March as we gain more clarity on the
impact of China’s re-opening.”
Reportable Segment
PerformanceTo aid in the understanding of Ashland’s
ongoing business performance, the results of the company’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 $207
million, up 22 percent from the prior-year quarter, driven by
double-digit sales growth to pharmaceutical customers reflecting
strong demand and cost recovery. Sales growth was partially offset
by unfavorable foreign currency which negatively impacted sales by
$9 million, or five percent.
Adjusted operating income was $35 million, up
from $21 million in the prior-year quarter. Adjusted EBITDA was $52
million, up from $36 million in the prior-year quarter, primarily
reflecting disciplined pricing leading to cost recovery, strong
pharma demand and favorable product mix. Unfavorable foreign
currency negatively impacted adjusted EBITDA by $7 million, or 19
percent.
Personal CareSales were $138
million, down six percent from the prior-year quarter. Disciplined
pricing across end markets was more than offset by reductions of
sales into China primarily due to COVID-19 policies and significant
inventory destocking within the distribution channel, particularly
in China and Europe. Sales were also impacted by unfavorable
foreign currency which negatively impacted sales by $7 million, or
five percent.
Adjusted operating income was $11 million, down
from $15 million in the prior-year quarter. Adjusted EBITDA was $32
million, down from $36 million in the prior-year quarter, primarily
reflecting the demand dynamics listed above and the impact of
planned maintenance turnarounds. Unfavorable foreign currency
negatively impacted adjusted EBITDA by $3 million, or eight
percent.
Specialty AdditivesSales were
$143 million, down eight percent from the prior-year quarter, as
continued inflation recovery was more than offset by the impact of
COVID-19 policies in China and rapid inventory destocking in China
and Europe in December. Sales growth was also impacted by
unfavorable foreign currency which negatively impacted sales by $7
million, or four percent.
Adjusted operating income was $5 million,
compared to $17 million in the prior-year quarter. Adjusted EBITDA
was $23 million, compared to $38 million in the prior-year quarter.
Compared to the prior-year quarter, plant turnaround costs were $7
million greater, of which $2 million related to unplanned shutdown
expenses, primarily at the facility in Nanjing, China following an
outbreak of COVID-19. Lower demand resulting from the macro
dynamics in Europe and China also had a negative impact on Adjusted
EBITDA. Unfavorable foreign currency negatively impacted adjusted
EBITDA by $1 million, or three percent.
IntermediatesSales were $54
million, up two percent from the prior-year quarter, driven by
higher merchant-market pricing for high-value derivatives. Captive
internal butanediol (BDO) sales were $17 million, a 21 percent
increase compared to the prior-year quarter, driven by improved
pricing and higher volumes. Captive internal BDO sales are
recognized at market-based pricing.
Adjusted operating income was $20 million,
compared to $16 million in the prior-year quarter. Adjusted EBITDA
was $23 million, compared to $19 million in the prior-year quarter.
Unfavorable foreign currency negatively impacted adjusted EBITDA by
$1 million, or five percent.
Unallocated &
OtherUnallocated and Other expense was an operating loss
of $29 million, compared to $27 million in the prior-year quarter.
Adjusted Unallocated and Other expense was an operating loss of $21
million, compared to $23 million in the prior-year quarter.
Financial OutlookBased on
current expectations and considering external uncertainties,
Ashland continues to expect sales in the range of $2.5 billion to
$2.7 billion for fiscal year 2023, consistent with prior
expectations. In addition, the company continues to expect Adjusted
EBITDA to be within the prior outlook range of $600 million to $650
million, with the current forecast models indicating earnings below
the mid-point of that range. Although external uncertainties remain
high, the company expects improved market-trend visibility by the
end of the fiscal-second quarter. By this time, the company expects
to have more clarity on any additional inventory destocking
dynamics, conditions in Europe and the China re-opening.
December winter storm in the
U.S.During December, the winter storm that impacted much
of the United States also caused an extended, unplanned shutdown at
the company’s facility in Calvert City, Kentucky, along with lesser
impacts at several other facilities. Although the extended shutdown
did not meaningfully impact sales or margins during the
fiscal-first quarter, it will result in incremental repair,
maintenance and other manufacturing costs. Ashland expects to
realize approximately $15 million of these incremental costs
related to the event during the company’s fiscal-second quarter.
The company plans to offset a meaningful portion of these
incremental costs during the third and fourth fiscal quarters as it
reassesses the need for other scheduled maintenance shutdowns.
Planned Share
RepurchaseBeginning in February, Ashland plans to initiate
a new Rule 10b5-1 trading plan agreement to repurchase up to $100
million of its outstanding shares under its existing $500 million
evergreen share repurchase authorization. Following completion of
the new 10b5-1 program, Ashland expects to have $400 million
remaining under the existing evergreen authorization.
“Ashland is executing its plans and priorities,
focusing on high-quality resilient markets, strong price and mix
management, disciplined operations, accelerating our innovation
initiatives and investing in our future,” said Guillermo Novo,
chair and chief executive officer, Ashland. “The December quarter
results reflect this continued discipline and the reality of
rapidly evolving dynamics in an uncertain global marketplace.
Operating discipline and agility remain critical success drivers in
these uncertain times, especially around pricing and mix
management. During the quarter, we experienced several
external headwinds impacting our results. COVID-19 had a
significant impact on our demand, employees, and operations in
China. We are grateful that our team in China has recovered and
remains resilient. Strength in pharmaceutical ingredient sales was
offset by weaker end-market demand in other businesses. Inventory
management actions by distributors and some customers impacted our
demand. As a result, our sales for the quarter in these markets
were below our expectations.”
“This is a time for caution. Despite the
challenging environment and the unplanned winter storm impact in
the U.S., we remain confident about the future,” continued Novo.
“Our customers remain resilient. The pricing and mix-improvement
actions we have taken position us well to cover current cost
inflation as we continue to invest in our future. While the results
this quarter did not meet our expectations, we are confident in the
path forward. I look forward to discussing our fiscal-first quarter
financial results and outlook during our earnings call and webcast
tomorrow morning,” concluded Novo.
Conference Call WebcastAshland
will host a live webcast of its first-quarter conference call with
securities analysts at 9:00 a.m. ET on Wednesday, February 1, 2023.
The webcast will be accessible through Ashland’s website at
http://investor.ashland.com and will include a slide
presentation.
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 has certain limitations, including that
it does not reflect adjustment 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.
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
environment, 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 3,900 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
U.S. Securities and Exchange Commission (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 condition, and expected effects of
the COVID-19 pandemic on Ashland’s business, as well as the economy
and other future events or circumstances. These statements include
but may not be limited to Ashland’s expectations regarding its
ability to drive sales and earnings growth and realize further cost
reductions.
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 (including the current COVID-19 pandemic),
cyber events and legal proceedings and claims (including product
recalls, environmental and asbestos matters); the effects of the
COVID-19 pandemic, and the ongoing Ukraine-Russia conflict, 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. The extent and duration
of the COVID-19 pandemic on our business and operations is
uncertain. Factors that will influence the impact on our business
and operations include the duration and extent of the pandemic, the
extent of imposed or recommended containment and mitigation
measures, and the general economic consequences of the pandemic.
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. 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: |
Seth A. Mrozek |
Carolmarie C. Brown |
+1 (302) 594-5010 |
+1 (302) 995-3158 |
samrozek@ashland.com |
ccbrown@ashland.com |
- Q1 2023 Earnings Release With Financial Tables - vFINAL
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