Ashland Inc. (NYSE: ASH) today announced financial results1 for the
second quarter of fiscal year 2023, which ended March 31, 2023. 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 $603 million consistent with the
prior-year quarter. Sales on a constant-currency basis increased by
two percent. Sales results were driven primarily by disciplined
pricing leading to cost recovery and strong demand for
pharmaceutical ingredients within the Life Sciences segment.
Continued inflation-recovery actions and demand for pharmaceutical
ingredients within Life Sciences were offset by continued customer
inventory de-stocking and sluggish overall demand in Personal Care
and Specialty Additives.
Net income was $91 million, down from $786
million in the prior-year quarter which included the Adhesives
business which the company sold last year. Income from continuing
operations was $92 million, up from $38 million in the prior-year
quarter, or $1.68 per diluted share, up from $0.66 in the
prior-year quarter. Adjusted income from continuing operations
excluding intangibles amortization expense was $78 million, down
from $86 million in the prior-year quarter, or $1.43 per diluted
share, down from $1.50 in the prior-year quarter. Adjusted EBITDA
was $145 million, down 11 percent from $163 million in the
prior-year quarter. Expected incremental costs primarily at the
company’s Calvert City, KY facility following the December 2022
winter storm and unfavorable foreign currency negatively impacted
adjusted EBITDA by $13 million and $8 million, respectively, or 13
percent on a combined basis.
Cash flows provided by operating activities
totaled $56 million, up from $16 million in the prior-year quarter.
Ongoing free cash flow2 totaled $37 million compared to negative $5
million in the prior-year quarter.
“Ashland’s financial results in the March
quarter were consistent with our original expectations,” said
Guillermo Novo, chair and chief executive officer, Ashland. “Our
inflation-recovery actions taken last year and early this year
continue to benefit overall results. However, we continue to
operate in a challenging global environment with ongoing
macroeconomic uncertainty and diminished demand visibility. The
re-opening of China is progressing though at a slower pace than
expected. And while the customer de-stocking dynamics we saw during
the December quarter have slowed, they are still present in certain
end markets and continued through the March quarter into
April.”
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 $240
million, up 18 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
$5 million, or two percent.
Adjusted operating income was $58 million, up
from $43 million in the prior-year quarter. Adjusted EBITDA was $75
million, up from $58 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 $4 million, or
seven percent. In addition, the impact from the December 2022
winter storm negatively impacted adjusted EBITDA by $5 million.
Personal CareSales were $167
million, down three percent from the prior-year quarter.
Disciplined pricing across end markets was offset by continued
inventory destocking. Sales were also impacted by unfavorable
foreign currency which negatively impacted sales by $4 million, or
two percent.
Adjusted operating income was $14 million, down
from $28 million in the prior-year quarter. Adjusted EBITDA was $35
million, down from $49 million in the prior-year quarter, primarily
reflecting the demand dynamics listed above and the impact of $6
million of absorption and maintenance costs related to the winter
storm in December 2022. Unfavorable foreign currency negatively
impacted adjusted EBITDA by $2 million, or four percent.
Specialty AdditivesSales were
$161 million, down 12 percent from the prior-year quarter, as
continued inflation recovery was more than offset by the impact of
inventory de-stocking particularly by distributors and smaller
customers. Sales were also impacted by unfavorable foreign currency
which negatively impacted sales by $4 million, or two percent.
Adjusted operating income was $15 million,
compared to $26 million in the prior-year quarter. Adjusted EBITDA
was $34 million, compared to $48 million in the prior-year quarter,
primarily reflecting the demand dynamics listed above along with
higher energy costs. Unfavorable foreign currency negatively
impacted adjusted EBITDA by $1 million, or two percent.
IntermediatesSales were $51
million, down twenty-three percent from the prior-year quarter,
driven by lower volumes of merchant derivatives. Captive internal
butanediol (BDO) sales were $16 million, a 20 percent decrease
compared to the prior-year quarter, driven by lower BDO pricing,
partially offset by higher volumes. Captive internal BDO sales are
recognized at market-based pricing.
Adjusted operating income was $17 million,
compared to $27 million in the prior-year quarter. Adjusted EBITDA
was $20 million, compared to $30 million in the prior-year
quarter.
Unallocated &
OtherUnallocated and Other expense was an operating loss
of $21 million, compared to $24 million in the prior-year quarter.
Adjusted Unallocated and Other expense was an operating loss of $17
million, compared to $23 million in the prior-year quarter.
Completed $200 million Share
RepurchaseDuring the March quarter and in early April,
Ashland repurchased 1.95 million of its outstanding shares under
two separate repurchase programs totaling $200 million. The
repurchase represented approximately 3.6 percent of the company’s
outstanding shares. Given the timing of the repurchases, diluted
weighted average shares outstanding will be approximately 54
million in the fiscal-third quarter and approximately 53 million in
the fiscal-fourth quarter. The company currently has $300 million
remaining under its existing evergreen share repurchase
authorization.
Fiscal Year 2023 Financial
OutlookBased on current forecasting, continued customer
de-stocking and external uncertainties for the second half of the
fiscal year, Ashland commenced actions in April to reduce
inventories in certain product lines for impacted end markets.
These inventory-control actions are expected to negatively impact
Adjusted EBITDA in the second half of the fiscal year by
approximately $20 million. As a result, the company has updated its
financial outlook for fiscal year 2023. Ashland now expects sales
in the fiscal year to be in the range of $2.3 billion to $2.4
billion reflecting weaker global demand dynamics. In addition,
Ashland now expects Adjusted EBITDA to be in the range of $580
million to $610 million reflecting weaker global end-market demand
and the inventory-control actions for specific product lines.
“Although results in our fiscal-second quarter
were consistent with expectations, order-pattern dynamics in April
indicate that customer de-stocking is continuing,” said Guillermo
Novo. “While we expected to gain more clarity on de-stocking and
market dynamics during the quarter, weaker-than-expected results
over the past month and in certain end markets have created greater
uncertainty regarding the de-stocking dynamics.”
“We expect that demand for our pharmaceutical
products will remain strong through the second half of the fiscal
year. Inventory destocking creates more uncertainty for our
Personal Care and Specialty Additives end markets. Ashland’s
inventory level was consistent with the level at the close of the
December quarter. However, given the risk of continued de-stocking
dynamics across the value chain, Ashland is taking action to reduce
inventory levels in certain product lines during the fiscal-third
quarter.”
“In addition, given current demand uncertainty
and with increased concerns of further global economic deceleration
and the increasing cost of capital, we remain concerned about the
demand outlook. If customer de-stocking persists through the
June quarter, we may take additional inventory reduction actions in
certain product lines. As such we are adjusting our sales and
Adjusted EBITDA outlook ranges for the fiscal year. These changes
reflect our current forecast, downside absorption risk and upside
market strengthening potential.”
“As I have stated before, this is a time for
caution. Despite the challenging environment we remain confident
about the future. Our customers remain resilient but are clearly
taking actions to reset inventory levels consistent with new global
demand expectations. 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. I look forward to discussing our
fiscal-second 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 second-quarter conference call with
securities analysts at 9:00 a.m. ET on Wednesday, May 3, 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, Ashland encourages 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 producing cash from regular business activities.
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.
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, 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 effectively manage
cost.
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 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. . 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 |
- Q2 2023 Earnings Release with Financial Tables - vFINAL
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