Ashland, Inc. Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Q1 Performance Overview: Q1 performance generally aligned with the outlook shared at last month's Strategy Day. Saw softening in European demand and inventory control actions from pharma customers. Proactively shifted maintenance shutdowns to Q1 for operational flexibility. Q1 sales were $405 million, down 14% from prior year. Adjusted EBITDA decreased to $61 million. Announced agreement to sell Avoca business, expected to close in March quarter.
• Key Operational Decisions: Proactively moved plant maintenance turnarounds into Q1, leading to lower-than-expected Q1 absorption and unanticipated EBITDA due to lower absorption and higher maintenance costs. Actively pursuing restructuring and manufacturing optimization initiatives to offset impacts.
• Segment Insights:
  • Life Science: Navigated challenging quarter, particularly in pharma. Adjusted EBITDA decreased by 42%. Globalization progress for injectables and OSD film coatings achieved double-digit sales growth.
  • Intermediates: Sales $33 million, in line with prior year. Secured additional volumes of NMP during the quarter.
  • Personal Care: Continued strong momentum with fourth consecutive quarter of year-over-year revenue and EBITDA growth. Organic volumes increased by mid-single digits.
  • Specialty Additives: Sales declined by 6%, but organic sales volumes improved low-single digits. Adjusted EBITDA more than doubled, and margins improved.
• Strategic Priorities: Execute, globalize, innovate and invest priorities continue to guide actions. Focus on delivering $90 million cost-saving target, including $30 million restructuring and $60 million manufacturing optimization. Aim to generate $100 million in additional revenue by fiscal 2027 through globalize and innovate initiatives.

Segment Performance

• Total Sales: Ashland's total sales for the first quarter were $405 million, down 14% from the prior year. Excluding portfolio optimization actions, revenue decreased 3%. Organic sales volumes were relatively steady, down 1% year-over-year. Pricing was generally stable sequentially and down 2% year-over-year. Adjusted EBITDA decreased to $61 million, down 13% year-over-year. Excluding portfolio optimization, adjusted EBITDA was down 2% year-over-year.
• Life Sciences: Sales declined 33% to $134 million. Organic sales were down 12% year-over-year, primarily in pharma. Adjusted EBITDA decreased by 42% to $28 million. Globalization progress for injectables and OSD film coatings achieved double-digit sales growth.
• Intermediates: Sales were $33 million, in line with prior year quarter. Generated $6 million in adjusted EBITDA, representing an 18.2% adjusted EBITDA margin.
• Personal Care: Continued strong momentum, achieving its fourth consecutive quarter of year-over-year revenue and EBITDA growth. Organic volumes increased by mid-single digits. Adjusted EBITDA grew an impressive 36% to $30 million. Adjusted EBITDA margin expanded by 530 basis points to 22.4%.
• Specialty Additives: Sales declined by 6% to $115 million. Excluding portfolio optimization actions, sales were roughly flat year-over-year. Adjusted EBITDA more than doubled to $13 million. Adjusted EBITDA margins improved 640 basis points year-over-year to 11.3%.

Guidance

• Full Year Outlook: Affirming full year sales and adjusted EBITDA outlook. While facing dynamic global landscape and uncertainty, much of the weakness in Q1 was already contemplated. Increased competition from Chinese exports impacting pricing but largely in line with expectations. Pharma customer inventory adjustment largely a Q1 dynamic. Expect raw material environment to remain stable. Continue to expect sales in the range of $1.9 billion to $2.05 billion and adjusted EBITDA in the range of $430 million to $470 million.
• Volume Expectations: Volumes seen as flattish to up. Q1 is weak quarter, with stronger performance expected from March to September. Orders for second quarter seen as normal with no big surprises at this point.

Risks

• Trade Policy Impact: Concerned about trade flows, including potential impacts on supply, duties, and shipping from certain production countries to customers. Specifically, seeing impacts in HEC in Middle East and Africa, and VP&D in some lower margin areas.
• Currency Impact: Dollar has strengthened considerably. $500 million Eurobond provides partial hedge, but still impacts EBITDA. If certain currencies stay weak against the dollar, it will be a headwind for the remainder of the fiscal year, potentially impacting EBITDA by around $7 million to $8 million.
• Market Uncertainty: Uncertainty in China, Europe, and policy transitions. Impact of policy transition and other macroeconomic factors will become clearer in the coming months.

Q: Good day and thank you for standing by. Welcome to the Ashland Inc. First Quarter 2025 Earnings Conference Call.

A: Hello, everyone, and welcome to Ashland's first quarter fiscal year 2025 earnings conference call and webcast. My name is William Whitaker, Ashland Investor Relations. Joining me on the call today are Guillermo Novo, Ashland Chair and CEO; Kevin Willis, Ashland CFO; and our business unit leaders, Alessandra Faccin; Jim Minicucci; and Dago Caceres.

Q: Michael Sison of Wells Fargo asked about the walk in EBITDA heading into 2Q, 3Q, 4Q and how volumes sort of progress for the rest of the year.

A: Guillermo Novo said Q1 is the weakest quarter, and real volumes start from March to September. Volumes are seen as flattish to up. Dago Caceres commented on coatings and industrial by region, Jim Minicucci on Personal Care, and Alessandra Faccin on Life Science.

Q: Christopher Parkinson of Wolfe Research asked about the longer-term line of sight into the margins of the Life Sciences segment and momentum in Personal Care.

A: Guillermo Novo said nothing has changed in terms of the outlook on the core businesses. The portfolio optimization is completing, and there are clear catalysts for growth and margin expansion. For Personal Care, the momentum is due to completing portfolio optimization and executing the strategy.

Q: John Roberts of Mizuho asked about whether customers have made adjustments to trade patterns and currency impact.

A: Guillermo Novo said not seeing changes to expectations but seeing stability in decision making. Kevin Willis said euro, Chinese yuan, and Brazilian real depreciation could impact EBITDA by around $7 million to $8 million if they stay weak against the dollar.

Q: David Begleiter of Deutsche Bank asked about Q2 EBITDA consensus and Chinese export competition.

A: Guillermo Novo said not giving specific Q2 guidance but expecting a bigger pickup. He mentioned HEC and VP&D as areas seeing Chinese export competition.

Q: Jeff Zekauskas of JPMorgan asked about turnaround costs, impact on segments, and cost cuts vs. stranded costs.

A: Guillermo Novo said turnaround costs were about $5 million with unanticipated costs. Kevin Willis said the lost absorption piece will be recovered throughout the year. Guillermo Novo said the $30 million cost-cutting program is well underway to offset stranded costs.

Q: Mike Harrison of Seaport Research Partners asked about trade policy impact and pre-buying volumes.

A: Guillermo Novo said trade flows are the bigger impact, and no major pre-buying volumes were seen. He also mentioned winter weather impact on plants.

Q: Bhavesh Lodaya of BMO Capital Markets asked about pricing movement and EBITDA impact from customer inventory control actions in Life Sciences.

A: Guillermo Novo said pricing is rollover and factored into plans. Most of the customer inventory control actions in Life Sciences pharma were in Q1 and mostly behind us.

Q: Josh Spector of UBS asked about order visibility and share gains.

A: Guillermo Novo said visibility into March to September is important. Alessandra Faccin said share gains are happening in Asia and Latin America with local regional generic customers.