Ashland reports financial results1 for first quarter of fiscal year 2023 consistent with

• Sales of $525 million, up three percent from the prior-year quarter

• Net income (including discontinued operations) of $40 million, or $0.73 per diluted share

• Income from continuing operations of $42 million, or $0.76 per diluted share

• Adjusted income from continuing operations excluding intangibles amortization expense of $54 million, or $0.97 per diluted share

• Adjusted EBITDA of $108 million

• Cash flows used by operating activities of $29 million; ongoing free cash flow² of negative $21 million

WILMINGTON, Del., Jan. 31, 2023 (GLOBE NEWSWIRE) — 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.

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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 Performance
To 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 Sciences
Sales 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 Care
Sales 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 Additives
Sales 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.

Intermediates
Sales 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 & Other
Unallocated 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 Outlook
Based 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 Repurchase
Beginning 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…