Ashland Inc. reports increased fiscal fourth-quarter earnings
For its 2009 fourth quarter, Ashland reported sales and operating revenue of $2,113 million; operating income of $133 million; and net income of $93 million ($1.22 per share). Unadjusted earnings before interest, taxes, depreciation and amortization (see Table 6) were $218 million. On Nov. 13, 2008, Ashland completed the acquisition of Hercules Incorporated, affecting the comparability of reported results versus the same prior-year period.
Adjusted Pro Forma Results
Adjusting for the impact of key items in both the current and prior year and including Hercules’ results as if the acquisition had been completed on Oct. 1, 2007, Ashland’s results for the September 2009 quarter versus the September 2008 quarter would have been as follows:
| · | pro forma sales and operating revenue declined 25 percent from $2,822 million to $2,113 million; |
| · | adjusted pro forma operating income increased 78 percent from $80 million to $142 million; and |
| · | adjusted pro forma EBITDA increased 37 percent from $163 million to $224 million. |
Key Items
Key items for the September 2009 quarter resulted in a net pretax benefit to earnings of $38 million, or 34 cents per share, as follows:
| · | severance and accelerated depreciation charges of $23 million pretax (20 cents negative EPS impact), primarily related to cost-reduction programs; |
| · | a favorable insurance reserve adjustment of $14 million pretax (12 cents positive EPS impact); |
| · | a predominantly noncash charge of $9 million pretax (8 cents negative EPS impact) from accelerated debt-issuance-cost amortization related to the early retirement of portions of Ashland’s term loans; and |
| · | a pretax gain on the sale of Drew Marine of $56 million (50 cents positive EPS impact). |
In the year-ago quarter, key items amounted to $4 million of pretax income (4 cents positive EPS impact). (Refer to Table 5 of the accompanying financial statements for details of key items in both periods.)
Performance Summary
Commenting on Ashland’s adjusted pro forma fourth-quarter results, Chairman and Chief Executive Officer James J. O’Brien said, “We continued to produce substantial free cash flow, generating $305 million during the quarter. Our strong cash generation was predominantly due to earnings from operations and significant working capital reductions. We have reached our short-term goal of $1.6 billion of gross debt as a result.
“Our 37-percent increase in EBITDA versus the prior-year quarter reflects the benefits of cost-reduction initiatives and successful margin management. This more than offset year-versus-year volume declines ranging from 3 percent in Ashland Consumer Markets, which is our Valvoline business, to 25 percent in Ashland Performance Materials. That said, we saw single-digit volume improvements over the June quarter in most of our segments. Our results reflect record fourth-quarter EBITDA from Consumer Markets. Ashland Hercules Water Technologies also achieved record EBITDA and is making significant progress toward our long-term goal of double-digit operating income margins.”
O’Brien continued, “Our annualized run-rate cost savings now stand at $355 million through the September 2009 quarter as we near completion of our previously announced $400 million cost-reduction initiatives.”
Business Performance
In order to aid understanding of Ashland’s ongoing business performance, the results of Ashland’s business segments are presented on an adjusted pro forma basis as described under the heading “Adjusted Pro Forma Results” and reconciled to GAAP in Table 6 of this news release.
Ashland Aqualon Functional Ingredients recorded sales and operating revenue of $237 million in the September 2009 quarter, 18 percent below the year-ago quarter. Metric tons sold declined 21 percent. These declines continued to reflect the relative weakness in the construction and energy markets. While the construction business was down 23 percent versus the prior September quarter, it continued to show slight improvement sequentially, as did the energy business. The regulated business experienced a 10-percent volume decline as compared with the prior-year quarter, largely driven by the food segment. Volumes in the coatings business increased 7 percent versus the year-ago quarter, due in part to significant new product sales. Overall, volumes were relatively strong in Asia Pacific, with only 9-percent declines versus the prior year. Gross profit as a percent of sales of 35.6 percent showed a 310-basis-point improvement over the September 2008 quarter. In total, Functional Ingredients’ EBITDA in the September 2009 quarter declined 16 percent versus the prior September quarter, to $56 million, and represented 23.6 percent of sales. Both EBITDA and EBITDA margin represented significant improvements over the June quarter.
Ashland Hercules Water Technologies’ sales and operating revenue declined 14 percent to $465 million for the September 2009 quarter as compared with the same year-ago quarter, largely driven by an 11-percent volume decline. All regions, however, experienced sequential improvement. At 36.7 percent, gross profit as a percent of sales improved by 760 basis points over the September 2008 quarter, primarily the result of lower manufacturing and material costs, along with improved product mix. Selling, general and administrative and research and development (SG&A) expenses declined by $20 million, or 13 percent. EBITDA of $66 million was 89 percent above the prior-year quarter and represented 14.2 percent of sales, a 780-basis-point improvement. Sequentially, EBITDA increased 18 percent over the June quarter, while EBITDA as a percent of sales improved by 140 basis points.
Ashland Performance Materials’ sales and operating revenue of $268 million declined 37 percent versus the same prior-year quarter, and volume per day declined 25 percent, due to weak, but sequentially improving, demand in most key geographies in both the transportation and construction markets. Volumes in China were essentially even with the prior-year quarter, due to relatively strong performance in the composites business for industrial construction and infrastructure applications, while North America continued to lag. Gross profit as a percent of sales increased 270 basis points over the prior-year quarter to 17.5 percent. However, this represented a 280-basis-point decline versus the June quarter, as a result of significant raw material cost increases, particularly for styrene and propylene glycol. An 18-percent reduction in SG&A expenses reflected the cost-savings initiatives taken during the past year. These improvements were not enough to offset the volume declines, and EBITDA was $12 million in the September 2009 quarter, a decrease of 40 percent versus the prior-year September quarter, while EBITDA as a percent of sales declined 20 basis points to 4.5 percent.
Ashland Consumer Markets’ sales and operating revenue was $414 million, 9 percent below the September 2008 quarter. While total lubricant volume decreased by 3 percent versus the prior-year quarter, primarily due to lower private-label sales, U.S.-branded lubricants volume increased 3 percent. Same-store sales at Valvoline Instant Oil Change increased 7 percent over the prior year. Gross profit improved to 35.5 percent of sales in the September 2009 quarter, driven by a combination of pricing actions that began in 2008, lower raw materials costs in the quarter, cost-savings initiatives and a continued shift in mix toward sales of premium brands. The sequential reduction in gross profit percent was primarily due to higher raw material costs, including base oil. SG&A expenses rose 6 percent over the year-ago quarter, largely the result of higher advertising expenses in support of the Valvoline Engine GuaranteeSM program announced in June. Overall, Consumer Markets’ quarterly EBITDA was $79 million, as compared with $22 million in the year-ago quarter, and represented 19.1 percent of sales as compared with 4.8 percent in the prior-year quarter.
Ashland Distribution’s sales and operating revenue for the September 2009 quarter declined 33 percent to $771 million. Volume per day decreased 18 percent versus the prior-year quarter, but compared with the June 2009 quarter, increased 6 percent. Gross profit as a percent of sales was 8.8 percent versus 8.1 percent in the September 2008 quarter. SG&A expenses declined 23 percent versus the prior-year quarter. Margin improvements and SG&A expense reductions were not enough to offset the impact of volume reductions. As a result, EBITDA of $12 million for the September 2009 quarter represented a 40-percent decline as compared with the prior-year quarter and was 1.6 percent of sales.
Outlook
Commenting on Ashland’s outlook, O’Brien said, “We will continue our emphasis on generating free cash flow. For the past year, we have used our free cash flow to significantly reduce debt. Now that we have reached our targeted debt level, we will use our excess cash flow to increase liquidity, providing increased financial flexibility.
“Demand appears to be showing some signs of growth in many end markets. We will continue to manage our pricing and control our costs in order to create operating leverage that will support both increased profitability and growth as the economy improves.”
Conference Call Webcast
Today at 9 a.m. EDT, Ashland will provide a live webcast of its fourth-quarter conference call with securities analysts. The webcast will be accessible through Ashland’s website, www.ashland.com. Following the live event, an archived version of the webcast will be available for 12 months at http://investor.ashland.com.
Use of Non-GAAP Measures
This news release includes certain non-GAAP measures. Such measurements are not prepared in accordance with generally accepted accounting principles (GAAP) and should not be construed as an alternative to reported results determined in accordance with GAAP. Management believes the use of such non-GAAP measures assists investors in understanding the ongoing operating performance of the company and its segments. The non-GAAP information provided may not be consistent with the methodologies used by other companies. All non-GAAP information is reconciled with reported GAAP results in Tables 5, 6 and 7 of the financial statements provided below.
About Ashland
Ashland Inc. (NYSE: ASH) provides specialty chemical products, services and solutions for many of the world’s most essential needs and industries. Serving customers in more than 100 countries, it operates through five commercial units: Ashland Aqualon Functional Ingredients, Ashland Hercules Water Technologies, Ashland Performance Materials, Ashland Consumer Markets (Valvoline) and Ashland Distribution. To learn more about Ashland, visit www.ashland.com.
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Forward-Looking Statements
This news release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are based upon a number of assumptions, including those mentioned within this news release. Performance estimates are also based upon 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, and cost of raw materials; legal proceedings and claims (including environmental and asbestos matters); and weather. These risks and uncertainties may cause actual operating results to differ materially from those stated, projected or implied. Other risks and uncertainties include the possibility that the benefits anticipated from Ashland's acquisition of Hercules will not be fully realized; Ashland's substantial indebtedness may impair its financial condition; the restrictive covenants under the debt instruments may hinder the successful operation of Ashland’s business; future cash flow may be insufficient to repay the debt; and other risks that are described in filings made by Ashland with the Securities and Exchange Commission (the “SEC”). Although Ashland believes its expectations are based on reasonable assumptions, it cannot assure the expectations reflected herein will be achieved. This forward-looking information may prove to be inaccurate and actual results may differ significantly from those anticipated if one or more of the underlying assumptions or expectations proves to be inaccurate or is unrealized or if other unexpected conditions or events occur. Other factors, uncertainties and risks affecting Ashland are contained in Ashland's periodic filings made with the SEC, including its Form 10-K for the fiscal year ended Sept. 30, 2008, and Form 10-Q for the quarters ended Dec. 31, 2008, and March 31 and June 30, 2009, which are available on Ashland’s Investor Relations website at http://investor.ashland.com or the SEC’s website at www.sec.gov. Ashland undertakes no obligation to subsequently update or revise the forward-looking statements made in this news release to reflect events or circumstances after the date of this news release.
(1) Preliminary Results
Financial results are preliminary until Ashland’s annual report on Form 10-K is filed with the U.S. Securities and Exchange Commission.
