Ashland (ASH) 3 May 232023 Q2 Earnings call transcript

Company Profile

Participants

Seth Mrozek	Director, Investor Relations
Guillermo Novo	Chair & Chief Executive Officer
Kevin Willis	Senior Vice President & Chief Financial Officer
Christopher Parkinson	Mizuho Securities
Lucas Beaumont	UBS
Michael Sison	Wells Fargo
John McNulty	BMO
Mike Harrison	Seaport Research Partners
David Begleiter	Deutsche Bank
John Roberts	Credit Suisse
Laurence Alexander	Jefferies
Jeffrey Zekauskas	JPMorgan

Call transcript

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Operator

Good day, and thank you for standing by. Welcome to the Ashland Second Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded.

to today, conference Investor Seth like to to Relations. now speaker the Mrozek would hand over the you I Director of Please go ahead.

Seth Mrozek

quarter is Seth Hello to Director of conference Amber. and Relations. Mrozek, and fiscal Investor second call name you, earnings year My Thank webcast. Ashland XXXX everyone, Ashland's welcome

call are Officer. Novo, Kevin President Chief Financial Ashland's Senior me Willis, and Chief Joining Vice today on Chair the and Guillermo Executive Officer; and

Eastern SEC XXXX We yesterday released night quarter the The approximately release May X-K. Time, results Form p.m. news ended March X. -- at was X:XX XX, furnished in for issued XX last to a the

During today's along webcast during under that ashland.com the currently call, Investor the Relations call. with being the encourage slides follow are webcast section. on to website will we our We reference you

to Slide X. Please turn

or materially and that will reasonable are future to during such a on These assure but are based matters, including reminder As year be from to outlook believe call, subject We that forward-looking risks could several today's any cannot achieved. XXXX. making results statements fiscal uncertainties today's assumptions, for expectations our statements forward-looking on be projections. will statements cause we events such and differ

of X presentation of Please limits refer to Slide and for those an uncertainties to statements. the explanation forward-looking risks applicable the and

will basis, note measures. we discussion on an a You Ashland risk can that non-GAAP also projected which review referring factors Please our financial are financial XX-K actual under of and the comprehensive also on our most XA for to Form adjusted Item metrics recent impacting certain business. be

of business. financial your and adjusted understanding performance measures of We and will to these ongoing present them refer to our supplement the assessment as

of for measures website comparable available considered measures, measures as appendix reconciliations as should today's a GAAP in to directly with non-GAAP accordance well measures to and or measures on financial Non-GAAP of GAAP our GAAP. slide The those most presentation. are be superior not the in the calculated substitute

a the to of X. immersive eight at when that peak care experience foundation the played video recent environmental, the at behind in innovations, products these page steeped launched today The or To Slide customers, newly turn show global we Spain. Barcelona at the truly we opening personal the ESG new provided Please provides in-cosmetics visit the more webcast trade our during learn range of social governance, www.ashland.com/incauseXX. in of Ashland and launched web

of quarter. Guillermo the will the Ashland's morning in begin with overview and call second this results an performance

quarter. will provide for Next, XXXX. related Guillermo Kevin detailed to commentary more will Ashland's additional then of financial provide a the in outlook results review year fiscal

We will line questions. then for open the

Please to turn Guillermo turn Slide opening comments. will over and call X the Guillermo? his I for to

Guillermo Novo

everyone. you were the Results you, the with expectations for quarter Thank at prior participation for quarter Seth, our Thank hello March in your were the your quarter. in today. consistent and of beginning year. the Ashland and sales interest with consistent Total

Our year business global year results. inflation actions performed this last incredibly benefit and early recovery overall and the continue well, taken to pharma

with environment we and However, operate macroeconomic ongoing in diminished global state a the obvious, visibility. to challenging demand to continue uncertainty

to pronounced destocking reopening, The in lockdown COVID the question winter and of happening the became of were quarter demand. dynamics storm. the is, volume demand the The China half now more for Themes and is what even impact April. second big

is ability customer do clouded I'd value is destocking chain, the and activities, the reframe consumer parts, how demand? demand. into in Given has historic the level how the reset From to the our position demand? underlying question consumer true historic two of destocking

have during slowed into and destocking end than still the dynamics April. markets quarter, Consumer we continued demand demand, seems given robust December certain present Customer to be customer are our but saw in more destocking.

customer given than expected slower been muted of been reopening China, The visibility also destocking. has and has

demand As varied a segments. result, has our across

for and destocking nutrition and markets in remain demand segments like other products continue While in demand we construction. weak strong, see to pharma

earnings and we were the completed plants the of costs impact at with in of discuss the lower absorption impacted million I end by demand. actions and taking, year, repurchase Margins running storm the the associated $XXX we're of mostly last and the call. will share at our the outlook later quarter. winter And during

Please turn to Slide X.

Specialty the while growth sales in left, was the see in strong, top earlier. Personal can year-over-year below you the year line I referenced prior due very Life to Science Care, As chart Additives in was growth factors, in

the despite healthy. And impact underlying remain margins of margin storm, the winter

the our team control. executing well global that the the uncertainties many in Ashland are and actions is on performing there horizon, within While are

you in key the for want our end at adjusted in discuss release will outlook sales the and more night, last news fiscal EBITDA few takeaways call, our detail saw the I changes As a we to I of the these but stress changes. year. have about

dynamics the April. Our unfold the decision in proactive ranges, a we reductions to outlook based saw upon is

are for in which inventory at later midpoint. At range, We of year. low additional that are accounts control EBITDA control, the inventory the taking actions required the presumes reduction the end the it

Kevin, turn our me then more to and Kevin? Let come I'll over results in detail the review QX back. call to

Kevin Willis

the pharma inflation Guillermo you, essentially, for flat by strong continued driven good year offset recovery, prior customer mostly destocking. everyone. to ingredients, continued Slide and quarter demand by Please X. were morning, $XXX Thank Total turn with in and sales million

Sales and recovery by increased basis. on teams cost by Gross offset in impact commercial to currency from was X%, $XX by million costs winter XX.X%, cost input the margin of a the increased the December. as declined constant storm

$XXX million foreign adjusted amortization internal that the SG&A, the million, quarter. was $X during quarter in XX% down $XXX the year. from in Ashland's items, key down million, adjusted EBITDA excluding $XXX EBITDA million When $XXX In year. impacted prior prior and for currency from Note million total, by negatively costs, the were R&D unfavorable

for cash X% quarter, down a the quarter share, the prior EBITDA adjusted large in for from the was EPS year, primarily capital. was improvement working year. XX%. million acquisition roughly Ashland's from Ongoing amortization for margin $X.XX Adjusted $XX reflecting changes was quarter the the prior per excluding flow

segments. turn to of Please slide Now, results four review our let's nine. the of operating each

beginning the another cost delivered demand by Sciences. at a was team quarter, offset the of on Pharma our contributing all strong. favorable. in business. to Unfavorable disciplined performance referenced Guillermo call, global executed Life driven Product today's margin Life The Sciences very impact remains currency mix pharmaceutical strong ingredients recovery, As was to expansion. partial strong

EBITDA increased Sciences margin more to Adjusted increased of increased Life by $XXX costs while EBITDA million. In XX% winter related total, includes by million, $X storm. adjusted This the meaningfully to $XX to to XX% sales than XX%. million

The impacted actions destocking were customers. by by continued XX. slide to Care sales turn inventory certain Please Personal

Life team As disciplined realize pricing. with continued Sciences, the to through cost recovery

declined impact declined quarter, Care margin also declined a care XX% to currency to the million, For Unfavorable sales the $X related to Personal headwind X% $XX includes of while This million. XX%. to the Adjusted costs adjusted roughly to EBITDA was million personal quarter. $XXX winter EBITDA by in storm. also results

slide than businesses. to the demand Specialty destocking demand, particularly The also continued reduced cost turn of Additives Performance to construction the inventory primarily felt more segment. reduced impact recovery offset for by and improved Specialties related Please XX. customers, in the certain

to $XXX for EBITDA the margin This storm. about $XX quarter, the by to to million, $X XX% declined while million. declined the of includes also to declined by sales Adjusted million quarter. related For XX% Specialty XX% adjusted EBITDA costs Additives winter

XX.X%. reported volumes compared down of $XX sales XX% compared slide year, merchant turn lower reported a market XX. of Please to and to declining by of million, EBITDA driven to EBITDA to derivatives. million, higher-value prior decrease a $XX Intermediates Intermediates XX% consistent the pricing, of year adjusted prior adjusted margin

to XX. turn slide Please

we combined outstanding night, As during X.XX count programs the share reduced our separate reported of share shares roughly completed by April, million of approximately The quarter and Ashland total into $XXX two million or programs. a X.X%. under repurchases last early

approved evergreen Ashland now remaining last the by existing under authorization has repurchase Ashland's of year. million share Directors was Board $XXX that

quarter of the March XXst, billion. with of closed roughly we million $XXX As $X.X of had on cash hand available liquidity about total on

is $XXX which Our million X.X leverage. of is net about debt turns

four We our and no floating credit investment-grade the have outstanding rate outstanding, to is of all debt next years style terms. maturities long-term subject debt debt no for

grow targeted profitable of Coatings. our flexibility We're and Personal global organically the to focused Ashland strategy. has targeted the Pharma, pursue on investing of and our sheet strategy Care our Against continue through opportunities backdrop enhanced existing business M&A uncertainty, to with a in growth balance growth bolt-on to pursue strong

discuss I'll that, XXXX, to With turn the back to our over Guillermo, year outlook fiscal call for Guillermo?

Guillermo Novo

key back three impact turn slide call mentioned Please our the half the recessionary fiscal to On magnitude and Kevin. year, issues we you, Thank momentum. of critical our XX. the expected last to of

of dynamics, recessionary to environment. China's demand a a momentum destocking changes Will there impact, as in And concern we around the reopening around certainly Russia-Ukraine and more impact tight reset the War a the move and of and impact or recessionary magnitude the more supply potential of COVID continue. from higher be

slowed, has not reset The but ended.

Although in customer fiscal and customer-specific of our dynamics to expectations ended. creating indicated consistent has second quarter a higher with that order are destocking very were April, reset pattern level These difficult in actions, results not forecast, uncertainty.

this continues to dynamics remain clarity In gain and expect environment the with more of uncertainty, we our March being to proactive market quarter, low. approach the greater outlook are While to we planning. during visibility our on and destocking

in year. may half of the continue create the our destocking demand for for second demand Specialty products to remain Personal end-markets. Care and Additives pharmaceutical We will uncertainty expect strong fiscal through the Inventory

had last On take until we inventory we inventory, the we our indicated some demand position call reduction but product on lines, outlook. would bigger tight clarity reduction, given control our capacity on not actions greater a that

the consistent at was level of the inventory of Ashland's close end March December. with

will fourth continued reduce uncertainty, in during Ashland certain fiscal to levels the the and third lines demand product given and action macroeconomic However, inventory quarters. take

or weakens an the additional inventory our during of customer If inventory control actions. we quarter, may demand reduction take expect half actions June to related second impact We destocking $XX these consumer the fiscal persists of million year. approximately through

capture in inventory resides actions. will and destocking to demand If with be normalized we the historical recessionary well positioned lower and volume line market reduction incremental performance,

outlook for billion and to to outlook adjusting to adjusting EBITDA range As our sales such, we're billion million. our million fiscal year range to $XXX the $X.X adjusted $XXX $X.X

As this a for is time I've before, stated caution.

and our in with market We invest risk to our we that a grow potential. will upside forecast, reflect strengthening strong and changes downside These continue discipline, financial position to capital business. core operate absorption allocation so are current strong

resilient, inventory but remain customers reset demand global are levels taking actions new clearly consistent Our with expectations. to

focused operating cost things managing discipline, mix control maintaining can we driving remain pricing allocation. will innovation, the productivity capital and We on

the Slide were expectations. I to consistent our from The want for quarter. with turn the restate Please results takeaways key XX. to In March closing, quarter

we dynamics recovery well. in April. pharma last actions benefit Ashland upon continue across year performed saw this overall inventory in taken global early being unfold incredibly Our management The based and business the proactive to We're inflation year results.

environment, We are year. additional actions taking quality for we Ashland the our future. team required once inventory control account markets includes the later business serve I in control their uncertain remain at the the outlook. ownership EBITDA the Despite their end of reduction of want and the resilience to the thank in proactive again of low environment. midpoint the and for new an confident and any actions which of At leadership challenging the range, in we inventory an

With everyone and to Amber let's thank that, Q&A. you move

Operator

[Operator your Instructions] Christopher from Mizuho open. question Our comes is Securities. you. line Parkinson Thank first at Chris,

Christopher Parkinson

listening just you investors revision. on for fiscal not of for What a little deeper guidance Guillermo, I second call question. is my believe the "completely would that taking part Thank bit guidance dig that to the derisked". year this the you so to say on range your much updated those wanted

potential something be for the additional that on augment environments the additional would macro possibility You further destock, that of PowerPoint the you or additional there's guidance of an in in destock actions initial additional any be perception could and your the deteriorating inventory color this for you're additional mentioned include context particularly sitting your Just to Thank of midpoint helpful. add investor different? -- you. $XX would it would million the

Guillermo Novo

that of take destocking is have additional which continues in fourth we are we half midpoint gets Yeah. is that would demand consumer the we're would right The less impacted. but that Okay. second million quarter require would that be third now put were $XX biggest take normalize, -- taking the destocking well-positioned. the destocking require end taking we really of visibility, would into is things quarter, if which And and and that now, Equally, actions be third concern to actions fourth in actions I our execute lower longer there's the in -- our range. right and if lower quarter or than us expected that think, Any additional number have during the more range. the would where and the us taking the one, would From actions. the

we have to on inventory on inventory incremental off pick actions. up We the upside the would the volume and ease

Christopher Parkinson

color. That's very business And mean November back the XXXX one really given for of discussed kind remaining on inconsistent. a and obviously Personal of performance actually that the problem your improving was of I speak just was in the Analyst the was never helpful one Life themselves things Day that front. you Care the Sciences was results it

adjustments, inventories. just $XX the from downtime let's million the the about million thinking in facilities say, we're $XX a As plus

you mix of off and do portfolio that inventory continuously adjustments just some given degree in six months product price care midpoint cost, like just think grow have in saying we the confidence love I'm launched volatility? speaking the to your hear macro -- hypothetically thoughts what plus about the levels only not of but you When confidence the XXXX, XXXX has you. leverage the and Thank which last can I year -- still that fiscal your mean, of -- on versus about Seth to at and the the lower all mentioned I personal just that I'd of over recently changed think also that. in-cos new growth were

Guillermo Novo

later you drive, things is year. about the exciting confident that separate of the in beauty all these more segment I and mentioned I doing video. natural No, innovation. programs a clean We'll big is a making a that things little two We're There's where we're look there. you the to transition that if think, lot natural saw That -- themes talk in bit very at going would and is more the you the -- innovation-driven. a we're that as long-term

and well-positioned continue very to we're there we grow. So

the tight of different lot a ways. in the normalized high hitting transition Personal from a to Care. within reset There's segments different the I customers and more And It's environment. demand think recessionary markets different

So the difficult. bit activity a little and why a that destocking lot of was more it's driven making is really

now hair high-end did still actions if destocking at very the of a are different like the denture look actually hair world, and being Skin, you that If look Oral parts Care, softer, segments with was travel being impacted it well. especially, at you little skin – and in especially, adhesives. things right seeing bit especially, impacted Asia. we're

dynamics So noise very from segment. of difficult it's going think segment And I a of reset. by we're lot dynamics different to a the the transition They're XXXX. the is just and XXXX of through this

it's it seeing you're with -- other think I companies.

our really are you depends different look companies the customer if on different at that it in base And even places they're in. and segments own

are our we confidence in -- think I we're not So long-term. losing

I and think are innovation to continue and that's all portfolio. about the invest excited we about very

Christopher Parkinson

much. very you Thank

Operator

our question. for hold Please next

Our Joshua next of question comes UBS. from Spector

Lucas Beaumont

on This Beaumont for morning. is Josh. Good Lucas

us give the changes guidance bit you're making. could just more wondering was you I a on So detail

only EBITDA million. million, cutting you're sales but $XXX your $XX by by So

please? are what there So offsets the

Guillermo Novo

let me that you and getting on Kevin can some a little color The the make then segment bit are impacted So give segments are uniform. not level. comments,

as inks areas our which catalysts. said it's Personal slightly coatings batteries actually core Care has are some destocking is Most are the there markets not necessarily our -- been now, impact impact segment-by-segment, interesting Additives that base on and the as has pharma a EBITDA now a industrial right sales lithium-ion type well of Performance the different core impacted based down, and we big been margins. for doing between most have us in specialties, not are Specialty of Areas, surprise. is the broader So segments what's of our it's but

broader So range. it's a

construction businesses tend Specifically, most construction lines for point profit Those product our We're in I and be out nutrition lower the Europe. with spaces would and in Europe, much margin of impacted. our gross us. to most

impact. So the gross there profit some is impact

it's getting mostly but a the that difference side there's absorption So there, impacted. in we're

to that on add really segment-by-segment specific color do Kevin, going any is any that. it's be you want driving other segments? So to But

Kevin Willis

little bit. a Yes, just

well. it You really covered

kind was story. the construction I of of of destocking saw part certainly that segments the So combination like think nutrition and lower-margin more lower

to revenue I a where But we were lower $XXX we we expected that. standpoint. that didn't -- be. on not kind It's call frankly the range where QX in I based revenue still think back as within more our from has were EBITDA we talk look talked back of dropped forecasting range. about about number. the million we mean QX, and really much We

SG&A therefore story. that's bit well bit it's a the as you when primarily less is And a things, impact, lower helps. but EBITDA which less our also those gross profit little little really So combine

Lucas Beaumont

then it's this you million. assuming but Great. XQ in the for guide Thanks. implying What of half, phasing the assuming? of and with bigger EBITDA in would terms between year Traditionally terms that And $XXX recovery second updated XQ you're lower, about be that are of your XQ? seasonally

Guillermo Novo

seasonality. back -- the I mean, think we're moving normal I into

think last of supply little the that XXXX. inflationary we of of we just the tightness lost the and two dynamics saw in of I XXXX years bit a some because and

we're forecasting more a So normalization.

in bit going QX than this a was think bit is be a with year, line little more QX Probably weaker. other. Usually little each year our stronger they're Last I QX. to

they're historic levels. probably back So, traditionally it's going a level than more moving more to even to normalized and be in

Kevin Willis

add well. just in we we the the to repeat to the stronger A couple that QX as winter be second the side the tend I of Obviously, that's some cost to of roll half of in are in control half. and Yes. on of than benefits second first point, storm also in very had rolling more impact in we through, through well. And the been QX mean, to half general. Guillermo's operations as see that that focused things, to on and the expect QX don't we've we'll QX and we

Lucas Beaumont

you. Great. Thank

Operator

our hold question. Please next for

Michael comes Wells question at from next Sison Our Fargo.

Michael Sison

Hi, guys.

Guillermo Novo

Hi, Michael.

Michael Sison

a Care. care, buckets Just obviously, bit, on care, hair side well, that need Is a you seen I household just questions little them that skin guys two couple When good in of think of care about, Personal but a that you of Those are that the have worry hair or about that two are care, has struggling of that to oral household doing two destocking each been really them and there the is we something growth business? and in have there? sides.

Guillermo Novo

customer segments say, segment We do And I of skin I the think would that No, there's variances and things impacted, just our across that And care care. all would certain having visibility. the better destocking is were in think an skin in for areas not where we're segments, like than the example, have rather one specific we do the that specific. on very difficulties say of of impact personal to mix that's I the regions. positioned. higher-end have some travel that well some of Asia, had

see So season. summer past getting hair. the now skin, we the strength and the that get as we're In into in to we in general, destocking continue

So increase. Sun travel up. should protection will pick also

what So, each we're the of look at to dynamics going to the really of happens segments.

more It's some for that's if is I market, have in oral of sell Care we side is actions equation. concentrated difficult. area. things. one a and venture that the And customer that much smaller seen in -- products a home been big core that little use the Personal more in we destocking a and in adhesives one type that of care, both additives, and not We're and do. more a what just traditionally we have mostly us. one It's the it's think position it's broad-based focused on so care, We segment

by really I'll flat been gone what others segments it segment positions Mike, So customer had have that in customers -- and that by and segment customer. have and up say, same took they we've the And it's in or and XXXX. destocked is

Michael Sison

it you customers And because soon. know scaling new of late things capacity weaker? it have I wanted do it you're just given maybe up about your sort on product. was it, then, And make more specking to that as you customers? are in and timing it. now, delay Will sense of really recall, think How I Got or you bring with does start

Guillermo Novo

Yes.

businesses. of of of some secondary a are we're especially think, we're investing where look core the where areas the our projects, investing. lot big I the at markets. these HEC, not We're seeing not in lot in impact we're you Frankly, investing if is a

probably ones was going So, still of need just as didn't project. first going of a business HEC, have have didn't Remember, for We're volume few the not capacity. months, we lot to We're to a be pricing one a come be we core It there's in. to new mostly the delaying in our plan. capacity.

So we consumer need the capacity depending market. on how

get to the probably the want reset ones normalizes, managing real through. think ones, we that There's the I this sort moving the have And But that volume We're we we're maybe as projects for of we a what's not It's end volumes at this the it's need year, quickly moving timing. if still as we the that see consumer continue day. year. forward. core the to going of need to invest. them. still next are few demand bigger into we'll not We're and continuing

with you pendulum upside. if to remind and could tends the to the I we noise the see on as think to destocked, everybody's all see other, move And everybody, some destocking, just demand these to normalizes side one

actions be strong is in to be time have ourselves we'd the this and driving just a position a So, balance noisy sense results want inventory. precautionary we're rather just -- taking to through of we to sheet

As not going do. past, something we've the to it's in we're talked about

up, will pick stewards capital. we're if going the be we build. ourselves be our So to positioning to good And of volumes

is, most I Mike reducing lower-margin we're point, is make the inventories, in would businesses. other where The

can't lower it. the deal higher demand there. inventory well of spikes be with levels These -- supply are we up, that, shouldn't our not so to segments going ability that So, we're positioned to end, we we'll higher on higher if impact comes seeing the not end, And we that be are if and on supply, in will demand the side.

Michael Sison

it. you. Got Thank

Operator

Please hold next for our question.

question of Our next from McNulty John BMO. comes

John McNulty

rethink Thanks to Yes, Additives. think through. that businesses last question. question, my in big that and out in sold I to And make was supply/demand Does I what of comfortable and they you the the taking good for grabbing the normalized lot inventory kind were is of destock supply investors work real supply year demand pretty guess, Personal you versus masked, this for last as about the were now, problems actually chain thinking Care demand we've was morning. much could. year? how last really a guess similar that like Specialty the of got everybody what I as And did should be things HEC? we what

Guillermo Novo

John, the HEC Yes. I HEC, demand the out split has would mean, been others. stronger. I from

are But it's would a softer. that's little specifically, you going say well and on across chain. We at if bit coatings, I the It's telegraphed seeing dynamic been adjustments look there. a

region. Some across the strong -- customers actually very by been have

the there, what been, segments has really noise it. driving biggest that's not that other been issue really there's been but it's are So,

So, new our lower-end These segment, that not in for areas not are CMC and MC capacity construction. necessarily. investing we're construction,

really noise. a where that's of seeing we're So, the lot

capacity. And we'll invest. seeing that the so term market We biggest on will core and not capacity longer areas adding feel feel markets we needed to we're be continue the going. -- that the and where we we're it's demand where In is the there the confident impact are confident

to capacity have asset manage the that with and the we continue we'll So today.

John McNulty

it. Got

early help writing the and the the or of as you're right into much to with whatever, internally of that second like then the year? look kind can to destocking think doing year the us that self-help we through And next releases half levels about how capital you working Okay.

Guillermo Novo

actions. -- make talk every reduction. and The can is, bit it to little I'm so push ratio rule like trying more. old we of $X manage a through for you X:X as we we more of absorption so how It's inventory of that that work do down now variable about of these the costs reduce thumb The Kevin dollar

have in but the had. work of So there's still that's thumb if color. sort know rule I to any that of progress But old add you don't Kevin, we

Kevin Willis

Yes, that's right.

do the million if going the current our on back over half and we John, it's So again, thinking. of be full $XX spread the year to based

So, $XX reduction. at we of million to But we'll imply we're point the That inventory this we would to. on do million the numbers. $XX million need planning adjusted it as the full while $XX

John McNulty

Thanks very for much help. Great. the Okay.

Kevin Willis

Sure.

Operator

Please hold question. our next for

question comes from at Seaport Research Mike Our Harrison next Partners.

Mike Harrison

Hi. morning. Good

Guillermo Novo

Mike. Hey,

Mike Harrison

Guillermo out could XXX I on us winter you on the sustainable ever than we bit Sciences in the seen you of storm that before. back was points or a hoping, XXX is impacts margin give were How what little if more Life the strength some color drove margin, higher that basis level you've that?

Guillermo Novo

Okay.

change. other very recover seeing we I really action think to year take be to all Pharma strong. you're last mix did what benefit But it's that pricing one, the all the inflation segments. continues we and continue to from like that

that us. big those tend in destocking been and lower nutraceutical And impact. steps on few impacted some be a that segments. segments Nutrition inventory segments are customers and margin reduction. have has getting the of It's the the a been all low-end for big in And that the taking to massive are

But segments So lower-margin it's be the because the stronger at mix is still in there is. in in the there. that strength was more through. and as quarter the to dynamic what's what impacts weakness that's I pharma going There look weaker some some of you would of segment freeze, shining noise, say, normalization

Mike Harrison

you wanted business. the in impact to the that understand Additives volume then All Specialty I And right. Thank maybe saw you.

I Additives business? specialties? of weakness hold within it's pricing maybe like weakness it much in this is how that to down of architectural break your to think volumes be to is much way how areas of is had out And any And demand? even destocking, or high-teens how there XX% Specialty ability there year-on-year. paint volume Is construction impacting that much and

Guillermo Novo

contractor biggest Latin North be coating think example, I see still is is say side. position. In a to world. we the continued to with American is weaker the as I we're the continue what not an change, mean, the would DIY, up around America coatings, strong. I through good holding that managing

share big see companies as midsized we and the Asia, capital the impacted. gaining tightens customers get

not biggest in Performance slowdown for part example, the there XX Most biggest for Specialty it's customers. last and specialties, saw coatings, our especially of Additives, noise, is days, order midsized saw So in the a both was dropped that we we saw, issue. in of Additives Specialty we lot intake end, Personal was the and but April, the The the very that's fragmented. Care it really back

I it's destocking. The It and and of was it portfolio. saw that. can distributors in drop But -- It more of that other the now that base sell regions aligns performance automotive, was the the players big where and base segments. we regional the a it's biggest was for distributors just And mean that type customers, we have their finished across midsize already the like and with midsized most saw into us. That's specialties. customers. broad big be pretty inks we significant customer

market. reset These see of lot or Additives anything. customers. like So of they're reset, It's fragmented share for really shifting stopping Specialty an we'll more not or we it or it's more it back. -- come a like by and more a It's seems inventory like those a as much buying shifts are

Mike Harrison

All right. much. Thanks very

Operator

standby for next our question. Please

Begleiter David Our Bank. at from comes next question Deutsche

David Begleiter

Thank end order in May of there you evidence that any the you. the of the will in And is by done it June books? quarter? think Guillermo, destocking, your do be

Guillermo Novo

be would least sometime the view at destocking quarter, bigger third our towards the be the -- that think segments. ending during should I --

that can't nutrition you continuing eventually. two order. the much so our there's construction end And it's at think nutrition the QX, this time only look started If impacted has destocking in big ones, customers will I most segments, and

So that those -- normalize. I think should one

our we're coming. is Summer construction, to -- of in waiting it's Europe. see Begin most businesses how

Let's see how that develops.

what talking numbers. look switch the be we be? affect I what's think to going is inventory at want to to going will that how from And what's -- consumer demand really that the to

in So in think that we'll see time. some QX I at transition point

of a in Specialty performance the issue. think that's part in I Additives, Performance Specialties broader-based

for of us. I if areas, one, other us, company a even customers, or volumes, for smaller in that there's think in it's some midsized automotive they're these smaller large

types two. be of adjustments probably take will it those month lasting, long So a could or not but

David Begleiter

quarter you in can how discuss the that back of cost increase the the year? half the that tailwind and you the And saw cadence in of price might current

Guillermo Novo

-- holding as example. levels, has holding intermediates some the versus certain BDO We're down come seeing and up in areas in pressures still through historic pricing. other the intermediates. So on but an of managing we're We're we're

segments that up segments. the we some are But that of managing we things types of hold lower-end dynamic, price overall -- continue on our nutrition In of those to and core. volume

it's board, the -- raw it's you If down. not it's across improving all all but not at look coming materials no

It you look hasn't cellulose continues to stable. If dropped really be significantly.

use is Energy improved, The has have but still two still has think process is higher we those I of historic improved. Butane lot Europe. from Caustic peak, improved in chemicals which came very a has times side high but EOPO petrochemical equation, little a the improved. of a it's levels. It's bit. than

vary. it's going So to

we forward. as think move continue see to I we'll improvement

we protected inflation the margins. we said our in increase margins. We As did

to I with lot of not companies raw as our volumes. labor we think very and manage But things there's lower -- still even production now materials being dropping. need with because pressures are to trying with loadings A are improve. will we're customers We deal of cautious inflationary plant what other do

think market. months I going in a So working be through of the there's few more to that

David Begleiter

you. Thank

Seth Mrozek

Amber, additional do questions? have we

Operator

John comes next at your Suisse. from John, Credit Roberts is open. question line Our

John Roberts

derivatives BDO a that BDO the you you. Thank seeing you in Are sell the internally the price that divergence use you externally? with for price for

Guillermo Novo

market -- prices different broad-based much and many come more a has going pricing BDO down. material segments So that's into

Our players that which based the us. terms of in supply demand battery -- lithium and also down. not we on merchant serve is a segments in America the of intermediates now being but were -- The just pricing has come it's North right internally they're there one battery big markets few linkage, lithium-ion segment delinked that and Europe, are in a sourcing the region for transfer more

John Roberts

like environment? M&A It you up recently. us beefed on looks there could secondly, you And update your the give an capabilities

Guillermo Novo

Well, destocking. we're we -- inventory will continuing all work to this through

dynamics not longer-term each segments for have I changed. our think the of

pharma focus dose and continues. innovation solid Our injectables oral

If in changed. side, the And coating has shift Personal happening technologies some things, of of Care, you that look natural saw expanding the not the you are portfolio. our of all the at

and this later that create year These new them. bit I a in of think little our we're opportunities hear can innovation momentum the very are launching. we'll organically, a that platforms more you'll some focus both on excited have in We're more about big lot more longer portfolios term.

the looking we're in specifically that of in areas. line, doing most are activities those And M&A

results. that is to the inventory have are we opportunities. think that rather We'd investment should with create be valuation we're our this balanced more to making going sure are there capital I it's use bolt-on don't be in And can improving build why much think, do resources there than and to financial to environment. That's going We I of M&A appropriate. very in short-term we drive to allocation. be think opportunities I the our value capital. disciplined

Kevin Willis

look we're also, and business also expanding organically really those pharma in and while continue as we're do as also a mean, Klucel footprint well. both just -- for Well Benecel and well. our capacity businesses reminder, John existing we I at increase our to facilities investing M&A to opportunities,

going should to very to to over it's other. be continue favoring to we And to all of we're want in the be us approach. not actually balanced one that. do So, a want continue And expect you We balanced so. to be

John Roberts

you. Thank

Operator

next hold Please our for question.

Jefferies. Our next question comes Alexander from Laurence at

Laurence Alexander

cadence Is impact projects what projects past talk you kind cadence Good about with activity of R&D is terms the new seeing any just on their the new with had any client the about our interest what of about Can in morning. quarters in and inquiries few of you telling choppiness you. What budgets? are they're the you development the of of R&D new like? pursuing projects incoming

Guillermo Novo

to with in pharma market around Yes. oral is I these dose, our to study, through producers. But the solid and portfolio of both long don't look groups. in strong. generic Injectable they continues two part as it hiccups. grow. as move and to split continues mean continues portfolio very Obviously, well short-term the robust I some be be would to that Laurence the a term, so of the main very tend pharma, primary

very pharma the we're side. happy So in

made their in would All of big hasn't innovation personal slowed switchover personal additives interest the side, specialty have down care. care the mean I technology. and of the commitment, terms commitments say in our I customers

that So not has changed.

XXXX this in in more and been think short-term do at focus raw last looking year, into cost, has looking reformulating alternative I at maybe some year. materials of the

I changed has we've think of anything work. terms the of little maybe in cadence. been a don't that's the strategic seen But bit in more in near-term there longer-term areas noise So reformulation their focus

Laurence Alexander

on the follow-ons if reformulation that And I may differentiated anything you're because basically library activity for have a better you, shouldn't that, return on in solutions two way? just I capital be, you and the if

is the Biotech business back Or parts then, back, it just other funding benefit ever or you it do when at some side, that? competitive comes too And and materially your would that aspects? just comes on of if have Pharma scale, from

Guillermo Novo

Yeah.

Laurence Alexander

Or you two are of just sort downstream?

Guillermo Novo

Okay. me benefit. would the with last start Well, We question. let

on dose form. oral injectables, both you biotech drugs the If a of lot look the new in the been in the solid more injectable and biotech at have of a lot

look expanding polymers. are with so portfolio we applications. of So we these High injectable the Piping area. at into example mRNA We're some of working for you the that want polyresorbable Purity our But of some

these using that some been polyresorbable to lot of so these And looking big companies, have of at higher delivering they area. use level. drugs, the Lipids a go focus new can some of polymers,

lot there's interest. customers. some We're mRNA So things developments in into with of We've our segments. just drugs, cancer those the there expanded with of the animal some of not nature customers that health, new accelerate also a working working maybe to of

that us. is So a lot exciting of activity for I think

be, change of we're big opportunities form. And delivering in oral biologics the there. start we some they oral in see say would working I some new front. new with on Equally, can these customers technologies solid dose, would And for that the

there other part We're we customers. on pretty on your in of a have a formulation, question lab think regional the And strong I we so -- regional always big our the footprint. portfolio very our reformulation. first have with

raw formulations have or else anybody the optimize formulations work So we're they were their rebalance when in and they them materials to ours do working to shortage on with reformulating replace that to that.

of innovation the in And process part of that's Care. the sort Personal

In regional ingredients formulate and Care, two can with have they of introducing and so can the working them incorporate our developing you list and the into core labs activities. central that the ingredients that new approve them their the and Personal customers One, -- new groups they then innovation in products.

those then their innovation formulation with and new also into that ingredients improved but work on new cutting-edge the them we both type enabling we side formulations at side ingredients So work the old activity.

So we'd both.

Laurence Alexander

Great. you. Okay. Thank

Operator

next our for hold Please question.

Jeffrey comes Zekauskas Our question from next JPMorgan. at

Jeffrey Zekauskas

that much. Thanks is you cash year the flow months the idea for flows cash changed or flows of Have operations free very for your pretty from first minimal? and cash your six

Guillermo Novo

bit color. think me let can Let and Kevin little comment me I -- put the a -- make more a you

big flow impacts this has first part inflation reset inventory been and year. is of year a a issue use last I whole last the inventories the of into think cash cash with

has want know that's you outlook repurchase. been cash give we're equipoise higher-end on forward. don't call I of the cash has been the other And of action to to a talked share we've we the our CapEx taking that Klucel right that the Kevin done now flow. reasons where the HEC that and Benecel The as color the doing. of move cash don't inventory that some on seen are That's use one flow we earlier continue. things Kevin But applying we've in we're one about So also that investing cash want that the segments and we if any of we're

Kevin Willis

the in majority all tends will year. the cash of That's to our stronger of Free normally always flow when cash. we second be generate Yeah. the half

So inventory. presuming and we fact in hold reduce line working the capital on

QX QX flow solid. be in expect cash QX So would and would I QX -- pretty and our

Jeffrey Zekauskas

lastly, in solvents or flat? is upward operating trend and downward then or And the intermediates in income

Guillermo Novo

the So, in trend segment. intermediate a clearly of don't has BDO. lot sell the We softened

total our has So if you down. segments, look pricing BDO at come

So our transfer down. has internally pricing come

benefit that's expense we're seeing sort pocket little our a terms and it the that. at switch of in So, of intermediates downstream bit of, will

seen this price in but of BDO, sell, lot We we we erosion. a BDO sell don't the have

polyurethanes -- as think things think in nature. reopens, that and that high-volume market I segments I and into goes we'll the of fibers

we where It's just of core, swing what not do. it's our we put the So volume.

the has at if for slowed a you and is as A when a But investment battery. in NMP of corrections look have in -- There's so us core the buying, investment -- some both really that. Europe. -- energy huge people that's for are lot inventory into XXXX, of comes really more. both down. going that feeds and and lot into going lot regions The the of a the in this lithium-ion XXXX, is It lot the and transformation to going investment of BLO that's US sort for areas lot that in taken space. People of a the XXXX a in, US the Europe is capacity this on new and of it

be NMP based pricing. our sort will independently, there. than volatile not So and this and BDO in on parts well portfolio, suppliers at point totally their but time. They're big of we're have dynamics. we one not They're tracking We're our And delinked in own our the tracking of positioned. they're of more BLO separated other

Jeffrey Zekauskas

Thank very you much. Great.

Operator

Thank your time, this Chairman question. At to for would turn you to CEO like back I remarks. it Guillermo for Novo, and closing

Guillermo Novo

thank and your so you everybody, your you thank and much interest. for questions Amber, Great.

will answer Hopefully, seeing appreciate meet you many weeks. we the look questions. Thank other we'll of soon. forward chance road to your on a the and and coming you to be But over We get you. interest,

Operator

your in Thank you does participation conclude for program. conference. the This today's

now disconnect. may You

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