Ashland - Earnings Call - Q2 2016
April 27, 2016
Transcript
Speaker 0
Good day, ladies and gentlemen, and welcome to the Ashland Incorporated Second Quarter Earnings Conference Call. At this time, all participants are in a listen only mode. Later, will conduct a question and answer session and instructions will follow at that time. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference Mr.
Seth Morozak, Director of Investor Relations for Ashland Incorporated. Sir, you may begin.
Speaker 1
Thank you, Chanel. Good morning and welcome to Ashland's second quarter fiscal twenty sixteen conference call and webcast. We released preliminary results for the quarter ended March 3136 at approximately five p. M. Eastern Daylight Time yesterday, April twenty six, and this presentation should be viewed in conjunction with the earnings release.
Additionally, we posted slides and prepared remarks to our website under the Investor Relations section and have furnished each of these documents to the SEC in a Form eight ks. On the call today are Bill Wolfson, Ashland's Chairman and Chief Executive Officer Kevin Willis, Senior Vice President and Chief Financial Officer Luis Fernandez Moreno, Senior Vice President of Ashland and President of the Chemicals Group, which includes Ashland Specialty Ingredients and Ashland Performance Materials and Sam Mitchell, Senior Vice President of Ashland and President of Valvoline. As shown on slide two, our remarks include forward looking statements as such term is defined under U. S. Securities law.
We believe any such statements are based on reasonable assumptions, but cannot assure that such expectations will be achieved. Please also note that we will be discussing adjusted results in this presentation. We believe this enhances understanding of our performance by more accurately reflecting our ongoing business. When discussing Ashland Specialty Ingredients, we also refer to core markets. These are the highly differentiated markets of personal care, pharma and coatings which we identified during our November 2015 Investor Day as core platforms for targeted growth.
In addition, two weeks ago, we announced an update to our separation plans including our plan to IPO up to 20% of Valvoline. We understand you may have additional questions about our plans. However, we are now in registration under U. S. Securities laws and there are strict limitations on the information we can share with you prior to filing a registration statement.
We expect to file a registration statement in mid calendar year twenty sixteen. I will now hand the presentation over to Bill for his opening remarks.
Speaker 2
Thank you, Seth, and good morning, everyone. Earlier this year during our first quarter earnings call, I referenced that Ashland has established four core priorities for fiscal year twenty sixteen. First and foremost, our priority is to keep a strong focus on executing at a high level on our core strategies and business plans. To that end, during our quarter, we outlined our expectations for each of our business segments and the company in total. I am pleased to share with you this morning that during our second fiscal quarter, all three businesses performed at or above the estimates we shared with you during our Q1 earnings call.
In addition, as we will discuss later, our estimates for the remainder of the fiscal year remain unchanged and are aligned with current Street estimates. From an operating perspective, Valvoline had a record second quarter. As Sam will describe in a few minutes, the Valvoline team drove strong performance. The ASI team delivered results in Q2, which were above the midpoint of their estimates. As Luis will share with you, headwinds in the quarter from energy related end market, FX and divestitures were much lower than in the prior fiscal quarter.
In addition, we expect those headwinds to further abate in our third fiscal quarter before we ultimately lap them in Q4. Finally, the Performance Materials business was ahead of our expectations, albeit at a low relative level due to continued weakness in their intermediates and solvents end market. All said, in the aggregate, the combined results exceeded our previously communicated expectations. From a strategic perspective, we are keeping a laser focus on driving innovation, commercial excellence, world class operations and focused capital deployment. The Ashland team is aligned with these priorities and is executing at a high level.
During the quarter, Ashlyn received a top innovation award during the recent In Cosmetics tradeshow. That recognition is for a new novel multifunctional hair care product, which is used to provide both conditioning and styling benefits. Also during the quarter, Ashland received an award for management and commercial excellence from a major paint producer. This is the second year in a row that Ashland has received this important recognition. Also, as a result of our world class operations, ASI was recognized as the supplier of the year by a major cosmetics customer.
That customer highlighted our strong quality results, outstanding shipping performance and effective global supply chain. In terms of focused capital deployment, during the quarter, we made significant progress towards completing our previously announced Opal, Virginia and Nanjing, China capacity additions. Both of these expansions are being made to support growing customer demand for our value added cellulosics technology platform. Our second core priority for fiscal year twenty sixteen is to increase our cash conversion. In this area, we generated $134,000,000 of free cash flow in the quarter and we remain on track to produce between $325,000,000 and $350,000,000 of free cash flow this year.
Our third core priority for Ashland is to maintain our disciplined capital allocation. In support of this objective, during the quarter, we completed the previously announced acquisition of Oil Can Henry's. This acquisition expanded Valvoline's instant oil change store count by nearly 10% and also represents a major expansion of Valvoline's brand position into several key Pacific Northwest markets. We also completed our previously announced accelerated stock repurchase program this quarter. In total, this program resulted in a net purchase of approximately 5,000,000 shares procured at an average price of $99 per share.
Ashland's last but not least core objective for this fiscal year is to successfully separate Ashland into two great companies and to utilize the separation as a catalyzing event to improve both businesses. In this area, the Ashland team has worked hard and made tremendous progress. I'm pleased to report that the separation is on track. Subject to required approval and market conditions, we expect to complete the Valvoline initial public offering in the fourth quarter of this calendar year. We believe that pursuing the IPO is the right first step as we seek to deliver on our separation objectives and position the two respective companies to pursue their long term strategies.
The IPO is intended to help create two strong independent companies. Consistent with the objectives we communicated last September, at the time the original separation announcement was made, we are targeting to have mid to high BB credit rating profiles for both companies. In addition, we believe the IPO will help drive industry specific research coverage for Valvoline. And finally, we believe the IPO will enable us to establish a core shareholder base for Valvoline ahead of distributing Valvoline's remaining shares to Ashland shareholders. That distribution is expected to occur upon expiration of the IPO lockup period, which is typically six months after completing the IPO.
As I referenced a few minutes ago, we are also seeking to leverage this separation as a catalyzing event to make these two great businesses even better. We are seeking to ensure that both companies have a competitive cost structure. So during the quarter, we made the difficult but necessary decision to freeze our pension and reduce retiree medical and life benefits. We are in the process of leveraging the separation to rethink our IT systems, shared service centers, as well as compensation systems with the goal of aligning them to the differing needs of the two respective businesses. We have also created what we call engagement teams, which are largely focused on New Ashland and they tap into the capabilities and energy of our employees as we seek to drive meaningful improvements in our operations.
Just yesterday, I met with an engagement steering team, which is working to enhance our lean Six Sigma capabilities. In addition, we recently reviewed the results of an engagement team which is focused on tapping into the broader organization to identify simplification opportunities. And to date this team has identified over a thousand opportunities. And finally, just two weeks ago, Luis and I met with an engagement team which is looking to help us rebrand the new Ashland with a goal of creating a more aligned identity both within and outside of the company. While we don't have time to delve into all of our engagement team efforts, what is clear to me is that our original thesis that the chemicals and valvoline businesses are sufficiently different that the creation of two focused and independent companies will give us the opportunity to improve our business operations.
For this reason, we continue to believe the two respective companies will be stronger apart than together. I will now turn the call over to Kevin to share more details regarding our financial performance in the quarter.
Speaker 3
Thanks Bill and good morning. Yesterday, we reported GAAP earnings from continuing operations of $1.38 per share. When adjusted for key items, earnings per share were $1.83 a 10% decline from prior year. In the aggregate, Ashland generated adjusted EBITDA of $274,000,000 ASI reported continued growth and notable business wins from new technology applications in several core end markets. We saw improved demand in developed regions, especially as the quarter progressed.
These were offset by weak emerging markets. Performance Materials returned another solid quarter due in large part to pricing discipline amid a favorable raw material cost environment. Valvoline continues to execute at a high level and delivered yet another record quarter of profitability. As expected, the headwinds we have faced for a number of quarters from foreign exchange, weak energy markets and divested product lines began to recede. The year over year impact from these headwinds to both sales and earnings was substantially less than last quarter.
We see these headwinds further abating in our Q3 and lapping them by Q4. While we remain cautious about customer destocking and evidence of trading down in emerging markets, we are encouraged by the relative strength we are seeing in the developed regions and the improving trends demonstrated throughout the course of the second quarter. Now for a few corporate items. During the quarter, our effective tax rate adjusted for key items was 22. For 2016, we continue to expect our full year tax rate to be at the upper end of the 24% to 26% range.
Capital spending in the quarter totaled $50,000,000 We continue to expect capital spending this year to be in the range of $320,000,000 to $340,000,000 driven by our previously announced capacity expansions at Hopewell Virginia and Nanjing China to support growth in our value added cellulosics technologies. In addition, we are continuing the investments to upgrade Valvoline's digital marketing and infrastructure. Free cash flow in the quarter totaled $134,000,000 The increase over last year was due primarily to the timing of cash tax payments and working capital. We continue to estimate free cash flow of approximately $325,000,000 to $350,000,000 for the full year. As Bill mentioned, during the quarter we completed the previously announced $500,000,000 accelerated share repurchase program.
We repurchased approximately 5,000,000 shares at an average volume weighted price of about $99 per share. At this time, we have no current plans to pursue additional share repurchases under the existing authorization. Regarding our outlook for the second half of the year, we are aligned with current consensus adjusted EPS estimates, but note that our tax rate could go higher if the income mix is more North American driven. With that, I will now hand the presentation over to Luis to provide more color on results for the Chemicals businesses for the quarter.
Speaker 4
Thanks, Kevin. Good morning. Overall, I am pleased with the progress we made during the second quarter. As Ashland Specialty Ingredients sales of $529,000,000 were at the upper end of our expectations. We continue to face headwinds related to energy markets, divestitures and FX, but the year over year impact was much lower than the previous quarter.
We continue to see share gains in our core markets like pharmaceutical coatings and hair care. Growth in the high margin business together with our productivity initiatives and price discipline resulted in EBITDA of $127,000,000 at a strong 24% of sales. Even as we saw improvement in business conditions as the quarter evolved, especially in mature economies, We continue to see a slowdown in emerging markets like Brazil and China. This slowdown impacted the consumer specialties business where sales declined 6% or 4% when adjusting for currency. The oral and skincare markets were most impacted as consumers in emerging regions traded down to lower cost products and our customers continue to manage their inventories.
Within Industrial Specialties, sales declined 13% or a currency adjusted 12%. The previously mentioned headwinds accounted for the majority of the decline. Energy sales declined 57% versus the prior year, but volumes appear to have stabilized. Within coatings, we captured new businesses from several customers in North America and Asia. As we expected Adhesives returned to low single digit growth.
Looking to the third quarter, we expect to see continued benefit from sales and productivity initiatives and growth from the higher margin core growth end markets. We expect to substantially lap the headwinds from currency, energy and divested product lines, assuming foreign exchange rates remain at the current levels, particularly the euro at $1.13 We estimate third quarter sales to be in the range of $555,000,000 to $575,000,000 Adjusted EBITDA for the quarter is expected to be slightly above the level achieved last year. Let's turn to the next slide and I'll walk through the second quarter results for Performance Materials. APM reported solid results in the second quarter, which exceeded our expectations. While composites volumes were generally soft, overall margins were better than we expected, reflecting pricing discipline amid favorable raw material costs.
Composites volumes in Europe continued to rise as customers increasingly adopt our value added products for residential construction applications. However, volume strength in Europe was offset by slowing industrial growth in other regions, notably China and Brazil. Sales to North American energy markets also continued to be weak. Lower pricing driven by reduced raw material costs led to a 14% decline in overall composite sales during the quarter. Within Intermediates and Solvents, overall results were generally consistent with the company's expectations as VDO volumes and pricing were headwinds to sales and earnings.
When compared to the prior year period Intermediates and Solvents sales declined 19%. When combined these factors led to 25% year over year decrease in APM's EBITDA to 33,000,000 Sales totaled $239,000,000 down 16% from prior year. Looking to the third quarter, the underlying performance deposits should remain solid, though we are starting to see the impact of rising raw material costs. We also believe that industrial weakness particularly in China and Brazil will persist into Q3.
Speaker 5
In total, we expect sales of between thirty five million and two fifty million dollars and EBITDA margin of 12% to 13% for the third quarter. I will now hand the presentation over to Sam for a summary of Valvoline's second quarter results. Thanks, Luis. Valvoline reported yet another record quarter. Strong results across the businesses continued with volume growing 8% and EBITDA also rising 8% to $115,000,000 EBITDA margin was 24%, a 200 basis point increase over the prior year.
Total sales were flat at $479,000,000 as strong lubricant volumes and product mix were offset by pass through pricing from lower raw material costs and currency headwinds. Volume to customers serving the DIY market grew by 8% driven by strong seasonal promotions and expanded distribution arrangements with national retail accounts at Walmart and Menards. At Valving Inch and Oil Change, same store sales rose nearly 10% at company owned sites. We also experienced strong results in oil changes per day and mix of premium oil changes. In addition, as expected during the quarter, we closed on the acquisition of Oil Can Henry's.
As of March, Valvian's Oil Change had a total of ten fifty two company owned and franchise stores within its network, a gain of 120 stores versus a year ago. This includes the 89 Oil Can Henry stores that we acquired. We are very pleased with the integration progress as we bring these stores onto our operational system. Within Valvoline's international channel, volume grew 10% driven by good execution of channel building efforts. Volume growth in Europe, Asia and within our India JV was especially strong.
Valvoline's overall mix continued to improve with U. S. Premium branded lubricant sales volume increasing to 44.6, a three ninety basis point improvement from the year ago quarter. Looking to the third quarter, we expect to continue our solid performance across all channels in what typically is our strongest seasonal quarter. We expect sales to be in the range of 500,000,000 to $510,000,000 and EBITDA margin to remain healthy in the range of 23% to 24%.
I will now turn the call over to Bill for his closing remarks.
Speaker 2
Thank you, Sam, and congratulations on a record second quarter. Looking forward, we remain committed to and focused on our four core priorities. Operationally, our outlook for the remainder of our fiscal year remains unchanged and as Kevin articulated in line with current Street estimates around EPS. As Luis highlighted, within ASI, we see recent headwinds abating. We are looking forward to getting those behind us so we can more clearly show the underlying strength of our core business platforms and our competitive strategies.
Also, as Sam shared, the Valvoline business remains strong. As for our second core priority, as Kevin mentioned, we are on track to deliver $325,000,000 to three fifty million dollars of free cash flow this fiscal year. Thirdly, from a capital allocation perspective, we will remain disciplined. It is our priority to create two great companies. With that in mind, we are working to strengthen our balance sheet and we don't have any current plans to utilize the remaining $500,000,000 of our Board share purchase authorization.
I want to make sure we leave time to answer your questions. So I'll bring our comments to close by emphasizing one, the Ashland team is executing at a high level across each of our four core priority areas. Two, in the second quarter, we performed better than we anticipated at the start of the quarter. Three, our outlook for the remainder of the fiscal year is unchanged. And fourth, and finally, we remain on track to separate into two great independent companies on budget and on time.
Thank you for listening in on today's call and I'll now turn the call over to the operator to take your questions. Operator?
Speaker 0
Thank you. First question comes from the line of Mike Sitzman of KeyBanc. Your line is now open. Please go ahead.
Speaker 6
Hey, good morning guys. Nice quarter there.
Speaker 2
Thank you, Mike.
Speaker 6
First question to Sam. It's been a long time since I've seen 8% growth in gallons for Valvoline. That's great. Can you maybe talk about sustainability at that level? I know there's I think oil cans in here a little bit.
But when you think about the next couple of quarters and next year, what type of growth rate do you think you can sustain?
Speaker 5
Yes, 8% indeed was a very strong volume growth quarter for us and certainly I was pleased with that. We saw the performance across all aspects of the business. But it is a higher growth rate than what we expect out of the business and what we've shared in the past. Go back to Investor Day, 8% is really close to double what we would expect our longer term volume growth rates to be. But we benefited as I noted from particularly strong DIY performance with very good promotional execution, picked up some new distribution which is always helpful and then good strong performance from the international business and that's a business that we do expect to grow at a higher rate.
And of course, the Quick Lubes business with the addition of Oil Can Henry's was helpful.
Speaker 6
Okay. And then Bill, when you think about the Chemical businesses in total, it's the first time in a while that it's really performed well relative to expectations and it sounds like you're confident enough to maintain the outlook for the second half of the year. Anything in particular when you take a look at ASI and Performance Materials that gives you confidence that you're still on track for twenty fifteen twenty sixteen, I'm sorry.
Speaker 2
Sure. And clearly over the last year the headwinds that we've talked about related some are very visible like the FX, we see the exchange rate change and so forth. Others where we've divested or exited specific product lines are a little bit harder to see as you sit there. And so we see that beyond that, the business has had some very strong performance across a variety of dimensions and continues to move forward on strategic platforms that we have within the business. And so from my perspective, and I think, shared by the whole team here, as we put those behind us, then you begin to see more or less the real performance of the business and the business that is the basis for us moving forward.
And that's really what's driving our sense of comfort and confidence that we'll see improvement in the business. Basically, it's lapping those headwinds.
Speaker 6
Great. Thank you.
Speaker 0
Thank you. And our next question comes from the line of Christopher Parkinson of Credit Suisse. Your line is now open. Please go ahead.
Speaker 7
Perfect. Thank you. You mentioned some pressure from emerging markets regarding trade down, destocking, etcetera, although you noted it got better in the quarter. Can you just talk a little bit about these trends how long do you think they'll last, etcetera? And whether or not you have any new products in oral and skincare to launch in the back half of the fiscal year?
Thank you.
Speaker 4
Good morning, and this is Luis. Very good question. Just to provide a little bit more detail, what we are seeing in places like China and Brazil is that the consumer is picking some of the lower cost brands in the marketplace. And as we normally participate in the higher value add products that our customers make, that has had an impact on the short term demand of our products. My perspective is that those people trading down is not necessarily a long trend.
So I would expect that as time evolves and people feel more confident about the economy on those geographies, they will get back to the better products. And that's expectation. The second element is on innovation and we continue to work on not only developing, but introducing new products in the marketplace. We have a very strong pipeline of innovations coming that we have been introducing. As Bill mentioned, we just got a recognition at the In Cosmetics show for a new product that we introduced last year.
And we expect the benefit of those new product introductions to start hitting our ability to grow faster in those markets. The trading down is very much a trend that we're seeing in places like China and Brazil more than anything else.
Speaker 7
Perfect. Thank you. And just in the longer term, as far as reaching your longer term margin targets for ASI, can you just talk a little bit about how growth and comps are evolving versus your original expectations? And also how much new product growth as a percent of your mix is integral to these targets? Just in general, anything about your projected growth mix and pipeline would be appreciated.
Thank you.
Speaker 4
Sure. Are currently at a 23% to 24% EBITDA margin. Our expectation or where we expect the business to be is between 25% to 27. The way we're going to get there is first and foremost, we continue to enhance our growth in our high margin products, which are the newer, the more differentiated product lines and as we gain businesses on those, we get the benefit of that higher margin. That is mostly driven by new products and innovations.
The second element of the equation is we also work on productivity initiatives to make ourselves more competitive in the marketplace and that is driving also the margin improvement. When it comes to timing, we're somewhat delayed mostly due to the headwinds that we discussed in the past around FX and energy, but the long term target hasn't changed and we expect to get there in the future.
Speaker 2
Perfect, I'd thank you very just add to Luis's comments by saying, as you may recall from our investor deck, we really tried to outline those core areas which are the primary focus areas for growth and differentiated combined with, certain parts of the niche segment which are also very differentiated. And what the ASI team has done a great job of is orienting a lot of their sales, a lot of the capital investment, and a lot of the innovation effort around those areas. So in the future, while we haven't stated a number, we would like to and expect to see that portion of the portfolio, that core and niche portion grow relative to the foundational. And that in and of itself will also help to move the business forward on a mixed basis.
Speaker 3
And in addition to that, as we do grow the top line at what we expect to be a faster rate going into the future through this innovation pipeline, we would expect to create leverage at the SG and A line.
Speaker 4
The team has
Speaker 3
done a really good job with cost discipline and continues to do so and we'll remain very, very focused
Speaker 2
on that going forward.
Speaker 7
Helpful color all around. Thank you very much.
Speaker 0
Thank you. And our next question comes from the line of David Begleiter of Deutsche Bank. Your line is now open. Please go ahead.
Speaker 8
Thank you. Good morning. Good morning. In November, you commented that on composites that if it could improve margins, you think it would likely be retained. It sounded early, but halfway through the year, is this business on track to in your mind to be retained?
Is it showing that margin potentially you think it needs to be to stay here long term in the portfolio?
Speaker 2
So first of all, the reference point I think that you're mentioning is the comments around as we move forward with the separation, we think this is, if you will, the right set of businesses to relaunch the chemicals business as a new entity and enterprise. And that we're we've seen and remain optimistic that the composites business will see margin improvement because they're focused on differentiation, the if you will, the marketplace is changing and consolidating. So with that, we're optimistic about the trends that likely to see in the intermediate to long term. What we've also said is that when it comes to the foundational portion of the business, it's an important part of our overall system and it helps to produce, for example, North American cash, which is valuable. But at the same time, we're going to continue to evolve the company.
We're going to continue to reflect upon not just composites, but all of our businesses. And just as the company has done in the past, I think we'll make the right kind of decisions about what best fits over time in our portfolio and what we ultimately might like to get into, as well as other areas that might not have as strong of a fit. So again, that answer is more general than specifically, for the composites business. But I think it's applicable in broad thinking. We very much like way the business is being run.
We think we have, really a great cost structure within the business, but we also recognize it's not the, highly differentiated specialty chemical type business, mainly because it's a big portion of the customer's overall end cost. And so there's more price sensitivity in that area.
Speaker 9
I hope that gives
Speaker 2
you a broader perspective on the issue.
Speaker 8
Thank you. And Louis, just on your ASI, as oil prices move higher now, what's the impact on your business in terms of either pricing, volume, competitive position? How do you view that?
Speaker 4
Hi, David. So a couple of comments. When it comes to ASI, just as we've seen over the past, from a raw material perspective, ASI has little impact when it comes to oil prices, both on the way down and the way up when it comes to margins. So it may be a small impact, but it's going to be really muted. When it comes to composites, the story is very different.
Composites oil is a big impact on the raw material costs and we traditionally have been able to either pass the price increases or have to pass the price increases over time. So I am not concerned on the long term EBITDA dollars generated by the business, but as oil prices go up and if they go up too fast, it's just impact of the price lag, which impacts every chemical business that has that raw material exposure. But the overall long term, the margins, I think that we've moved the margins in a place that I feel very comfortable that will keep even as oil prices go up.
Speaker 8
Thank you very much.
Speaker 0
Thank you. And our next question comes from the line of John Roberts of UBS. Your line is now open. Please go ahead.
Speaker 10
Thanks. Could I ask how your API sales are distributed between the global consumer product firms and pharma versus the local and regional firms? I ask that because I think the local and regional customers have been significantly outperforming the more global firms and I think it's the big global firms that have been doing destocking and cost saving programs.
Speaker 4
So that's a good question. I mean, one, we actually don't sell APIs into the pharma market. It's excipients. The reason mentioned they are excipients is because we sell to both branded products as well as Generic materials. And we normally don't publicize the split between how much goes into the branded products versus how much goes into the generics.
But we've continued to make a large investment on the generic side to make sure that we are able to participate in both ends of the market. And when it comes to the consumer side on the personal care side, you're right that a lot of the actions have been taken by the large global companies, but we've seen also some level of inventory management by the smaller companies.
Speaker 2
Just to add a little more color also to what Luis mentioned, it was a month or so ago that Kevin and I traveled to India and the team has really done a nice job to set up a local lab that can support the local producers. We had the chance to meet with one of the larger companies, which is primarily focused on the generic, market, if you will. And I would say it's fair to say that they viewed us as a strong partner with our labs helping and working together to really make both companies successful. So I think as that trend emerges more and more, I think we're well positioned to move with the market.
Speaker 10
For example, IFF talks about half of its sales roughly being to large global customers and half being to local and regional customers. Is there a way to think about a cut for your business along those lines approximately?
Speaker 2
Well, as Luis mentioned, we really haven't shared, in the past that level of detail. Rather than try to cite a number down, you know, ultimately will be as we, if you will, emerge and discuss more specifically the new Ashland, this might be a clarification that would be good to provide in that context.
Speaker 8
Okay, thank you.
Speaker 0
Thank you. And our next question comes from the line of Your line is now open. Please go ahead.
Speaker 11
Thanks very much. Valvoline's volumes grew 8%. Was half of that due to Oil Can Henry?
Speaker 5
No, it wasn't. Oil Can Henry, while it contributed was a relatively small part of the volume growth for the quarter.
Speaker 11
2%?
Speaker 5
Less than that.
Speaker 11
Less than that. Okay. Are there, planned price increases for Valvoline now that raw materials are going up or with the way that margins have been going and you've been benefiting from raw materials in various ways that there are not planned price increases?
Speaker 5
Price increases and our pricing model, Jeffrey shared some detail around that back in January 2015. And when we look at the third quarter, our prices will adjust accordingly for some of the contractual accounts as we had shared. So as raw material costs move up or down, that certainly affects those contractual prices.
Speaker 1
And Jeff, this is Seth. Just as a quick follow-up to Sam's comment, given that we are now in registration with Valvoline, we're not in a position to comment on those dynamics beyond the Q3 time period.
Speaker 11
I see. Okay. Can you clarify your share repurchase intentions? I think you said that you're currently not planning to buy back any more shares. I guess that means for the coming quarter, do you have a timeframe at which you wish to complete your $1,000,000,000 buyback or there's no timeframe?
Speaker 3
Well, the authorization expires in December 2017. As we said in remarks, we don't have any current plans to repurchase shares as we move through the separation process.
Speaker 11
So do you plan to complete it by December 17 or you don't?
Speaker 2
At this point we haven't come if you will to a conclusion about that. But we do think that right now as we are going through the separation, the focus is on really strengthening the balance sheets and making sure the two respective companies are strong companies. And so we just don't have any specific plans, so it's hard to reference what those plans could be further down the road.
Speaker 3
I do think it's probably noteworthy that since August 2014, we've repurchased almost 17,000,000 shares at an aggregate cost of just north of $1,800,000,000 So you combine dividends with that over the period and we're about $2,000,000,000 of capital returned to shareholders since late twenty fourteen.
Speaker 11
Thanks. Just one final question. Last year, if you could remind me, how fast did the DIY business grow in the second quarter, if it grew?
Speaker 5
I do not have that handy right now, Jeff.
Speaker 11
Okay, great. Thank you so much.
Speaker 0
Thank you. And our next question comes from the line of James Sheehan of SunTrust Robinson Humphrey. Your line is now open. Please go ahead.
Speaker 5
Thanks for taking my question. On Valvoline, you've mentioned in the past that the best metric to be focused on in terms of profitability is the profit per unit. Could you give us a little color on where that metric would stand today and what your outlook is going forward in the second half?
Speaker 2
This is Bill. I'll start off as the comment I think I had done. So I'm sure Sam's referenced as well. The context for that is and the answer around that is really that as oil because there's a lot of question about oil prices and the impact on margins and if oil changes as a fundamentally either higher or lower, what will that do in terms of your percent margins? And so the reference point is when we look at gross profit, we're really focused on trying to improve the profitability per store, the profitability per gallon.
And the business has had a strong historical trend of improving that and improving that through different points of the cycle when oil prices have gone up and when oil prices have gone down. And so it's difficult to predict what will happen with oil prices in the future, certainly is our objective to continue that trend. So that's really the reference around that. Haven't shared, I don't believe a table or a chart which once again maybe something that we can look at in the future, but that would get to this, profit per unit, per gallon, per quart, however, it should be best represented because it's a better metric in sense of understanding the underlying improvement in the business versus what's happening with oil prices, which as you know is such a big part of the overall cost of goods sales.
Speaker 5
Yes, that's right. Our percent margins are higher today because of the reduced not only the reduced oil cost, but our reduced prices. And if prices move up then certainly that has an impact on the percent margins. But we're very focused on managing those unit margins. Great.
And you mentioned you're pleased with the integration of Oilcan Henry. Could you talk about how that integration is going? Give us a little more color on that. And what kind of accretion, if any, are you baking in from Oilcan Henry in 2016 and 2017? Yeah, can really only comment on the integration work.
And, I'm very pleased with the work of our teams. The valving team has worked closely with the team out at Oilcan Henry's. And they're a talented team and they're learning fast. And essentially we've completed the conversion of all the company Oil Can Henry stores to the Valvoline point of sale and operational system. And, so that's going exceptionally well.
And so the next phase will be, completing the conversion of the franchise stores, later this summer.
Speaker 2
I want to be clear, and just emphasize what Seth said, because we want to answer your questions. There are some limitations now and it makes it difficult to talk about, you know, next year and the year after that. There'll be a time for that. But right now, based upon the IPO process, we just can't speak to that. So we're not trying to avoid giving you a more fulsome answer as it relates to the future.
Speaker 8
Thank you.
Speaker 0
Thank you. And our next question comes from the line of Dmitry Silverstein of Longbow Research. Your line is now open. Please go ahead.
Speaker 12
Thank you for taking my call.
Speaker 4
A couple of questions on
Speaker 12
the ASI part of the business. You talked about adhesives and coatings growing for you and adhesives getting back to low single digit growth on year over year basis. How did your coatings business do? And did you see a significant difference in the results between the faster growing Asia Pacific market? Is it still the faster growing market for you?
But you also mentioned picking up some business in North America and elsewhere. So if you sort of look at regionally at your Coatings business, it now, I guess, little bit more stable in the sense that it's getting growth from more than one geography?
Speaker 4
Hi, Dmitry. Yes, a couple of comments on that. The coatings market actually for us during the quarter was flattish. Having said that, what we're seeing is tremendous gains on market share. And the trends in the short term have been that developed markets are doing very well.
They're growing, but they are being compensated by a slowness in the emerging markets. So longer term and what we're seeing and what we're forecasting is that coatings will continue to show healthy growth in the 3% range. And we are, as I said, gaining shares, we gain share as we get new businesses from new products. The Adhesives business, as I've mentioned in the previous call, is mostly a North American business and not in Europe. Because that's in the developed markets which are doing well, that continues to do very well.
Speaker 12
Okay. So Luis, if I understand you correctly, your business in emerging regions actually declined in coatings year over year?
Speaker 4
For the quarter, we had a slight decline in those regions for the But again, I don't think that's a long term trend.
Speaker 12
I don't disagree. On the Valvoline side of the business, you mentioned approximately 10% growth in company owned stores of Amylin Instant Oil Change. What was the growth in franchisee stores? I guess I'm just wondering why you called out company owned stores. Was it different for franchisee stores?
Speaker 5
Well, first of all, 10% growth largely driven by the Oil Can Henry stores, the 89 stores. So that was we had total store growth of 120 stores.
Speaker 12
volume growth on year over year basis. You talked about Gilmich being up 10% in
Speaker 4
that. Okay.
Speaker 5
Yes, was the same store sales performance for our company stores. That's a number that we refer to fairly often. It's a good indication of how the overall system is performing too. And typically our franchise stores are performing very close to the company stores. And that was indeed the case in the quarter.
Speaker 12
Okay. That's all I was trying to make sure that there was not a big discrepancy between company owned stores and franchisees. That's all the questions I have. Thank you.
Speaker 2
You bet.
Speaker 0
Thank you. And our next question comes from the line of Laurence Alexander of Jefferies. Your line is now open. Please go ahead.
Speaker 8
Good morning. Good morning.
Speaker 13
Two quick ones. For ASI, you call out a few different areas with some share gains. Can you give us a sense for what that means in terms of your year over year sales growth once you've lapped those as a run rate basis? Is that going to add a percent or two to sales or is it going be smaller than that? And secondly, when you lap the energy headwind in the back half of the year, how much of a headwind were you seeing in the first half?
I mean, if you may put it in perspective.
Speaker 4
Okay. So a couple of comments regarding the question. I mean, I normally do not talk on the specifics of any business gain in terms of adding the specific percentages. Just suffice to say that those are very important and relevant businesses that we've gotten and they are part of our expected growing above the GDP level or above them than the normal market growth. And we expect to be that in the the growth rate is 3%, we expect to grow at around 4.5%.
Those gains is what allow us to beat the normal growth rate of the markets. In terms of the first half headwind of energy, that represented $45,000,000 of sales that we will obviously not have as we lap those moving forward both in Q3 and Q4.
Speaker 13
Thank you.
Speaker 0
Thank you. And our next question comes from the line of Mike Harrison of Seaport Global Securities. Your line is now open. Please go ahead.
Speaker 8
Hi, good morning. Good morning, Mike.
Speaker 14
Luis, you noted some inventory destocking that's going on now for the second quarter in a row. Can you quantify the magnitude of that destocking? And maybe whether it was more or less than what you were seeing in Q1? Do you have any idea where inventory levels are right now and maybe the timing of a return to normal buying patterns?
Speaker 4
Yes, that's a very good question. And one of the things that I mentioned is that we saw improving comparisons during the quarter. So I would say that most of the inventory management that we saw from our customers happened during January and maybe the February. What we saw at the end of the quarter was normal buying patterns from those customers. What also is clear now, we understand a little bit more how much of the destocking was stocking and how much was actually the consumer demand in emerging markets being impacted by the trading down.
And again, we have built that into our estimates. But I would say that from
Speaker 5
a destocking perspective, the
Speaker 4
biggest timeframe was November, all of December, most of January and somewhat at the February with more of normal purchases in the end of the quarter.
Speaker 14
All right. And Sam, in terms of the premium lubricant mix, obviously a large number of newer cars that are being sold now are specking in premium lubricants. Is that the main driver of the increase in the premium mix? Or are you starting to see that people who previously used conventional are switching to synthetic so they don't have to change as often? And I guess the next question is, what's the upper limit for premium mix?
Is 50% the number? Is it 60%? How high can it go?
Speaker 5
Yes. The synthetic mix is definitely going to continue to grow because as you mentioned, a lot of the newer vehicles on the road are requiring synthetics. So it's really driven by those new car specs, less so much in that people are looking to extend their drain intervals. That's not really a factor in choosing synthetics. And then the other portion of the premium mix is of course our continued growth in the MaxLife brand for the higher mileage engines.
And the average age of the cars on the road continues to grow. It's about eleven point five years now. And so that continues to present a nice opportunity for the for Valvoline, but also for our customers to improve their premium mix and profitability. So both synthetics and high mileage are excellent opportunities for growth. As far as the upper limits go, synthetics new cars requiring synthetics, it's a significant part of the mix now.
And by 2020, it's going to be that much greater too. Don't have the number right at hand, but I think it's close to 75% by 2020 as far as new cars expected to require synthetic oils.
Speaker 14
All right. And then last question I had is for Kevin. Just making sure I understand the corporate and unallocated income. It was quite a bit lower in the second quarter. For the full year, you're still guiding to 40,000,000 to $50,000,000 positive for corporate and unallocated.
So does that mean in the second half, we're a little bit north of where we are even in Q1?
Speaker 3
Yes, in total we expect to be pretty close to that number. The big driver in the quarter was environmental.
Speaker 14
All right, thank you very much.
Speaker 0
Thank you. And our next question comes from the line of Edlain Rodriguez of UBS. Your line is now open. Please go ahead.
Speaker 9
Thank you. Good morning. I mean this is mostly I mean this is like a follow-up to ASI. I mean within Consumer Specialties there, mean you've talked about customers trading down. Like when was the last time you saw something like that going on?
And how long did that last?
Speaker 4
So the last time that we saw something like that was in the recession during the 02/2008, February. Having said that, that was way more generalized in the world. So that happened all over the place. In this case, we're seeing this mostly in emerging economies as we speak. And again, without knowing exactly if it lasted six months or a year, but what I can say is that as soon as consumers felt more confident, people went back to the better products.
One of the things that I've seen is that once a consumer gets accustomed to use a better product, a better sunscreen or a better toothpaste, they will try to get back to it as soon as they feel comfortable with it. So it will depend on how fast the Chinese and Brazilian consumers feel better. I would say that's probably going to happen faster in China than in Brazil just from where I sit. And as soon as they do that, I expect that trend to revert.
Speaker 9
No, that makes sense. And also just in case, let's say, it takes longer than expected, like have you ever considered to maybe have products that would meet that downward market?
Speaker 4
Yes, that's also a very good question. One of the things that we've been doing on our sales funnel is work with our customers in helping them reformulate some of their products. So they can come up with a still value added products that have better properties, but that are not as expensive as the ones they have in the marketplace. And in fact, we've been successful already in a few of them, but that's what I would call those are part of those sales funnel initiatives that I mentioned in the previous quarter and that we're seeing the impact of right now. That is a very important thing that we need to do as we don't necessarily control the consumer buying behavior, but we can help our customers continue to drive value to that consumer.
Speaker 9
That makes sense. Thank you very much.
Speaker 0
Thank you. And I'm showing no further questions at this time. I would now like to turn the call over to Mr. Seth Morozak for closing remarks.
Speaker 1
Thank you, Chanel. Thank you all, this morning. Thank you for your time and your interest in Ashland. I hope everyone has a great day.
Speaker 0
Ladies and gentlemen thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone have a great day.