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ASHLAND INC. (ASH)·Q2 2024 Earnings Summary

Executive Summary

  • Q2 FY2024 revenue was $575M, down 5% YoY; adjusted EBITDA was $126M, down 13% YoY, but exceeded the company’s January 30 outlook range for the quarter, with revenue at the midpoint; adjusted EPS excluding amortization was $1.27, down 11% YoY .
  • Management highlighted early-stage demand normalization in Personal Care and Specialty Additives; gross margin improved 20 bps to 32.9% on favorable production costs and mix despite softer pricing in Intermediates and APAC .
  • Q3 guidance: sales $560–$580M and adjusted EBITDA $138–$148M; full-year guidance raised to sales $2.150–$2.225B and adjusted EBITDA $470–$500M, lifting the midpoint of adjusted EBITDA by $10M versus the January outlook; portfolio optimization actions expected to add 200–250 bps to adjusted EBITDA margin in FY25–FY26 .
  • Strategic catalysts: globalization of four high-margin lines (injectables, OSD film coatings, biofunctionals, preservatives) and new platform launches (super wetters, transformed vegetable oils, liquid cellulose+) with strong customer interest; leadership additions in Life Sciences and strategy/M&A underscore execution focus .

What Went Well and What Went Wrong

  • What Went Well

    • Adjusted EBITDA beat internal outlook despite softer pricing: “adjusted EBITDA which exceeds the outlook range we issued on January 30, 2024, with revenue at the mid-point” .
    • Personal Care volumes turned positive; adjusted EBITDA up to $45M with margin +560 bps to 26.6% on mix and production cost benefits .
    • Specialty Additives adjusted EBITDA margin improved sequentially by over 1200 bps, with management expecting further expansion as production increases .

  • What Went Wrong

    • Intermediates sales fell 22% YoY on lower pricing; adjusted EBITDA declined to $12M (from $20M) as market-based captive BDO pricing decreased .
    • Life Sciences faced normalized competitive dynamics in pharma PVP versus a strong prior-year, driving sales down 8% and adjusted EBITDA down to $66M (from $75M) .
    • Variable compensation reset lifted SARD expenses, pressuring profitability; company noted margin headwinds from lower absorption in Specialty Additives .

Financial Results

MetricQ2 2023Q1 2024Q2 2024
Revenue ($USD Millions)$603 $473 $575
Diluted EPS – Continuing Ops ($)$1.68 $0.54 $2.40
Adjusted Diluted EPS ex Amortization ($)$1.43 $0.45 $1.27
Adjusted EBITDA ($USD Millions)$145 $70 $126
Adjusted EBITDA Margin (%)24.0% 14.8% 21.9%

Segment breakdown (Sales and Adjusted EBITDA):

SegmentQ2 2023 Sales ($M)Q1 2024 Sales ($M)Q2 2024 Sales ($M)Q2 2023 Adj. EBITDA ($M)Q1 2024 Adj. EBITDA ($M)Q2 2024 Adj. EBITDA ($M)
Life Sciences$240 $200 $222 $75 $48 $66
Personal Care$167 $129 $169 $35 $22 $45
Specialty Additives$161 $122 $157 $34 $6 $27
Intermediates$51 $33 $40 $20 $10 $12

KPIs:

KPIQ2 2023Q1 2024Q2 2024
Cash from Operations ($M)$56 $201 $54
Ongoing Free Cash Flow ($M)$37 $66 $4
Average Diluted Shares (M)55 51 51
Cash & Equivalents ($M)$399 $440 $439
Net Debt ($M) / Leverage (x)——$889 / ~2.2x
Gross Margin (%)32.9% (Q2’24) 25.2% (Q1’24) —

Notes: GAAP net income and tax items were impacted by significant tax-specific key items; non-GAAP reconciliations provided in Table 7 .

Guidance Changes

MetricPeriodPrevious Guidance (Jan 30)Current Guidance (Apr 30/May 1)Change
Sales ($M)Q3 FY2024—$560–$580 New
Adjusted EBITDA ($M)Q3 FY2024—$138–$148 New
Sales ($M)Q2 FY2024$565–$585 Actual $575 In range (midpoint)
Adjusted EBITDA ($M)Q2 FY2024$115–$125 Actual $126 Raised/Beat vs guidance
Sales ($B)FY2024$2.150–$2.250 $2.150–$2.225 Narrowed lower end; midpoint down $0.0125B
Adjusted EBITDA ($M)FY2024$460–$500 $470–$500 Raised (midpoint +$10M)
Portfolio Optimization Margin ImpactFY2025–FY2026—+200–250 bps adj. EBITDA margin Raised/Strategic

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2023, Q1 2024)Current Period (Q2 2024)Trend
Demand normalization / destockingDestocking persisted; inventory control actions in Q4; Q1 showed improving order trends but maintained production discipline Early demand normalization underway in Personal Care and Specialty Additives; volumes up YoY for first time since June 2022 Improving
Pricing vs raw materialsPricing favorable in core; softness in Intermediates and architectural coatings; emphasis on maintaining margin balance Softer pricing mostly in Intermediates/APAC; largely offset by deflationary raws ex-Intermediates Mixed but manageable
Production/absorption disciplineQ4 inventory control, low plant loading; Q1 producing to demand, absorption headwind Sequentially higher production; margin improvement; expect significant YoY absorption favorability in 2H Positive into 2H
Portfolio optimization (CMC/MC/HEC; nutraceuticals)Announced actions; accelerated depreciation; expected EBITDA-neutral outcome post stranded cost removal Actions “on track”; accelerated depreciation $27M and restructuring $20M in Q2; margin uplift guided for FY25–26 Executing; benefits ahead
Innovation platforms (TVO, super wetters, liquid cellulose+)Pipeline updates and early launches; customer excitement First super wetters launched for coatings; expanded TVO and liquid cellulose+; strong multi-industry interest Building commercial traction
Regional trends (APAC/China)China recovery mixed; strikes/shipping risks in Europe Personal Care growth pronounced in APAC/Europe; continued pricing pressure in APAC for Specialty Additives APAC mixed; Europe steady
Intermediates (EV battery/semis)Lower pricing/volumes; EV timing skewed to late ’24/’25 Pricing down; 30% margin on lower volumes; expect normalization as BDO value chain costs recover Near-term weak; medium-term normalization

Management Commentary

  • “Financial results in the March quarter yielded adjusted EBITDA which exceeds the outlook range we issued on January 30, 2024, with revenue at the mid-point.” — Guillermo Novo, CEO .
  • “We believe that a demand normalization is underway within the Personal Care and Specialty Additives segments.” — Guillermo Novo, CEO .
  • “We expect to deliver profit momentum in our second half.” — Guillermo Novo, CEO .
  • “The portfolio optimization activities are expected to generate 200 to 250 basis points of adjusted EBITDA margin expansion at full realization in fiscal ’25 and ’26.” — John (Kevin) Willis, CFO .
  • “Our strategic priorities of execute, globalize, innovate and acquire will provide unique profitable growth catalysts over the coming decade.” — Guillermo Novo, CEO .

Q&A Highlights

  • Volume and EBITDA trajectory: Management expects volumes up mid-single digits YoY in Q3 across core businesses; EBITDA margins to improve with demand normalization and better absorption in 2H .
  • Avoca strategy: Business challenged as customers shift to lower-cost bio-based materials; options under review; not yet disclosed .
  • Specialty Additives pricing: Near-term pressure in APAC and Latin America; aim to maintain margins as raws normalize; expect choppy normalization timing .
  • PVP normalization: Competitive dynamics stabilizing after prior-year outages; historical low-to-mid single-digit growth expected ex platform innovations .
  • Free cash flow conversion: Target ~50% conversion for FY2024; higher cash taxes vs prior year; 2H stronger seasonally .

Estimates Context

  • S&P Global consensus EPS and revenue estimates for Q2 FY2024 and the prior two quarters were unavailable at time of query due to API rate limits, so estimate comparisons are not included. Values would be retrieved from S&P Global when accessible.
  • Company guidance comparison: Q2 actual adjusted EBITDA of $126M was above the $115–$125M January guide; full-year adjusted EBITDA range raised to $470–$500M (midpoint +$10M) .

Key Takeaways for Investors

  • Demand normalization is underway; sequential margin recovery driven by improved production volumes and mix; watch absorption leverage in 2H as a key earnings driver .
  • Personal Care inflected positively with broad-based volume gains; Specialty Additives improving sequentially but APAC pricing remains competitive; Intermediates weak on pricing—monitor BDO chain normalization .
  • Adjusted EBITDA beat prior internal outlook; FY2024 EBITDA midpoint raised; near-term catalysts include execution on portfolio optimization and 2H absorption tailwinds — supports potential estimate revisions upward when consensus is available .
  • Strategic growth optionality: globalization of four high-margin businesses and commercialization of new platforms (super wetters, TVO, liquid cellulose+) with strong customer engagement—medium-term valuation catalyst .
  • Cash and balance sheet strength (~$1B liquidity; ~2.2x leverage; no near-term maturities) support continued dividend growth and opportunistic buybacks/M&A .
  • Risks: pacing of normalization, price-vs-raw dynamics (APAC competitive intensity), execution on stranded cost removal to achieve EBITDA-neutral portfolio actions .