Ashland Inc. (NYSE: ASH), a global leader in specialty chemical solutions for consumer and industrial markets, today announced preliminary(1) financial results for the quarter ended December 31, 2012, the first quarter of its 2013 fiscal year.
Ashland reported income from continuing operations of $102 million, or $1.27 per diluted share, on sales of $1.9 billion. These results included three key items that together had a net favorable impact on continuing operations of $12 million, net of tax, or 15 cents per diluted share. The largest key item was a $13 million after-tax benefit related to a business interruption insurance settlement. Excluding the three key items, Ashland's adjusted income from continuing operations was $90 million, or $1.12 per diluted share, a decrease of 7 percent from the year-ago quarter.
For the year-ago quarter, Ashland reported income from continuing operations of $60 million, or 76 cents per diluted share, on sales of $1.9 billion. The year-ago results included two key items that had a combined negative effect of $35 million, net of tax, or 44 cents per diluted share. Excluding these items, adjusted income from continuing operations was $1.20 per diluted share. (Please refer to Table 5 of the accompanying financial statements for details of key items in both periods.)
For the remainder of this news release, financial results exclude the effect of key items in both the current and prior-year quarters. On this basis, Ashland's results as compared to the year-ago quarter were as follows:
· Sales were $1.9 billion; normalizing for currency, divestitures and joint ventures, sales were flat;
· Operating income decreased 17 percent to $163 million;
· Earnings before interest, taxes, depreciation and amortization (EBITDA) decreased 11 percent to $268 million; and
· EBITDA as a percent of sales declined 130 basis points to 14.3 percent.
"Our financial performance in the first quarter - which is Ashland's seasonally weakest period of the year - reflects soft demand in some key markets and regions. It also includes $31 million in losses on straight guar, primarily reflecting a discrete write-down of inventory to current market value," said James J. O'Brien, Ashland chairman and chief executive officer. "Without this loss, adjusted earnings per share would have increased 14 percent when compared to a year ago. Ashland Consumer Markets turned in a strong quarter, as higher margins led to a 34-percent increase in EBITDA compared to a year ago. In addition, we generated $30 million of free cash flow in the first quarter, a significant improvement compared to the year-ago quarter."
Business Segment Performance
In order to aid understanding of Ashland's ongoing business performance, the results of Ashland's business segments are described below on an adjusted basis and EBITDA, or adjusted EBITDA, is reconciled to operating income in Tables 7 and 8 of this news release.
Ashland Specialty Ingredients' sales totaled $622 million, a decline of 1 percent when compared to a year ago. EBITDA declined 28 percent, to $116 million, while EBITDA as a percent of sales was 18.6 percent, down 690 basis points versus the year-ago quarter. This year-over-year decline is primarily due to the aforementioned $31 million loss on straight guar, as well as weak demand, particularly in the month of December, in our coatings and construction product lines in emerging markets. Specialty Ingredients' pharmaceutical, hair and oral care, non-guar energy and specialties businesses all generated sales and gross profit increases versus the prior-year quarter.
Ashland Water Technologies' sales totaled $421 million in the December 2012 quarter, a decline of 6 percent from the year-ago quarter. Normalizing for currency effects and adjusting for divestitures, sales would have been flat. EBITDA was $34 million, a 15-percent decline from the year-ago quarter. EBITDA as a percent of sales was 8.1 percent, down 80 basis points. During the quarter, Water Technologies continued to face soft demand in several markets, most notably industrial water treatment. Under a new leader, Luis Fernandez-Moreno, the team is focused on revenue growth and cost structure efficiencies.
Ashland Performance Materials reported sales of $345 million, a 9-percent decrease from the December 2011 quarter. Normalizing for currency and adjusting for divestitures, sales would have been down 4 percent over the prior year. EBITDA declined 38 percent to $28 million, while EBITDA as a percent of sales declined 380 basis points to 8.1 percent, primarily due to lower margins on elastomers, which benefited in the year-ago quarter from declining raw material costs.
Ashland Consumer Markets reported strong results versus the year ago period, with higher earnings driven by lower raw-material costs and a 13-percent volume increase within the international business. While overall sales increased 1 percent, to $481 million, EBITDA rose 34 percent, to $75 million. EBITDA as a percent of sales was 15.6 percent, an increase of 380 basis points versus the year ago quarter.
After excluding the effects from key items, Ashland's effective tax rate for the December 2012 quarter was 24 percent. Ashland continues to expect the effective tax rate for the full 2013 fiscal year to be in the range of 26-28 percent.
Summary and Outlook
"While our first-quarter financial results did not meet our expectations, we believe the biggest issues affecting our performance have been addressed," O'Brien said. "The inventory issue with straight guar is now behind us, and we have taken action to significantly reduce the risks going forward. In addition, the weak volumes we saw within certain parts of our Specialty Ingredients business in December appear to have been short-term, as order patterns through the first four weeks of January have improved to more normalized levels."
"Looking ahead, our strategic focus has not changed. We remain committed to achieving our fiscal 2013 objectives, which should put us in a good position to attain our 2014 overall financial targets and generate significant value for our shareholders," he said.