Ashland, Inc. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Q4 Performance: Q4 sales were $522 million, up 1% y-o-y. Adjusted EBITDA increased to $124 million, up 68% y-o-y. Sales volume increased 4% y-o-y. Major headwind was Specialty Additives' manufacturing challenges related to HEC productivity investments.
• Portfolio Changes: Completed sale of nutraceuticals business in August and started exiting Avoca business. Repurchased shares to neutralize EPS impact of Pharmachem exit.
• Fiscal 2024 Review: Organic sales volumes improved in the second half, but overall sales declined 4% y-o-y. Adjusted EBITDA was flat at $459 million. Focused on portfolio optimization and enhancing competitive position.
• Cost and Productivity: Initiated a $30 million restructuring plan with $15 million impact in 2025 and a $60 million annual manufacturing productivity initiative targeting $5 million in 2025.

Segment Performance

• Life Sciences: Sales declined by 5% to $192 million. Adjusted EBITDA increased by 17% to $56 million, with an adjusted EBITDA margin of 29.2%. Sales volume grew by 13% when adjusting for nutraceuticals and portfolio optimization.
• Intermediates: Total sales were $36 million, down 3% y-o-y. Adjusted EBITDA was $10 million, with a margin of 27.8%.
• Personal Care: Sales increased by 11% to $162 million. Adjusted EBITDA was up 31% to $47 million, with a margin of 29%.
• Specialty Additives: Sales were $144 million, in line with prior year. Adjusted EBITDA more than doubled to $29 million, with a margin of 20.1% (including a headwind from operating issues of ~$5 million). Adjusted for portfolio optimization, sales volumes were up 9% y-o-y.

Guidance

• Fiscal 2025 Outlook: Sales expected to be in the range of $1.9 billion to $2.05 billion, adjusted EBITDA in the range of $430 million to $470 million. Cautious about China's prolonged economic downturn and its spillover into other markets. Expect moderate growth in most regions but increased competitive intensity in China.
• Baseline Calculation: Starting point is $429 million EBITDA from 2024 portfolio reset, adjusted for known bridging items like fixed cost absorption, restructuring, price carryover, Avoca exit, and incentive compensation reset.

Risks

• Macroeconomic Uncertainties: Elevated but moderating inflation, mixed demand recovery, and uncertain policy transitions create challenges.
• China's Prolonged Downturn: Oversupply, distressed property market, and waning consumer confidence lead to muted demand and increased competitive intensity in China.
• Geopolitical Dynamics: Impact on Europe's manufacturing competitiveness and consumer confidence.

Question and Answer

• **Q: Michael Sison on fiscal 2025 outlook and upside.

A: Guillermo noted a more conservative outlook due to China's prolonged hypercompetitive market, but there's upside if China recovers. Expected EBITDA to get back over $500 million by 2026 with cost savings and productivity actions.

• **Q: James Cannon on pricing and volume.

A: Guillermo stated there are pricing pressures globally, especially in VP&D pharma, but volumes are recovering in Asia and Latin America. Negotiations in Europe are ongoing, expecting a trade-off of price vs volume.

• **Q: John Roberts on December quarter EBITDA and buyback.

A: Guillermo mentioned the December quarter starting softer with European inventory control actions. Kevin noted the company has a strong balance sheet and flexibility for buybacks, with expected north of 50% free cash flow conversion to EBITDA in 2025.

• **Q: Mike Harrison on China coatings business and operational issues.

A: Dago stated China coatings business is ~25% of total, with stable volumes but price erosion. Operational issues in Specialty Additives were absorption-related, and the plant is running normally, with China's impact factored into guidance ranges.