WILMINGTON, DE — Ashland Inc. (NYSE: ASH) recently announced financial results1 for the fourth quarter of fiscal year 2023, which ended September 30, 2023, together with its fiscal year 2023 results summary and first-quarter fiscal 2024 outlook. The global additives and specialty ingredients company holds leadership positions in high-quality, consumer-focused markets including pharmaceuticals, personal care and architectural coatings.
Sales were $518 million, down eighteen percent versus the prior-year quarter. Results during the quarter reflect market-demand dynamics and underlying business performance that were generally consistent with previously communicated expectations. Pricing remained favorable for all segments other than Intermediates. Volumes during the quarter continued to be negatively impacted by customer inventory destocking across most end markets. Foreign currency favorably impacted sales by approximately two percent.
Net loss was $4 million, down from $57 million of income in the prior-year quarter. Loss from continuing operations was $8 million, down from $60 million of income in the prior-year quarter, or a loss of $0.15 per diluted share, down from income of $1.09. Adjusted income from continuing operations excluding intangibles amortization expense was $21 million, down from $80 million in the prior-year quarter, or $0.41 per diluted share, down from $1.46. Adjusted EBITDA was $74 million, down fifty percent from $147 million in the prior-year quarter, driven primarily by continued customer inventory destocking across most end markets and additional inventory-reduction actions taken to better position the company for more conservative demand scenarios.
Average diluted shares outstanding totaled 51 million as of September 30, 2023, down from 55 million in the prior-year quarter, following the company’s share repurchase activities during the fiscal year. Earlier in fiscal year 2023, Ashland’s Board of Directors approved a new $1 billion evergreen share repurchase authorization.
Cash flows provided by operating activities totaled $130 million, down from $179 million in the prior-year quarter. Ongoing free cash flow2 totaled $104 million compared to $93 million in the prior-year quarter, reflecting the company’s efforts to reduce its inventory balances.
“Results in the September quarter were consistent with the earnings update we issued last week,” said Guillermo Novo, chair and chief executive officer, Ashland. “Customer demand was generally consistent with our expectations in the fourth quarter. While we are seeing certain signs of stabilizing demand and reduced destocking actions by customers, there continues to be limited visibility regarding the timing of demand normalization.”
“As a result, we proactively took additional inventory-control actions to manage production, reduce inventory levels and drive stronger free cash flow generation,” continued Novo. “Although these actions will better position Ashland to operate in an uncertain and potentially lower demand environment, they resulted in Adjusted EBITDA for the quarter and full year that were below our original expectations. To drive improved performance, we are taking portfolio and investment actions during fiscal year 2024.”
Reportable Segment Performance
To aid in the understanding of Ashland’s ongoing business performance, the results of Ashland’s reportable segments are described below on an adjusted basis. In addition, EBITDA and adjusted EBITDA are reconciled to operating income in Table 4. Free cash flow, ongoing free cash flow and adjusted operating income are reconciled in Table 6 and adjusted income from continuing operations, adjusted diluted earnings per share and adjusted diluted earnings per share excluding intangible amortization expense are reconciled in Table 7 of this news release. These adjusted results are considered non-GAAP financial measures. For a full description of the non-GAAP financial measures used, see the Company’s original release.
Life Sciences
Sales were $203 million, down five percent from the prior-year quarter. Sustained pricing was more than offset by customer destocking in most end markets. Pharma demand remained healthy, though volumes declined compared to a strong prior-year period. Sales to nutrition customers remain weak due to persistent customer destocking. Sales of Nutraceuticals products demonstrated a solid recovery compared to a weak prior year. Foreign currency favorably impacted sales by $5 million or two percent.
Adjusted operating income was $31 million compared to $40 million in the prior-year quarter. Adjusted EBITDA was $48 million compared to $57 million in the prior-year quarter, primarily reflecting the impact of favorable pricing, lower volumes and $6 million of inventory-control actions. Foreign currency favorably impacted adjusted EBITDA by $5 million, or nine percent.
Personal Care
Sales were $146 million, down twenty-two percent from the prior-year quarter. Customer destocking across end markets more than offset sustained pricing. Foreign currency favorably impacted sales by $5 million or three percent.
Adjusted operating income was $14 million compared to $35 million in the prior-year quarter. Adjusted EBITDA was $36 million compared to $56 million in the prior-year quarter, primarily reflecting the impact of lower volumes and $5 million of inventory-control actions. Foreign currency favorably impacted adjusted EBITDA by $3 million, or five percent.
Specialty Additives
Sales were $144 million, down twenty-three percent from the prior-year quarter, primarily reflecting customer destocking across end markets, with architectural coatings less impacted by comparison. Foreign currency favorably impacted sales by $3 million or two percent.
Adjusted operating loss was $12 million, compared to income of $24 million in the prior-year quarter. Adjusted EBITDA was $8 million compared to $43 million in the prior-year quarter, primarily reflecting the impact of lower volumes and $38 million of inventory-control actions. Foreign currency favorably impacted adjusted EBITDA by $1 million, or two percent.
Intermediates
Sales were $37 million down forty-two percent from the prior-year quarter, driven by lower pricing and volumes for both merchant and captive sales. Captive internal butanediol (BDO) sales are recognized at market-based pricing which was down compared to the prior-year quarter.
Adjusted operating income was zero compared to $14 million in the prior-year quarter. Adjusted EBITDA was $3 million, including $9 million of inventory-control actions, compared to $17 million in the prior-year quarter.
Unallocated & Other
Unallocated and Other expense was $43 million compared to $34 million in the prior-year quarter. Adjusted Unallocated and Other expense EBITDA was $21 million compared to $26 million in the prior-year quarter, primarily reflecting lower incentive compensation accruals.
Fiscal Year 2023 Results Summary
Sales were $2.2 billion, down eight percent from the prior year. Sustained pricing and resilient demand for pharmaceutical products was more than offset by persistent customer inventory destocking across most other end markets since early in the fiscal year.
Net income was $178 million, down from $927 million in the prior year. Net income in fiscal year 2022 included income from discontinued operations related to the sale of the Performance Adhesives business. Income from continuing operations was $168 million, down from $181 million in the prior year, or $3.13 per diluted share, down from $3.20. Adjusted income from continuing operations excluding intangibles amortization expense was $218 million, down from $322 million in the prior year, or $4.07 per diluted share, down from $5.70.
Adjusted EBITDA was $459 million, down twenty-two percent from $590 million in the prior year. Adjusted EBITDA margin decreased to twenty-one percent, a 380 basis-point decrease compared to the prior year.
Cash flows provided by operating activities totaled $294 million, up from $193 million in the prior year. Ongoing free cash flow2 totaled $217 million compared to $127 million in the prior year, primarily driven by improved working capital inflows driven by inventory-reductions actions taken during the second-half of the year.
Financial Outlook
As part of its regular financial planning process and in concert with extensive customer discussions, the company has analyzed numerous demand-recovery scenarios for fiscal year 2024. While there is evidence that customer destocking across many end markets is slowing, a great deal of uncertainty remains. The company’s view is that recovery is likely to be back-end loaded into the second half of the fiscal year. In addition, consideration for the impact in fiscal 2024 of the announced portfolio-optimization actions is being layered into forecast models as the commercial teams engage with customers. Given the overall uncertainty, at this time the company is not issuing an outlook for fiscal year 2024 but will provide an update regarding its financial outlook during its fiscal-first quarter earnings call.
For the fiscal-first quarter, demand in October has demonstrated some sequential improvement, though customer destocking continues across many end markets. First-quarter financial results will include carryover impacts from internal inventory-control actions that will negatively impact results compared to prior year. Customer order lead times have returned to more normalized levels and November orders are consistent with expectations. At this time, visibility into December demand is limited and uncertainty remains as to whether some customers decide to take year-end inventory control actions. Taking these factors into account, for the fiscal-first quarter the company expects sales in the range of $470 million to $490 million and adjusted EBITDA in the range of $55 million to $65 million.
“As I stated last week, we are repositioning Ashland to further reduce our participation in lower profitability markets where we do not have strong leadership positions. We plan to redeploy assets to support productivity or growth in the new technology platforms we outlined at our Innovation Day in early September,” continued Novo. “These actions further enhance focus on our pharmaceuticals, personal care and coatings businesses and position the company well for improved performance and profitability. I look forward to discussing our fiscal-fourth quarter financial results and outlook in more detail during our earnings call and webcast tomorrow morning,” concluded Novo.
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