Q4 2019 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome the Ashland fourth quarter earnings call.
At this time all participant lines are in listen only mode.
After the speakers presentation, there will be a question and answer session.
To ask a question during the session you will need to press Star then one on your telephone.
Please be advised that today's conference is being recorded.
If you acquire any further assistance. Please press Star then zero.
I'd now like the conference over to your Speaker today, Mr. separately director of Investor Relations. Ashley. Please go ahead Sir.
Thank you Liz good morning, everyone and welcome to Ashland's fourth quarter fiscal 2019 earnings conference call and webcast. My name is stuff Rozek director Ashland Investor Relations.
Joining me on the call today, our Bill Wilson, Ashland's, Chairman and Chief Executive Officer, Guillermo Novo Ashwin director in incoming chairman and Chief Executive Officer.
Kevin Willis Senior Vice President and Chief Financial Officer.
We released preliminary results for the quarter ended September Thirtyth 2019, shortly before five PM Eastern time yesterday November 18th.
The news release issued last night was furnished to the FCC in a form 8-K.
During this morning's call we will reference slides that are currently being webcast on our website Ashland dotcom under the Investor Relations section.
The slides can also be found on the Investor Relations section of our website.
We encourage you to follow along with a webcast during the call.
Please turn to slide two.
As a reminder, during today's call will be making forward looking statements on a number of matters, including our outlook for fiscal year 2020 .
These forward looking statements are subject to risks and uncertainties that could cause future results or events to differ materially from today's predict from today's projections.
We believe any such statements are based on reasonable assumptions, but cannot assure that such expectations will be achieved.
Please refer to slide two of the presentation for a fuller explanation of those risks and uncertainties and the limits applicable to forward looking statements.
Please also note that we will be referring to certain actual and projected financial metrics of Ashland on an adjusted basis, which are non-GAAP financial measures.
We will refer to these measures as adjusted and present them in order to supplement your understanding and assessment of the financial performance of our ongoing business non-GAAP measures should not be considered a substitute for or superior to financial measures calculated in accordance with gap.
Most directly comparable GAAP measures as well as reconciliations of non-GAAP measures to those GAAP measures are available on our website and in the appendix of today's slide presentation.
Please turn to slide three.
Bill will begin the call. This morning with his opening comments and then introduced gear Eminem.
Jeremy will then provide a summary of his background and commentary on what he has learned over the recent months.
Next Kevin will review financial results for the fiscal fourth quarter and full year fiscal 2019.
Finally, Guillermo will close with his priorities as incoming CEO and his outlook for Ashland's continuing journey. We we'll then open line for questions.
With that please turn to slide four and I will turn the call over to Bill for his opening comments Bill.
Thank you Seth and good morning, everyone I'd also like to welcome Guillermo Novo to the call.
We have been working actively together on his transition and he has been strongly engaged since the announcement that he will be joining as ashland's, chief executive and chairman.
We look forward to his comments perspectives and priorities, but first I'd like to quit quickly discuss fiscal year 19.
Fiscal year 19 was a year of important gains in the context of difficult external conditions.
From a financial perspective, we faced challenging end market conditions and a stronger US dollar in this context Ashland took aggressive action, we implemented a program to reduce layers increase operational agility and improve our competitiveness.
This program was also folk focused on reducing our fixed costs by $120 million on a run rate basis. This program contributed greatly to ashland's reduced adjusted selling.
General and administrative expense in fiscal year 2019.
Which were reduced by more than 50 million or 8%.
As a result, adjusted EBITDA margins increased to 21.3% of sales compared to 19.9% in the prior fiscal year.
These gains also enabled Ashland to deliver adjusted earnings per share growth of 14% versus fiscal 2018.
Thus, while lower than we originally anticipated Ashland made important financial gains in a difficult context.
From an operational perspective, we also made many important gains.
In fiscal year 2019, we launched 23, new products to support targeted growth in our pharmaceutical nutrition personal care nutraceutical and coatings businesses.
We expanded the use of our new Ashland production system, which helped drive improvements in safety quality asset reliability and overall customer satisfaction.
During the year, we substantially expanded our focus on sustainability, we have established a sustainability council, which is focused on sustainable sourcing, reducing our environmental impact and increasing sales of natural based products. We've had numerous an important gains in this critical.
Which are profiled in our sustainability report, which can be found on Ashland dotcom.
From a capital allocation perspective, we've made great gains in fiscal year 2019 during the year Ashland returned $264 million to shareholders through both share repurchases and dividends. Furthermore, in August Ashland divested the composites business and there'll be the old facility to in iOS.
The proceeds from this transaction allowed us to reduce debt by $940 million in the fourth quarter.
In summary, while we face challenges in fiscal year 2019, we also made additional financial operational and strategic gains.
Importantly, just after the close of fiscal 2009 team, we announced that I will leave Ashland at the end of the calendar year and gear model will take on the role as Ashland's next chairman and Chief Executive Officer.
As I reflect upon my tenure with Ashland I'm proud of the transformation we've completed in the teams many accomplishments.
Please turn to slide five.
Before I begin I'd like to note that safety and responsible operations, our first and fundamental priority and in 2018 Ashton was recognized by the American Chemistry Council as the response will care company of the year and we're also named one of America's safest companies, but he just today.
We completed ashland's multi decade transformation from a conglomerate focused on oil refining and marketing the 1997 to the pure play specialty materials company, we are today.
When I joined the company five years ago, our specialty materials proportion of our business represented 41% of our sales versus 96% today.
As part of that effort, we created an independent publicly traded valvoline in 2017 acquired several businesses, including foreign Mccann and Borneo and sold the composites business and MRO video facility to Anios.
We now have a focused business with many differentiated products supplied to industry, leading customers in very attractive markets.
We have created a far more competitive and agile organization by eliminating layers and reduces reducing adjusted SGN a expenses.
Ashland adjusted EBITDA margins have improved from 17.6% in fiscal year, 2014% to 21.3% in fiscal 2019.
Similar gains have been realized in Ashland specialty ingredients business were adjusted EBITDA margins have improved from 21.2% in fiscal year, 2014% to 23.4% in fiscal 2019.
During this five year period, we've returned $1.3 billion to shareholders in the form of share repurchase and dividends.
And at the same time, we've substantially improved ashland's financial strength and financial flexibility.
With the spinoff of Valvoline, we transferred the large majority of ashland's pension obligations.
We also established and as best as trust, which along with anticipated insurance proceeds will help to fund future as best to clean indemnity and legal costs.
We lowered gross debt from 3.3 billion as of December 30, Onest 2014 to 1.7 billion at the end of fiscal year 2019.
And finally as a result of these actions we delivered 40% total shareholder returns since January 2015 versus 26% for the S&P 400 chemicals industry index over the same period.
Moving to slide six and looking forward, we've transformed the company from a portfolio management orientation and set the foundation to be the Premier specialty chemicals company.
We've established a new blueprint, which outlines our core operational priorities the Ashland way with defines our culture.
And we have also.
Established.
Our always solving brand, which is essential to us driving.
The value proposition, which we bring to our customers.
At the same time, our journey is now complete we have many opportunities and challenges as we work to achieve our full potential by delivering greater revenue growth margin expansion and cash conversion.
This is the right time for new leadership as we move from portfolio transformation to take the additional and essential steps required to reach our full potential.
I am excited by the naming of Guillermo normal Novo as Ashland's next chairman and CEO .
Gary MAU is a proven leader who has the right experience skills and leadership abilities to take Ashland to the next level of performance.
And under Gambles leadership, I am excited for Ashland's future and Im very confident that the Ashland team will accelerate its operational strategic and financial performance.
With that I will turn the call over to Gamble.
Thank you Bill it's a real pleasure to have the opportunity to connect to all of you today and I'm looking forward to meeting many of you in the near future.
Bill I'd like to thank you for all the support during this transition period, it's been incredibly helpful and getting me up to speed I'm very grateful for that.
I also want to thank everyone at Ashland for the warm welcome and for the support and enthusiasm moved up demonstrated your energy passion and commitment to our success is a real testament to the quality of the organization we have.
I'm very excited and proud of having the opportunity to join Ashland and be part of this great team.
Please turn to slide eight.
For those of you don't know me, let me take this opportunity to introduce myself I'm Gehrmann Novo I've been a director at Ashland from May of this year.
I will be officially joining Ashland has a new CEO in January .
Most recently I've been the CEO of Versum materials, a specialty semiconductor materials company.
For the past 30 years I've been working in the specialty materials industry. Most of my career with Rohm and Haas and later with Dow chemical air products and Versum materials.
One of things that excites me the most about joining Ashland is that it feels like coming home.
Although most recently I've been involved in the semiconductor material space most of my career.
Has been the very same industries end markets that Ashland has focused on.
For most of those last 30 years I've been intimately involved in personal care pharma coatings construction materials adhesives and many other markets.
I have competed with many of ashland's businesses for decades and have a great respect for the businesses and all the experienced professionals that have also been involved in these industries for decades.
I've always said that if you want to be in specialty materials, the best spaces to be focused on our pharma semiconductor materials personal care and additives are functional materials.
I just left semiconductor materials.
Ashland is focused on three of the top four segments. So it's a great position to be it.
We are excited.
About the markets where.
The markets, where you can create significant value and where we have leadership positions in most of them.
You couldn't ask for more.
But enough about introduction, let let's talk about Ashland I want to start by commenting on the high level drivers of our performance in Q4 and the full year I will then pass it to Kevin to take you through the details please turn to slide 10.
Safety health and environmental and sustainability.
Our very important part of the industry and core to asses DNA for us it's more than just meeting numbers and goals. It reflects the values and our disciplined.
Given the industries. We serve this commitment is also a business imperative I'm happy to report that are recordable injury performance showed improvement.
Both versus prior year, and our three year Rolling average.
Unfortunately, we did not start 2020, well as we did have an incident at our Nanjing plant in October .
Although the incident did not impact anyone and the plant is back on stream. Our operations were impacted this as a reminder of why our commitment to each Ns is critical to this industry and our performance.
Ashland's commitment to sustainability is equally important for our long term success.
It's been great to see all the progress our teams have made in everything from how we design and develop new products run our operations and how we make our customers more sustainable.
On the business side, we have had a challenging year.
At a broad level softer market demand geopolitical dynamics and a high level of market uncertainty has impacted demand across many markets.
We continue to enjoy leadership positions in most of our markets and the majority of our businesses have performed well in the context of this environment.
However, we have also had some challenges that are specific to Ashland.
The volume losses, we've experienced in oral care.
Pharma cat.
And to a lesser extent some co producer business impacted our performance and we'll continue to have an impact in 2020.
As you know in oral care, we lost some important business at Colgate earlier.
This year.
We also recently lost some business at another important customer.
Although the drivers were different in both cases losses were driven by re formulation decisions by customers.
This obviously impacted our revenue and gross profit for the year as well as our cost absorption for the business.
The products. We supply are you are unique chemistry with specific production assets in the near term there is no other customer or markets to reposition this volume.
We have some exciting ideas to leverage this technology in other markets, but it will take us sometime to develop them.
Although most of the impact is reflected in our results. This year. It is unlikely that we will low these assets in the near term. So we will need to address the cost absorption issues in other ways.
In pharma Cam for a number of different reasons, we also experienced volume loss at several key customers.
I've not had the opportunity to meet with the pharma Kim team, but I know that we haven't experienced team and they are actively working a pipeline of opportunities that are in development and which they plan to bring on during 2020.
We have some challenges in this business and together we will address them.
With the sale of the composite business, we lost the moral asset the loss of this asset impacted our ability to continue to support some co producer swap business the loss impacted our sales, but we'll have a small impact on our profitability.
Clearly, we have issues to address but as I said the majority of the portfolio as well position and we're very excited about the opportunities and the future that lies ahead.
Let me pass and now to Kevin to take you through some of the details of the quarter end the year and then I'll come back to talk about our plans for the future Kevin.
Thank you Karen and good morning, everyone. Please turn to slide 11.
First I'll begin with a broad overview of results and accomplishments during the quarter in early September we successfully closed on the sale of the composites business and the moral video facility to any us enterprises.
As Bill previously mentioned, we used the net proceeds from the sale to reduce debt by $940 million, which reduced our net leverage to about 2.6 turns.
Overall financial results were mixed in both the fourth quarter and the fiscal year.
Ashland sales were down in both periods due primarily to specific challenges in our pharma, Kim and personal care businesses and general industrial market demand weakness.
As gear momentum and we are actively working on the challenges we can address.
On the other hand, adjusted EBITDA grew in both the fourth quarter and fiscal year due primarily to successful execution on our cost reduction program.
I will provide a summary of that program and its expected impact on fiscal year 20 later on this call.
Please turn to slide 12.
Total Ashland sales in the quarter were $609 million down 9% from the year ago period, due to lower sales and specialty ingredients.
Negative currency and the Colgate Gantry has re formulation each represented one point of this decline.
SG M&A costs declined significantly in the quarter as we realize the positive impact of the cost reduction program and lower incentive compensation.
The lower costs drove improved EBITDA and EBITDA margin for the ash for Ashland, which both increased versus the prior year.
Adjusted EPS also grew by 8%, reflecting the improved cost position and reduced share count following the conclusion of our 200 million dollar accelerated share repurchase program during the summer.
The effective tax rate in the quarter was 23% driven by income mix and discrete tax items primarily.
Now, let's take a look at the segment results in fourth quarter.
Please turn to slide 13.
Specialty ingredient sales were $579 million down 9% versus prior year due primarily to the challenge results at Pharmakon and personal care, including the impact of the Colgate re formulation plus the impact of continued weak industrial end market demand.
Product mix was negative overall, which impacted gross margins, though this impact was partially offset by favorable pricing and lower raw material costs.
Favorable pricing continues to be a good story for specialty ingredients as the commercial teams have been diligence during a prolonged period of raw material volatility.
Operating income in EBITDA, both declined by 5% versus prior year has lower gross profit was partially offset by lower SGN a costs.
And these lower SGN, a cost increased EBITDA margin to 26.3% for the quarter the highest quarterly margin achieved in specialty ingredients in seven years.
Please turn to slide 14.
Turning to intermediates and solvents sales in the quarter $30 million down 3% from the year ago period, as both volumes and pricing declined reflecting changing market demand dynamics. However, both gross profit margin and EBITDA margin improved as raw material costs were lower in the quarter.
Versus prior year.
Please turn to slide 15.
As both Bill and gear mode discussed earlier fiscal year 19 was a challenging year for both organic sales growth and operating segment earnings growth.
Total Ashland sales declined by 4% with results from Pharmaco.
Personal care, namely oral care, but also in hair and weak industrial demand contributing to the decline.
However, we continue to see positive results in pharma and our global coatings business.
Also while adhesives topline has been challenged earnings in that business have been very resilient.
In total Ashland, EBITDA and EPS, both grew compared to the prior year due to our lower cost position.
While these results are below expectations, we had at the beginning of the year. We are confident we have identified the issues to be addressed and are actively working on them here at the beginning in fiscal 2000.
Please turn to slide 16.
Finally, I'd like to make a few comments about the cost reduction program, which contributed so significantly to results in this fiscal year.
Given its size and scope the program was challenging and I want to thank the team for all the efforts to make it a success.
As of today the program is substantially complete.
We were north of $115 million on a run rate basis as of September 30, and we expect to exceed our targeted $120 million run rate by the end of this calendar year.
Carryover impact from the program in fiscal 20 is expected to be roughly $25 million of SGN a cost savings.
Please turn to slide 17.
We'll now turn the call back over to gear move for his closing remarks Guillermo.
Thank you Kevin before we talk about the future, let me take a moment to.
Dress and recognize our team many of whom I assume are listening to this call I.
I know that it's been a challenging environment for our business and in the in the last year and that the portfolio transformation. The company has gone through has created much change and stress in the organization.
On behalf of our board and all our stakeholders I want to thank you for your dedication and commitment to our success you are at the core of our business as we move forward no that we have a profitable unhealthy company.
That we had and that we have very strong businesses that are well positioned for success.
Specialty materials are about knowledge creativity innovation and commitment.
We need to stay focused on creating value for our customers through innovation partnership and quality and reliability of supply each and every one of US has an important role to play and contributions to make.
We have very supportive customers and investors, who want us to be successful most of us have been in these industries for a long time.
If you stay focused on what we do best create value for our customers. We will have an exciting and wording future ahead, it's up to us to create our future.
Please turn to slide 19.
From our comments I hope, it's clear that we understand both the challenges and the opportunities that lie that lie ahead.
Let me share with you some of my early observations and then move to our plans for the future.
As I commented before although Ashland is now we focus pure play specialty materials company.
The businesses have had a long and proud history in the industries we serve.
Our core businesses like pharma personal care coatings added.
Additives in adhesives are strong and we enjoy market leadership positions in most of our markets.
We have a very strong base on which to build our future.
Like all companies at different points in their history, we have issues that we need to address.
Earlier, I mentioned, some specific business issues, we have to address in oral care and pharma cap.
We also have some structural changes that we will need to make as we now become a smaller and more focus pure play specialty materials company.
As I look at the opportunities ahead I'm excited about the future of the company and the value we can create for all stakeholders.
We're an exciting markets with leadership positions, we have strong teams with deep industry knowledge relationships and expertise.
For our markets, we have industry, leading innovation capabilities that we can leverage and drive growth and improve the quality of our portfolio.
And our challenges our challenges are really opportunities, we can take advantage of to drive improvement we have multiple improvement opportunities.
We can act on to create value.
Please turn to slide 20.
Our objectives have not changed.
We want to maintain industry, leading each ns and sustainability performance, we want to drive above market organic revenue and EBITDA growth.
We want to expand EBITDA margins, and we want to generate strong free cash flow.
Please turn to slide 21.
My priorities are very clear to develop and articulate our strategy to improve our operating performance to align and right size, our cost structure and to maintain disciplined capital allocation.
I'm already working with our leadership team to act on these priorities.
Our first step will be to move from a functional led model to a business led model.
Our business units will be at the center of how we create value and how we operate.
We are already working to define our future business units and their leadership teams. These teams will have the line of sight and ownership for all activities impacting their business. They will have the resources and ownership and accountability to develop their strategies and drive operating performance.
As part of this realignment, we will also be making changes to our organizations.
Business processes and systems to improve visibility focus alignment and ownership and accountability to support our performance improvement.
A significant portion of our organizations incentive compensation will be aligned with their business unit performance.
We have very different business model.
Businesses with different needs.
Our second step will will be to have each business define their business model and adjust their organization and cost structure to their needs rebalancing both efficiency and effectiveness.
Had a corporate level, we will structure organization and activities to support the future needs of the business units and ensure we are in line with industry best practice for our company of our size and profile.
As always we will maintain a disciplined approach to capital allocation and value creation.
We recognize that it will take some time to put this in place, but we are already moving so that we can accelerate this process.
Our intention is to demonstrate clear progress both in actions the actions, we take as well as in demonstrating continued improvement momentum.
Please turn to slide 22.
With regards to our outlook given the restructuring of our businesses and resulting resegmentation work, we're not providing guidance for fiscal year 2020 or Q1.
As we begin begin to articulate our strategy and future business objectives, we would like to ground them on the business units and the structures. We are defining we will need more time to accomplish this.
Having said that I do want to provide some color as to what we see as the dynamics and drivers for 2020 performance.
Demand dynamics vary by business, but given the high level of macroeconomic uncertainty we have a more conservative outlook on the broader market demand. We expect Q1 demand to remain similar to Q4.
We've already communicated our view on oral care and Pharmakon. These are headwinds for us in the near term, but we're actively working to improve the longer term performance of these businesses.
The majority of our businesses are well positioned and faced a normal market and competitive dynamics. The quicker we can put the new business units and teams in place the sooner we can drive improvement.
Pricing in raw material movements will stay balanced.
We will half roughly $25 million of SGN name proven carryover from the cost improvement actions from 2019.
The temporary shutdown of our Nanjing plant will have a Q1 impact.
And similarly, we are currently doing a catalyst change over at a Lima plan. This is this usually occurs every three to four years and will impact our Q1.
As you can see we havent exciting year ahead, we have some challenges to address but we also have significant opportunities to drive improvement.
Please turn to slide 23 for some closing comments.
I hope that you find the insights we have provided around our business and our path forward useful and exciting.
We are excited about the future and the opportunity we have to create value.
We are now pure play specialty materials company that is well positioned and exciting high quality markets, where we have leadership positions. We have a strong foundation on which to build our future strong businesses experienced teams with deep industry knowledge and relationships and industry leading innovation.
Capabilities, our business, our profitable have good margins and generate strong free cash flow.
More importantly, we have a number of levers we will be acting on to drive improvement over.
Our current performance.
Thank you for your time and interest in Ashland, and operator, let's turn it over Twoq Una.
That's a reminder, ladies and gentlemen to ask a question you will need to press Star then one on your telephone to withdraw your question press the pound key.
The interest of time, we ask that you limit yourself to one question and one follow up.
Our first question comes from David Begleiter with Deutsche Bank. Your line is now open.
Thank you good morning.
Chemo on Slide 21, you mentioned aligning and rightsizing their cost structure.
Post the most recent cost program how much more do you think theres a growing the cost side from quantify that and maybe even a margins is what is the margin potential of the aside business you think going forward.
Okay. So good morning, David's been it's nice to hear from you.
So if you look at.
The alignment of costs I look at it into two buckets that we need to line as we form our businesses.
Each one of them as very very different some are much more heavily involved with innovation tech service higher cost structures, but much higher margins others.
There is innovation, but they are in a different type of business, where margins are little bit tighter and the business models need to change today, we basically have the commercial groups are dedicated by business, but a lot of the rest of the organization is sort of allocated to the businesses. So the intent there is to form the businesses and then let them.
Decide what they need in some areas they might increase some costs and other areas and might decrease it really depends on their business model and what they want to do.
So we will get that going as soon as we can forming the businesses is the first step and then we will empower them. So they can define those things and we can supported the other bucket is more the the infrastructure support some of the admin costs. Some of the functions that really support the businesses, which again to two issues.
There is what do the businesses need and then we'll adjust accordingly and the other part is really compare benchmark ourselves to the rest of the industry and make sure that we are aligning ourselves with a two and a half $3 billion to $3 billion company. What should we look look like and really look at our profile for that.
If you look at margins and I've been asked his question before you know how how good can can we get.
I would say the target I know that has been said 25 to 27 Youre going to hear me talk more about minimum 20 725.
You know last company I want it we were able to get much higher margins I would have said if you had asked me. The question you asked me at the beginning I, probably would I've given you a lower number than what we got too so because the business is really need to drive and develop their model I don't know what I don't know yet.
So I think there could be upside and I don't I think the minimum is 25, and we'll see how how we progress as we get more information for the business units.
Very good and just on all character Dermo, what's the.
Hit from the new customer we formulation in 2020 versus 2019.
So so we the hit started in this quarter. So it is going to impact us both on on the revenue and on the cost side into.
Into next year.
But the bigger issue was the Colgate and I think one of the big messages is.
Look we.
Killing of the asset if that was an expectation is going to be more complicated for us because we have to develop new markets. We have some exciting opportunities, but it's going to take time.
The impact maybe all of this additional business might be eight to 10 million.
Sales.
Thank you very much.
Our next question comes from Christopher Parkinson with Credit Suisse. Your line is now open.
Great. Thank you.
Yeah naturally that plays that are under a few macro headwinds.
But there still those out there with the now and that will simply say the portfolio adjusted in specialty and there aren't necessarily ample opportunity to adequately improve the margin profile the the ash portfolio.
I understand it's fairly early budget what are your general thoughts on those statements.
What would be response to those individuals.
Okay, I would respond very simply.
I've had this question asked three years ago, when we were spinning off and.
The other companies.
And it was the same question these are all businesses.
You know they've been underperforming how can they be really be specialties and.
We got them all to over 30.
35% EBITDA margins.
If you look at the businesses that we sold to Vaneck at that time Oxy additives all that similar to these there were 30 40 year old businesses.
The nature of what we call specialties is the quality of the space. We are in our we do we have the opportunity to create value for our customers are having a robust portfolio doesn't mean that everything is the latest cutting edge, but that we have a portfolio mix the asset capability quality reliability tech.
Service, there's a lot of other dimensions and the write business model to drive the performance. So I'm very excited about the portfolio I don't see.
Any differences frankly from what I've seen and other specialty business be that rohm and Haas or at air products revenue.
And just a quick follow up and given your background room Haas and air products for soon.
What do you think are they just for the people that you're just introducing yourself into now just what do you think are the two to three most relevant skillsets you've acquired over.
Over your career that just really help you guide the ash portfolio going forward. Thank you.
Yes, so I would say to two dimensions, one more as a business side of things I've been involved in these industries I understand what it takes to operate a specialty business the balance between innovation.
The customer service, but also in some cases, the disciplined operating discipline that you need to have in running a full PNM across the portfolio. So and for me, it's more about learning Ashland than.
Then the businesses I've been involved and these spaces for for a long time.
I think the other part has been really the last few years in transforming businesses with the spinoff and all that this is sort of the same thing it's a different situation because in a spinoff is cleaner you have to start from scratch.
But to a degree to same thing we've now become us a different company and I think part of what we need to do is drive the change and just done. This so hopefully I can work with the organization.
And to achieve this and I will say the I've already had a lot of discussions with.
The global organization meetings with Townhall meetings people Theres, a lot of refit reset receptivity from the organization Theres excitement they understand that hey, this is a different different company now and.
And then actually have a lot of very good ideas of what we can do that we will be implementing.
Thank you.
Okay.
Our next question comes from Laurence Alexander with Jefferies. Your line is now open.
Hi, This is Dan Rizwan Florence, how are you.
How you too.
Could you mentioned last call or Sunday was a headwind I was wondering thats still the case or something that's bottomed and expect to rebound in 2020.
Also the.
Sunscreen last I mean, I think there was a lot of.
Market dynamics with trade issues.
That disrupted us last quarter more more than anything else I know that there was some some longer term questions on the sunscreen market and things that might change in the future those things really don't didnt impact that performance per se. The performance, we're really more specific dynamics, we've overcome them, but Kevin maybe you want to comment a little bit on on just the volumes.
Yes, we've actually seen we've we've seen a nice rebound on the on the skin care side I would say that we've largely worked through the key issues that we had and and teams on launch job with that in the other the other thing to remind you of is sunscreen as a seasonal business theres not a lot seasonal and personal care, but that is.
That is one business that seasonal and as we as we work toward the upcoming sunscreen season, we've done a lot of work with customers already in terms of how thats going to play out so.
Personally I feel pretty good about the about skin care part of the business in terms of what the team has been able to do and how they have been able to grow a number of fronts.
Okay and then just one other question are you mentioned that you've been pretty good with pricing instinct training people with raw materials is it possible that pricing is led to higher pricing has led to reformulations by customers is that kind of a risk we trended throughout would do going forward.
Yes, there is always there is always balance to be structure, but generally speaking no. Most most of the customers, especially in personal care, we provide a very broad portfolio of products too and there is there long term relationship. There that that is that is built on both trust and performance and I think the team executes well around that in the.
The fact of the matter is as raws move pricing has to move with the largely our customers understand that and that's a that's a discussion not a mandate and so I think as we move forward, that's not going to change.
For a period of time raws were pretty flat to down. This is I'm going back a ways couple of years and I think we lost some of the pricing discipline within the organization Thats been regained and for sure certain times you will test the market from a pricing perspective, I think thats, an appropriate thing to do.
I think we do that an appropriate way so.
Luxfer short no I don't I don't think that Weve caused reformulations because of pricing I think our customers have their own dynamics and to be clear customers like Colgate are still large important customers that we provide a broad portfolio of products too and we expect that to continue and we expect to grow with them.
Thank you very much.
Our next question comes from Mike Sison with Wells Fargo. Your line is now open.
Hey, guys. Good morning, Hey, Guillermo looks forward to work with you again.
In terms of especially ingredients fourth quarter sales were down 9% how much of that.
Was.
From the challenges you're seeing at fire Mccann personal care, how much of that was.
I have just kind of end market weakness and given.
The fiscal first quarter 20.
Conditions, they're going to be similar is that the type of sales declines you see near term, meaning that some of that down 9% going forward.
So let me give you sort of a my high level taken then Kevin you can provide a little bit of.
Of the detail I mean, clearly for the quarter farm MCAM was a very big impact so definitely we felt it.
And Theres no no no.
No no, saying other than than it was a major impact and we have to address it more for 2020.
I think in in the other parts of the market.
We most the business it did well oral care, obviously, the the carryover still impacted us for the quarter was not as big of an issue, but for the for the year. Obviously it has been.
With some of the dynamics at Colgate and the other customer the that we got impacted but one of the questions and I know, there's a lot of concern or questions around hey is there something wrong with the portfolio what's happening.
What we're trying to do is point that yes, we have issues trying to point, where they are those are structural things that we need to deal with the rest of the portfolio is actually going is well positioned. So as you said the demand is going to vary by segments adhesives and parts of the Cellulosics additives.
And we'll have more industrial construction type type dynamics, but if you look at pharma. It's that's runs at a different pace. We grew this year and ill at the middle of mid single digits. So.
Very healthy portfolio innovations going.
That segment should be from a demand perspective, not impacted by some of the macroeconomic dynamics and then the personal care is one that we're I think addressing those those those specific issues that impact us, but Kevin let me give no guarantee I think you said it very well I would I wouldn't really.
He added that name and what we're seeing on the industrial side is just like you said it's.
It's really it's really tracking with the broader macro dynamics and frankly as I mentioned in my comments the adhesives business. While topline was down has been very resilient from a profitability perspective assumes through coatings I think those teams are doing a nice job managing managing their piano.
Got it and then just a quick follow up when you think about 2020.
And I know you don't want to give specific guidance, but when you think about EBITDA for the total company next year, you've got a plus 25 million SGT carryover, you've got weaker demand.
You do have some things that are.
Growing in terms of new products. So when you sort of add up sort of the positives and negatives can EBITDA growth grow next year or is it going to be sort of a year that that's going to be challenged given some of the negatives that you've talked about.
So so Michael when we don't give guidance.
Hi, there needs to do a degree on some of these areas. So I think we have levers to perform I do think the from the cost side, obviously, we can do more.
These timing and how quickly we can so I don't want to over over promise things at this point in time.
But I do think that we move quickly.
Organize our teams and focus them. So they have the full PML ownership to drive each of their businesses that the topline can also be be.
Stronger and this is really around we have very solid businesses. These guys know what they're doing I've met with the business teams with technology people I mean, it's impressive I feel it I really do feel at home versus any other company that I've been in and what they know these these guys have decades of experience.
I see why it was very hard to compete against some of these businesses in the past.
Just as I look at the strength of App. So I think the issue is now more focus is the biggest the word I would use.
Full PNM focus is now that we're not focused on what we do but this just looking at sales are just looking and manufacturing will that isn't good enough for each of the businesses given the different dynamics that we have.
Got it thank you.
Thanks.
As a reminder, ladies and gentlemen, if you would like to ask a question at this time that Star then one.
Our next question comes from John Roberts with CBS . Your line is now open.
Thank you.
We used to provide more granularity to the sales change in the specialty ingredient segment is that something that will come out in the 10-K.
Or is it your intention going forward not to give us that kind of granularity that we had before.
So so definitely we are going to be changing some of the things that we communicate.
But we will show as we move forward as we re segment. We we will talk about those new segments. So so I think will give us a little bit of time to to do that work and there will be more granularity that will come out well we provide the same thing that we did before I.
I think the some of these things are going to change.
I understand everybody wants a lot of details, but I know as a competitor I love all this detail.
When I see it and we need to re I want to make sure that were rebalancing.
Both for our own commercial interests as well as.
Having good communication, but but definitely there is more to come but we'll need to wait for the re segmentation to be Doug.
And then Kevin I know you don't want to give any guidance, but maybe for the December quarter could you give us the tax rate given the December quarter.
Fiscal fourth quarters, typically not representative tax rate to a go forward basis.
And it seemed the interest expense was higher at least in what we are modeling as well.
Sure. So if you look at if you look at our full year the tax rate was about 13% it was higher in Q4.
Due to the things I mentioned.
Yes, looking looking forward to.
Full fiscal 20.
Yeah.
Based on all we have going on et cetera, It's really it's really hard to give to get a narrower range at this point, but I would say somewhere in the call. It 13% to 18% type range is probably as probably reasonable, meaning if you want to get more specific than that.
I would say a lot of people would model couple hundred basis point change versus versus.
2019, Q1 is almost always.
Funky tax rate for us because it's our weakest quarter and you really can't judge the year by that I mean, typically we have a we've typically had a pretty low tax rate in Q1 relative to the full year rate. So it's really not appropriate for me to commit to anything but.
Yes, if you if you look at the past, we've we've we've kind of hovered around that.
13% to 15% range for full year.
Once we have a once we have a solid number we'll we'll give it to you.
Okay, and then welcome Guillermo and Bill if you're still their best wishes.
Thank you.
Our next question comes from Mike Harrison with Seaport Global Securities. Your line is now open.
Hi, good morning.
Hey, Mike Okay.
Going back to the oral care situation part of the strategy in the specialty ingredients business.
Yes.
Customer intimacy focus in the idea that customers as they are looking at reformulated, you're working with them on the next generation of product yet we've had this situation where Colgate and now another oral care customer has done a re formulation and Ashland is not participating in the new.
New product so was there something broken with that customer intimacy model can you just.
Maybe provide a little bit more color in understanding I know you said that Colgate remains an important customer help me understand how you guys come the end up losing out on.
On business like that with with nothing to replace it.
Okay. So Mike Thanks for the question, obviously I'm spending a lot of time trying to understand all the dynamics on the different businesses.
So let me let me answer your last question is are we losing and no.
The intimacy with customers and allow the answer is absolutely not and you can see it where we're getting fantastic growth and infirm personal care.
Our biologics grew last year, 40% this year, we got over double digits.
Growth. So we have a lot of segments that are growing so it's there's not a generic thing.
This is oral care is a more concentrated market.
Our customers decided to reformulate, one they're not using anything of what we supply so its just.
A big change, we don't like it but it happened I agree with you.
One of the things as we shouldn't be surprised and Thats something that we are looking to make sure that that we understand what happened and what.
Making sure that doesn't happen again.
And we just had another another another impact so those those are areas that clearly.
I am looking into two to make sure that doesn't doesn't happen again in terms of the surprise factor.
But I am not cuts I am not concerned that there is something broken and I say that not because I'm talking to one or two individuals. After several weeks meeting with a lot of people and R&D and commercial different parts of the world I had a chance to go to the to the pharma show in.
In Frankfurt and see the interactions with customers, it's very very strong.
Alright, and then Guillermo you also mentioned in the importance of capital deployment and capital discipline.
I was wondering as we've come into a period here, where you've got proceeds from a divestiture and.
The specialty ingredients business is an area that would seem to be rights for Adjacencies can you just comment on.
The company's potential appetite for acquisitions going forward.
So let me let me we'd be very clear our agenda in the near term is to drive our improvement that is by far where we want to focus and.
M&A and all those things is not not not necessarily or what we're driving for at this point in time I think once we get our margins when we get our businesses and that we articulate clear strategies by business. Now. This is a specialty company with different businesses, we're not going to be able to talk about just in one.
Generic.
Terms, we need to talk about pharma, we need to talk about personal care.
Each of the individual parts to articulate and then how as a company we're going to support that whole agenda, having said that there are segments that are obviously very strategic for us if opportunities come we are going to look and that we wouldn't hesitate to do something and.
We will communicate more that have that later, but I'll be very clear pharma. As an example is a no brainer. This is a key part of our growth we have a lot of differentiation. That's an area that we want to stay focused but there are other ones that across our portfolio and we will communicate that more in the coming months.
Alright, thanks very much.
Thank you.
Im showing no further questions in queue at this time I'd like to turn the call back to Mr. Novo for closing remarks.
Okay, well. Thank you very much again for your time and interest.
Sure that will be having a lot of contacts over the coming weeks I look forward to seeing you in the near future and not really thank you for your time and attention.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.