Q2 2021 Ashland Global Holdings Inc. Earnings Call
[music].
Thank you for standing by and welcome to the Ashland Global Holdings, Inc. Second quarter 2021 earnings call. At this time, all participants are in a listen only mode.
After the Speakers' presentation, there'll be a question and answer session.
Ask a question. During this session you will need to press Star then one and your telephone please be advised that today's call is being recorded.
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I would like to hand, the call over to Seth and Rosie. Please go ahead.
Thank you Michele good morning, everyone and welcome to Ashland second quarter fiscal year 2021 earnings Conference call and webcast. My name is Seth Mrozek Director Ashland Investor Relations joining me on the call today are Guillermo Novo Ashland's, Chairman and Chief Executive Officer, and Kevin Willis Senior Vice.
And and Chief Financial Officer.
We released preliminary results for the quarter ended March 31, 2021, net approximately five PM Eastern time yesterday April 28.
News release issued last night was furnished to the SEC and a form 8-K.
During this mornings call. We will reference slides that are currently being webcast on our website Ashland dot com 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 the webcast during the call.
Please turn to slide two.
As a reminder, during today's call, we will be making forward looking statements from several matters, including our outlook for fiscal year 2021.
These forward looking statements are subject to risks and uncertainties that could cause future results or events to differ materially from today's project.
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 more complete 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 GAAP and.
Most directly comparable GAAP measures as well as reconciliations of the non-GAAP measures to those GAAP measures are available on our website and in the appendix and today's slide presentation.
Please turn to slide three.
Guillermo will begin the call. This morning, with an overview of Ashland's results and the second fiscal quarter.
Next Kevin will provide a more detailed review of financial results for the quarter.
And finally, Guillermo will close with key priorities and planning and this current economic environment and addition to providing his thoughts and important next steps. We will then open the line for questions.
Now please turn to slide five and I'll turn the call over to Guillermo for his opening comments Guillermo.
Thank you Seth and good morning to everyone before I begin I'd like to thank you for your participation. This morning.
First and foremost I'm pleased by the progress of our business units are making as we execute.
Our strategy.
We continue to operate safely with a clear focus on the safety and wellbeing of our employees as we manage through this difficult pandemic.
In addition, our teams responded well to the impact of storm Uri and the U S Gulf Coast and February.
Which resulted in two of our Texas based facilities coming offline for several weeks.
Not only did we lose production time, we also incurred additional cost of repair.
Having pumps pipes and other equipment to get the facilities back online safely and as quickly as possible.
The storm and subsequent freeze also impact the supply chain dynamics and the Gulf Coast and while we have largely worked through many of these challenges raw material availability has improved but continues to be an issue.
And as we will discuss in more detail raw material demand continues to improve as the world slowly begins to emerge from the global pandemic.
Despite these challenges during the quarter, our business priorities remain unchanged, demonstrating organic growth expanding margins and improving free cash flow.
For the quarter Ashland sales declined 2% inclusive of favorable currency, excluding the planned exit of low margin businesses sales were flat with prior year inclusive of favorable currency.
And.
Life Science continues to perform well with pharma sales consistent with a strong prior year period, when buying patterns change as large pharma producers.
With large pharma producers as the reality of the global pandemic began to take hold.
Nutraceuticals demand remains strong and the team has demonstrated strong year over year growth. Thanks to concerted efforts to change the business trajectory.
And personal care the global pandemic continues to impact some market segments linked to consumer social and recreational behaviors. We have not seen the demand recovery, everyone was hoping for and hair styling Sun care and other businesses linked to grooming and wellness.
From a personal care. We also continue the process of exiting low margin product lines, we commented.
Commented on our last call.
For industrial and for our industrial segments. We saw continued recovery of demand and specialty additives continues to see strong demand and recovery across all markets with global architectural code coatings, showing significant volume recovery as contracted.
Contracted business picks up globally.
Our performance adhesives business also saw a broad base growth across applications.
In addition to improving demand dynamics, our industrial businesses executed well during the quarter to minimize the potential negative impact from the difficult supply chain dynamics caused by storm here.
Consistent with our strategy lower Saar and expenses had a meaningful impact on ashland's profitability.
And.
Again, we demonstrated substantial growth and free cash flow generation.
Due largely to the disciplined balance sheet management, please turn to slide six.
Yeah.
As a result of the winter storm. The subsequent freeze, we incurred $14 million of higher costs, driven by $10 million and loss absorption and $4 million and repair costs.
This total cost 11 million impacted Q2 as reported and consumer specialties adjusted EBITDA.
The storm also impacted our ability to ship and our customers' ability to receive certain orders and as such roughly $3 million of gross profit shifted from Q2 to Q3.
While there will also be the remaining $3 million of costs impacting in Q3, we expect this will be offset by the positive impact of the order shift and.
And to the June quarter.
Demand trends and orders we have seen so far in April and gives us confidence of this offset.
So while the $11 million impact from the storm was meaningful for <unk> through our consumer specialties and Ashland overall during the quarter the impact is largely behind us I.
I would note that although our intent is to offset the loss absorption as we work to rebuild inventories and the current raw material tightness is making this work challenging.
I am very pleased with the progress by the Ashland team during the quarter they manage well.
During another difficult external challenge, ensuring the safety of our employees and that our customers were supplied other than the price impact.
All of our businesses are performing to expectations.
Fortunately as I stated the impact of the storm and freeze and the golf course are behind us and I am confident and our outlook for the remainder of the year, Let me now pass it over to Kevin for the financial update Kevin.
Okay.
Thank you Guillermo and good morning, everyone. Please turn to slide eight.
Total Ashland sales and the quarter were $598 million down 2% versus prior year.
Favorable currency contributed 3% growth during the quarter.
Excluding key items, SG&A and R&D costs again declined in the quarter as we realized the positive impact of the cost reduction programs.
However, as Guillermo previously discussed we experienced $11 million and additional cost related to the U S. Gulf Coast Storm and subsequent Texas Freeze. In addition, our legacy environmental reserves increased roughly $4 million more than we expected at the beginning of the quarter.
While not anticipated at the beginning of the quarter. These incremental environmental charges do occur from time to time what's.
What's important to note is the cash cost for legacy environmental remediation remains very consistent year after year, and we do not anticipate that changing.
And total Ashland, adjusted EBITDA was $134 million, a 6% decline compared to the prior year adjusted EBITDA of $142 million.
And I will note that the impact from the freeze and the environmental charges represent more than the entirety of the decline in fact X. The freeze impact all business units generated improved EBITDA year over year and in spite of the freeze impact and related supply chain disruptions executed very well and the quarter.
Ashland adjusted EBITDA margin was 22, 4% and 90 basis point decline compared to prior year again, reflecting the items discussed above.
Adjusted EPS, excluding acquisition and amortization was $1 five.
Down 6% from the prior year.
Now, let's review the results of each of our each of our three business groups.
Please turn to slide nine.
First I'll begin with consumer specialties.
<unk> were $322 million down 6% from the prior year quarter.
Currency favorably impacted sales by 3%.
Within the life Sciences pharma sales were down only slightly compared to the strong prior year quarter when customers pre bought as the pandemic impact on our global supply chain wasn't question.
Nutraceutical sales were up double digits as the team has done an excellent job stabilizing and growing that business sales.
Sales to nutrition and other end markets were down reflecting the impact of pandemic driven consumer dining behavior and.
And total life Sciences sales increased by 1% during the quarter inclusive of the favorable currency impact to freeze impact related to life Sciences, adjusted EBITDA and the quarter was approximately $7 million.
Sales to personal care and markets were down 14% during the quarter due to several factors.
As previously discussed we continued to exit some lower margin product lines, which accounted for over half of the year over year sales decline within personal care or approximately $11 million.
All these self directed actions impacted the top line and they also favorably impacted mix and margins.
And the COVID-19 pandemic continues to impact certain consumer behaviors related to Hairstyling Sun care and oral care in the context of social activities leisure activities and mask wearing.
Each of these are well understood issues that are actively being addressed by the team.
Later during this call Guillermo will provide an update on the implications. We believe global vaccine administration will have on these consumer dynamics.
Finally, <unk> posted some solid sales gains as we begin to lap the issues experienced over the past year.
The freeze impact for personal care and household adjusted EBITDA was approximately $4 million and the quarter.
For all of consumer specialties favorable mix and lower start expenses led to improved adjusted EBITDA margins of 27, 3% and 90 basis point increase over prior year.
Adjusted EBITDA margin and the life Sciences declined slightly to 27%, while and personal care and household adjusted EBITDA margin improved to nearly 28%.
And total consumer specialties, adjusted EBITDA declined by only $3 million to $88 million and the quarter inclusive of the $11 million impact from the Gulf Coast Storm and freeze.
Please turn to slide 10.
Industrial specialities had a strong quarter with sales of $246 million up 3% from the prior year.
We saw broad based growth across industrial end markets consistent with industrial demand recovery.
Currency also favorably impacted sales by 3%.
Our coatings business was up double digits during the quarter, reflecting strong global demand for architectural paints, particularly and the DIY applications and.
And we're seeing improved demand for contractor work globally.
The only exception to strong sales growth and industrial specialties, where energy markets, where demand remained weak and the U S and lower construction additive sales following the strike and or Belgium facility earlier in the fiscal year.
We're confident that the strike issues at the Belgium facility are now behind us.
Sales for performance adhesives grew by 4%, reflecting growth and all three primary adhesives and markets.
For all industrial specialties, and favorable mix and lower <unk> expenses also contributed to improved earnings and margins adjusted EBITDA margin and specialty additives improved over 400 basis points to 25, 3%, while and performance adhesives adjusted EBITDA margin improved by a one.
Third and 50 basis points to 25%.
And total industrial specialties, adjusted EBITDA improved to $62 million with a margin of 25, 2%, a 310 basis point improvement over prior year.
Please turn to slide 11.
Okay.
Turning to intermediates and solvents sales were $37 million consistent with the prior year period.
Growth and merchant sales resulted from continued end market recovery was offset by reduced intercompany volumes. Following the U S Gulf Coast storm, and freeze, which impacted the consumer specialty facilities in Texas.
Adjusted EBITDA of $7 million per Inf's was up from $5 million and the prior year period.
Please turn to slide 12.
As I did last quarter I'd like to spend a few minutes talking about free cash flow, which continues to be an important component of our value creation strategy.
Total free cash flow and the quarter was $40 million $30 million increase compared to prior year.
The $40 million included $15 million of cash restructuring payments related to our ongoing Cogs and so our cost reduction programs.
This is an excellent result, driven all the hard work, we've done to improve cash flow and balance sheet management <unk>.
Including improved working capital reduced capital expenditures and lower cash interest and taxes. It is also a testimony to Ashland is free cash flow generation capability.
For the first half of fiscal 'twenty, one Ashland generated $115 million of free cash flow.
As a reminder, we generated $228 million of free cash flow and the second half of last fiscal year and.
And we expect to meet or exceed that in the second half of our current fiscal year.
For fiscal year, 'twenty, one and this translates to converting EBITDA to free cash flow at a rate north of 50% inclusive of cash restructuring costs, which we expect to be approximately $40 million for the full year.
As we've stated our goal is to consistently convert at least 60% of EBITDA to free cash flow and post restructuring.
Please turn to slide 13.
While there were a lot of moving parts this quarter I'd like to briefly summarize my three takeaways from our results.
First excluding the impact of the freeze on consumer specialties, all business segments generated strong growth and adjusted EBITDA and adjusted EBITDA margin.
Second, while we experienced higher unallocated corporate expenses and the quarter versus prior year. This net result was primarily due to some favorable onetime items and the prior year and some unfavorable legacy items. This quarter corporate unallocated was $15 million and our first fiscal quarter and while the March quarter was high.
And due to the items mentioned, we generally expect corporate unallocated expenses, including legacy costs to be approximately $15 million to $17 million per quarter.
And finally, despite continued uncertainty related to the timing of global consumer demand recovery our outlook for the business units. This fiscal year remains unchanged.
Guillermo will spend more time discussing and our fiscal 'twenty, one outlook and our underlying assumptions and his closing remarks with that I'll now turn the call back over to Guillermo Guillermo.
Hey, Thanks, Kevin.
Please turn to slide 15.
For the first half of the fiscal year 'twenty, one complete our priorities remain very clear drive margin expansion and enhanced free cash flow conversion continued to demonstrate our business and operating resilience and accelerate profitable growth to achieve these objectives. We have clear levers that we plan to act on with the same discipline we shape.
Showed in 2020.
We're finalizing the capture of our $50 million, sorry cost savings commitment most of which was completed in 2020 and accelerate the implementation and capture the $50 million and cost of goods sold reductions we have already identified between both these cost initiatives, we've implemented over 85% of the planned actions.
A day.
When a drive productivity and mix improvement from innovation focus on our more profitable strategic segments and exit lower and product lines, we feel we cannot improve.
And we will align our capital allocation priorities for Capex and working capital consistent with our strategic priorities.
During fiscal year 2020, we had the opportunity to demonstrate the underlying resilience of our business as well as the improved operating discipline, we will remain focus on driving the continuous improvement of our business centric model and.
And this operating discipline.
Our focus continues to be on shifting to.
To accelerate profitable growth drivers, both organic and inorganic.
Please turn to slide 16.
As a reminder, earlier this year, we announced the signing of a definitive agreement to acquire the personal care business a short from Meyer. We're incredibly excited about this opportunity as it broadens the breath of our specialty additive solution, we can provide our customers and the personal care and markets.
We continue to expect to close on the acquisition during this June quarter and as I previously indicated we look forward to welcoming the silk and my personal care team to Ashland.
Please turn to slide 17.
As we've seen with recent developments around the world COVID-19 remains the biggest uncertainty.
Although two different types of.
Drivers of controls versus action vaccinations, China, and the U S are leading other regions in terms of the global recovery.
Like the U S. Most other countries from most other countries vaccinations will be the most likely path to sustainable reopening of their economies and the general economic recovery.
Government actions to support the economy, we will continue to promote demand, but the impact will vary across markets.
Assuming the current trend line and unrelated and related uncertainty our expectations are that the pharma and nutraceutical segments will continue to show strong demand as health and wellness will remain at the center of everyone's attention.
Demand for most personal care segments, we will continue to be resilient and driven by hygiene concerns and stay at home lifestyles, However recovery of segments linked to social and recreational consumer behaviors that depend on the reopening of the economy will take longer to recover globally.
Industrial demand, we will continue to recover driven by increased consumer spending as well as increased comfort with advancing projects given improved contractor safety protocols.
Short term the raw material and supply chain tightness will present, some challenges that will vary by business overall.
Maintain our positive outlook on the recovery.
But expect to see some mix changes and recovery across markets acceleration of vaccination rates will be the major driver of reopening the global economy.
Please turn to slide 18.
If we assume vaccinations will be the primary driver of the global recovery and current vaccination rates.
It would take over a year from many countries to achieve vaccination rates needed to open their economies and this will most likely occur and our fiscal year 2020 timeframe.
Given the global profile of our business the acceleration of the global recovery is important to Ashland.
Our performance adhesives business is 85% U S centric and should continue to see strong demand recovery. However, our additives portfolio is very global with roughly 75% of our sales outside of the U S and the case of personal care and household roughly 70% of our sales are outside of the U.
Yes.
And I indicated most of our business will continue to see demand recovery if current trend lines continue.
Our segments that continue to be impacted by the COVID-19 changes and consumer and social recreational behaviors are mostly and personal care.
Please turn to slide 19.
Although we continue to see robust demand and most of our segments the segments impacted by consumer and social recreational behavior changes continue to be the same months. We've discussed in prior calls Hairstyling Sun care venture adhesives and hand Sanitizers.
Hairstyling has been impacted by changes in consumer rooming habits, given stay at home dynamics as well as concerns with visiting hair salons.
This is the largest impacted segment for us Sun.
Sun care continues to be impacted by reduced vacation travel.
Use of dentures has been impacted by reduced socializing mask wearing and some industry destocking.
Although hand sanitizer segment did experienced significant growth in 2020 due to the pandemic. There was a significant overstock build that is still working being worked off.
From a demand perspective personal use of hand, Sanitizers has stabilized and remains strong. However, the expected increase in demand that was to be driven by the reopening of schools restaurants and travel has been delayed.
For these segments, we expect consumer demand to be in line with 2020. So the issue is more about the timing of the recovery.
Please turn to slide 20.
In line with his comments are forward looking insights are that.
We will continue to see overall recovery of demand, but the mix across business may vary.
We still see stable life science growth, some delayed recovery and some personal care segments, we see continued recovery and industrial segment, especially in the U S and China.
We expect FX to remain favorable and we will continue to execute our self help actions to offset some of the headwinds we encountered in the first half of the year, the strike and Belgium and storm year Uri.
Our businesses, especially adhesives will continue to manage the pricing raw material dynamics as they have and the past.
With this our outlook is for fiscal year 2021 revenue to be and the two four to $2 $5 billion and EBITDA to be and the $570 million to $590 million range.
Upsides not included and this outlook or the acceleration.
Raw material availability that would allow us to rebuild inventory and capture higher cost absorption and or incremental demand.
The outlook also excludes future contributions from Silicon Myer preservative business, which is expected to close this quarter.
Please turn to slide 21.
In summary.
I am pleased to report debt other than storm Yuri impact our businesses are performing in line with our expectations.
We are maintaining our focus.
We are continuing to advance our strategy, including profitable inorganic growth through M&A, furthering our commercial and innovation activities executing our self help actions and proactively managing pricing and raw material dynamics.
While the timing of the global recovery following the COVID-19, pandemic and the raw material supply stabilization are outside our control. We are focused on the things that we can control.
And working to offset the impact of the U S. Gulf Coast freeze through improved plant absorption as we rebuild inventories were expanding our product line offering and personal care segments and have been less impacted by the pandemic. We are executing our strategy of portfolio transformation and profitable growth and we are continuing to drive.
Our internal self help actions.
We're also excited about the opportunity to share our broader perspective on Ashland long term strategy and objectives and and upcoming Investor day.
While we initially planned to host and in person event the pace of the recovery from the pandemic may warrant and virtual event. This summer our internal teams are working diligently on the planning process and we plan to announce the date for the event and the near future.
We look forward to sharing more details with you soon.
Please turn to slide 23 and.
In closing I want to thank the Ashland team once again for their leadership and proactive participate.
And in an uncertain environment.
We're fortunate to be a premier specialty materials company with high quality businesses that have leadership positions and defensive markets.
Im pleased by the resilience demonstrated by our people and business and look forward to the opportunities that lie ahead.
Thank you and operator, let's move to Q&A.
As a reminder to ask a question. Please press Star then one.
And for your question has been answered and you'd like to remove yourself from the queue press the pound key.
First question comes from David Begleiter with Deutsche Bank. Your line is open.
Thank you Guillermo and.
And Kevin can you discuss the cadence of second half earnings given well likely be summer, peaking and raw material costs and Q3.
So on the raw material costs, one thing Thats important to note is the biggest impact that we've had when we talked about raw materials for especially the additives business is not cost.
Its availability.
And it's not necessarily the major raw materials.
<unk>.
A small ingredients that we need and and we can make the product without it so.
Raw materials don't just look at the raw material pricing cost side of things dynamics. It's the availability itself that has been the bigger impact for the a big part of our portfolio in terms of the cost side of things the biggest impact isn't adhesives and thats the petrochemical linked side.
<unk> and polyurethane, we're moving on that most of that you are going to see in the Q3 I think we had some impact raw materials went up in the quarter, but availability wasn't there. So it's not like the procurement was as high we are seeing some some raw materials coming back a little bit.
Already.
From the peaks over the last quarter, but that's the raw material dynamic is really going to be more and adhesive story rather than abroad Ashland story.
Yeah, and I would say on an overall basis. When you look at our outlook versus prior year price cost is very balanced over and over the entire portfolio and as Guillermo indicated for <unk>.
Portion of the out of this portfolio, it's more about availability or the timing of it.
Yeah and.
One comment I would add sort of to interject, because I did see some some.
Notes and message just talking about.
And the pricing, what's happening and and especially expectations relative to other companies because.
Some of the results are driven by pricing I do want to make a point that we are not a commodity company.
Pricing is not the big driver, we're striving to become much more <unk> and additive with a bend towards the consumer side of the portfolio that has more pricing stability, it's about innovation and value pricing. So some of the comparisons that I've seen are probably not appropriate.
We're not a commodity company. So we're trying to look at more other companies our peers would be more of the additives to players and other areas. So again.
<unk> raw material story is much more of and adhesive story, because it's more of that petrochemical profile, but for the rest youre going to see a very different dynamic going forward.
No no very clear and.
Question, just to use that seaworld and unfortunately.
Video price drop sharply and the June quarter contract prices are I would expect IMS earnings to be up sharply as a result, and Q3 versus Q2 is that a fair assumption.
Yes, yes. It is that is more of a commodity type profile and most of that is happening into Q3.
Thank you. Thank you very much.
Our next question comes from John Roberts with UBS. Your line is open.
Hi, guys. This is Stefan on for John and Thanks for taking my question.
In personal care and after adjusting for the exit and raise our business what was the exit rate on sales coming out of March and has.
Ken positive yet in April.
And could you just discuss how you say underlying kind of organic trends progressing and your second half price.
Yes.
I would say.
Obviously.
And we express some of the segments that the recovery is a bit slower.
Obviously, the demand was was was high actually and the last quarter. When we talk about sales being shifted from one quarter to the other that's based on our forecast of what we expected and that we couldnt ship.
And to customers, we actually had a lot more orders that came in just because demand is strong, but we couldnt, even commit to because of raw material situations. So so the market right now.
There is a lot of noise because some of those orders or other people couldnt supply either so there's a little bit more from I would say on the demand dynamics and the short term, but as the raw material situation eases off I think things will start normalize and youre going to see a pattern more aligned with last year.
And with some of these segments the upside recovery, that's the part that we're not in control.
My view right now is that that'll take a little bit longer, but we are definitely seeing improved demand and.
And the and the core segments.
Cool, thanks, and just on cash.
<unk>.
<unk> is the largest end market for industrial and specialty fluids or delays.
Architectural has been outperforming industrial and until recently, but that seems like that's going to shift back the other way now with industrial to outperform more as we come out of it and then <unk>.
I have the perception that you are more exposed to architectural and industrial and maybe you could help us understand what your outlook is there for the tight markets and then how that dynamic will impact the business.
Yeah, so on and as you said.
Our biggest part of the business is architectural coatings. If you look at our results and the business they've been equal to or ahead. If you go customer by customer and we're very global supply everybody and the world.
Has been equal to or better I think the demand we've seen the improvement from everybody. We've actually gained share and we're doing a lot of really the team has done a lot of great work. So we feel very very good.
As we move forward and and the industrial for us as a growth area that we want to get into more and new developments and we're working on but if you look at the outlook I do think regardless I mean.
The pandemic impact on the architectural coatings market would require a a share.
<unk> down and you see it and some companies and some countries, but they're shorter term at this point and time.
But overall, what we're seeing is that.
And especially the contractor segment.
Because of new safety protocols people, our people and contractors both are much more comfortable working.
People know that leaves their house and let the contractors be working there is not a fear that we had last year I think independent of the vaccination and things like that.
The.
The contractor business, which is the bigger business globally will continue to recover so I think that we will continue to see strong demand and for our products.
And the recovery will continue.
Why is the one that everybody is looking at more.
Because it was very very strong and there was some some discussion that would soften up a little bit and it would be offset by contractor I think what we're seeing so far is that they are both remaining pretty robust.
Okay.
[laughter].
Our next question comes from John Mcnulty with BMO capital markets and your line is open.
Yeah. Thanks for taking my question, so it sounds like the Texas freeze related issues.
It sounds like you feel like on the revenue front and you can get it back and then even on the cost side. It sounds like there are I guess, there's enough other things going right that you can kind of offset that can you help us to understand what those levers are whether they are on the revenue side are there on the cost side to kind of help you to offset some of the Yuri related costs as we go throughout the rest of the year.
<unk>.
So at a minimum and and it's really about the raw material availability, we have enough availability, where we've been meeting our demand.
So that's been very good but.
Raw material situation is still tight the teams are working very actively.
The good news is it's improving and every week, it's improving significantly I would say with the level of improvement we've seen so far we feel probably the the the risk to meeting.
Our core demand is lowering significantly I'd like to see the availability improve a little bit more to where we feel confident that we can really start rebuilding inventory and I think two things that youre going to see is one that we just have the raw materials that we can run our plants and build inventory and that'll be a straight absorption and.
<unk>.
The other thing is demand still is remaining strong other people are also having issues with supply. So there is some incremental demand there that maybe we don't build inventory and we sell more and that what's not clear right now.
Really going to be dependent on the raw materials situation, but the good news is we're seeing the improvements and we're feeling more and more confident that area got it.
That makes sense I'm sorry, John you look you look at the math and the quarter. So 134 reported we had 11, specifically and the quarter freeze and scary.
Most likely.
Likely to be able to recover a chunk of that if raws to what I'm going to do what we would expect them to do.
You can call it four to 8 million of.
Legacy corporate stuff environmental being the biggest chunk of that and about $3 million or so of push and GP into current quarter and it really gets you as you look at the March quarter just to emphasize this it really gets you right on top of that if not above the consensus numbers. If you if you kind of read through all of the non.
And as Guillermo indicated demand.
Remains robust.
Don't see that change and the.
And the industrial segments.
We've talked about what we expect out of the consumer segments in terms of the puts and takes so.
Thank you.
And we're confident that we can.
But we can offset a chunk of the Parisian impact over the course of the year presuming raw material availability continues to improve got.
Got it got it okay that makes sense and then Kevin maybe a question or another.
The other question that maybe you can help us to fill and the GAAP on.
So on the cash flow front.
Certainly the first half of the year, you're off to a much better start than usual and I think the <unk>. Once you maybe had some some bigger benefits than usual, but I guess as it.
It looks like you're on target to kind of exceed even kind of your longer term target of kind of a 60% cash conversion cycle is that is that fair or are there other kind of puts and takes that we should be thinking about debt, maybe temper that down a little bit as we as we look throughout the rest of this year.
So that's a good question.
And so really two big moving pieces for this fiscal year, we're going to have about $40 million of restructuring related.
Cash costs debt.
And we'll pay out.
And the year.
And so that's obviously negative to the overall number and we've talked about that on the positive and more or less offsetting that is we're continuing we're continuing to work on working capital and so.
Especially with the exit of some of the slow mortgage and product line business and personal care.
And we're primarily selling out of inventory as we do that and so we should continue to see it.
Incremental improvements and <unk>.
Working capital so yes.
Yes.
And takes to that but I.
And I don't disagree with I don't disagree with your math in terms of.
Where we will likely end up assuming things play out as expected over the over the remainder of the fiscal year and and yes. Its probably fair to say that Q1 was maybe a bit stronger than that.
And then would be quote unquote normal but.
And it's also fair to say that we're continuing to focus very clearly and very closely on the working capital dynamic and not just inventory, but also receivables and to a lesser extent payables, because we're pretty much in line on payables and what but.
For sure of the receivable Scrunt each team continues to make progress and its own way in terms of reducing days outstanding.
We don't have any problem with collections, but.
Our terms are on and overall basis too long and each business unit is working on that and their own way and.
I'm pleased with how they're how they're approaching it and the progress they've made so we should continue to see.
A bit of a tailwind on the working capital side over the course of time and then once we get through the restructuring piece the numbers will be a lot cleaner.
Got it very clear thanks, very much for the help share.
Sure.
Our next question comes from Mike Harrison with Seaport Global Your line is open.
Hi, good morning.
Hi, good morning, Michael with them within the P C and H business.
You quantified the lower margin and volume that you exited.
And maybe give us an update on where we are and that process are we almost to the point, where we're going to stop seeing that headwind and then can you maybe give us. Some examples of the non pandemic impacted applications, where youre looking to expand.
Your presence and your product offering with MPC and H.
Yes.
So so the.
The exit will take it.
We're working through it a lot of this is with some major customers. So it's all planned out, but we need to be.
Incentive to their needs in terms of changing.
Supply and all that so it'll it'll be through this year and into into next year. The majority of it happened and this year, but specific customers consider pick areas. We have specific timelines that we're working on.
And again. This is we're exiting this is not what's driving our business. So we're going to do it and responsible way for our customers too.
Just given given the other activities, we have with them and then your question on the on the personal care and what are the segments. What are the things we're doing and it really comes back to the whole work that we're doing around rebalancing our innovation and it.
Initiatives as you know personal care, it's all about.
<unk> driven.
<unk> and that's going to drive growth both growth opportunities as well as replacement just re formulations with new ingredients, but there's some very good examples if you look at her hair hair care as an example, the majority of the hair care market, 80% is shampoo and conditioner.
And the styling is probably more around 20% a little bit less and 20% because there's a few other segments for us Hairstyling is the biggest segments. It's almost half our business is a big it's a big part of the portfolio.
We are seeing for example, the whole ESG.
Moving from liquids to bars as an example for shampoo and conditioners Theres a huge there's a whole number of other products that we're repositioning it's a small segment still but a growing segment driven by ESG.
We can reposition a lot of our ingredients.
To really help customers improve their offering and that area.
So we're excited about this is expected to be very interesting area.
But they need to improve their products the issue is going to be.
And packaging to reduce shipping so there's a lot of ESG driven thing, but that would be a great example of areas that we can that we can do more on and then we're working on specific ingredients things that we want to do cross selling and cross segments as we develop new products for four biodegrade ability or.
Specific performance criteria is in and oral care. Some of these products and we can use and haircut or other areas. So we're looking at all of that and the team is working both long term and short term.
Long term as the innovation some of these core and more platform driven innovations that we're working on and then and the near term. It's how do we quickly redeploy our existing products. The short term Tech service the onsite regional labs that we have to work with our customers how do we reposition.
Our existing portfolio to solve some of the new opportunities that we see and the market.
So there are some interesting and they'll take time, but theyre going to be very interesting opportunities for the coming years.
Alright, and then I believe you mentioned that you feel like Youre about 85 per cent of the way.
<unk> and <unk>.
Cost of goods sold productivity actions.
It sounds like the <unk> is all complete and maybe an update on kind of what further progress needs to happen on the cost of goods sold side.
I think most of it has been.
Worked through and communicated we're working through some of the final sites.
And Europe takes a little bit longer with just working through the process.
But everything is working very well and and.
We're confident that we're going to.
To meet our timelines so so no big concerns.
If you step back just on the results. It's it's the business is actually are doing as we expected. There is no surprises there the self help actions no surprises there everything is moving.
So we feel very good about.
And the underlying performance and outlook the challenges.
On the recovery, we know what they are we're working them.
We're going to manage through them. So I think it's some of these external things that are happening the storm obviously.
<unk> was the big impact and I.
And I also want to point out the environmental it's mostly legacy things and by definition is going to be chunky and and you can't forecasting because if you could forecast them you have to take the charge. So by definition. This is a technical process whenever they do the work and they get the data. They have to then take action to adjust that.
And the reserves and Sonic it's a reserve. So so these are not things that really are reflective of.
The underlying performance of the businesses.
Alright, thanks very much.
And.
Our next question comes from Mike Sison with Wells Fargo. Your line is open.
Hey, guys.
And I was wondering if you think about the midpoint of your outlook favorite that 'twenty, one up $50 million from 2020.
And I just wanted to make sure I have sort of the EBITDA walk down could you maybe walk us through cost savings contribution volume leverage FX and then obviously you gave and storm that was I just want to make sure that the work is better understood.
Okay. So let me make a few comments and then Kevin maybe you can go through a little bit of the details on on some of the work drivers, but obviously as we as we talked about when we did the.
The first quarter fourth quarter at the beginning of the year call for the outlook of the year.
And that we felt very good and in terms of the self help was a big driver for the year and and improvement and that gave US a lot of confidence and look there was going to be significant improvements. So definitely I would say that has been a major driver.
The recovery on the industrial side.
Obviously is the other big Big driver.
Which is happening and we're taking actions on very well.
The other parts are the those are the more robust businesses that have held up last year and I think that's more the details of the puts and takes on on share and new products development mix improvements those more nuance activities.
Debt.
And that we're driving but Kevin do you want to go into any specific or more specific.
Comments.
And I think and.
In terms of our in terms of our outlook that we talked about earlier and the year, which we actually upsized.
And when do we Upsized last call was on the self help and $20 million to $25 million.
And our expectation is Guillermo indicated, let's say the industrial recovery has been.
More robust.
And <unk>.
And just to be that way, which is which is a plus.
Looking.
Looking at it from a mix perspective, we've definitely seen improved mix and the business and each business unit and just done a really nice job there.
Driving higher value product lines. So we're seeing uplift there and thats playing a positive role when you look at the when you look at the overall.
Net net our expectations for corporate for the full year are pretty much on target.
And maybe a smidge high but not not much. So so that's a bit of a negative on overall basis, but just a bit.
And you know I think the other thing that's important to point out is we've talked about storm impact.
And that's going to be all in and $14 million to the negative.
And and so to be clear our range does not project and the recovery of that and it also does and project any any upside from the Silicon Meyer acquisition and integration, which there'll be some we just don't know how much.
And we also had the dual strike, which is part of our process to execute on the cost of goods sold program and.
And that was and eight or $9 million and negative impact and total to the financials for the year. So when you look at $5 70 to 590 and considering.
And a better part of $25 million of headwind from Uri and the and.
And the impact of the strike and our dual Belgium plant.
And I think it all adds up to be a pretty strong year again, not presuming any upside from recapturing storm storm cost, which we believe it will be and all.
Also not including anything for the acquisition and integration of a shock and buyer deal.
Got it and a quick follow up Guillermo and terms of consumer specialties as a whole when do you think we see growth and.
And then just straight up year over year growth from the businesses excluding shall.
Chuck and higher and what type of growth do you think the <unk>.
And it should do at some point.
Sandra Ryan.
Yes, no if you look at.
And the underlying demand and inter.
Internally, we tend to take out the book, we're going to we're going to exit because thats. So.
Sort of define the timing of it might be a little bit of noise, but it's.
It's been pretty much on target.
Our overall target these segments.
Underlying market will be.
Market plus.
A little bit of growth, so 2% to 5% underlying market. That's C are the segments, we're selling into so we'd like to be above that over time.
But that will require all of these innovations the portfolio shifts really getting all that I think this is true. This year, we will still see some noise.
If you look at the segments that I highlighted the.
And the four segments that are impacted and they're not the biggest part but roughly.
30% of the business so that part of it is not getting the resilient and set that we would like to see.
And that's the part that we're that we're working through at this point and time and I can't really predict.
And when the recovery is going to be because I do think this is really about the opening of the economy.
You see it around the world.
As an example, handset and we got new business with customers to supply schools and and.
Certain European country, well and all the calls here, while the orders are delayed because the school system is close.
So we're going to have to manage through that.
But.
I think definitely in 2020, two we will start seeing that global improvement as vaccinations really start hitting the rest of the world and I think thats. The biggest challenge I hope, it's clear I mean, we're not a U S centric business and a lot of these portfolios and the U S is performing.
Very well.
<unk>.
The other parts, we will really do need a little bit more of a pickup and.
And.
And the opening up of economies.
Great. Thank you.
Our next question comes from Jeff Zekauskas with Morgan Stanley Jpmorgan. Your line is open.
Thanks very much.
And I think your I think your SG&A cost was $106 million and the first quarter and I think it was $84 million and the second quarter.
What happened there and whats the normal SG&A cost for the per quarter.
Kevin do you want it.
And this one so sorry.
Yeah, Yeah, yeah, okay.
Yeah, I would say I would say, where we are where we are right now we should continue to see.
On the <unk>.
Positive impact of the cost out program roll through.
I would say normal SG&A for the quarter is going to be around $100 million.
Going going forward and total debt.
Oh, that's a good place to peg it.
Total SG&A.
So why was it so low this quarter did you did you cut management comp.
Is that or.
And what led to such a large sequential decline.
I would say, it's more of a more of a timing thing than anything else at this point I mean, we didn't make any major changes to campari and <unk>.
And anything like that and I don't know.
Okay.
Okay. Thank you.
Yeah.
Our next question comes from Rosemarie <unk> with G Research Your line is open.
Good morning, everyone.
And.
And I was wondering if you could talk about just shy so naturally derived products and why do you think it could be two to three years out I understand that so it's going to add to it and linked to that question.
Do you think that customers are willing to pay more for it.
And therefore, all the margins are going to be above your traditional product lines.
And then.
And so.
First excellent question and frankly this is gonna be a big focus when we do our investor day to showing a little bit more details both at a company level.
And as well as business unit level, so a significant part of our portfolio.
I would describe us as.
Sustainable base.
Natural naturally derived.
<unk>.
Biodegradable and.
And you said just on the nature of some of the products Cellulosic.
Nature of our materials. So we're starting with a very strong base, especially in our additives business. If you look at it.
The adhesive side.
That is mostly petrochemical and social acrylic and and and polyurethane. So there it's more.
We use our technology to help our customers more.
Develop.
<unk> value through their products, so composite light weighting those kinds of things that would and enabling wood and and.
And construction.
So it's more about our customers products, but and I would say and the consumer side. It's much more also about our own sustainability and.
And customers are willing to two.
Pay more for value.
And just pay for more for product I think the biggest challenge as we see and.
Companies develop more ESG driven technologies is performance.
And.
The products need to perform so just creating as an example, a and b.
Biodegradable hair gel or <unk>.
Nice, but if it doesn't work nobody's going to buy and so it's a balance and I think thats, where the excitement comes where there's a lot of opportunities for innovation and for value creation, most to replace your own existing technologies with newer and more IP hopefully IP differentiated.
Products that customers will pay a premium for.
And also capture share or enable new new categories I think.
The example of solid shampoo and conditioner is a very.
Exciting and what Youre seeing now before it was initial product and that Youre seeing some of the major players coming in so the ingredients that they want to use in those more ESG will buy by nature be.
And the focus is on more sustainable type type products. So I.
I think the short and as we have a significant part of our portfolio as a company.
And we are developing even more so that's that will be.
And the exciting part of our portfolio transformation and as an example, the whole evoke a part that we were mostly focused and the pass on plant extracts as an example from <unk>.
For fragrance carrier.
Probably you'll hear us talk less about of Boca per se and now it's really about extraction capabilities to develop and expand the portfolio. So we're looking at ways to bring in new products, new offerings to our customers and that area. So that will be the center of a lot of the personal care focus for us.
Thank you and then just following up on the share or other type of categories on the personal account, which have been affected.
Affected by a change in consumer behavior I was wondering if you could.
Share weakness and the difference between what you see and the U S and what you see in Europe.
I mean, the U S is opening up so are you.
And the benefit even though it is a smaller part of your overall business.
Yeah in general we are seeing for all categories that our consumer behavior. We are seeing some some benefit opening up on on this I think the issue is how much is the opening up I think.
Well back to office is still much lower because regardless of COVID-19 I think a lot of companies are also taking other actions. So I think the.
<unk>.
And there will be a readjustment and.
And in terms of the work side of things versus the social side of things definitely on the social side, we're seeing a little bit more of a pickup on the work side I think theres still a lot of companies still working remote so a lot of those day to day uses.
It's not has been as strong as it is.
Historic and those areas, but restaurants, I mean, the social aspects of it.
If you go to two cities, where the opening up has happened more you do see people.
Getting back into some of their older habits.
So, but as you point out Europe, we still see a lot of it's slower.
And definitely and parts of Asia, we see it slow down because of it and then make Brazil those places.
Definitely or no.
Alright, thank you.
And.
Yes.
And no further questions I would like to turn the call back over to Guillermo Novo for closing remarks.
Okay, well I want to thank everybody for your interest in and.
Our results this quarter and your participation.
Kevin summarized I think we're very excited about where we are with the businesses their underlying performance the execution of our strategy and we look forward to meeting with all of you and the coming weeks and talking to you to share more details and more importantly, we're really looking forward to our investor day.
So we can lay out more of a long term growth opportunities and margin improvement opportunities that we see.
For our future. So thank you very much for your interest and and stay safe.
Ladies and gentlemen, this does conclude the conference you may now disconnect everyone have a great day.
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