Q3 2021 Ashland Global Holdings Inc Earnings Call
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Good day, and thank you for stating by and welcome to the Ashland Global Holdings, Inc. Third quarter 2021 earnings call at this time, all participants on a listen only mode.
For the speaker's presentation there'll be a question and the answer session. Please be advised that today's conference is being recorded.
To ask the question during the session you will need the press star 1 on your telephone if you require any further assistance. Please press star Zero I would now like the hand, the conference over to your speaker today that the.
On the Rosy Ashland director of Investor Relations. Please go ahead.
Thank you Justin good morning.
And welcome to Ashland's third quarter fiscal year, 2021 earnings conference call and webcast.
My name is Seth Mrozek director Ashland Investor Relations.
Many of me on the call today, our gear them on Novo Ashland's, Chairman and Chief Executive Officer, and Kevin Willis Senior Vice President and Chief Financial Officer.
Ever released preliminary results for the quarter ended June 32021 at approximately 5 PM Eastern time yesterday July 27th.
The news release issued last night was furnished to the SEC in a form 8-K.
During this mornings call we will reference slides of that are currently being webcast on our website Ashland Dot com.
We were under the Investor Relations section.
We encourage you to follow along with the webcast during the call.
As a reminder, during today's call we will be making forward looking statements on several matters, including our outlook for fiscal year 2021.
These forward looking statements are subject to risks and uncertainties that could cause future results.
On our events to differ materially 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 2 of the presentation for a more complete explanation of those risks and uncertainties and the limits applicable to forward looking statements.
You can also review our most recent form 10-K.
Under item 1 a for a comprehensive discussion of the risk factors impacting our business. 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.
These measures as adjusted and present them in order to supplement your understanding and assessment of the financial performance of our ongoing business non.
Non-GAAP measures should not be considered a substitute for or superior to financial measures calculated in accordance with GAAP the Moe.
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 of today's slide presentation.
Please turn to slide 3.
Jeremy will begin the call. This morning, with an overview of Ashland's results in the third fiscal quarter.
Next Kevin will provide a more detailed review of financial results for.
To the.
Finally, Guillermo will close with key priorities and planning in the current economic environment. In addition to providing his thoughts on important next steps.
We will then open the line for questions on.
On a final note we continue to work on planning for an upcoming Investor day, our intent is to host this event during the back end.
On the court on their year.
Please turn to slide 5 and I will turn the call over to Guillermo for his opening comments Guillermo.
Thank you Seth and good morning to everyone.
You for your interest in Ashland and your participation this morning.
Before I start I would like to clarify that we will not be making any.
The comments or responding to any questions about our ongoing strategic review process for our performance adhesive business for now I would just comment that the process is well underway and going well with significant interest.
As you will hear during the call in line with our June 10th update.
Of the kind of major issues impacting our Q3 performance revolved around the supply chain challenges linked to shipping constraints and raw material availability as well as the pace of raw material cost inflation for the most part market dynamics for our underlying businesses.
The business performance.
Behaved in line with our commentary from prior calls.
Despite the supply chain headwinds, we continue to operate safely with a clear focus on the safety and wellbeing of our employees as we manage through the challenges of the pandemic.
Im also pleased by the progress of our business units are making as we continue to execute our strategy.
Before I comment on our Q3 performance, let me start by summarizing some of the tailwind and headwinds we saw in the quarter.
From the tailwind side, our self help out the cost savings activities progressed as plan, we continue to see strong recovery in industrial end market demand.
The nutraceutical on nutrition business continued to deliver improved performance.
We saw favorable impact of FX of the <unk> acquisition and BDO pricing.
And our capital discipline also delivered strong free cash flow and free cash flow conversion.
And our headwind side global constraints on logistics and shipping continue to impact sales and cost as an example June confirmed orders for direct shipments to customers on ocean freight were impacted by the significant drop in on time shipping the liability.
This has been the return.
Recurring theme for the last few months.
For June we had $20 million to $30 million.
Of orders that were at warehouses ready to be loaded on ships, but we're not invoice due to delays in shipping arrivals and loading.
Most of these orders were Invoiced in early July.
Indications.
On the heavy shipping reliability challenges will persist for the foreseeable future.
Raw material availability continues to be of challenge, causing on plant shutdowns as well as inefficiencies in our manufacturing productivity that negatively impacted costs.
For our performance adhesives business volume.
Volume was strong, but the magnitude and pace of raw material inflation impacted margins. The business continues to act on pricing to cover these cost increases, but the incremental inflation has impacted the timing of margin margin recovery.
Personal care dynamics have not changed.
Are they much of the pandemic related impact on consumer behaviors continues to delay demand recover recovery.
Additionally, as we discussed on our last call. We continue to see demand weakness in hand, sanitizers and of OCA.
Clearly, although the longer term dynamics remain favorable.
<unk> managing through these near term supply challenges and cost inflation dynamics is of critical priority and focus for all businesses.
Please turn to slide 6.
This quarter presented new challenges for our teams and our customers.
However, regardless of these near term challenges we continue.
<unk> to deliver growth and improved performance.
Sales of $637 million.
11% by.
By continued recovery of our industrial businesses and continued resilience of our consumer businesses. We're also starting to see the benefits of the <unk> acquisition.
Brian asked the strength was driven by strong video pricing.
Currency was favorable by 3%.
Life Sciences continues to perform well.
Pharma sales were down compared of strong prior year period as customers worked to build inventory as the global pandemic.
Nick took hold.
Sales in the quarter were also impacted by ocean freight shipping challenges.
Nutraceuticals demand remains strong and the team has demonstrated strong year over year growth. Thanks to the concerted efforts to change the business trajectory.
In personal care the global pandemic.
The continues to impact some market segments linked to consumer social and recreational behavior, we have not seen the global demand recovery to date, but we are confident that it will develop once there is broader vaccination across the globe.
Specialty additives continues to see strong demand recovery across.
Pandemic all markets except for energy.
Global architectural coatings business demonstrated significant volume recovery, driven by both DIY and contractor segments.
Our performance adhesives business also saw broad based growth across applications.
However.
The availability of certain raw materials continues to constrain sales.
EBITDA of $148 million was up 4%.
The impact of strong sales in our self help actions were offset by higher costs from supply chain and raw materials impacting logistics and manufacturing costs.
<unk> as well as raw material costs and mix.
Although we take significant pricing actions they were offset by additional incremental raw material cost inflation.
More product pricing actions are already being implemented.
Our free cash flow conversion focus.
<unk> continues to deliver strong results generating $210 million of free cash flow in the quarter.
Despite these challenges during the quarter our business Park has remained unchanged.
<unk> organic growth expanding margins and improving free cash flow.
I'm pleased by the progress made by the Ashland team for the quarter during the quarter. The managed very well during another difficult external challenge ensuring the safety of all of our employees that our customers were supplied and the we maximize the performance let me now pass it over to Kevin for the financial update Ken.
Thank you Guillermo and good morning, everyone. Please turn to slide 8.
Total Ashland sales in the quarter were $637 million up 11% versus prior year phase.
Favorable currency contributed 3% growth during the quarter.
Excluding key items.
Kevin SG&A, R&D and intangible amortization costs increased modestly to $118 million in the quarter, primarily reflecting increases to incentive accruals and deferred compensation plus. The addition of the <unk> business.
In total Ashland's adjusted EBITDA was 148 million.
The.
The 4% increase compared to the prior year adjusted EBITDA of $143 million.
Ashland adjusted EBITDA margin was 23, 2% of 170 basis point decline compared to prior year again, reflecting the items discussed above.
Adjusted EPS, excluding acquisition amortization was $1.22 per diluted share up 9% from the prior year.
Now, let's review the results of each of our 3 business groups. Please turn to slide 9.
First I'll begin with consumer specialties sales were 3.
$40 million down 1% from the prior year quarter.
Currency favorably impacted sales by 3%.
Within the life Sciences pharma sales were down compared to the strong prior year quarter, when our customers built inventory levels as the pandemic impact on the global supply chain.
300 was in question.
Nutraceutical sales were again up double digits as the team has done an excellent job stabilizing and growing the business.
Sales to nutrition and other end markets also grew by double digits, reflecting improved trends for consumer dining behavior.
In total.
Life Sciences sales increased 2% during the quarter inclusive of favorable currency.
Sales to personal care end markets were down 6% during the quarter due to several factors.
Global tend on the continues to impact certain consumer behaviors related the hair styling.
The Sun care and oral care in the context of social activities leisure activities and mask wearing and.
In addition demand for ingredients used in hand, sanitizer of formulations have normalized at or below prior year levels.
We also closed on the <unk> acquisition.
During the quarter, which contributed roughly 2 months of sales and earnings to personal care results.
The integration is proceeding as planned and were excited about the future growth opportunities that the team and technology bring to our portfolio.
For all of consumer specialties, lower manufacturing and <unk> expenses led.
Improved adjusted EBITDA margins of 27, 1% of 90 basis point increase over prior year.
In total consumer specialties, adjusted EBITDA increased by $2 million to $92 million.
Please turn to slide 10.
Industrial specialities.
Led to a very strong quarter with sales of $263 million up 28% from the prior year.
Industrial demand was significantly improved compared to the June quarter in 2020, when pandemic driven lockdowns have been implemented across the globe.
We saw broad based growth across the industrial end.
End markets consistent with the industrial demand recovery.
In fact, industrial specialty sales essentially returned to pre pandemic levels last seen in the fiscal third quarter of 2019.
Favorable currency contributed 4% overall sales growth.
Our coatings business was.
Up double digits during the quarter, reflecting strong global demand for architectural paints in both DIY and contract for applications.
The only exception to strong sales growth in industrial specialties for energy markets, where demand continues to remain weak across the globe.
In total sales for specialty additives.
<unk> grew by 25%.
Sales for performance adhesives grew by 34% reflecting growth in all 3 primary adhesive end markets.
While sales in demand were strong the combination of higher raw material costs raw material availability.
<unk> and constrained global logistics and shipping availability resulted in increased costs and hampered our ability our ability to meet incremental customer demand.
These issues impacted overall margins adjusted EBITDA margin for industrial specialties declined by 540 basis points.
Any 0.9% however.
However, given the strong sales growth adjusted EBITDA was $55 million of $1 million increase above the prior year.
Please turn to slide 11.
Turning to intermediates and solvents sales were $49 million up over 30% compared.
To the prior year period.
Pricing for BDO and related derivatives drove the sales growth in the quarter.
Extended outages in force matures at competitors' facilities contributed to the elevated pricing levels. We expect to continue to experience these pricing dynamics for the balance of our fiscal year.
The adjusted EBITDA for IMS was $15 million up from $11 million in the prior year period.
Please turn to slide 12.
So I've done for the last few quarters, so 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.
Okay.
Total free cash flow in the quarter was $210 million of $98 million increase compared to prior year.
While we generated higher cash flow from lower capital expenditures greater earnings and lower cash interest expense. We also received $90 million as part of the new.
Accounts receivable sales program that we implemented during the quarter. This.
This sales program replaces the previous U S. A our securitization program.
Excluding any inflows or outflows from the new car sales program, we still expect to convert significantly more than 50%.
Of our adjusted EBITDA to free cash flow in fiscal year 2021.
And we continue to expect that conversion rate to push higher in future years testimony to the free cash flow generation capability of the company as.
As we stated our goal is to consistently convert at least 60% of EBITDA to free cash flow.
CMO will spend more time discussing our fiscal 'twenty, 1 outlook and our underlying assumptions in his closing remarks with that I'll now turn the call back over to Guillermo Guillermo.
Thank you Kevin Please turn to slide 14.
As we look at our market demand outlook, we continue to see positive dynamic.
Life Science demand is expected to remain strong for pharma Nutraceuticals and nutrition.
Although there is still some uncertainty regarding the pace of Covid reopening in the U S. We're reopening has started to take place our personal care business is starting to see some strengthening in demand.
Although a small part of our portfolio I would note that we do not expect to see any recovery and the hand sanitizer application.
Industrial demand is expected to continue to remain strong.
And although it's a small part of our portfolio I would also note that we are starting to see demand recovery in the energy.
<unk> end markets.
Clearly the biggest risk and uncertainty to revenue and margins will continue to come from the supply chain and raw material challenges the world is experiencing.
As a result, given their broad and uncertain nature is very difficult for us to forecast the impact.
As.
The last year at the beginning of the Covid rather than trying to predict the unknown. We are focusing on building resilience. So that we can respond quickly to developments maximizing the positive minimizing the negative please turn to slide 15.
With that context in mind, we continue to maintain our full year guidance for sales.
As we did of 2.4 to $2.5 billion and EBITDA of $570 million to $590 million range.
This outlook is based on expected continued demand and industrial segments continued stable demand in life science and no significant acceleration.
Sales of <unk> of global demand recovery in personal care.
No changes in our underlying operating performance.
Pricing actions continue to be implemented to offset higher raw material costs and the acquired <unk> business will contribute favorably to the business.
Although we have factored in some of the impact.
The ratio of the current supply chain dynamics on our business, we cannot forecast unique 1 off events that are unknown.
To qualify our guidance.
Excluding the Shawkey.
Acquisition, our outlook would be in the lower end of the range.
Impact the Schulke acquisition results.
Acquisition results included.
Our outlook would be in the middle of the range.
We are not forecasting any major 1 off items caused by supply chain issues such as.
The plant shutdowns.
With or major raw material shortfalls.
Additionally.
Quarter end logistics of uncertainty could have a positive or negative 3% to 5% impact on revenue in the quarter.
Please turn to slide 16.
In summary, I am pleased to report that regardless of the supply chain and raw material headwinds our business units are performing well continue to drive improvement and execute their strategy, we're maintaining our long term focus on growth business resilience margin expansion and free cash flow conversions. However, we do record.
Recognize the added focus and urgency on managing through these near term supply chain challenges managing pricing and raw material dynamics to recover margins and building operating resilience through improved planning communication with our suppliers and customers and cost management.
We manage through.
Higher levels of uncertainty and change during 2020, and I'm confident that our business units on teams are ready to manage through the current supply chain challenges. Please turn to slide 23.
In closing I want to thank the Ashland team once again for their leadership and proactive ownership of their business in an uncertain environment. We're fortunate.
Premier of specialty materials company with high quality businesses that have leadership positions in defense of markets I'm pleased with the resilience demonstrated by our people and businesses and look forward to the opportunities that lie ahead.
For attention and operator, let's open up for Q&A.
And thank you as a reminder, we ask that you limit yourself to 1 question and 1 follow up to ask the question you will need to press star 1 on your telephone to reach all of your question price per pound key please standby, while we compile the Q&A roster and once again, if you'd like to ask the question of the Star 1.
And.
Our first question comes from John Mcnulty from BMO capital markets. Your line is now open.
Yes. Thanks for taking my question. So I guess a question on on how to think about the fourth quarter, because I think based on where we're at <unk> ended.
Youre looking for what should be EBITDA.
EBITDA of the kind of improves by <unk>.
20, plus million kind of even at the low end of the range and yet it sounds like a lot of these freight issues that kind of plagued you on the rest of the industry. It sounds like a lot of these are still that's still really kind of wreaking havoc on things. So I guess what confidence do you have that you can that you can kind of get.
Get that incremental improvement and start this kind of catch up when it comes to the freight side can you help us to think about that.
I think the important.
Perspective to have is unlike in other other situations most of the discussions on most of the outlook is based on what is demand how on.
Our customers positioning in terms of their needs for products.
And the fact is it's still very strong across the board we have a lot of orders in hand.
So we're confident in what we have at hand the issue now the question is.
How do we forecast some of these uncertainties, we have factored in some of the items.
But the.
Net impacted R. R.
Our demand, especially around raw material availability.
We have some plant closings of those kinds of things that we don't expect them to be repeated so we factored that in I think as we qualified on our guidance, we do recognize that theres going to be some degree of uncertain.
Uncertainty, we cannot plan for a major force measure of bias of supplier like we have this this this quarter things are improving so we expect some of these things to ease off.
For Us I think 1 of the unique things for us it's about the shipping really that's the biggest problem for us.
We have constraints in supply.
Supply chain availability, but we actually were able to produce and deliver a lot of our core demand that we had planned.
The shipping is the part that really is out of our control as I said on the example.
We had the material ready and ready ready to ship. So I think we've captured.
Capture that in some of the the.
The outlook and frankly, there is potential upside.
Not just downside that we could see in the quarter.
We're talking about what's going to happen at the end of the quarter September last 2 weeks of September is what's going to define things. So it's very hard for us too.
So on and it's easy to be very negative if you want to pile all of that but Theres no real foundation for for that negativity in terms of concrete facts that we have at our disposal at this point in time.
So we will provide additional update if we needed to but but this is our best estimate at the time.
Completely.
For example, we agree with that Gary the only only thing I would add is the teams across the board of been taking significant pricing actions and John We would expect some positive positive impact during Q4 from pricing actions that have been.
Taken during Q3 and early into Q4, so that.
Or is that should that should provide us with some improved momentum and there were some.
Major priority for us as we look at.
No.
Where we want to invest and and our capital allocation too to reward our shareholders is also going to be.
A big part of what we do so more to come there.
But this that is of a very important part of our longer.
The term plans for the portfolio.
Okay, and although some of US I guess, we'd like to see ians at least deconsolidation of this was probably a pretty good quarter to have it in the fold.
Whats the outlook for that business I mean, it had the highest earnings I think since you've been reporting that segment is it.
Pay up for 1 more quarter or does it spiked.
You know I think we see continued strength of at least during the fourth quarter I think we will see how things play out starting in <unk>.
The 22, I think some of the shifting dynamics and things like that as we look at global supply chains will have an impact how that debt the.
Back in your evolves, but I think into 2022, we will see some softening.
On pricing there.
Okay, but not in the September quarter non.
Not in the September quarter. Thank you.
It should continue to be strong.
Thank you and the next question comes.
Comes from Jeff Zekauskas from JP Morgan Your line is now open.
Uh huh.
Thanks very much.
Can you talk about the.
Pricing trends in your industrial businesses.
What where prices up in the quarter what are the price increases that you are trying to put through how much where we're.
Of all materials up can you supply some granularity of detail.
Yeah. So so we've been moving on pricing across the board I would say the biggest area. Obviously is the adhesive side.
Of the equation.
And the issue as I said is not.
The recovery.
<unk> to the new inflation.
That has come through in.
In the quarter, but we have been moving.
Very aggressively on pricing I think we didn't cover all of the pricing.
In the quarter, if you look.
But a lot of it I would say.
What percent of it.
We're able to cover in.
In the.
In the quarter.
And the same thing for Q4, so we our expectation right now unless there's another wave of raw material inflation is that will be caught up by the end of the fourth quarter.
Uh huh.
On the pricing side.
As I said it in the price go ahead yeah.
Debt.
Thats correct and again just to reiterate most of that is in most of that some of adhesives theres a little bit in some of the other businesses, but it's mostly adhesives and the team there is doing a great job on the pricing from its just margin.
And the recovery that's going to be the question right.
And by the end of the end of the Q4, we should we should be there.
I think the other 1 is as I mentioned on the prior question is BDO.
We've moved on pricing and it will be very favorable was favorable this quarter, we expect it could be very favorable.
Next quarter in.
The <unk> side.
On the on the consumer side, we're passing on.
There is a little bit more of a lag there.
Just the way our contracts are set up and how we pass on pricing, so that'll take a little bit longer than than the fourth quarter to catch up on price, but those are the main 2.
The broader base of freight costs.
Secondary raw materials and all of that we are moving on pricing as needed, but that's much more.
Specific to <unk>.
Product line specific product lines, so it's harder to make the generic or high level comments here.
What was your organic volume growth.
The consumer specialties.
The industrial production.
And of course the.
The organic growth.
Volume.
Yes.
Yes, so for for total volume grow.
Growth.
Kevin do you have the gist of the organic side of it because we had the.
The net.
That's called the exits and we had a few other the other items.
Now we will get back to you with the specific.
Volume number but.
The majority of the majority of if you look at it.
No.
Versus prior year as we said in the call.
The nutraceutical and nutrition, where the parts that were up organically.
And in the double double digits. So so very strong the pharma.
I think it's much more of of the comp versus prior quarter, it's not demand per se. It was the inventory building.
The occurred last year, I think youll see the.
The next quarter will be much stronger versus the prior year comp for us.
And in the in the personal care.
Of.
Of the businesses, if you look at hair care.
The skin oral they were slightly now it's we're talking basically the markets have been fairly flat the biggest headwinds for us in volume.
Really although it was small it was it's been just a significant drop as.
Sanitizers and the of OCA. So net net we didn't have a lot of organic.
The growth, but within each segments, we had significant variation by segment.
That's right Guillermo and total company volume growth as organic volume growth is up 10% year over year.
With.
With the industrial industrial piece being up more than 10% of and like you said due to some hand sanitizer of Boca and some other items on the consumer side.
Driving driving that part of the equation, but but overall up 10% year over year.
Thank you very much.
Thank you.
And our next question comes from David Big leader.
From Deutsche Bank.
Thank you good morning, Guillermo as we approach 2022 theme of our early view on how we should think about next year the earnings cadence versus this year.
Oh.
I think overall demand than the overall conditions are still the Super Bowl.
On the call I mean, we're really talking about reacting to some of these.
That makes if I look at the longer term.
On average for each of the business.
<unk>.
So the the as we look at 2020.
We'll have to see how the supply chain situation, especially the ocean freight and I think that's going to take the longest.
2 to clarify how it improves I think raw materials barring.
A big storm or something that causes the supply disruption across the entire industry.
The 1 we should continue to see recovery.
And that part of it so our focus is going to be more on normalizing.
Our business activity around the growth.
That means.
Non of growth is the top priority and it's about innovation.
What we're going to be launching that's going to be a lot of the focus.
We wanted to cover in our Investor day.
But it's really focusing on some of those longer term.
Dynamics and we're very excited in that side, we've been making significant progress.
Look at the R&D.
The portfolio change that we've made.
Go into the back end of the fourth quarter and Inc.
2 of the early part of 2022, we're going to be making a lot of significant launches of new products and that's when the second time from the more to come there, but we're very positive overall in terms of the longer term outlook I think the supply chain is the part of like everybody else, we're going to have to manage through.
Very good and just on sugar what did it add in Q3 and what do you think it will add in Q4 on both sales and EBITDA.
So Kevin you might want to provide the numbers of what I would qualify the this first quarter obviously we.
Out of 2 months, but just the normal transitions it wasn't the.
The ongoing run rate impact.
So it was slightly lower just in terms of inventory transitions and all of the normal integration activities, but for the next quarter. It should be a more of a normal quarter, but Kevin you want to provide a little bit of color there.
Yeah on the on the EBITDA on the EBITDA.
The island.
Dave the it'll be high single digits for the the 5 months that we've owned it again as Guillermo indicated you've got some initial initial costs on an upfront basis there.
Hmm.
Been dealing with just normal transition stuff, but then.
The more normalized.
In Q4 from from an overall perspective, but do you think I think high single digits for the for the <unk>.
This full year impact.
In Q Q4, Q4 revenues are going to be.
Call it mid to high Twenty's, probably from that business give or take.
Great. Thank you very.
Much Kevin.
Yeah.
And thank you.
And our next question comes from Mike <unk> from Wells Fargo. Your line is now open.
Hey, guys say day 1.
It sounds to your guidance for 2021 the <unk>.
70, 590, I, maybe I I apologize.
If I didn't understand your comments, but the.
Does that include.
Some degree of negatives from the key risk I recall that it was something like $5 million to $10 million in the third so are you, including sort of a negative hit and that's 70 of the 590 day.
Yeah. So the the 5 to 10 was the Q3 comment and you saw we have the actual results I would say for Q3, the actual was slightly higher than the top of the range that we communicated in an and June 10th.
Maybe.
The $2 million.
Yes.
We have and its offsets we had the positives and better costs and things of that offset it but that's included in the numbers. So.
So the $5.70 to $5.90 is the range without choking it would be in the lower end of the range with Schulke, which a lot of the the.
The numbers.
We're now in consensus.
With Schulke so the show up it would be more in the middle and as I said the part that we are not forecasting because it's.
Very difficult to predict the unknown as you know any major force majeure or shutdowns of major raw material availability issue, that's not on the radar screen.
<unk>.
Would not be included there.
And I do think there is a.
Plus plus minus.
Uh huh.
Potential on the revenue side.
Because of the the.
The supply chain challenges.
We'll monitor that during the quarter and report out if there is any need.
So to give any communications, but we have a lot of pent up demand is.
We saw this month, it's not we didn't have a raw material availability issue for a lot of missed orders it was sitting in warehouses ready to load.
And frankly, they were the materials and warehouses by mid month and did not get Invoiced and it really shows.
I think ocean shipping reliability has dropped to less than 25% and that's the biggest impact of them Theres no way, we can forecast that.
Yeah, but then the 2.
Alright, Mike the teams are taking into account.
<unk>.
The new knowledge, we have so as this has progressed over the last several.
The 2 months.
Each of the business units has tweak their processes to do what they can to offset and mitigate some of these some of these unknowns.
That that's the unknown.
Unknown unknowns, we still don't know and we can't forecast, but we have forecasted for Q4.
What we believe to be.
Our best estimate of what's going to happen.
<unk> point, if we see some big negatives orbit positives either of which could happen coming out of that.
We will let you know.
We'll update it if it's appropriate to do so.
Got it and then.
In terms of consumers.
The specialty for the fourth quarter, excluding debt, the 25 or mid twenties, and Chuck of well with organic sales growth turned positive and then <unk>.
Think about that business into 2000 to now how do you feel about sort of turning the corner and generating some organic growth.
So if.
If you look at just give some color on the <unk>.
The longer term outlook for for the consumer side and I'll go segment by segment I think personal care pharma never really drops so theres. The recovery here is just the continued growth market plus several 100 basis.
Points that we feel that we can we can achieve I think the dynamics and outlook is that that's going to continue obviously the comp.
This year because of Covid dynamics last year, we're going to have several quarters that debt.
The behaviors of when inventory was built it was different but we see continued momentum there.
<unk>.
Kevin mentioned the Nutraceutical business is this is the market has remained strong and the issues. We had last year, where ours I think youre starting to see just of good recovery. The teams of really got new business. Its margins are improving this is just hard work from the team and it's starting to pay off.
And we do see recovery in the the nutrition side of the equation so outlook seems very.
They're very good but I wouldn't say, it's a recovery of the market. It's the markets are good and it's really how we play them in personal care I do think we're going to start seeing you know unless something turns around.
Round from the pandemic side, if the vaccination.
<unk>.
And it continues to roll out and we start continue to see just the phased opening we will see recovery as I mentioned, we're already starting to see it in the U S hair care for example demand in the U S is strengthening.
And that is.
Result of of the openings. So we hope that that will continue Europe, probably will be the next and then it'll carry around so more positive momentum for us I think we will have.
Behind us the hand, sanitizer dynamics of last year and this year next year, we will not be there so.
That won't be a.
Headwind for us.
So it's really going to be more about the demand recovery and the new product launches, we have a lot of new products that we're going to be launching so we feel very good about the personal care side.
Of the equation and industrial I think.
The big question for industrial demand continues to be strong.
Now as we hit the.
The seasonal low.
That usually comes in our Q1 and Q2.
Will it be stronger than normal because theres a lot of pent up demand in projects. So.
My my outlook right now would be that it will probably be strong.
<unk> than normal.
Because of that pent up demand. So overall, it's really going to be dependent on the supply chain questions remember our supply for a lot of these products come out of the U S and Europe. So shipping the issues from China. The U S are not what impacts us it's more shipping U S.
And Europe out this this quarter the biggest challenge in shipping was Europe and for the.
The European ports, where the biggest problem.
For us so as those things open up.
Into next year that will be favorable for us.
Thank you.
And thank you.
Question comes from Mike Harrison from Seaport Research.
Your line is now open.
Hi, good morning.
I wanted to ask a couple of questions on your coatings business, you've mentioned that for now DIY and contractor.
Demand remains pretty strong and architectural coatings.
Are your additives used more intensively in the types of higher end paints that are used by diyer.
Such that if we are expecting the DIY demand come off and contractor activity improve.
<unk> the.
But that could actually drag on your additives sales into the coatings market.
Yes, so if you look at our additive coatings.
The rheology is the biggest 1 and thats both of the Cellulosic Hec being the major driver and then in the synthetics it would be the acro flow.
Acro flow goes more into the DIY.
<unk> is broad based across the board.
Demand continues to be very strong we are seeing the the DIY market is starting to stabilize relative to a very strong prior year.
Is still very strong.
We.
Are pretty global and were very broad based in terms of the customer base of some customers are more DIY of focus others are mixed.
Some of our more contractor focused.
So so we will see a little bit of that dynamic of of the contractor market, probably being the stronger part of the portfolio.
As we go into into next year I will say Hec is an example of the entire market is very tight running out of capacity so pricing is going up.
So we are going to be investing for added capacity Inc.
For mental and.
And more fundamental.
The capacity additions in that area, but the industry is tight and especially given the strong demand for cellulosic, both from the recovery of the markets as well as Cellulosic.
And many many of the consumer markets, obviously more natural based products.
The demand and interest from new applications is still very high.
Alright, and then not really a question on the adhesives process, but just wondering if there will be any stranded costs associated with a potential diverse.
That's the true there can you quantify quantify that and maybe discuss what actions.
You would be taking in order to counteract those costs right. So so so we are we are taking.
Our actions in terms of our transformation of our portfolio.
The.
The aim for our Investor day, as we look at it becoming much more of a.
Additive ingredient company less petrochemical based more natural based.
So this is going to become a much different company with different dynamics.
Factoring all of these issues.
The big thing.
Some of our plans if you look at actions, we're taking the <unk> acquisition, we are planning to grow.
And replace.
The impact so so all of that will be factored in and we will communicate more of the appropriate time, but.
But we want to present the full picture.
Issues of what we want to do and what the company is becoming.
As we do this this transformation.
Alright, thanks very much.
Thank you and the next question comes from Laurence Alexander from Jefferies. Your line is now open.
Good morning.
2 questions. The first how are you thinking about <unk>.
Lumpiness.
For the next 4 to 8 quarters compared to your normal lumpiness of incremental margins.
And secondly, as we think about the innovation tailwind in 2022.
The.
It's kind of setting a new cadence for the firm or is it going to be significantly above or below normal.
Mhm.
So.
To your first question on on just the the demand outlooks.
And.
Im assuming from your question it's more around.
Is it plant loadings and some of the Lumpiness.
If it helps them really just getting at the level of unpredictability.
Sort of it used to be sort of of you'd have like a 2% Lumpiness I think you've called out like 3% to 4% just on logistics. So how do we think about the total swing factor this quarter.
<unk> quarter.
Current environment of what it normalizes.
Okay. So so.
The the bigger Lumpiness that we're seeing right now would of been manufacturing and loading of our plants.
More than the <unk>.
Supply chain cost.
Logistics cost.
But I think that's not going to be as lumpy as inflating and we're managing through that but with regards to our manufacturing.
Side lot of our demand is very strong.
And many of our products and we're running the plants full out Hec is of Great example, I mean.
The market is.
Is very tight at this point of time, so from an operating and some of the lumpiness that used to come from that that will that will level off because we will be producing as much as we can across across the year.
So so the the issue is really going to be more about the demand side of the equation.
In terms of revenue.
Cost of it.
And as I said, especially on the industrial side I do think that we're going to see.
Continued strength into the first and second quarter, which tend to be the from the.
Lumpiness perspective, where a lot of the seasonality comes in and we might not see as much seasonality this year.
And the second question on innovation I think the issue now is the pace of launches that we've talked a lot last calls we've changed the portfolio. There's a lot of activity, where we're focusing right now is accelerating how do we which of the areas that we can accelerate launch of lot of new products. If you look at some of the.
The the <unk>.
Trends in personal care, especially around ESG.
It is starting to get more.
Okay.
Apologies and most of what we're doing is.
Really in that.
And that lane.
So it's about launching them and then.
Working through through customers. So a lot of of new innovation is very excited about the portfolio there.
Okay. Thank you.
Goodbye.
Okay.
And.
Do you.
Our next question comes from Vincent Anderson from Stifel. Your line is now open.
Yes. Good morning, Thanks for taking my question.
So I just wanted to touch on the Vogue.
Quickly how much of that drag currently is the fixed cost issue and at what point does it make more sense to.
The <unk> walk away from Clary Sage for awhile contracting of the other.
Capacity out and then you know until you remind of better long term solution.
Yes, so I would say the issue is as you pointed out it's on the on the clearer on the.
<unk> line side of the portfolio the team is.
Develop.
Maybe just seeing new new business new applications. So that's part of the equation is going well.
I think the issue actually last year it was more of the production.
A loading this year that actually we've worked off inventory so production of stabilized the.
The issue is more of it's a lumpier.
Develop.
The order pattern and the bigger customers that place bigger orders as an example of the fourth quarter.
There is.
Some very strong orders.
In the in that part of the portfolio. So we're monitoring those very closely especially around shipping.
<unk> a lot of that goes to Europe and other regions. So so it's really about monitoring that no I think that's stabilizing I think the longer term view is.
Growth in.
Innovation is going to come through new applications and that's what the team is working on.
And we are making very good progress there.
Okay, great. So you're just more of an order or the timing perspective, and then I guess just quickly.
To end on feeling a bit more forward looking and the flavors of world. As an example, you know there are some pretty obvious products that you kind of need just to have a seat at the table.
In customer conversations is there anything like that.
Nutrition that youre lacking in that your product pipeline development pipeline of specifically geared towards trying to address.
Yeah. So so if you look at the nutrition side of it a lot of.
The growth that we're focused on right now is on plant based protein. So a lot of the cellulosic products.
And then other and because of we have for that area that is growing very well.
So so this is sort of as we look at our markets pharma personal care coatings or like the major ones. This would be that second tier of.
<unk> of markets, where we leverage the additive and innovation activities from these bigger parts of the portfolio.
So we continue to see good good opportunities there, but this is not our major business.
In the secondary market.
We're not in the food and flavors, that's not the core of what we do right.
Alright, well thank you I appreciate it.
Okay.
And.
Portfolio of tier.
And I'm showing no further questions I would now like to turn the call back over to Graham Whammo Novo for closing remarks.
Okay. Thank you well I want to thank everyone for your interest as I hope you've seen.
The challenges for this quarter.
For the near term is about some of these external dynamics.
Yeah.
If you look at the some of the longer term.
The trends and outlooks were very excited I think we're in very good position.
As I said the teams are really doing a great job in managing through the continued.
And environment, but.
Thank you very much and we look forward to talking to you in the coming weeks.
This concludes today's conference call. Thank you for participating you may now disconnect.
Yeah.
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