Q2 2025 Ashland Inc Earnings Call
Hello.
Speaker Change: Welcome to Ashland's second quarter fiscal year, 2025 earnings conference call and webcast.
At this time all participants are in a listen only mode.
Speaker Change: After the speaker's presentation, there will be a question and answer session.
Speaker Change: To ask a question during the session you will need to press star one on your telephone you would then here automatic message advising your hand is raised.
Speaker Change: To withdraw your question. Please press star one again.
Wil Whitaker: I would now like to turn the conference over to Wil Whitaker.
Sir you may begin.
Wil Whitaker: Hello, everyone and welcome to Ashland's second quarter fiscal year 2025 earnings Conference call and webcast. My name is William Whitaker Ashland Investor Relations joining me on the call today are Guillermo Novo Ashland Chair and CEO, Kevin well ask the CFO and our business unit leaders, Alessandro <unk>, gentlemen, Gucci and Douglas.
Wil Whitaker: Yeah.
Wil Whitaker: During today's call we will reference slides is being webcast on our website Ashland Dot com under the Investor Relations section. We encourage you to follow along please.
Wil Whitaker: Turning to slide two.
Wil Whitaker: Well be discussing forward looking statements on several matters, including our fiscal 2020 outlook, which involve risks and uncertainties as detailed.
Wil Whitaker: On slide two and in our Form 10-K.
Wil Whitaker: Forward looking statements involve risks and uncertainties that could cause future results or events to differ materially from today's projections.
Wil Whitaker: We believe any such statements are based on reasonable assumptions, but cannot assure that such expectations will be achieved.
Wil Whitaker: We'll also discuss certain adjusted financial metrics, both actual and projected which are non-GAAP measures.
Wil Whitaker: Refer to these measures as adjusted and present them to supplement your understanding and assessment of our ongoing business.
Wil Whitaker: Reconciliations are available on our website and in the appendix of these slides I will now hand, the call over to Guillermo for his opening remarks Guillermo.
Guillermo Novo: You William and good morning to everyone. Thank you for joining us today.
I'll be providing an update that covers four key areas, giving you a clear picture of our recent performance and strategic direction.
Guillermo Novo: First I'll review the highlights of our second quarter performance later I'll provide more details on.
Guillermo Novo: On our strategic priorities.
Guillermo Novo: We will also discuss our proactive approach to the evolving tariff landscape and finally I'll take a detailed look at our updated fiscal year 2005 with guidance. Please turn to slide five.
Guillermo Novo: Let's begin with a recap of our second quarter performance, we saw a mixed demand environment.
Guillermo Novo: And it's slower than expected Q2 sales.
Guillermo Novo: With $479 million, a 17% year on year.
Guillermo Novo: Decrease.
Guillermo Novo: <unk>, a pique $67 million impact from portfolio optimization.
Guillermo Novo: Excluding this the 5% revenue decline was mainly driven by lower lower carryover volumes and pricing.
Guillermo Novo: Pricing generally aligned with our planning assumptions, excluding and intermediates.
Guillermo Novo: Adjusted EBITDA was $108 million down 14% year over year or 4% organically. This organic decline was partially offset by the cost savings initiatives.
Guillermo Novo: We will manage production recovery after our Q1 maintenance pull forward.
Guillermo Novo: Okay.
Guillermo Novo: Further cost benefits are already <unk>.
Guillermo Novo: Proving margins as segment detail show.
Guillermo Novo: And it's our lane.
Guillermo Novo: Routing work for future profitable growth.
Guillermo Novo: Regarding capital allocation, we continue our balanced approach repurchasing one 5 million shares as we believe our current share price undervalues, our long term growth potential.
Guillermo Novo: Please turn to slide six now.
Guillermo Novo: Now I'll summarize the performance of the individual segments.
Guillermo Novo: Science showed strong volume momentum and demand recovery due to the effective execution at stabilization of customer inventories reinforcing our renewed pharma growth outlook.
Guillermo Novo: Personal care core additives were resilient.
Guillermo Novo: Navigating softer European demand and specific and specific customer challenges.
Guillermo Novo: Specialty additives experienced anticipated volume declines in China and competitive intensity.
Guillermo Novo: Intensity remained high in export markets, such as the Middle East Africa and India.
Guillermo Novo: However, strong execution and other markets, partially compensated for these headwinds.
Guillermo Novo: Intermediates margins were below expectation due to the persistent pricing pressures and reduced production amid the challenging demand environment.
Guillermo Novo: Importantly, our portfolio optimization is now complete marked by the sale of our book of business and the full identification of our $30 million cost reduction plan in the second quarter.
Guillermo Novo: We are successfully delivering on cost savings exceeding our full year target.
Guillermo Novo: With early benefits evident on strong.
Guillermo Novo: Life Science and personal care EBITDA margins despite headwinds.
Guillermo Novo: This is the first time, we've had both business units above 30% margins in the same at the same time.
Guillermo Novo: Our key focus now is on accelerating the $60 million manufacturing optimization, given the market uncertainties with increased financial impact through the second half of fiscal year, 'twenty five and into fiscal year 'twenty six.
Guillermo Novo: In summary, while we're effectively managing the second half quarter.
Guillermo Novo: Headwinds.
Guillermo Novo: Increasing economic uncertainty and anticipated softer consumer demand are prompting an adjustment to our fiscal year 'twenty five outlook, which we'll discuss later.
Guillermo Novo: In response to these evolving conditions.
Guillermo Novo: The completion of our portfolio optimization, and our cost savings and productivity initiatives are more critical than ever.
Guillermo Novo: Our strategic priorities as outlined at our strategy day continue to guide US, we believe our ability to adapt and execute with discipline and prudence will be key to navigating the near term and creating long term value.
Kevin Well: Now I'd like to turn over the call to Kevin to provide more detailed review of our second quarter financial performance Kevin.
Kevin Well: Thank you Guillermo and good morning, everyone. Please turn to slide eight.
Kevin Well: Q2 sales were $479 million down.
Kevin Well: Down, 17%, including a $67 million impact and portfolio optimization <unk>.
Kevin Well: Excluding this sales declined 5% year over year.
Kevin Well: Our year over year organic sales volume declined by 2% as gains in intermediates and stable life Sciences volumes were outweighed by decreases in personal care and specialty additives.
Kevin Well: Overall, our pricing decreased by 2% compared to last year.
Kevin Well: This was primarily driven by lower carryover pricing actions and life Sciences, and specialty areas along with price declines in intermediates.
Kevin Well: Foreign currency also negative negatively impacted sales by 1%.
Kevin Well: Q2, adjusted EBITDA was $108 million down 14% year over year, mainly due to a $13 million impact on portfolio optimization and lower organic sales, partially offset by decreased sard and production costs.
Kevin Well: Raw materials were generally stable year over year, adjusted EBITDA margin increased 60 basis points to 22, 5% in the quarter.
Kevin Well: Life Sciences personal care and specialty additives, all improved year over year, adjusted EBITDA margin by greater than 200 basis points.
Kevin Well: Excluding portfolio optimization, adjusted EBITDA was down 4% due to the factors mentioned earlier.
Kevin Well: Adjusted EPS, excluding acquisition amortization was <unk> 99 per share down 22% from the prior year.
Kevin Well: Reflecting typical Q2 earnings seasonality ongoing free cash flow was negative $6 million.
Kevin Well: To conclude my remarks, I want to underscore a point we have discussed previously.
Kevin Well: With a strong financial foundation of over $700 million in liquidity and a manageable two eight times net leverage Ashland is well positioned to navigate the current environment and strategically invest in our key priorities.
Kevin Well: Now, let's hear directly from our general managers for a detailed review of each operating segments results.
Speaker Change: Alessandra, let's start with life Sciences.
Speaker Change: Thank you Kevin good morning, everyone.
Speaker Change: Please turn to slide nine for a lifestyle.
Speaker Change: Overall life Sciences sales declined 23% year over year to $172 million.
Speaker Change: The decline was primarily driven by our portfolio optimization initiatives, including the divestiture of our Nutraceuticals business line and exit from low margin attrition products.
Speaker Change: <unk> sales by approximately $42 million or 19%.
Speaker Change: These actions improve our long term profitability and focus but impact year over year comparison in fiscal year 2025.
Speaker Change: Overall organic sales declined 4% year over year.
Speaker Change: Mainly due to pharma carryover pricing from fiscal year 'twenty four.
Speaker Change: Normally as expected.
Speaker Change: Positively organic sales volumes met expectations and was flat year over year supported by improving sequential pharma demand.
Speaker Change: The demand improvement was across most regions and technologies as this talking from the previous quarter it stabilized.
Speaker Change: Now our share gain initiatives gain traction.
Speaker Change: In line with our strategic growth initiatives, we have inaugurated our new tablet <unk> plant in Brazil early in May.
Speaker Change: Yes.
Speaker Change: This facility enhances our technical support capabilities for customers.
Speaker Change: Formulation to industrial scale, driving innovation and organic growth in this key region.
Speaker Change: I look forward to sharing our progress as we scale these operations.
Speaker Change: Our nutrition business saw positive inflection this quarter driven by share gain mainly in Latin America with strong commercial execution.
Speaker Change: Turning to profitability overall, adjusted EBITDA decreased by 15% year over year to $56 million.
Speaker Change: Excluding Megan.
Speaker Change: From portfolio optimization, EBITDA was down 2 million or 3%.
This decrease was primarily due to carry over pricing.
Speaker Change: It will be mitigated by lower production costs from our restructuring efforts.
Our adjusted EBITDA margin increased by 290 basis points year over year to 32, 6%.
Speaker Change: Marking one of the business units are strongest margin quarters on record.
Speaker Change: We anticipate sustaining our strong margin profile in the low <unk> for the remainder update here.
Speaker Change: Please turn to slide 10 for.
Our intermediates.
Guillermo Novo: As Guillermo noted the second quarter presented challenges for our intermediates.
Speaker Change: Sales were $37 million, a decrease from $40 million in the same period last year.
Speaker Change: These comprise $10 million in captive BDO sales with stable.
Speaker Change: 27 million in March as.
Speaker Change: While margin revenue remain consistent year over year with higher volumes offsetting lower pricing. The overall sales decline was primarily driven by captive market.
Speaker Change: Yeah.
Speaker Change: Turning to profitability intermediates generated $2 million in adjusted EBITDA, representing a five 4% adjusted EBITDA margin.
Speaker Change: This compares to $12 million in the prior year.
Speaker Change: Lower pricing and our actions to reduce production in inventories for better demand alignment significantly pressured margins this quarter.
Speaker Change: Our March price increase aims to improve profitability in this challenging market conditions.
Speaker Change: Now I will turn the call over to Jim to discuss the performance of personal care.
Jim: Thank you Alessandro and good morning, everyone personal care sales decreased by 14% year over year to $146 million.
Jim: To understand that this decline is largely a result of our portfolio optimization initiatives.
Jim: This included the divestiture of the evoke a business line, which occurred in Q2 and the exit of low margin products.
Jim: These actions reduced sales by approximately $15 million or 9%.
Jim: With the portfolio actions now complete our personal care business is more focused and centered around core additives microbial protection and Biopharma actavis.
Jim: This increased focus is positioning us to deliver improved profitability and margins.
Jim: Highlighted in the current quarter results.
Jim: Looking at the underlying performance organic sales declined 5% year over year.
Jim: Finally, due to continued weakness in Europe and customer specific dynamics.
Jim: Our core additives portfolio demonstrated resilience and growth in both hair and skin care.
Jim: This was more than offset by weaker performance in Biopharma <unk> actors.
Jim: Oral care and microbial protection.
Jim: Oral care sales in the quarter were unfavorably impacted by a key customer order timing.
Jim: We expect this to normalize through the balance of the year.
Jim: By a functional actives delivered high single digit sequential growth.
Jim: However performance in the quarter continued to be impacted by customer specific weakness in our base business.
Jim: Customer development projects are advancing with a robust pipeline of new projects and several customer launches planned for later this year.
Jim: Our China facility is ramping well as we increase our local supply.
Jim: Microbial protection continues to advance globalization efforts with a strong commercial pipeline and customer qualifications progressing well at our new production facility in Brazil.
Jim: While demand in the EMEA region remained soft consistent with Q1, we saw encouraging low to mid single digit growth in the rest of the world.
Turning to profitability adjusted EBITDA declined by 2% year over year to $44 million.
Jim: Excluding the impact from portfolio optimization actions adjusted EBITDA increased 5% year over year.
Jim: Personal care delivered a record adjusted EBITDA margin.
Jim: 31%, an increase of 350 basis points year over year.
Jim: Since margin trajectory highlights the health of the business.
Jim: Pat of our optimization efforts.
Jim: <unk> us well for continued execution on our strategy.
Jim: Now I'll hand, it over to Diego to review the results of specialty additives Diego.
Diego: Thank you Jim Please turn to slide 12.
Diego: If this goes the performance of our specialty additives segment, which presented a mixed picture in Q2.
Diego: While the second quarter presented a weaker than expected seasonal lift in some key markets.
Diego: Specialties continued to be a bright spot delivering solid volume growth across diversified industrial markets. However, overall sales volumes decreased by 12% year over year, primarily due to our planned portfolio optimization, which streamlined construction.
Diego: Offerings towards higher margin products.
Diego: Turning to organic performance sales volumes decreased by 6% and target driven by continued soft demand and some share losses in China immediately East Africa, and India as we mentioned earlier low demand and overcapacity in China <unk> is negatively impacted.
Diego: In both volume and pricing intensifying competition within China and regional export market.
Diego: We were able to partially offset this impact with strong execution and a volume recovery in North America and European cohorts.
Diego: <unk> declined by 2%, primarily reflecting carryover effects from prior year pricing actions, particularly in the same challenging coatings markets overall specialty additives sales fell by 15% to $134 million with organic sales down.
Diego: 9%.
Diego: Turning now to profitability.
Diego: The EBITDA declined by 4% year over year to $26 million.
Diego: However, looking at the underlying performance excluding the planned portfolio optimization, we actually delivered a 3% increase <unk>.
Diego: Increased production volumes achieved through improved plant operating pace compared to last year and cost efficiencies were the primary drivers of this improvement more than offsetting lower pricing.
Diego: Consequently, adjusted EBITDA margins improved by 220 basis points.
Diego: Year over year to 19.4%.
Diego: I will now turn the call back to Guillermo Guillermo.
Guillermo Novo: Thanks, Tycho and please turn to slide 14.
Guillermo Novo: Now, let's turn to our execute strategy strategic priorities, while we remain focused on enhancing financial performance through controllable factors independent of macroeconomic environment.
Guillermo Novo: The recent finalization of the evoke and divestitures completes our strategic portfolio realignment, enabling a sharper focus on profitable growth.
Guillermo Novo: Our top priority is achieving the $90 million cost savings target and we're making significant progress on both key components.
Guillermo Novo: Starting with a $30 million restructuring our restructuring efforts are complete and delivered ahead of schedule.
Guillermo Novo: We've identified $30 million and opportunities and plan to realize $18 million in savings this fiscal year.
Guillermo Novo: The remainder will carryover into fiscal year 'twenty six and these actions have offset.
Guillermo Novo: The EBITDA impact of our Nutraceuticals CMC NMC exits.
Guillermo Novo: Second regarding our 60 million manufacturing.
Guillermo Novo: <unk> optimization. The primary focus is strengthening our hec and <unk> businesses with significant operational planning and execution completed this quarter.
Guillermo Novo: We are supplementing these efforts with small plant consolidation as well.
Guillermo Novo: Our initial commitment centers on the consolidation of manufacturing activities.
Guillermo Novo: We're also aggressively identifying process productivity improvements that could generate further savings beyond our initial targets.
Guillermo Novo: We anticipate $6 million in savings this year from BP and deconsolidation.
Guillermo Novo: Note that the recognition of savings from productivity improvements has a timing element due to the initial capitalization and inventory.
Guillermo Novo: We will provide further updates all of these important areas as we progress.
Guillermo Novo: Overall.
Guillermo Novo: We are on track to exceed our fiscal 'twenty five target demonstrating strong momentum towards our $90 million target as we move into fiscal year 'twenty six.
Guillermo Novo: Please turn to slide 15.
Speaker Change: At strategy day, we set ambitious one.
Speaker Change: $100 million incremental revenue targets for both globalized and innovate initiatives purpose by fiscal 'twenty seven.
Speaker Change: We're strategically complete in most of our planned investments in key assets and talent.
Speaker Change: Led to positive customer development market penetration and production scale up activities in China and Brazil.
Speaker Change: This will position us well for significant growth.
Speaker Change: Our year to date globalized performance has been impact.
Speaker Change: By near term headwinds in our personal care base business, driven by softer European demand and customer specific weakness.
Speaker Change: Our conviction on our strategy remains strong supported by the proven long term success and leading position of our high valued markets.
Speaker Change: In addition, we are active we are actively driving operational improvements to further enhance already attractive margins. In these business lines. For example, gross profit margins increased 500 basis points year over year, despite revenue declines.
Speaker Change: Let's shift to innovation, our most significant long term growth driver.
Speaker Change: I'll be brief.
Speaker Change: As we have our dedicated innovation date later this month, our financial goal is $100 million of incremental sales by fiscal year 2007, primarily.
Speaker Change: Leveraging our core.
Speaker Change: Technology innovations.
Speaker Change: We had strong launches this year, including expanding our Cellulosic pharma and Biopharma <unk> portfolio contributing to our year to date results were on track with $5 million incremental sales year to date.
Speaker Change: However, this near term progress is just the beginning the real potential lies in scaling our new technology platforms for substantial future growth as youll hear in detail at innovation day, we are consistently identifying and developing revolutionary business cases across these platforms with <unk>.
Speaker Change: Port a much longer larger long term growth vision.
Speaker Change: Please turn to slide 16.
Now, let's address tariffs, we are not immune to the global trade and economic pressures.
Speaker Change: And Ashland is proactively navigating this evolving landscape.
Speaker Change: Despite our ongoing uncertainty.
Speaker Change: Our experienced leadership team has a proven track record of navigating similar challenges our strategy focus.
Speaker Change: <unk> focuses on what we can control and approach that has proven effective over the past five years through events like Covid and supply chain disruptions as well as other macro headwinds.
Speaker Change: With that context, our direct exposure to U S or China raw material tariffs is limited due to the minimal cross border trade.
Speaker Change: Our localized sourcing.
Speaker Change: The current duty structure persists, we currently estimate the EBITDA impact for Ashland in the second half of fiscal year 2025 to be in the $3 million to $5 million range.
Speaker Change: We are actively implementing mitigation actions and anticipate only a modest increase in our annualized basis thereafter.
Speaker Change: If nothing changes.
Speaker Change: Next the vast majority of our U S sales are domestically sourced.
Speaker Change: With a small portion we import.
Speaker Change: From Europe.
Speaker Change: Largely benefit from annex two exemptions.
Speaker Change: We are closely monitoring the recent initiatives.
Speaker Change: Initiated section 232 investigation to understand any potential future implications for context, if Alex two exemptions were not in place our estimated annual tariff exposure would be $4 million to $6 million.
Speaker Change: With $1 million impacting fiscal year 2025.
Speaker Change: Most of our China sales are produced outside of the U S.
Speaker Change: However, approximately $70 million or U S produced.
Speaker Change: These U S produced China sales generate roughly company average gross profit margins and mostly fall within <unk>.
Speaker Change: Potential.
Speaker Change: Periscope.
Speaker Change: Although this continues to evolve with exemptions.
Speaker Change: Our primary exposure here is in our life science and personal care segments. We have a tariff response plan in place to offset a significant portion of this business at risk.
Speaker Change: It's also worth noting that approximately one third of our gross profit comes from products, where we are the sole supplier.
Speaker Change: Given our roughly 90 days of finished goods inventory in China, we anticipate any potential impact on fiscal year 'twenty five to be weighted towards the fourth quarter.
Speaker Change: We've analyzed the current and potential tariffs and developed tariff response plans.
Speaker Change: Our global footprint and diversified portfolio are key advantages here.
Speaker Change: We're actively optimizing our supply chain, including production and shipping.
Speaker Change: Collaborating with partners, and making pricing adjustments where possible.
Speaker Change: While tariffs present challenges, we also see potential share gain opportunities.
Speaker Change: Our goal is to minimize the impact on all stakeholders as we monitor and react to changes in global trade policy the outlook, which I'll cover shortly reflects our current estimate of the tariffs impact for this fiscal year based on the information we have today.
Speaker Change: Please turn to slide 17.
Speaker Change: Now, let us turn to our financial outlook for the fiscal year 2025.
Speaker Change: As highlighted in yesterday's press release, we are adjusting our full year outlook. The shift is becoming increasingly apparent across several key areas.
Speaker Change: First we are observing meaningful reduction in consumer sentiment.
Speaker Change: The growth growing global macroeconomic and geopolitical uncertainties are clearly impacting consumer confidence.
Speaker Change: This decline in consumer confidence is leading to softer demand from parts of our Ashland customer base, especially in the coatings segment.
Speaker Change: Our outlook reflects the slower sentiment, but does not include restaurant.
Speaker Change: Recessionary conditions.
Speaker Change: Second while European markets have stabilized the anticipated moderate recovery has not yet materialized.
Speaker Change: And in this region remains subdued.
Speaker Change: Third the intermediates market continues to present challenges the persistent supply demand imbalance is putting pressure on the segment and while we have implemented price adjustments to improve second half performance overall pricing is expected to be below previous expectations.
Speaker Change: As a result asset now anticipate flattish organic sales volume growth for the full fiscal years.
Speaker Change: This adjustment reflects our expectation of a positive inflection in organic sales volume in the second half led by life Science, we anticipate that year over year pricing headwinds will lessen in the second half as we move past prior pricing actions.
Speaker Change: Overall, we currently anticipate raw materials to remain stable compared to the previous year, excluding the noted tariff impact.
Speaker Change: We have included the expected direct financial impact of current tariffs in our outlook we are generally.
Speaker Change: Which are generally offset by FX gains from a weaker dollar.
Speaker Change: In response to the weaker demand environment, our focus is intensifying on areas within our control, we are accelerating restructuring and productivity gains to enhance our business mix and improved profitability through the rest of the fiscal year.
Speaker Change: Anticipating roughly $13 million in costs.
Speaker Change: <unk> realization in the second half.
Speaker Change: Excluding intermediates, we anticipate strong second half margin, reflecting these actions.
Speaker Change: Based on these factors and the risks and opportunities you see outlined on the right side of the slide we are now projecting full year sales in the range of 1.8 dollars 5 billion to $1 9 billion and adjusted EBITDA in the range of $400 million to $420 million.
Speaker Change: Please turn to slide 18.
Speaker Change: We remain steadfast in our long term strategy and core priorities, which we believe will drive sustainable value.
Speaker Change: You can count on our relentless commitment to improving results and optimizing our strategy in this evolving global trade environment.
Speaker Change: Please turn to slide 19.
Speaker Change: We continue to believe that innovation is a critical driver to our future success on that note as we mentioned in our last call. We're excited to showcase how our technology platforms have evolved and expanded at our upcoming innovation day.
Speaker Change: Join us on Thursday may 29th at nine a M eastern time at our Bridgewater facility.
Speaker Change: We will use the.
Speaker Change: Focused innovation time to delve into specific examples to bring our technology portfolio to life.
Speaker Change: We have opportunities youll have opportunities to hear from.
Speaker Change: A broad set of our leaders, including a moderated Q&A session.
Speaker Change: For those attending in person you off we will also offer a valuable lap tour to experience the real world application of our innovations across our various business units.
Speaker Change: Okay.
Speaker Change: Please turn to slide 21.
Speaker Change: In closing I want to focus on our key messages as we look ahead as we discussed today, we are adjusting our outlook for fiscal year 'twenty five to reflect the increasing macroeconomic uncertainty and softening consumer demand.
Speaker Change: We are observing globally.
Speaker Change: This is a critical factor shaping our near term expectations.
Speaker Change: Ashland is leveraging several fundamental strengths.
Speaker Change: Our completed portfolio optimization provides a more focused and agile business better positioned for long term profitable growth.
Speaker Change: Accelerating our cost savings and productivity initiatives, which are essential to enhancing our profitability and mitigating the impact of the current environment.
Speaker Change: Early benefits are evident in our margin performance and trajectory.
Speaker Change: We operate in resilient consumer staple markets, providing a degree of stability, even amidst broader economic fluctuations.
Speaker Change: Our healthy financial position with strong liquidity and a manageable debt level offers the flexibility needed to navigate uncertainty and pursue strategic opportunities.
Speaker Change: Finally, we have a diverse set of advancing growth catalysts, which unlocked transformative opportunities for us.
Speaker Change: Looking ahead, our commitments remains firm.
Speaker Change: Taking a proactive approach to managing tariff impacts to strategic adjustments in our supply chain and pricing.
Speaker Change: We will maintain a disciplined capital allocation strategy balancing investments for future growth with return being value to our shareholders above all we are confident that our long term strategy and core priorities. We will continue to be the foundation of sustainable value creation.
Speaker Change: I want to extend my sincere gratitude to the entire Ashland team for their dedication their.
Speaker Change: Their resilience and their commitment to navigating these dynamic market conditions.
Speaker Change: Operator, let's go to Q&A.
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen, as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced.
Speaker Change: To withdraw your question. Please press star one again, please standby, while we compile the Q&A roster.
Speaker Change: Our first question comes from Alonso line of Laurence Alexander with Jefferies. Your line is open.
Kevin Estok: Hey, Good morning, this is Kevin Estok on for Laurence.
Speaker Change: Yes. So my first question is just about order volatility I'm just wondering how much has it increased.
Kevin Estok: Over the last couple of quarters and maybe have you.
I guess, what if customers said that they need to see them return to more stable order patterns.
Kevin Estok: Okay. Thank you for the question I think overall, we've seen a reduced.
Kevin Estok: Q4, Q3, Q4 last year, where we saw a lot of the changes the dynamics in China.
Kevin Estok: <unk> some of the bigger.
Kevin Estok: Bigger competitor come back and Thats, where we had most of the volatility.
Kevin Estok: As we look at the last two quarters things have been stable in line with what happened.
Kevin Estok: Look at volumes that bonds are actually picking up as we are growing pricing is coming in line with what we put in our full year guidance.
Kevin Estok: For China for some of these markets that were impacted so theres no surprises there I don't think its as much volatility right now it's really more about the sentiment in certain markets that are getting impacted.
Kevin Estok: As an example in coatings, we're actually not surprised on the downside in China.
Kevin Estok: Some of the export markets, we're managing through them, but they are coming in line or slightly even better than what we had expected.
The softness is more coming from U S Europe, where it's just been a bit more muted, especially.
Kevin Estok: Starting March on and we're seeing it still in April the.
Kevin Estok: Paint season is a little bit softer.
Kevin Estok: Our paint season ends and at the beginning of September so it doesn't start picking up that's that's the bigger adjustment that we're that we're doing.
Kevin Estok: I'd also say and intermediates, although we're talking about and the pricing not improving it's not changing either it's stable. The issues. We had more of an expectation of improvement. So what were toning down is more of the expectation the outlook expectation of improvement give.
Kevin Estok: Given the environment, we're seeing I think it's better to be a little bit more conservative on those.
Kevin Estok: Two aspects.
Kevin Estok: Got it okay. Thank you and just on the $70 million of U S produced China sales.
Kevin Estok: How much it was.
Kevin Estok: Still pretty early on but I guess I'm just wondering how much of the risk do you think you could actually mitigate by.
Kevin Estok: By the fourth quarter.
Kevin Estok: Could you quantify that.
Kevin Estok: Great question, we're getting a lot.
Kevin Estok: Those kinds of details so we have inventory.
Kevin Estok: In China, the biggest businesses that we export from the U S would be RV PND.
Kevin Estok: Our <unk> business.
Kevin Estok: Some personal care additives and a few specialty.
Kevin Estok: Coatings materials, but I would say crucell.
Kevin Estok: It's a unique product does not not a lot of capacity in the world. So I think those things. We can we can mitigate we're working with our customers.
Kevin Estok: So the short term we're covered in the long term that's not a quick solution, but we can we can work with customers, it's not easy for them to reformulate some of these products.
Kevin Estok: So it's really more about our partnership with customers on how we manage through.
Kevin Estok: Those challenges.
Kevin Estok: And again, we're seeing some of the.
Kevin Estok: Exceptions that even China's now putting in it has already impacted some of our pharma products and all that so we're going to monitor that a little bit I think the PND is.
Kevin Estok: Is probably the one that's most exposed.
Kevin Estok: But probably the bigger part of the sales of smaller part the margins.
Kevin Estok: In China are much lower so that's one that is going to be more difficult for us to mitigate and the other ones. We can move things around for example in coatings, we have several plants. So it can't do it immediately but we can shift production scale up that's part of the network optimization. So so I would say in and about well over half.
Kevin Estok: We have options.
Kevin Estok: <unk>.
Kevin Estok: It's less than half, but it's it's.
Speaker Change: The biggest one and that's the one that's a little bit more difficult, but the margins are a lot less the opposite side I do want to highlight is it's easier for us to to look at the downside because we have all the data of what we're selling and we're going the upside scenario of finding the offsetting others are not going to be able to export to other region.
Speaker Change: And as things are going to get dislocated. That's the part that we really have not captured totally we're going region by region trying to understand okay. What what other exports are going to get impacted and where are there opportunities to regain share. So that's more work in progress, but I don't think that direct impact we can mitigate a lot of it there is going to be some.
I think the biggest issue since we're in pharma and personal care and even in coatings is our additives you can change unless you already have an option approved it's not that easy to switch around so I think we want to make sure. We are a long term supplier with our customers, we're going to work with them and managing this challenge.
Alright, Thank you very much.
Speaker Change: Thank you.
Speaker Change: Please standby for our next question.
Speaker Change: Our next question comes from the line of John Mcnulty with BMO capital markets. Your line is open.
John: Hi, Good morning, this is John.
John.
John: The first question. So first of all thanks for all the detail around some of the tariff impacts, especially around the U S and China.
John: We also have the 90 day delay if appropriate.
John: Impact other reasons, maybe Europe, Canada, Mexico could you touch on how your supply chain to work in those regions and if you have any early estimate of potential sales exposure goes status were to come in place.
John: Yes.
John: If you look outside of China, I would focus right now.
Speaker Change: The biggest one there's not a lot of impact most of our raw materials were.
John: Sourcing.
John: In region, so there's not a lot of impact on the raw material side.
John: We export a lot from obviously the U S and <unk> would be one that's a U S. But a lot of the Cellulosic we have options.
John: In Europe, and actually in China, we are starting to export from China.
John: Some areas. So it's not as big of an impact for us in Latin America, Mexico, Canada, It's a smaller issue at this point in time.
John: And a lot of things are exempt right now in the U S.
John: If you look at in the important part right now is monitoring Europe I think.
We don't expect anything.
John: Difficult at this point in time, but.
John: That is a big manufacturing location for some of our products.
John: And that's one of the things that we'll be monitoring and we also tend to keep a lot of finished goods inventory in Europe, which would push out any tariff impact for frankly quite a quite a while.
John: And we've been doing that intentionally for a bit now.
Speaker Change: Got it got it and then maybe a question on specialty additives.
Speaker Change: Have you seen any slowing of the China competitive pressure in that segment and maybe if you could give us an update around how we've done with the capacity adds in that.
Speaker Change: Boom.
Speaker Change: Or have any stakeholder P M in terms of supply demand. Thank you.
Speaker Change: Let me let me give a quick comment then I'll ask Doug what he has been travelling through a lot of to China and a lot of the regions. If you can give a little bit more color, but if we look at the big issues impacting right. Now one is the whole dynamic the number one issue is China slowing down and China overcapacity, what it's doing to export markets. So the.
Speaker Change: Market in China, and the competitive intensity around the world I would say that's actually the biggest challenge and we got the big hit.
Speaker Change: For us really was last year.
Speaker Change: Q3 Q4.
Speaker Change: About the other two are the tariffs, which I think are.
Speaker Change: Moving around we don't we don't really.
Speaker Change: Have a full plan and we just need to manage it and then the last one is whats going to happen longer term recessionary impact and all that which we have not really factored in I want to be clear all of that the reductions that we're doing is more driven on on softness in specific markets that will go and I'll talk a little bit about that later, but specific.
Speaker Change: To say you want to talk a little bit about what youre seeing on the competitive competitive intensity.
Speaker Change: So thank you for the question. So, yes, I, just sort of context or the last few months I've been traveling to the regions.
Speaker Change: I was in China, I was in Mexico, not too long ago, Europe, and I just came back from a trip to the Middle East Africa, and India, a couple of days ago, and I would summarize it as follows. So when you look at when you look at China, I would say China is stable at the bottom so I don't see the volumes in China.
Speaker Change: Frankly declining more and I don't see the prices in China, despite of additional less or more supply I don't see that changing at all.
Speaker Change: So that's China stable at the bottom that if you look at Europe.
Speaker Change: I would say Europe is flattish.
Speaker Change: Bit of a concern are forcing the market on how the market is performing specialty property sector. Since he is flattish and from the pricing standpoint, and this is important is very clear that they value quality service reliability innovation sustainability big focus. So so yes, we do see some price pressure.
Speaker Change: Thats just normal when the market is soft I will say, it's very much within the normal.
Speaker Change: The United States is a bit more I will say the keyword here is uncertainty.
Speaker Change: How would you characterize that now you said that again, we have a very strong position in the U S. I will say that our prices are also pretty stable.
Speaker Change: The other regions, so now I'm talking Middle East Africa, India.
Speaker Change: <unk>. Some regions are so most of them are growing from the volume standpoint. So indias planes is a really good example of that.
Speaker Change: A breather this year, but Dan do you expect it to resume the growth trajectory now from the pricing standpoint, we do expect the price and the pricing pressure to continue.
Speaker Change: Sure.
Speaker Change: Pretty good at managing this why this is really about balancing volume and price and we do that I mean, we do value pricing.
Speaker Change: On a regular basis to maximize our profitability.
Speaker Change: But one comment and I think your point on more capacity less capacity to two points I would make just context in the longer term not just for us, but I think for other suppliers to the industry.
Speaker Change: Overall, one theres excess capacity now so a little bit like the tariff situation of keep increasing as China said.
Speaker Change: I'm not going to increase it more because it doesn't make a difference that is after a certain point access is excess.
Speaker Change: I think we need to look at is more capacity really going to come out theres excess.
That's the biggest issue right now that we have to work through I think the other side and I've heard it.
Speaker Change: And the other business leaders have also been travelling hearing from customers.
Speaker Change: If theres more access in one country, it's going to destabilize the entire supply chain for everybody.
Speaker Change: They've seen it when we exited our CMC business.
Speaker Change: Just recently to some of the.
Speaker Change: Other producers in Europe announced that they're shutting down like we did RMC construction our customers are concerned with this because if you have excess capacity. It means all of the production moves to China and destabilize that there are big consequences to them. So they do want to work with us. They are looking at all of this there is.
Speaker Change: A balanced view.
Speaker Change: In all markets, we are one of the few western producers.
Speaker Change: Right now scale and V. PND most of the production is Europe intermediates were one of the few western producers everything else is in China. We can go down the line all of these things so our customers want to work with us they want a balanced supply chain, we need to deal with just the pressures of pricing.
Speaker Change: And volume because they are also getting pressure our customers are getting pressure there getting that they need to balance out their needs and it's five transition. What encourages me is that there has been stability now for almost two to three quarters.
Speaker Change: From the bottom and I think that is.
Speaker Change: The positive outlook at least from our side.
Speaker Change: Really appreciate the color. Thank you so much.
Speaker Change: Thank you.
Speaker Change: Please standby for our next question.
Speaker Change: Our next question comes from the line of Jeff Zekauskas with Jpmorgan. Your line is open.
Speaker Change: Thanks very much.
Speaker Change: Your cash flow from operations for the six months was negative 20.
Speaker Change: What are your cash flow expectations.
Speaker Change: For the year, now where free cash flow expectations for the year.
Speaker Change: Yes, Jeff it's going to it's going to come down to a couple of items, obviously, where we land from an EBITDA perspective.
Speaker Change: There's going to be important for the overall the overall quantum move the number.
Speaker Change: The other the other.
Speaker Change: Driver is going to be working capital.
Speaker Change: As we as we look at the working capital picture, we've been intentionally building some inventory in parts of the world in anticipation of the tariff situation, which we think is just the right thing to do.
Speaker Change: And also we've talked a lot about optimizing certain product lines such as <unk>.
Speaker Change: There is some intentional inventory build associated with that as well and so I think.
Speaker Change: Those those things in combination are likely to weigh on the overall free cash flow situation, but the other piece is FX.
Speaker Change: While FX will will generally help us from an EBITDA perspective.
Speaker Change: Because of where our inventories are in the world a weaker dollar since two.
Speaker Change: So it tends to play into that as well and finally, the restructuring piece of the equation.
Speaker Change: We do.
Speaker Change: Doing well.
Speaker Change: We will also play.
Speaker Change: Play into it so.
Speaker Change: It's.
Speaker Change: It's going to come down to really help those things play out and it's I think it's going to evolve over the course of the fiscal year.
Speaker Change: So that would be our expectation I mean, theres just as much uncertainty around the free cash flow piece of the equation is there as the earnings piece, depending on what happens from a tariff perspective et cetera.
Speaker Change: So if you come in within your EBITDA Guide.
Speaker Change: Is here.
Speaker Change: I don't know your free cash flow.
Speaker Change: Now.
Speaker Change: $150 million.
I mean like.
Speaker Change: Assuming you hit your guide.
Speaker Change: What should your cash flow or free cash flow.
Speaker Change: It will depend on how inventory and FX plays out over the course of the year.
Speaker Change: Based on where we are today and I will caution that where.
Speaker Change: Where we are today is in the land of uncertainty.
Speaker Change: So that will continue.
Speaker Change: <unk> to change and evolve as as policies change and evolve.
Speaker Change: This whole tariff situation plays out.
Speaker Change: Okay.
Speaker Change: In terms of your intermediates business.
Speaker Change: Did you get any pricing increase in.
Speaker Change: And what are the prospects for that business going forward.
Speaker Change: Good question.
Speaker Change: <unk> you want to comment a little bit on the.
Speaker Change: Outlook for pricing in intermediates, yes, so yes, we will mentioned the prices.
Speaker Change: Have been stable sequentially flat from the end of the fiscal year 2024 until March. So we are we're taking action.
Speaker Change: Price increase in March.
Speaker Change: And.
Speaker Change: But overall prices are lower than expectations.
Speaker Change: And yes, we will mention.
Speaker Change: But definitely there was there was a.
Speaker Change: Price increases announced announced in the month of March.
Speaker Change: Also looking at intermediates.
Speaker Change: Yes.
Speaker Change: Comment from a from a margin standpoint, the plants are running okay.
Speaker Change: <unk>.
Speaker Change: Production in the second quarter to address inventory aligning our production to demand and on the cost side, we're taking a huge improvement actions in our continuous process outside the PND.
Speaker Change: Back to to see the reduced reduced unit cost.
Speaker Change: Keep in mind some of those actions on the cost reduction side will be capitalized.
Speaker Change: Second in the second half of the year. So we won't see that some of this we won't see until 2026, but we're taking actions from a from a energy Ritchie improvement and also pricing.
Speaker Change: <unk> announced.
Speaker Change: The other players.
Speaker Change: In North America, and our focus is much more regionally focused in U S.
Speaker Change: Lesser degree Europe.
Speaker Change: Other players have also moved sales.
Speaker Change: It's really just now how that process goes I think the bigger issue is not just the pricing is the demand a lot of.
Speaker Change: Our big markets are our MMP thats for semiconductors for batteries for active ingredients.
Speaker Change: That's where we're seeing a lot of the Asia pressure coming in.
Speaker Change: But in the other words like BDO, we don't sell a lot on the margin it's impacting us.
Speaker Change: But for other people. It's this is really a raw material for polyurethane for other segments that have not improved.
Speaker Change: Until the demand.
Speaker Change: The integrated players get a little bit more stability I think that's going to be the challenge.
Speaker Change: Lastly, again for Kevin your inventories year over year, we're pretty flat.
Speaker Change: And I think your sales may be worked down.
Speaker Change: High teens.
Speaker Change: Should a normalized inventory level B I don't know close sooner.
450 or 25.
Speaker Change: Four four.
Speaker Change: Andrew with yes or no.
Speaker Change: Alright, your overall inventories went back to the so your inventories in the.
Speaker Change: The quarter I think we are.
Speaker Change: 542, and in the year ago period, they were $5 50, but your sales were down.
Speaker Change: Five a year ago.
Speaker Change: That inventory number going.
Speaker Change: So we would expect inventory to be relatively flat for the remainder of the year and again.
Speaker Change: That's going to be tariffs et cetera, but.
Speaker Change: That would that would be our expectation.
Speaker Change: There is probably $15 million of FX.
Speaker Change: And that inventory number right now given given where rates are today versus versus where they were a year ago.
Speaker Change: Primarily euro we have a lot of inventory in Europe, that's denominated in euros.
Speaker Change: And so that's a chunk of it again, we've intentionally been placing some inventory in parts of the world in anticipation of tariffs.
Speaker Change: So depending on how that plays out we will see those inventory numbers likely come down and around the optimization work that we've been doing we have also been essentially increasing some inventory and some key product lines and so that that too will work itself down over over the course of time.
Speaker Change: But if you if you think about it from.
Speaker Change: Where currencies are today et cetera, assuming we are assuming we have stability around that.
Speaker Change: Your inventory number is far off in terms of what it should ultimately be but it's going to take a little time to get there I would say as we work through number one tariffs number two the optimization work that's ongoing.
Speaker Change: And Jeff I think to those two points.
Speaker Change: Or is the inventory China, we put some inventory clearly in advance. So that's one I think will be a little bit clear on the optimization side. Obviously this impacts plans people things that were moving around in that we haven't been able or cannot start giving those level of details but be aware as we change.
Speaker Change: Our our network optimization.
Speaker Change: Our customer needs time to requalify by change of sourcing of products and all that so we need to build inventory of product from one location that current location. So that if later on they're going to move to another product.
Speaker Change: Transition time, so part of that is all on the optimization. These are big changes that we're doing.
Speaker Change: To give you some color and PP&E.
Speaker Change: We have made already and it's already implemented.
Speaker Change: Our intermediates chain, if you look at BDO.
Speaker Change: Hello to the intermediate to go into the PND, we have two plants that were running at lower utilization rates for a while.
Speaker Change: Those units, we now shutdown one unit, we put everything out and the other unit, we're getting much better costs unit costs, we're getting a higher loading. So we're going to have less variability in terms of our absorption. Our overall loading of the site. So it has some big changes like that these are our what we call more network optimization.
Speaker Change: But that dislocate, it's a little bit of the inventory for a period of time, but most of those things are taking place and the inventories have been built so I would expect those things to come down over the next few quarters.
Speaker Change: The new sources come in.
And we we stabilize the supply.
Speaker Change: We think with the new network.
Speaker Change: Okay.
Speaker Change: Thanks, Jeff.
Thank you.
Speaker Change: Please standby for our next question.
Speaker Change: Our next question comes from the line of David Begleiter with Deutsche Bank. Your line is open.
Speaker Change: Thank you.
Speaker Change: Camo, and Kevin and personal care margins expanded I presume based on the low margin exit parallel run.
Speaker Change: 30% is that a good number for the back half of the year in terms of EBITDA margins for personal care.
Speaker Change: Okay.
Speaker Change: Well, let me comment I'll ask Jim to but yes.
Speaker Change: We had said with the network optimization, we're getting out of a lot of low margin business, that's going to give us.
Speaker Change: A nice boost.
Speaker Change: But as we do I think if you look at all the things we're doing the network optimization productivity, which we havent even factored in as we do this optimization, we're seeing a lot of all of those will continue to drive margin improvement and obviously the mix is we could do to the globalization of those areas.
Speaker Change: Our positive mix I will say the actives for example is a high margin stuff.
Speaker Change: The high end cosmetics had been down so that was a little bit negative to us margins would have been even better if if that that segment had been a little bit stronger so.
Speaker Change: It's playing out as we said, but Jim can you give us a little bit of color on what Youre seeing sure.
Speaker Change: Thanks, David for the question, So I think for us delivering 30% margin. This quarter I think it's a milestone really for the business something we're very excited about.
Speaker Change: As we talked about when the business was in the mid 20 <unk>.
Speaker Change: Said, hey, we see upside to the margin.
Speaker Change: We're now seeing seeing that upside and we feel that this is a very attractive and profitable business.
Speaker Change: For us, it's really about driving robust growth, while maintaining profitability, we've seen the upside of roughly 100 basis points from the <unk> exit.
Speaker Change: As we've discussed on the call, we're taking actions on the cost side through optimization, but it's improving our cost position. We've also been taking action in some of our globalized businesses microbial protection, primarily as we're improving our raw material cost position and in sourcing.
Speaker Change: Then as we continue to drive growth in both bio functional actives and microbial protection. They will have a favorable contribution to our overall margin.
Speaker Change: Okay, so sorry to be clear.
Speaker Change: This is sustainable in the back half of the year, 30%.
Speaker Change: Yes, I think I think we see we see us the personal care business continuing to perform in this range of high <unk>, 2% to 30%.
Speaker Change: Perfect. Thank you and Kevin just for you and the EBITDA guidance in the back half of the year. How would you expect the cadence of the earnings to fall out between Q3 and Q4. Thank you.
Speaker Change: Thanks, Dave.
Speaker Change: Based on what we're seeing right now we expect to see Q.
Speaker Change: Q4 to be better than Q3, Thats, a smidge counterintuitive based on how our earnings tend to flow, but part of that we'll have to do with restructuring.
Speaker Change: It's going to roll through that that's going to be a tailwind for us.
Speaker Change: And we will see more of that in Q4, then we will see in Q3.
Speaker Change: And so that's part of the driver will be about $13 million of restructuring in the second half of the year, so that'll be a bit more heavily weighted to Q4, so that's a big driver.
Speaker Change: And just generally how we see how we see demand flowing et cetera, we just expect Q4 to be a bit stronger than Q3 this year.
Speaker Change: Perfect. Thank you.
Speaker Change: Thank you.
Speaker Change: Please standby for our next question.
Speaker Change: Our next question comes from the line of Josh Spector with UBS. Your line is open.
Josh Spector: Yes, hi, good morning, I wanted to ask on two things and I'll just ask them together first on the personal care side I just wanted to understand I mean, what youre seeing and what you're marking to market here is a weaker demand I just wanted to confirm that you're not seeing destocking, we talked about oral timing moving from one quarter to the next perhaps but.
Josh Spector: Really what I'm getting at is our customers talking about reducing inventories to weaker demand is that the recession scenario and we're seeing that and then the other question is just around the comments around some of the coatings additives I think you talked about share loss within parts of Asia is that new or was that within some of the planned to begin with.
Josh Spector: Thanks.
Josh Spector: So let me let me.
Josh Spector: But the short answer and then.
You can comment on Europe, specifically, one we didnt there is no share loss.
Josh Spector: And incremental to what we were saying and.
Josh Spector: And last year I mean.
Josh Spector: Played out the Asia.
Josh Spector: The export markets.
Josh Spector: Diageo indicated the intensity continues so we need to continue to manage through it and.
Josh Spector: And it's really a volume price price game that we're doing.
Josh Spector: That's sort of in line with expectations. The bigger move has been around North America and Europe in its market to match, if we're wrong demand will be higher.
Josh Spector: But at this point in time, we just are are trying to read what we're seeing and what our customers are saying in an actual pickup of the paint season.
Josh Spector: But.
Josh Spector: In terms of the other one that I would say in Q1.
Josh Spector: The one business that has a little bit more chunky and it is oral care. It does come with big orders. So that's the one that every once in a while you hear US say, it's a timing issue shifting from one because it comes in big Big orders. So.
Josh Spector: Of that one it's not unless it falls at the end of the year.
Josh Spector: It's not <unk>.
Josh Spector: Annual issue, it's a quarter issue, but you want to comment on Europe, specifically, what Youre, saying, yes, I think I think Josh as Guillermo mentioned I think it's important I mean this is not broad based.
Josh Spector: North America, we saw resilient robust demands in Asia as well our focus on local and regional customers continues to prove well so when you bridge for the quarter.
Josh Spector: As mentioned oral care is a timing the order size there tends to be bigger and there can be shifts quarter to quarter.
Josh Spector: Within bio functional active that was more customer specific for Europe, we have decided that in Q1 that we saw softer demand coming out of the summer in Q1.
Josh Spector: Europe, specifically, which is linked to both just the macro economic situation in Europe as well as the linkage of the European customers to Asia, and China and demand.
Josh Spector: And we've seen that continue in Q2 as we have talked about in the last call and something that we're monitoring. So this is not a destocking phenomenon.
Josh Spector: I'd say, its really kind of boxed into just softness that we're seeing.
Josh Spector: In some segments.
Josh Spector: Thank you.
Josh Spector: Please standby for our next question.
Speaker Change: Our next question comes from the line of Michael <unk> with Wells Fargo. Your line is open.
Michael: Hey, good morning.
Yes.
Michael: Yes.
Good day, you all talked about getting to a pretty good.
Michael: EBITDA range side, I guess in a couple of years around $600 million.
Michael: Yes, you're going to be around $400 million or so this year.
Michael: Do you still think thats.
Michael: Doable range is it.
Michael: I mean does that need to come down or.
Michael: Just take more time given.
Michael: Yes, how things have set up this year in the macro.
Michael: Yes, we will look at what we look at it as three buckets and I think in today's world.
Michael: <unk> got a separate them, because especially when you look year over year.
Michael: Compounded growth rates can change a lot.
Michael: I think when you look at our base business.
Michael: Most of what we're doing right now.
Michael: Using our outlook as base business and it's really based on not losing share. It's the same customers. It's a feeling of things are slowing down or not slowing down based our customers. It's our best read if we're wrong and it's better it will be better so.
Michael: So I would separate that if you look at the globalization. It's got two buckets in it we have the base because we're trying to grow the total business that one specifically in personal care, we have the Europe and specific customer issue that.
Michael: Do better we're going to do better with them.
Michael: So we're we have to manage through that but that does change our outlook.
Michael: Look at your Youre formulas in your modeling for the future and then you have the new new stuff and globalized, we've just built.
Michael: By functional plant in China, and Brazil, we just built several.
Michael: Production facilities for tablet coatings for all of that is new that should be it couldnt be better in a better environment, but it should be positive and a negative environment too because it's about gaining share positioning ourselves.
Michael: And all of these investments have been very well received and number.
Michael: When we say globalize, our globalized strategies really regionalized and best playing pretty well at this point in time, where the whole world is regionalize. It. So I think that those are going to be good and on the innovation.
Michael: I would say come to the May meeting to see what we're doing I do think that that's really where the upside is and what we want to show is look the reinforced the message of we have a it's not a about a technology or one opportunity that we're betting everything it's a portfolio many different technologies.
Michael: We're going to work better than we think someone who is not going to work as well that we think but within those portfolio look at how many markets. When we presented last time, we had a platform in two applications that we have that technology in eight or nine application in different markets, It's really taking life and that's really the next now that we finished.
Michael: R R.
Michael: Portfolio optimization so next.
Michael: A few five years 10 years are going to be three things.
Michael: Near term manage through the challenges like we did with Covid and all that we're going to have a few a year or two of a lot of challenges, we're going to manage through that too.
Michael: <unk> is just execute on our globalized and execute on our innovate and Thats It where we do that and I think thats, where we think that we can get the growth. The biggest part of the noise is not the strategic long term side.
Michael: Really the near term market dynamics.
Michael: And that's where we're trying to be as transparent as possible.
Michael: Great. Thank you.
Michael: Thank you.
Michael: Please standby for our next question.
John Roberts: Our next question comes from the line of John Roberts with Mizuho. Your line is open.
John Roberts: Thank you I'll just ask one here when Trump comes out with its new pharma tariffs in one to two weeks do you think that will cause any of your customers to take any actions that might affect ashland.
John Roberts: Well.
Speaker Change: I'll, let Alex honestly been targets of our customers. Some are moving investments in different into different regions. So I think theres going to be.
Speaker Change: A positive impact there I think the issue right now it's going to be country by country, who sets what tariffs on what products and its pretty messy right now because theres not.
Speaker Change: <unk> products are in the list and two arent why and Thats. The type of things that we're working on but you want to you want to talk a little bit more of what our customers are thinking about in terms of.
Speaker Change: Yes, I mean, we have seen some customers announcing bringing manufacturing.
Speaker Change: The U S, but there's a lot of.
Speaker Change: Our scenario planning and this is what I hear from our customers, they're doing scenario planning.
Speaker Change: When I just drove any traveling.
Speaker Change: In India.
Speaker Change: In Brazil in the last couple of months.
Speaker Change: There's still a large advantage of.
Speaker Change: Having those manufacturing and in those markets.
Speaker Change: At this point, it's scenario planning.
Speaker Change: And there have been two actions that we have seen the recent announcements.
Speaker Change: Customers.
Speaker Change: Neal manufacturing in the U S.
Speaker Change: I would say, it's a lot of scenario planning.
Speaker Change: And still there.
Speaker Change: <unk> advantage.
Speaker Change: Having their manufacturing and other parts of the world.
Speaker Change: I will say.
Speaker Change: John.
Speaker Change: In talking to customers as we travel around the world.
Speaker Change: Not just pharma.
Speaker Change: All over there is a big concern from everybody this hole.
Speaker Change: Customers watching the drama of U S, China, what's happening and then seen.
Speaker Change: As China tries to find new markets the implications to them.
Speaker Change: First the first wave is they can buy cheaper and thats where were getting the pressure. The second wave is why cellulose cheaper raw material. What I can just export the finished product I think there's going to be a lot of things in multiple markets, where other countries are also going to start saying reacting in saying we cannot absorb.
Speaker Change: The whole export thing.
Speaker Change: We're building plants customers are wanting us to be close to them in Brazil, and India that were also doing the same thing. So I think theres going to have to be a little bit of stabilization on this and the customers are also looking after their manufacturing interest Andrew.
Speaker Change: Our core countries.
Speaker Change: Alright, thank you.
Speaker Change: Thank you.
Speaker Change: Please standby for our next question.
Speaker Change: Our next question comes from the line of Mike Harrison with Seaport Research Partners. Your line is open.
Mike Harrison: Hi, and good morning.
Mike Harrison: Jim You've mentioned a few times these customer specific issues in the Biopharmaceuticals business can you give us a little bit more color on exactly what's going on and I guess.
Mike Harrison: Do you expect these issues to continue.
Speaker Change: Into next quarter or.
Mike Harrison: Coming quarters. Thank you.
Mike Harrison: Hey, Mike. Thanks for the question. So if you think about our Biopharma <unk> business. This segment it mainly goes into skincare.
Mike Harrison: And it really targets the high end luxury part the prestige part of skincare and it's also exposed to travel retail.
Mike Harrison: Hopefully that gives you a sense of.
Where the products are used in the market segment.
Mike Harrison: And so we have seen some softness in that segment specifically in the luxury segment and the travel in the travel segment as we look through the balance so I think thats. The first part because there is that piece and then there's the rest of the business. The rest of the business is still performing well and it's really a couple of customer specific.
Mike Harrison: Items happening going to travel retail as we look through through the balance of the year. We're obviously talking we are meeting very frequently with these customers understanding their outlook as things try to stabilize we are seeing some stabilization in that sector specifically around <unk>.
Mike Harrison: Travel, but it's something that we're monitoring and right now as we look through the balance of the year, we're not forecasting a major recovery over the next couple of quarters in that part of the business.
Mike Harrison: Alright, hopefully that provides index.
Mike Harrison: Got it.
Mike Harrison: Hopefully that provides the color that you can.
Speaker Change: Yes, that's helpful. And then my other question is on the globalized.
Mike Harrison: Opportunity here.
Mike Harrison: <unk> opened new facilities, but you saw a sales decline associated with.
Mike Harrison: With this globalized effort I can can.
Speaker Change: Can you just help me understand how to think about that and I guess is the $20 million target.
Mike Harrison: Still still attainable given.
Mike Harrison: Kind of where you stand today.
Mike Harrison: So Mike and this is what I had mentioned just a few questions ago, you got to look at the globalized we're just.
Mike Harrison: Keeping it simple for businesses total sales and how they are growing and we want to grow at X percent.
Mike Harrison: A year, that's sort of the goal, but theres really two buckets. The core business that you have today and the new business that <unk> is going fine.
Speaker Change: We're making the investments ramping up engaged customers that's not the issue it's exactly what what Jim said.
Speaker Change: The core business came down when it recovers youre going to have just like you had a down here. It will have a pop in the future. It's hard for us to say exactly when thats going to happen, but we still have.
Speaker Change: A three year plan.
Speaker Change: As long as the new stuff is going well.
Speaker Change: We will monitor and hopefully some of these things are going to recover that just those those are strong brands. They are very very high.
Speaker Change: Have been very successful over the years right now they are having their challenges and hopefully they'll overcome it and we will benefit from from from their performance.
Speaker Change: Okay, Great I guess is if if we stripped out the decline in the core business what does the new business contribution look like relative to that $20 million target I think would be helpful for the investors on the line.
Speaker Change: We'll make that point and it does vary by business.
Speaker Change: Four of them I would say injectables, a lot of new stuff coming in so it's much more new oriented and it's doing very well.
Speaker Change: The tablet coatings.
Speaker Change: Our mix today, a lot of the foundation is the core but all of these investments that we're making in Brazil, just inaugurated now.
Speaker Change: All of these things are starting to really pick up it's been sort of the frontload investment that'll be more of the growth side of this and I think even in personal care.
Speaker Change: There is a difference.
Speaker Change: But material microbial protection.
Speaker Change: It already has a pretty diversified portfolio and between the original base in the new things that we're developing and by a functional is that a lot of these new investments really allow us to.
Speaker Change: Collaborate and innovate and produce locally for our customers and that's really been the last last few quarters that.
Speaker Change: We're bringing that upstream, but both will be more clear on that that aspect as we move forward.
Speaker Change: Alright, thanks very much.
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: Ladies and.
Speaker Change: I'm showing no further questions from the queue.
Guillermo Novo: I'd now like to turn the call back over to Guillermo for closing remark.
Guillermo Novo: Okay, well. Thank you everyone for your questions as I Hope you heard simpler simple messages.
Guillermo Novo: The business has stabilized from some of the.
Guillermo Novo: Impacts that we had last year of reset.
Guillermo Novo: Coatings and <unk> business.
Guillermo Novo: With that stability, we're getting volumes again pricing are stabilizing we're gaining momentum.
Guillermo Novo: And returning our business to the profitability one that we want and that's driven by self help actions that we're driving both on the cost, but more importantly on the productivity side that will start to generate more it is having an impact now will have even greater impact as we flow into 2006.
Guillermo Novo: In 27.
Guillermo Novo: Just to be clear on the adjustments that we've made for this outlook. There are really three drivers there mostly market reading the market as best we can one is a reduction in the expectations of the paint season.
Guillermo Novo: Demand in North America and Europe.
Guillermo Novo: That we had a little bit it's still going to grow. It is just not going to grow as much as we thought were softening up based on the data that we're hearing and the communication from customers to us the intermediates pricing.
Guillermo Novo: We are pushing to get higher pricing.
Guillermo Novo: But we wanted to make sure that.
Guillermo Novo: Were realistic given the complexity of the current environment and third is the one that Jim talked about the <unk>.
Speaker Change: Specific segments within businesses. The luxury brands are there specific areas. Those are the big drivers everything else is moving as planned the upside potentials that we have to this guidance is really driven by four things.
Guillermo Novo: One.
Guillermo Novo: We read the market wrong and things improve.
Guillermo Novo: That we do not control pricing management is the biggest issue that the teams are working and that's working very very well.
Guillermo Novo: And then the rest is about self help driving our cost reductions in our productivity positioning R. R.
Guillermo Novo: Our improvements on the things that we can control.
Guillermo Novo: And.
Guillermo Novo: I think that will pay off well for us. So thank you for your time and look forward to talking to you in the coming.
Guillermo Novo: Yes.
Speaker Change: Ladies and gentlemen that concludes today's conference call. Thank you for your participation you may now disconnect.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Good.
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