Q3 2025 Ashland Global Holdings Inc Earnings Call
Today and thank you for standing by, welcome to the Ashlyn Inc. Third quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session to ask a question during the session. You will need to press star 1, 1 on your telephone. You will then hear an automated message. Advising. Your hand is raised to withdraw your question, please.
Press star 11 again, please be advised. That today's conference is being recorded. I would now like to hand the conference over to your speaker today. William Whitaker, please go ahead.
Hello everyone, and welcome to Ashland's third quarter fiscal year 2025 earnings conference call on webcast. My name is William Whitaker, and I'm honored to join you today as Ashland's recently appointed CFO.
I'm energized to fully embrace this role and lead our finance organization in advancing Ashland's strategic priorities and delivering sustained shareholder value. Joining me on the call today are Guillermo Novo, chair and CEO, and our business unit leaders Alessandra Faccin, Jim Minicucci, and Dago Caceres.
During today's call, we will reference slides being webcast on our website, ashland.com, under the Investor Relations section. We encourage you to follow along.
Please turn to slide 2.
We'll be making forward-looking statements on several matters, including our fiscal 2025 Outlook which involves risks and uncertainty as detailed on slide 2 and in our form 10K.
These forward-looking statements involve risks and uncertainties that could cause future results or events to differ materially from today's projections.
We believe any such statements are based on reasonable assumptions, that cannot assure that such expectations will be achieved.
We'll also discuss certain adjusted Financial metrics, both actual and projected which are non-gaap measures. We refer to these measures as adjusted and present them to supplement your understanding and assessment of our ongoing business.
Gap, reconciliations are available on our website and in the append of these slides, I'll now hand the call over to GMO for his opening remarks GMO.
Good morning everyone and thank you for joining us. Uh, before I saw my comments, I did want to congratulate William on his appointment as our new CFO uh, we're thrilled uh to have him lead our financial organization. And more importantly, we know he's going to have a huge impact uh, in uh in driving our performance as we move forward.
Uh, today I'll be providing an update that covers three key areas, giving you a clear picture of our recent performance and strategic direction.
First, I'll review the highlights of our third quarter performance.
Later, I'll provide more details on our strategic priorities. And finally, I'll take uh a detailed Outlook at our updated, fiscal year, 2025 guidance.
Please turn to slide 5. Let's begin with a recap of our third quarter performance.
We delivered resilient performance in a mixed demand environment with stable trends across most markets, although volumes fell short of expectations.
As anticipated growth implementing points, did not materialize.
These conditions reinforce the importance of our continued focus on cost savings and operational discipline, which supported strong markets.
As a result, we're delivering adjusted evm. Uh generally in line with expectations reflecting a solid execution, across our businesses
Excluding portfolio optimizations, sales declined 5%, primarily due to lower organic volumes.
Remain relatively in line with expectations as our teams executed well.
Adjusted evida was 113 million down, 19% year-over-year or 10% excluding portfolio actions.
Importantly, adjusted ebit of margins remained, a resilient remain resilient as 24.4%.
We delivered nearly 100% free, cash flow conversion in the quarter demonstrating, the strength of our underlying business.
Please turn a slide 6.
Let me now Briefly summarize the performance of our business units. While demand was softer than expected life science, maintained Pharma growth momentum in vpnd and cellulose 6. Positioning the segment for continued progress and sustained strong margins of 33% for the second consecutive quarter.
Personal Care operated in a stable but moderate demand environment with microbial protections comping against a strong prior year and ongoing customer specific softness in BIO functional activities encouragingly. We're seeing early signs of recovery across across both these business lines. Recent strategic Investments are gaining tractions driving sequential growth and helping sustain strong margins.
Specialty, additives was impacted by weak coding season and ongoing pressures in China.
But saw growth in performance Specialties and energy on share Gates.
The HC Network consolidation will be a key driver to improve cost, efficiency and markets.
Intermediates continue to D navigate a difficult Supply demand landscape particularly in Europe while pricing and production volumes remain Under Pressure. We secured Advanced manufacturing tax credits to partially offset this
All near-term demand remains mixed. It's important to note that roughly 85% of our portfolio is tied to Consumer and markets, many of which are non-cyclical and more resilient in uncertain, macroeconomic environments.
Now, let's turn to how the Strategic strategic actions are positioning us for stronger performance. Our portfolio optimization is complete and our restructuring program remains ahead of schedule.
All 4 business units. Achieve strong ebida margins demonstrating discipline execution, in a challenging Market.
We're also making strong progress on our $60 million manufacturing optimization program.
As we recently announced the HC Network consolidation is complete.
And additional cost actions are ramping into Q4 and fiscal year 2026.
While some of our globalized platforms, have have been softer than expected year to date. We're seeing sequential momentum from recent Investments.
We remain confident in the long-term opportunity to expand our reach in under-penetrated markets.
The same time, our Innovation commitment is exceeding expectations this year.
We enforcing our strategy to drive differentiation margin. Accretive growth.
In summary while the external environment remains uncertainty uncertain. We are executing with discipline and focus, our streamlined portfolio, wrapping cost, cost savings. And strategic growth catalysts are positioning Ashlyn for long term resilient performance.
Now, I'd like to turn over the call to William to provide a more detailed review of our third quarter performance. William.
thank you GMO. Please turn to slide 8.
Q3 sales were $463 million, down 15% year-over-year, including a $53 million impact from portfolio optimization.
Excluding this sales, decline 5% primarily due to lower volumes.
Organic volume was down 4% with growth and Life Sciences more than offset by declines in personal care and Specialty additives.
Pricing declined, 2% driven by targeted, actions and Life Sciences as well as intermediates.
Excluding intermediates pricing was down 1% and foreign currency provided a 1% Tailwind.
Adjusted ebit down. Was 113 million down, 19% year-over-year, or 10% excluding portfolio actions driven by lower organic sales and production volume.
Set by cost savings, including reduced charge and production spending while raw material costs remain stable.
Adjusted Eva. Dom margin was 24.4% down 120 basis points.
Adjusted EPS, excluding acquisition amortization was 104 down. 30% from the prior year.
As noted in our release, we recorded a non-cash Goodwill impairment of 706 million related to life sciences and Specialty additives.
This reflects the decline in our market capitalization relative to Book value.
It's important to emphasize. This is a non-cash accounting adjustment. It does not affect our liquidity operations or our ability to execute our strategy.
Meanwhile, we generated strong ongoing free cash flow in the quarter. With nearly 100% conversion of adjusted evida supported by this discipline Capital spending and effective working Capital Management.
Liquidity at quarter-end was over $800 million.
We expect cash generation to remain strong in the fourth quarter and continue to monitor. The timing of a potential recovery of our approximately 100 million dollars from our Capital loss carryback.
With net leverage at 2.9 times. We have the flexibility to continue investing in our strategic priorities while maintaining a discipline approach to Capital allocation.
Now, let's turn to our business unit leaders for a closer look at segment, performance Alessandra over to you for life sciences.
Thank you, William. Good morning, everyone.
Please turn to slide 9 for Lifest Sciences.
Life Sciences sales were 162 million dollars in the third quarter that 17% year-over-year.
The decline was primarily driven by our portfolio optimization initiatives, including the diversity of Neutra's business and exit from low-margin nutrition products, which reduced sales by approximately $32 million or 16%.
While these actions improve our long-term profitability and focus, they impact year-over-year comparisons.
Q4 will be the final quarter affected by these adjustments for Life Sciences.
Overall, organic sales decline, just 1% year-over-year with Pharma growth of set by softness. In other markets, particularly nutrition.
Pharma volumes grew 4%, supported by share, gains globalized and Innovation initiatives with growth momentum across most regions and Technologies.
Latin America, and Asia, remain key growth regions where we are leveraging. Our strong reputation with local and generic manufacturers and targeted pricing actions to support volume growth.
Our globalized business lines delivered another quarter of double-digit revenue growth and completed major strategic milestones. Injectables were completed with a high-impact launch of Vital by Reservable polymer lines for medical devices and dermal fillers.
Both businesses continue to perform well with positive leads. Indicators for sustainable, profitable growth.
Life Sciences has advanced our Innovation revenue from new product. Introductions exceeding expectations across all regions in the third quarter.
Our platform Technologies play a key role in our long-term strategy targeting enhanced tablet, codings. Bioprocessing, chemicals and injectables as highlighted on our Innovation day.
30 to profitability adjusted if that was 54 million down 8% year-over-year, excluding a million dollars impact from portfolio actions. Ibida was consistent with the prior year.
This was the strongest adjusted beta margin quarter on record for the business. Reflecting high quality Pharma growth, cost discipline and the benefits of our strategic actions.
Please turn to like 10 for intermediate.
The overall Market landscape for our intermediate business, remains challenging, particularly in Europe.
Sales worth 33 million down from 36 million in the same period last year.
This includes $10 million in captive video sales and $23 million in merchant sales.
Despite some success with our recent price increase.
Sales decreased.
Learning to profitability, intermediates generated 7 million dollars in adjusted ibida. Representing a 21.2% margin,
This compares to million dollars in the prior year.
Continued lower pricing and reduced production pressured margins. During the quarter,
that said,
We were able to partially upset this impacts through advanced manufacturing production tax credits.
Which we expect the business will remain eligible for through at least 2029.
Now I will turn the call over to GM to discuss the performance of personal care. Jim.
Thank you Alessandra. Good morning, everyone.
Please turn to slide 11 for personal care.
Personal Care sales were 147 million. In the third quarter found 16% year-over-year.
Decline was primarily driven by portfolio optimization actions.
Including the divestiture of the evoka business and exit from low margin products, which reduced sales by approximately 18 million or 10%.
This work is now more sharply focused on care, ingredients, microbial protection, and biofunctional activity.
Organic sales, declined 6%, primarily due to customer specific weakness and biofunctional activ, and a strong prior year comparison in microbial protection.
That said, both areas delivered strong, sequential growth.
And biofunctional actors' sales are up double digits, supported by a robust commercial pipeline and expanding our capabilities in China.
We expect this momentum to become more visible, as we begin to lap the prior year, customer specific headwinds going forward.
Microbial protection. Also, improves sequentially. So, down year-over-year against a strong comparison
A maturing opportunity pipeline coupled with the improved cost structure is enhancing our ability to drive volume growth.
We expect to see the early benefit of these actions in Q4.
Meanwhile, our care ingredients portfolio continues to demonstrate resilience in both hair and skin care.
Journey to profitability.
Adjusted ebata declined, 20% to 41 million.
Excluding the impact of portfolio authorization action, even though it was down 6%.
Primarily due to lower organic sales and unfavorable mix, partially offset by cost savings.
The business delivered an IBA margin in line with our fiscal 2025 target, with high 20s, and is well positioned heading into Q4.
Now, I'll hand it over to Doggo to review the results of Specialty Additives, Tago.
Thank you, Jim. Uh, please turn to slide 12.
Specialty additives delivered mixed results in Q3 along with expectations the architectural reporting season remains softer and the majority of the year-over-year. Volume decline stem from last year's share loss and targeted price act, reductions in China.
Persistent over capacity and weak demand in China. Continue to pressure both volume and pricing intensifying competition across the region and in export markets like southeast Asia the Middle East Africa and India
outside of China and Middle East um African India that in executed as well delivering year to date, volume growth in a challenge real estate environment across the Americas and in Europe
Performance, Specialties and energy and markets grew in the quarter supported by share again initiatives.
the construction segment continue to Show Stable performance in Q3 overall sales declined 13% to 131 million with Organic sales and volumes called down 11%
Despite the competitive environment. Pricing remained generally, stable and improvement from the 2% decline in the prior in the prior quarter.
60 million manufacturing optimization program. We recently Consolidated HC production into our Hopewell Virginia facility from Parlin New Jersey.
This moves, this move enables us to better leverage, our Global Network improve cost structure and drive long-term operational efficiency.
The difficult decision aligns with our broader strategy and reinforces our commitment to delivering sustainability.
With facilities operating in the United States. Europe and China, our streamlined HC production network is well, positioned to meet Global demand.
I will now turn the call back to William, William
Thanks doggo. Please turn the slide, 14.
Let me now expand on Dago's comments with a broader view of our operational. Optimization efforts as mentioned. The HCC Network, consolidation is a major milestone in our manufacturing transformation.
The parliament of Hopewell transition. Underpins the 25 million in HCC related cost, savings. We outlined last December.
While operational execution is now complete, the p&l benefit will phase in over time.
Because these savings are initially capitalized into inventory. They will be recognized gradually as inventories drawn down in sales occur. In line with our weighted average cost methodology, we'll provide more detail on the expected, fiscal, 26 impact. During our next call, we anticipate a meaningful Step Up in HCC related savings next year.
More broadly, our restructuring program is tracking ahead of schedule. The run rate program is nearing completion, with approximately $20 million in savings expected this fiscal year and an additional $12 million in carryover benefits in fiscal 2026.
These actions are already helping offset volume softness in select markets and positioning us well for fiscal 2026.
Looking ahead, we see opportunity to drive stronger incremental, margins. As we improve productivity across our Consolidated footprint.
The Strategic imperative is clear.
Consistent operations at higher utilization rates with additional growth supported by ongoing efficiency. Gains
We'll share more as we size this opportunity.
In the meantime, we remain focused on execution.
Balancing cost out with strategic reinvestment and we're confident, these changes will support sustainable margin improvement over the long term.
Please turn to slide 15.
As we turn the page on our portfolio transformation, Ashland is now positioned for the first time in over a decade with a clean, focused platform for growth.
We recognize that the portfolio transitions over the past several years have made our financial trends more complex to interpret.
But these were intentional actions designed to improve the company's strategic and financial profile.
Given the number of moving pieces, we thought it would be helpful to step back and highlight the historical performance of our core portfolio. The businesses we own today.
On the left side of the slide, we've separated the revenue from businesses, we've exited or optimized over recent years such as CMC and neutras from the performance of our current core.
These actions streamline, the portfolio, improved quality and reduce Revenue by roughly $400 million since fiscal 2019.
The core is experienced some volatility over this period reflecting the impact of coid post-pandemic shortages inflation dto and tariffs.
Yet, through all of that, the underlying core is stable versus Preco.
Life sciences and personal care have each grown at a low single digit rate specialty. Additives decline moderately largely due to the impact of the deterioration of the Coatings Market in China and intermediates is currently out of cyclical low.
Importantly, during this time, we've improved our ibida. Margins reduced, net tangible assets by over 300 million and lowered our share count by nearly 25%.
While we know we need to accelerate growth, which is exactly what our strategic priorities are designed to support. The business has remained stable during a particularly volatile time.
This slide is meant to illustrate the resilience of the Ashton we are today and the strength of the foundation we're building for tomorrow.
I'll now turn the call back over to GMA GMA.
As you heard from Alessandro and Jim, our go. Please turn to slide 16.
As you heard from Alessandra and Jim, we are globalized platforms. Injectables, tablets, coatings, microbial protection, and biofunctional actives are central to our long-term growth strategy.
Currently behind.
Line for the year year to date sales in these businesses.
Business lines are down approximately $10 million versus our full year target of $20 million in incremental growth.
This shortfall is primarily due to base business softness, in microbial, protection and bio functions.
Despite these headwinds we're seeing encouraging signs. Our investments are beginning to take. Hold and both microbial protection and bio functionals are delivering healthy sequential growth since q1.
For example, in our new bio functional facilities in China, it's already, uh, approaching 10% of our segment sales makes as we ramp localized Solutions, and it's important Market.
Importantly, comps are beginning to ease as we lap the unique challenges that began impacting performance late last year.
This should make the momentum of our investments, more visible.
Over the course, in the quarters ahead.
Meanwhile life science continues to perform well with injectables and tablet Coatings maintaining strong growth.
We remain confident in the long-term opportunities to expand adoption for high-value solutions in underpenetrated markets.
Turning to our innovation strategy, we're ahead of plan. We're already delivering $10 million in incremental, innovation-driven sales, meeting our full-year target with a quarter still to go.
This reflects the strength of our core Innovation platforms. Particularly in pharmaceutical low 6 were demand in Oral Care, delivery remains strong
Our Innovation Day in May was a powerful moment for Ashley.
It showcases, the depth of our tech technical capabilities and the momentum behind our new platforms.
The themes that emerged—scalability, sustainability, and differentiation—are exactly what we're building towards.
We remain focused on executing our innovation roadmap, with a clear priority on platform design.
To look for large, uh, high-growth markets.
The pipeline is strong, and we're motivated by this opportunity.
Please turn a slide 17.
Now, let me walk you through our financial outlook for the remainder of fiscal year 2025.
As we shared in yesterday's release, we've narrowed our full year guidance to reflect the ongoing muted demand and continued caution across customer channels.
While we're tightening the range, our current assumptions are anchored towards the lower end reflecting a prudent stance.
In light of the near-term demand Dynamics, while underscoring the durability of Ashland's business model.
Demand patterns remain mixed across the portfolio.
Pharma is steady recovering and continues to demonstrate resilience.
Personal Care is beginning to show encouraging signs of company-specific momentum.
Meanwhile specialty additives and intermediates are still facing her at headwinds.
We're maintaining a balanced Outlook.
Innovation is spacing out ahead of Target.
And our Global, our globalized platforms are improving, and we're executing well in our self-help initiatives.
These actions are helping cushion the impact of softer volumes and positioning us for stronger performance over time.
On the regulatory front, tariff, related uncertainties, remain.
We're actively monitoring developments, and while final rules are still pending, we do not anticipate a material direct impact on our fiscal year 2025 results.
At this time, we're seeing some signs of stabilization.
Raw material costs are holding steady, and pricing pressures.
Is it easing as we cycle past prior year actions?
We expect these strain Trends to persist through the fourth quarter.
We remain focused on the levers within our control. Our restructuring Pro program is now complete, and we're expecting to realize approximately 7.5 million in cost Savings in, in Q4.
We're also making solid progress on the 60 million manufacturing Network, optimization initiatives together. These efforts combined with discipline and execution are expected to support continued. Margin strength.
Thank you for.
Taking all this into account. We now expect full year fiscal, 2025 sales of approximately 1.825 to 1.85 billion.
And adjusted ibida in the range of 400 to 410 million.
Please turn a slide, 19.
And close. I want to highlight a few key messages as we look ahead.
As we discussed today, we're tightening our fiscal year 2025 outlook to reflect the persistent sluggish growth.
For these conditions are pressuring near-term volumes. They do not change. Our long-term view of the business, or the opportunities ahead.
Ashla Ashlyn is operating from a position of strength in a difficult environment.
Our portfolio optimization actions are not complete and we've emerged as a more focused agile business. Aligned with high-value resilient markets,
We’re ahead of schedule on cost savings and restructuring initiatives, with early benefits already visible in our margin performance.
All four businesses delivered healthy margins this quarter, a clear sign of disciplined execution.
Innovation is gaining traction with year-to-date sales already at our full year Target,
On tariffs, we continue to monitor the development and await final guidance on long-term implications.
While the regulatory picture is still evolving, we do not expect significant direct impact in fiscal year 2025.
In the meantime, we remain agile and proactive adjusting our supply chain and pricing strategies as needed.
Looking at our commitment remains firm. We will continue to focus on what we can control driving productivity, executing cost actions and advancing our Innovation and globalization road map.
We will maintain a disciplined Capital, allocation strategy, balancing investment and growth with shareholder returns.
And above all. We remain confident. On our strategy, our people, and our platforms.
That they will continue to drive long-term sustainable value creation.
I want to thank the entire rational team for their continued dedication, agility and focus as we navigate to these Dynamic conditions.
Operator, let's open the line for Q&A.
Thank you as a reminder, to ask a question. Please press star 1, 1 on your telephone and wait for your name to be announced to withdraw your question. Please. Press star 1 1, again, in the interest of time, we do ask that you limit your questions to 1 question and 1 follow-up please. Stand by while we compile the Q&A roster,
And our first question comes from Christopher Parkinson of wolf research, your line is open.
Great, thank you so much. Um, GMO. I realize that you're obviously not going to give us a number for 26, but when we, you know, as we're approaching the end of the fiscal year and as the buy size, you know, conceptualizing kind of the different buckets of what we should be. Considering, you know, I'm seeing the restructuring, obviously, X, the 7.5 million. You just went through the network and the manufacturing rationalizations and kind of as a tangential theme and then like the end of D stocking on revenues. Like, can you just kind of walk us through your own thought process now that you should have greater visibility into fiscal year 26? And then also in terms of the markets coming back and when we think about the incremental margins, for instance of like, you know, PC coming back, should it be in the historical range ranges that you've already been giving us? Um, when volumes eventually return. Thank you.
Okay, let me, let me break it down into, uh, so thanks for the question, uh, Chris. Um, in Q3 that we're looking at, on the demand side, on the portfolio side, where we stand today. Uh, and then on the action side of things you want to do.
No impact.
Uh, people continue to use, uh, products. So I think we're going to start seeing a market that behaves more like the historic Norm, not what we saw during covid and and those periods of time. So
The demand should be more stable. Same thing for Pharma, uh, underlying demand should should remain stable as we move forward. I think in the, uh, uh, specialty additive side of the equation, I, I think you have to look at it. We're looking at a more geographically speaking. Um, obviously, this year, we expected some, some recovery in the coding's market in the US and Europe, which didn't materialize. Um, but depending on what happens, uh, you know, to interest rates, uh, to new construction, there's a lot of pen up Demand right now, so I, I would say, you know, we're, we're, we're probably going to plan conservatively on, uh, us and, and Europe for next year. But we recognize that there is, uh, given the pain pent up demand of interest rate moves. There's an upside of potential there uh, that that will factor into our thinking.
Um I think if you look at Latin America southeast Asia, a lot of the other they're they're pretty stable, right? Right now we don't expect significant changes. The big question is China. I think we're assuming that's not going to prove uh, in in the near term. Um and we're we're acting appropriately. We've uh I'm sure we'll get some questions on on the businesses. All that doggo, talk about it. But with the network reset. We're now exporting certain parts of the
The region out of China. So we're we're rebalancing our Network to to, uh, to deal with this, uh, you know, short-term a year uh, year and a half uh, issue in China. And uh, we believe long term. This is still going to be a good Market. It'll recover.
Well, we have enough leverage to to move in terms of of the demand, so that's sort of the the demand side of it.
Uh, if you look at the portfolio, I I hope the, uh, the slide that that, uh, uh, William talked about looking at the core part of the portfolio. It has been much more stable and I think people think, uh, as we move forward and, and, and uh, I think it'll be less noisy. It's not just the business focus that we brought. Um, I think the, the productivity actions that we've taken, we've really streamlined assets where we had 2 assets and we're running at low rates. We closed them down, we're not focused. Most of our assets are actually pretty highly loaded right now. So as we go into next year, I think we are going to have not just, uh, you know, better costs which is what we're trying to drive. But smoother, the target is also to reduce volatility of our operations because you're going to have more more loaded assets. So we, we think the portfolio actions, the optimization actions would take in will reduce volatility and we'll in improve our oh over underlying cost structure uh, for
Portfolio.
And then the third part is going to be actions that we take. Um, and I think it's it's very clear. Uh, our strategy. I hope you're hearing that we're consistent on the productivity self-help, we believe, 26 is still going to be a tough environment for for, uh, a lot of Industries. Uh, so we're going to plan accordingly self-help is going to be a big part of, uh, of our actions. That's things we can control and we'll maintain that level of momentum. I think on the longer term strategic side, we're committed to the globalized, and, and, and Innovation, driven growth. We have a lot of great catalysts. We're getting a lot of traction. We're extremely excited about all the opportunities there. So we're going to continue to execute, um, having a strong balance sheet main making sure that we're managing, not just the p&l, but the balance sheet appropriately. So that we have the funding that we can do short-term actions, but also continue to invest in the future. Uh, is going to be our priority.
and then care about just to
Chris. I'm just going to build on that with some specifics that that we're seeing as well. I think really the the key piece from us is the reset is over. Alright. So that was a 45 million dollar ad when this year on an IBA database, I sent next year. It's at zero and some of the other pieces too just to put some a range around it, the carryover restructuring, that's 12 million dollars of of carryover primarily in the first half, and then another piece too. If you were calling q1, we did the Strategic maintenance Poll for it on our plans, as a part of that.
There was approximately 5 million dollars of slightly extended and overspend. So that's another piece that we wouldn't expect to repeat and then the other piece too, that's Dynamic. But on Foreign Exchange obviously Euro has been Auburn around 1:15 116.
Just to remind everybody that's about a million to a million and a half of ibaa per year for every cent change. And then, I think really the key piece, then to GMOs point is on the cost side.
Of the go-forward picture in terms of profitability and on the raw material side, things have been mixed, but they've been stable. So, more to come on the specifics as we get to the Q4 call, but there are certain elements that we can speak to as well.
That's very helpful. And just as a quick follow-up. Just, you know, GMA you alluded to this a few times in your prepared remarks. But on, in Personal Care, markets, it seems like some of your higher margin applications have been under pressure but at the same time, you know, ever so slightly, you're beginning to see out, you know, positive comment on Hair Care out of 1, you know, customer and saying hey not adjusted for you know travel retail you know things actually would have been up and in other words it seems like there's these signals of you know potential bottoming uh across Asia and Europe's a little bit. Perhaps a little bit more sluggish but is that what you're actually hearing from your customers? You know as we progressed through the the balance of the year like does it seem like it's actually stabilizing and things should actually be more beneficial until next year especially in some of those bio functionals um or is there something? Uh else we should be looking at. Thank you.
Yeah, I I think, you know, you, you you break down the, the personal care side of the the equation into the, the, the more, the mass Brands, versus The Prestige segment. And and maybe I'll ask Jim to to uh, comment here. Um, but but we do see a difference, you know, I think the the mass brand the there's various there is variability by regions, you know, some some you know, specific Dynamics but in general,
I would say it's holding up volumes, uh uh, you know, the demand side should be stable, um, you know, each each company's going to have depending on what products you're in, and you're going to have a little bit of movement, but from a market perspective, we we expect that to remain resilient. Uh, but on the prestige side, that's the 1 market that we've seen changes versus history. You know, in a historically, they were all very stable. I think, uh, over the last decade, you know, the the mass Brands and the impact of travel duty-free. I mean, some of these have changed our bio functional. Businesses is heavily weighted on, uh, on on the prestige side, that's 1 of the things that, that, uh, the team is working on. But Jim, do you want to calm comment on on some of those dynamics that you're what you're seeing? Yeah. So, so Chris, I mean, I would, I'd look at the market overall and as GMA mentioned, we we do see stability in, in the market, uh,
Last month in June, I spent the majority of June in Asia, specifically in China, Korea, Thailand, and Indonesia. We see really good traction with our local regional customers there, with a lot of activities, especially in Southeast Asia, in Thailand and Indonesia. I would say Europe has actually been a bright spot compared to how we started the fiscal year. Europe was quite muted in Q1 and versus our expectations. We've seen continued improvement in Europe.
In the US, you know, from what I've seen and and read I think we're probably maybe a bit contrarian there where we see the us as remaining quite robust and resilient and we expect that to continue going forward, as we mentioned with our bio functional, active segment specifically, this part of our business, really focuses on the premium, Prestige skin care Market, anti-racial anti-aging, um, and exposed to trap and that that underscores the strategy and actions that we're taking to expand geographically. Expand our customer base. And as now, we lack some of those customers specific, um, at demand that we saw last year and our results more come in line with the market, you're going to start to see the actions. We're taking come through externally.
Very helpful. Thank you so much.
Thank you.
And our next question comes from David beg lighter of Deutsche Bank. Your line is open.
Thank you. Good morning. Uh, Jim. I'm willing. This is back on the call side, to be Crystal Clear. Um,
Between the restructuring plan and the manufacturing network optimization, the incremental savings in 2026 versus 2025 should be in the $55 million to $60 million range year over year.
So we had, we had expected uh 15. We had increased, so some of the Outlook. So we're still looking at some some of that flow through. But it's it's been pretty robust.
The, um, the 60 million, what I would say is the actions are done.
we have concluded our actions, so everything
Is, you know, as the example HC, we closed Parliament that those costs are going to be gone. So the issue now is really flow through to the p&l and as William mentioned in the prepared comments, you know, we Ashlyn uses the average costing and and so we have a whole different way of how it flows through, which is a little bit more complicated than in terms of the timing. Um, but that's the part that we're working through but but the actions around the vpnd, um, the the HC and the small plant Consul consolidation. Uh, it's it's almost it's 100% finished. Now at this point in time but you want to comment on the 60 million yeah flow through. So yeah, on the 31st so that's the 122 million dollars of carryover that we
So that being a period of expense related to sgna and we have a lot of line of sight to that on the Cog side, right? So keep in mind to GMOs point, the 60 million dollars is related to production, that's in cost.
And so, it's dependent on where we finish the year from an inventory perspective, but then also our SNP process for next year. So demand and production schedule for next year. So we're going to continue to share more and we'll be transparent with it. We expect a meaningful step up going into next year, but to quantify it at this stage would also be an indication of what our guide is for next year and so we'll share more as we go. But I think to GMOs Point, good news is operationally, we're done and we'll continue to share more on the financial flow through as the inventories sold out in recognized through cogs.
Got it. No, that that's helpful. Thank you Mo just back on China. Especially at is, can you explain again? Why this is a market you you want to be in or should be in long term given the
The, the prices we're seeing right now and perhaps longer term.
Well if if you look at it, I I would separate to, you know, what we're doing today and what we're doing in the future. It it, it is a a first
Our business, our plant, we have a really good plant, we have a great team. There there, it's a very cost-effective plant. Um, you know, we're exporting from there. Now in very efficiently for, you know, a lot of the, the areas. So as, as far as having a balanced Network, it makes sense to have plants. In the US, we have enough plants in Europe and we have plants in in Asia. We're probably the most geographically Diversified player in in the market. We're in all the regions. And I think that's healthy for us in the, in the near term, with
With the, the network optimization actions, uh, that we've taken. Now, it's an issue of rebalancing who exports where and which, which local markets, uh, we we balance. So we see that as uh, uh, an opportunity uh, for us as we as we redo the footprint, I think long term, uh it's been, we've been there for a long time. It's been a very competitive market, and we've made very good money, and we had good profitability. I think we're going through a transition. It's more about, you know, it's the market drop, but this whole over over capacity that it's impacting many Industries. Um, uh, I do think that there's going to be consolidation, you know, we feel the pain, but a lot of the local players were also having huge problems in terms of liquidity and all that. So, uh, we're starting to see changes in the industry. And I, I think, uh, over the long term, if we can use it for export, we can then repurpose and uh, you know, Advance our Network. We have plans on how where, and how we add capacity.
Around the world. So I think we'll be able to manage through that but Donald, I don't know if you have any other comments you would you would say on on the chat know? I I think you sum it up. Uh well, maybe the other comment that I will make is that
I was in China about a month ago, and what we're seeing is that there are new segments being created, and some segments in coatings are actually really value innovation and really value high-quality, reliable suppliers. So what we bring to the table, essentially, is that number 1, I'm seeing that there is a lot of.
Will have to come back and I do think that they will value the the, uh, suppliers that actually offer really a good, uh, service to them. So can can you come and also on the portfolio expansion? You're going to be on reality because I think that that's an area that, uh, not just with the new technology platforms. But even in the core, you have a lot of work with, uh, sure. I mean very, very briefly. Um,
We were known as reality modifier experts in the region but uh over the last few years and more and more. So, these days we continue to expand our portfolio into many other additives that are relevant. Not only in architectural, codings but also in industrial codings. And again, customers value, uh, the formulation expertise that we bring to the table and we see a lot of possibilities to come up or to develop new products that can very much. Uh,
Solve some of the unmet needs in the industry, so we're very excited about that. We don't see our participation as a cellular loss; it's only participation. We see it as a much broader participation moving forward.
Thank you.
Thank you.
Question comes from Josh Spectre of UBS. Your line is open.
Yeah. Hi, good morning. Um, I've been more of a, a near-term question here. It's just I, I look at your updated guidance, you know, your sales seems to imply that you're going to have about maybe 15 to 40 million dollars higher sales in fourth quarter than what you had in third quarter. And, you know, a lot of your comments through this call have been more stability and various items there. So just curious on your level of conviction on that step up and where within the segments are you seeing that level of increase? Thanks.
Um, Let me, let me comment. And then, uh, William you can also comment. I think, uh, I would say 1 is, uh, Personal Care. Um, you know, we we do have the oral care as you as you. Well, know is a more concentrated Market the orders come in bigger chunks. So we do expect, uh,
You know, a pickup, we have actually didn't have as the orders weren't as strong this quarter. Um, but we have a, a strong portfolio of orders for
Oral Care. So that's going to be a big area. Um, I think, uh, uh, uh, in the, uh, Pharma side, cellulose 6, we are doing a lot of Innovations, a lot of new products. Um, we have, uh,
some of the the plants if you look our Venice sell inkless sell, uh, We've we haven't run as efficiently in terms of the production because we've had to break in to bring in some of the new products and and and
Uh, scale them up. Um, so that's now already moving. So, we'll, we'll have some pickup, uh, volumes that that will come in into into, uh, the, the fourth quarter. Um, so it's those kinds of things. It's more about our own portfolio. I think the underlying demand isn't really going to be that. Something's going to spike up is things that are specific to us and and and our activities.
And just to just to build on that, I think that that's right. So, on the personal care side, the other element to the Jim spoke to earlier is around lapping. Some of the, you know, the company's specific items that we talked about last year, for, for Bio functional activities, for example. And then on microbial, protection continuing to deliver against some of the Investments that we've made on the team and converting that pipeline. I would say the other piece too on specialty additives, the team has had some nice ones on the industrial side energy and resources as well as performance Specialties. We'd expect that to continue to be maintained
but just a dimensionalizing on a year-over-year basis. Josh, it's about a plus minus low, single digit.
Overall, the range and where we've anchored the midpoint is around flattish overall on organic sales volume. So, it's very much in sync with how we're talking about a stable but muted demand environment. We do expect pricing overall to be relatively stable quarter over quarter, which implies that it should narrow meaningfully on a year-over-year basis versus last year. Additionally, FX should be a modest sequential tailwind as well. So, those are the parts and pieces that get us to the fourth quarter guide on sales.
Thanks, and maybe slightly different, but related just in life sciences. I mean, obviously the margins have been quite strong. Is there any mixed component there? So like when we're looking at a 33% average EBITDA margin in the last couple of quarters, if you grow low single digits next year, does that margin expand kind of with the incremental, or does the mix have a negative impact? Can you help us think through that?
And so let me high level and Leo. You can provide some comments. Um, you know, sell the low 6 are doing very well.
Um, and the productivity is really targeting some of those areas on the cost side. So there are actions that are driving the mix and, and, and, uh, you know.
The the, the stronger parts of the portfolio are doing better. And and the ones that we got impacted, um, are much more stable but I just thought that you want to comment also. Yeah. So yeah, we are, uh, we are seeing a competitive, uh, uh, Dynamics on vpnd as we expected. So, this is in line with our expectation and the, and the growth momentum as Geo is talking about, uh, is coming from, uh, some logic share gains. You know, our traction on our Innovation and globalized and both, uh, The Innovation and globalized initiatives. They
uh, they come with, you know, healthy profitability levels. So so definitely, we are, uh, focused on our growth journey and while, uh, you know, maintaining our health healthy productivity levels and and even up of 30%.
And and I just as a plug Josh, I would say we're also excited on some of the changes that are happening in the industry, a lot more production, coming into the US, customers coming in, that's great opportunities for us. Uh and in giving our footprint and we're located. So there's a lot of good Dynamics in terms of even if the industry is is, you know, stable and growing those shifts are, you know, tend to play well into into our portfolio.
Okay, thank you.
Thank you.
And our next question comes from John McNulty. Uh, BMO, your line is open.
Yeah. Thanks for taking my question and uh, congratulations again. William on the, on the new role, um, GMA wanted to dig into the Innovation side. So this year, you're looking for kind of 10 million dollars, kind of a conservative start. Um, but based on what we heard at your Innovation day, it looks like a lot of these, like The Innovation wheel and the commercialization really start to kick in in 26. And then maybe more into 27, I guess, can you give us a little bit of color as to how that that Target changes from from 25 to 10 million to, to to, to say your 2026 Target? Um, is it something where we could see, you know, all else being equal, a couple points of growth um, for for the core, how should we be thinking about it?
Wait the the, uh,
Framing it. And as we talked about,
During our Innovation day, looking at core Innovation and then new platform Innovations, and, and looking at both of them.
Um, you know, we put a lot of emphasis on the platforms because those are the big things that we really believe as a long-term growth catalyst. Um, you know, we're in a pretty unique.
Situation versus a lot of other companies that I think we do have meaningful long-term growth catalysts that for a company of our size can change our future and, and we're getting momentum. So I I would say on that long longer term, you know what? What's going to start picking up to 2627? It's will be sharing with you. The progress we make. I think in 2026, uh still, it's going to be what projects are advancing, which segments, uh, customers are engaging in to do jda's. What wins are we getting? You know, those are all going to start start ramping and I think that'll be a good indicator of validation of of the the uh, Technologies getting commercial momentum. And obviously the dollars will come later. I think on the core, we, we don't want to minimize that part of it. I think there's a lot of activities in the core, um, that, that, uh, uh, each of the businesses is, is focused on doggo, just mentioned, for example, in China.
And and other areas, it's not just the new platforms where we have our phosphate Esters, you know, surfactant business, a lot of Innovations coming in there, deformers. Uh, you know, even in the wedding agent type, we have we we we participated with other Technologies and in the past, we're, we're doing more work there. That's where this Regional Innovation is very important for us. Uh, same thing in in um,
Brings a lot of the benefits not as much as the other 1, but we can launch that. So, they're working already with customers on getting momentum. And similarly, I think, in in the in the, uh, uh, personal, uh, uh, care.
The the bio functionals the, uh, preservative business. There's a lot of innovations that are going on in those areas that that are having impact now. So a lot of the globalized, you know, we're putting it in that bucket but a lot of innovation is going through there and the other part that I would would highlight that we don't talk as much about is product, the process Innovation. We are doing a lot of work to improving uh, the the our raw materials. Our a lot of the manufacturing steps. Not just from a manufacturing productivity and moving around the assets and all that. But actually process technology that uh, We've launched back integrated into some raw materials for preservatives as an example. All those things are having a big impact for us
Got it. No that's uh, that's really helpful color. Um, and then maybe just a just a quick question on the intermediate side is that it sounds like you've got some tax credit benefits, kind of rolling through with some positives, um, that you're getting just given the, the kind of the environment, um, and it sounded if I heard, right? That's going through 2029. So is, can you help us to understand or quantify? What that specific benefit is and how it may flow through the p&l going forward?
Okay, well, let me I'll address the last part of the question on how we look at it from a business perspective and then I'll I'll have uh William give you some of the numbers. But um, from a business perspective, this is getting a, you know, it's getting us more competitive, right? So uh, this first branch is, is a, a, a sort of a, you know, we're getting a credit for historic things that we've done. I think moving forward, it will be part of making us more. You know, our costs are going to improve. We're going to be much more competitive to service. Our customers EV is starting to move in the US. There's some big projects that are being bid and and we're well positioned for that. So that just, you know, strengthens our competitive position. So it'll be part of our bidding cost structure as we move forward, but it is a catch up and maybe you want to comment. Yeah, yeah, yeah. John know. It's a, it's a good question. So that's right. So this is uh, this is tied to as being a western producer. This is a tax credit used to incentivize domestic production.
Production into key into key. Uh, sectors. And so for us, this was introduced a couple of years ago, but the eligibility around it was recently defined and so that's how we're able to to now go out and and get this. And so just order a magnitude, it's very much dependent on on production and sales but uh, 5 to 6 million dollars of of incremental savings per year, generally recognized relatively throughout the year and we would expect this to continue to be eligible for us through 2022.
And then there's a phasing out through 2033.
Got it. Okay. Thanks very much for the clarity.
Thank you.
Our next question comes from John Roberts of meizuo. Your line is open.
Um, thank you. Um, we're both Hercules and ISP Goodwill impaired. And was that the result of a regular annual Goodwill review? Or was there some other triggering event?
So you know, this is more, you know, technical process, let me pass it to to William. It's really about the market caps but yeah and uh that's the driver here. Yeah, that's right. So John the way Goodwill's tested out a reporting unit level so it's not necessarily allocated to 1 acquisition or the other. But yes the vast majority of this is tied to to Hercules and and ISP. Um as you think about that basket of purchase price allocation most of those intangibles have been advertised right? Whereas Goodwill isn't advertising. It's tested annually.
The event that this quarter required the the testing and the impairment is around uh the valuation, the market cap record relative to your your carrying value and so a key piece on how you think about that. Right? Is you think about valuation 1 is, of course, the income based approach, but the other is a market-based approach where you look at valuations across the sector.
And so for us, that was a key element for the underlying impairment. And the other thing I would say too, we don't implement when we assess the businesses.
5 years or 4 to 5 years ago now and I would think about it in that in that case Life Sciences as a part of that resegone. So I would think about this as more of a a financial um
Operation strategy or the financials. So liquidity, position of the company.
Okay. And then, secondly, do do you expect to be impaired as your farmer customers react, to the new section, 232 tariffs,
You know, I don't, I don't think it's picking up an impact.
Right now we have, you know, we need to see the visibility on, you know, specially Europe us that there's not a lot of clarity on on some of these things. A lot of the things have been exempt at this point in time. Um, so we'll we'll need to. We need a little bit more time to to look at that. But it's not something that's driving, you know, immediate action that we're hearing from anybody, I would say the the the part that we are working with customers is not so much the direct tariffs, but the the comment I said below before of, uh, manufacturing shifting around and more, you know, uh, an increase in Investments here in the US, uh, and a lot of these Investments are looking at some of our our technologies will be a good fit there. But Alexandra, would you say anything else? Yeah, I mean talking to customers in Europe, Asia and other parts of the world. It's
Some of the announcements, right? That the, the Pharma companies, uh, have have made recently, those are investments that were already, you know, in the, the part of the plan with biologics and, and, and into the US, uh, but really, they are on the wait and see mode and, um, and really they're planning but uh, we not expecting, uh, meaningful changes at this point. That's what we are hearing from our, from our former customers.
Okay, thank you. Congrats. William
Thanks, John. Thanks.
Thank you.
Our next question comes from Lawrence Alexander of Jeffrey. Your line is open.
so good morning, just on the Innovation side to the extent that you've as you've been discussing with customers, the new platforms and possible structures and kind of what they need to see for commercial, you know, for the ranch commercialization
Do you have a sense for how much you may see a front-loading of SG&A or technical service support for customers? But, you know, as sales, um, you know, pick up and I guess, do you have, you know, could we be looking at a couple of years lag between the ramp and the business and the ramps in the IBA contribution as a result? Can you just walk through how you're thinking about that?
So, you know, I I think it's going to vary by, by technology. Um, like we said, we we are fortunate that we've, we're repurposing a lot of assets for this. So, um, we can wrap. It's going to be more about the products, getting approved. And then when do they go into a formulation that there is a lag there that takes time. But we, we don't, we don't have to make a lot of Investments there. I think the 2 that that I would say are a little bit different that we are looking at. We need to plan out resources on is obviously the TBO we have enough to launch but if this starts ramping, geographically we do. This is something you're going to have to make regionally. Um, so there is going to be an investment phase there. Um, and the other than the novel cellulose, it's going to be more Global. We have an asset that we we can repurpose, but it's an issue. As we said in the Innovation day, it's a timing issue that we just need to make, make a call make the Investments, we will be doing that shortly. Um, but
after that's done, we'll move as soon as our, you know, as customers move, move volume, um, the part that I will say. And I, I said it in the Innovation day is as we move forward, as customers commit to specific projects. We're not going to hesitate to add our new resources Technical Resources. I think that's where it's not so much commercial, it's going to be more technical. Um, we will add the resources, we have the capabilities, we have the, the, the wherewithal to do it. It's just, we want to make sure that we're moving in line with our company.
Customers, uh, non jumping, the gun, uh, in terms of which Technologies are the ones that they want to prioritize, uh, as we move forward.
Thank you.
Thank you. This concludes our question and answer session, I'd like to turn it back to Graham renovo for closing remarks.
And the Catalyst that we've been working on over the last few years to develop our our, our strategy. Our focus is very clear. Uh, in the short term, we're going to focus on self-help to navigate through the uncertain and environments, but we have clarity about the future and we're excited about it. And we're going to continue to invest and, uh, and grow the company. So, thank you for your participation and for all the national team, that's listening. Thank you for all the work you're doing.
This concludes today's conference call. Thank you for participating, and you may now disconnect.