Q3 2019 Earnings Call
Ladies and gentlemen, and welcome to the Ashland.
Actually global Holdings Inc. third quarter earnings call at this time, all participants are in a listen only mode.
Later, we conduct a question and answer session and instructions will follow at that time.
If anyone should require operator assistance. Please press Star then zero key on your Touchtone telephone as a reminder, this call is being recorded I would now like to introduce your host for today's conference Rosen Director of Investor Relations at Ashland, Sir you may begin.
Thank you Justin good morning, everyone and welcome to Ashland's third quarter fiscal 2019 earnings conference call and webcast. My name is Seth Mrozek Director Ashland Investor Relations.
Joining me on the call today are Bill Wilson, Ashland's, Chairman and Chief Executive Officer, and Kevin Willis Senior Vice President and Chief Financial Officer.
We released preliminary results for the quarter ended June Thirtyth 2019, shortly after five P.M. Eastern time yesterday July Thirtyth.
Additionally, we posted slides to our website Ashland dot com under the Investor Relations section and have furnished each of these documents to the FCC in a form 8-K.
As a reminder, during today's call we will be making forward looking statements on a number of matters, including our financial guidance for fiscal year 2019.
These forward looking statements are subject to 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, but cannot assure that such expectations will be achieved.
Please refer to Yesterdays slide presentation for a fuller explanation of those risks and uncertainties and the limits applicable to forward looking statements.
Please also note that we will be referring to certain actual and projected financial metrics on Ashland on an adjusted basis, which are non-GAAP financial measures. We will refer to these measures as adjusted and present them in order to supplement your understanding and assessment of the financial performance of our ongoing business non-GAAP measures should not be considered a substitute for or superior to financial measures calculated in accordance with GAAP.
The most directly comparable GAAP measures as well as reconciliation of the non-GAAP measures to those GAAP measures are available on our web site and in the appendix of yesterday slide presentation with that I will turn the call over to Bill.
Thank you Seth and good morning, everyone.
In my remarks. This morning, there are three key themes I'd like to cover.
First we have taken action to offset areas outside of our control to stabilize earnings in a very difficult environment.
As largely anticipated when we established our annual plan, we have been impacted by the strengthening of the U.S. dollar and the loss related to the Colgate Gametrailers oral care Reformulations.
Now more recently, unlike others, we have been impacted by market demand weakness and negative trade dynamics.
More specifically impacting our demand was a weak season for sunscreen products in the U.S. in Europe .
And also new tariffs for materials exported out of China.
The 25% tariffs impacted the competitive competitiveness of certain sunscreen and other products, we export into the U.S.
New China right regulatory requirements also impacted demand for certain preservative formulations.
In the aggregate, we estimate that on a year to date basis. These factors could have negatively impacted EPS size EBITDA by approximately 10% year over year.
In this context the team has taken meaningful action more specifically, we have grown our sales at or faster than the market in pharma nutraceuticals coatings and nutrition.
We have raised prices over and above raw material inflation.
We have reduced year to date SGN, a spend by 9% on an FX neutral basis.
And we have also reduced plant fixed cost by consolidating our production footprint and by improving reliability and reducing costs with the implementation of ashland's productive production system.
And while the net result is not what we expected earlier this year.
We have achieved year to date earnings growth versus prior year for Ashland.
A 90 basis point improvement in EBITDA margins, and essentially flat specialty ingredients adjusted EBITDA margins on a year to date basis.
Importantly, these results demonstrate that our actions and our portfolio evolution has led to much lower levels of cyclicality than in prior periods.
Second we are confident in our strategy and our future.
In fiscal year 2018, we grew ashland's adjusted EBITDA by 20% and adjusted EPS by 47%. The same operating levers have made a meaningful impact on our fiscal year 19 results to date.
As we take a very early look at fiscal year to 20.
The negative factors beyond our control should lessen substantially.
We are on track to largely lap in Q1, the impact of negative FX.
And the Colgate Reformulations.
And while difficult to predict in terms of exact timing. We believe current market weakness is short term in nature.
More importantly, we're taking aggressive action to drive improved results, including driving share gain through new product launches renegotiating contracts and adapting our supply chain to offset negative tariff related impacts.
Reformulated formulating and gaining approval for new products in response to new ingredient regulations.
Achieving the full impact of our 120 million cost out program by the end of the calendar year.
And lastly, we continue to make strong manufacturing gains as we increase our focus on lean and plant reliability.
Stepping back in the bigger picture from an innovation perspective.
While we faced challenges this year, we view ongoing changes in personal care regulatory and consumer preference trends as an opportunity to leverage our core innovation and customer partnering skills to enable ASLAN to ultimately grow share position.
We have made significant changes to our innovation process and resource deployment over the last two years. The result is an increase in the size of our new product pipeline and the impact of new product sales.
We are currently working additional actions to redeploy existing technical resources to focus less on business maintenance activities and instead focus more on new product development.
It is important also to note that we remain committed to meeting our 25% to 27% ESI EBITDA margin targets through a combination of pricing actions mix improvements volume leverage and additional cost productivity initiatives.
Thirdly, we remain on track to close the composites and MRO business sale late this summer as anticipated.
Following continued discussions with the FTC.
We announced an agreement with any us to exclude the Maleic anhydride business from the sale.
The purchase price will be adjusted to $1 billion 15 million and Ashland will retain all rights.
To the Malaysia business, including the retention of any subsequent sale proceeds.
The Maleic business consists of one facility in Neal West, Virginia, and generates annual revenues of approximately $75 million.
We continue to work with any deals to close the transaction and preparations for the divestiture remain on track.
We anticipate receiving remaining regulatory approval shortly and expect to close the transaction by late summer.
We continue to expect to use the net proceeds now estimated at roughly $930 million for debt repayment.
And reduction following the close of the transaction in support of our commitment to reduce our leverage to about two and a half turns.
So in summary, we had strong growth expectations for this fiscal year.
Like others, we have had significant factors outside of our control.
We have taken action and are implementing our operating strategy.
Gains from our actions are helping to offset the current market dynamics. The result, while less than what we were targeting is year over year earnings stability.
We intend to complete the portfolio transformation this summer.
And we expect to return to more normalized sales and earnings growth when the market demand recovers likely later this year.
We believe we have a great business, a clear strategy and a strong team focused on driving results.
I will now turn the call over to Kevin for a more detailed discussion of our third quarter results.
Thanks, Bill and good morning, everyone first let's start with Ashland's results in the third quarter sales in the quarter were $641 million down 4% from the year ago period, including a negative two points from unfavorable currency.
Adjusted EBITDA in the quarter was $140 million essentially flat year over year, and including a negative 4 million dollar foreign currency impact.
The U.S. dollar remained stronger than in the prior year as has been the case throughout this fiscal year.
Negative currency impact was led by the Euro which was seven cents lower than the prior period and there was also an impact from currencies in certain emerging regions.
In the quarter, we reported us GAAP income from continuing operations of $23 million or 37 cents per diluted share.
On an adjusted basis, we reported income from continuing operations of 77 cents per diluted share, which was consistent with prior year results.
This compares to our revised outlook, we provided in mid July of 76 to 78 cents per share.
Our effective tax rate in the quarter was 6%, which was below our expectation of 15% due largely to income mix and several favorable discrete tax items.
You will recall that results from continuing operations includes earnings from our specialty ingredients segment, plus our BD old facility in Lima, Ohio since composites and moral are now being reported as discontinued operations.
Free cash flow during the quarter was $54 million compared to 61 million in the prior year.
These amounts include $22 million in restructuring costs in the third quarter of fiscal 2019.
And $8 million of restructuring in the year ago period.
Including restructuring and transaction related payments of approximately $60 million. We now expect free cash flow in the range of $100 million to $110 million this fiscal year.
The change from the previous outlook is due primarily to the reduction in expected earnings in the second half of the year plus the acceleration of approximately $20 million of cash restructuring and transaction related payments.
Turning to specialty ingredients as you have seen we have revised our financial outlook for fiscal 2019 to reflect the market demand weakness that bill just mentioned.
We believe these factors are temporary in nature.
September quarter Order book is in line with our current outlook.
When market conditions improve.
We should return to more normalized sales growth and mid to high single digit EBITDA growth.
On a percent basis.
Finally, I'd like to provide an update on the $200 million accelerated share repurchase program, we announced during the June quarter.
In May we retired approximately 2.2 million shares and we expect the program to conclude in August the final average price per share will be determined when the program is completed.
I think it's important to reemphasize that this program in no way impacts our commitment toward reducing leverage to about two and a half times following the closing of the composites moral divestiture.
So at this point I will turn the call back over to the operator, and we will take your questions.
Thank you.
Ladies and gentlemen, if you have a question at this time. Please press the star than the one key on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound.
We ask that you limit yourself to one question and one follow up question and again, ladies and gentlemen, if you have a question. Please press Star then the one key on your Touchtone telephone.
My first question is going to come from Christopher Parkinson from credit Suisse.
Your line is now open.
Cool. Thank you for an incorrect you've been facing a few good morning gentlemen.
Even facing a few unexpected challenges over the past year and personal care. They can't treasury formulation volume loss in oral care magnitude of headwinds in sunscreen market this past quarter.
You are positioning skincare market, specifically bioactives in some of the trends there and your ultimate ability to sustainably achieve 3% to 4% topline growth hopefully higher.
You know if you could just on that and how integral.
PC success is to reach.
Above 25% margins that would be very helpful. Thank you.
Great well, thank you and very good question.
As we have discussed in the past as it relates to the personal care business every year, you have a certain amount of product maturing or attrition just as products go from new to new and improved down to less less relevant in terms of the overall product mix, sometimes that happens more quickly.
Then other years.
We have.
Strong R&D efforts to offset and ultimately outpace those dynamics and if you look back for example in fiscal year 18, and really through the first half of fiscal year 19, the pace of the gains that we had were greater than the attrition. If you will that came from re formulations or regulatory and consumer preferences.
We are expanding our investment in the development of sustainable solutions for the personal care market and we believe that thats essential to maintain a more consistent growth pattern within personal care, we think that that will happen as we go into and through fiscal year 2020, we will see the momentum building around that.
And when you look at the margin profile clearly personal care is an important part of our overall portfolio. It's it's a great business and has very attractive margins.
What I will tell you is that when we look at our overall plans for margin improvement.
About 20% of the gains that we are targeting to get come from mix improvements and personal care is a part of that but it is a only a part of the overall mix obviously continuing to move.
And have good growth in pharma and to move from things like construction and energy into areas like coatings and personal care is part of that equation. So we do feel good that the we've been able to outgrow the market based upon introducing new products at a faster rate than than they have matured. This year as we've been particularly hard hit the colgate's re formulation was a very significant item.
What's going on in China, right now, we just have to reformulate our way through it to make sure that the products that we have our meeting all of their expectations for for import and we're doing that we're doing that right now so it will take a little bit of time, but we're very confident we can sustain the growth rates were targeting.
Chris This this business from a personal care perspective.
Should return to that three 4% growth trajectory.
I would I would expect on a run rate basis, we'll we'll hit that in fiscal 2020.
That would certainly be our intention and your question around Biofunctionals is a good one that's a that's a really important part of of our personal care business not not not only because of the actives.
That we make which are.
Really down the middle from a from a sustainability perspective.
Provide provide a lot of functionality to our customers, but they also they also result in certain amount of pull through and other product categories in personal care. So we're very focused on that biofunctionals business, because it's while it's relatively small.
It is a it is a very important part of personal care, especially skin care.
We're going to continue to continue to be very focused on that business.
Can you just comment.
On your updated views regarding your global cost structure from that from the top to bottom.
What do you think you're doing well.
What you feel your team could still potentially do better.
And just given a normalized pricing in production environment, given the current portfolio.
Just how should we think about little bit broader targets of where ash needs to be.
Another two to three years out thank you.
I'm not sure how you define top to bottom, but if I start with the kind of corporate support groups. We through this $120 million or overall cost reduction program are reducing those expenditures by in the range of 25% to 30%. So we're clearly taking aggressive actions in this area.
We see that when we complete our program, which will be at the end of this calendar year, we will be at a run rate without amortization of around 16% to 17% to sales and we do think that there is an opportunity or or we will focus on driving that down another 100 basis points or so and that can be done through getting volume leverage on what's.
In the commercial and technical area.
Good progress, but I think theres still more more opportunity and we have work to do.
Yes, I would agree with that and getting getting to that 25% to 27% ingredients margin target is going to require a combination of good profitable solid growth in the business and our end markets.
Especially the more consumer oriented end markets, but it's also going to require.
Improving the overall cost structure as we go those those two things are going to have to work in concert to get us where we need to be.
Thank you.
Thank you and our next question comes from John Roberts from you Yes.
Your line is now open.
Thank you good morning.
When you talk good morning, when you talk about temporary issues do you mean, a supply chain inventory correction or do you think something else temporary is going on.
Well, what I'm referencing is when you look at and most specifically in the personal care area. Some of the things that impacted our results in the quarter.
It has been.
A weak demand profile for sunscreens this year in both the Europe , Europe , and the us and the season will be coming to a close here fairly fairly soon.
In addition, as we mentioned that on.
Tariffs, let's say for example on sunscreens that we export from China into the U.S., they've been hit by 25% tariffs and that affects the competitiveness of those products now that's just a portion of what we sell and actually we've been able to already negotiated through the increased tariffs on a substantial part of our customer base. So we anticipate that by adjusting our supply chain and working through with our customers will will get through the dynamics on that and as I also mentioned when it comes to issues like preservatives that might.
Have new requirements for import into China.
Ultimately, we view those as opportunities for us to to innovate to provide solutions and it takes a while to commercialize those and it takes a while to get approvals for those but.
We're confident that we can make sure that those are not structural in nature.
Yes, it is somewhat integrated with with the with the composites business, but I mean as you know it's a it's a commodity business toplines about 75 million and that's that's third party sales.
Today and.
We're still is a relatively new development John in terms of the three real time.
And we're still evaluating how we are going to ultimately approach.
Approached the business, but.
Based on past history, and our our connectivity to the marketplace around M&A.
I don't think its going to be difficult to.
To to achieve.
A sale of that business.
Yes, good if that's in fact, what we hear did you give us the gross sales including the.
Intercompany sales to composites.
Yes, frankly, it yes that is the that is the number $75 million. It's a growth of gross okay got it. Thank you.
Thank you and our next question comes from John Mcnulty from the capital. Your line is now open.
Hi, Good morning. This is not back today from John .
If you think about the next few quarters.
But can you just get the benefit of the cost savings.
Okay. So I would say that we have assumed in our assuming that we don't see substantial improvements in the overall macro environment as we enter into Q4.
We are taking actions as we talk.
About Kevin also reference that the the month of July started off fairly weak, but the order book began to fill up in a way, which is consistent with our outlook. So we feel good about that.
In terms of moving forward into fiscal year 20 of course, we will comment on that in our next call in more detail, but but as we referenced some of the things that have impacted us we will lap and other things we will be addressing in a way that we believe there will be less substantial in terms of impact on our results and and so we'll provide more of an update what's what's really difficult to predict as general demand commish conditions around the globe in terms of the timing for more business confidence and as such will say more aggressive buying behavior and an inventory stocking.
In May may come sooner it may take a few quarters, it's difficult to predict right now so.
Thanks can you give us some color as to what you have done so far VIX, which business is the focused in how has that assumption.
Yes in that particular case, I was referencing specifically sunscreens and dealing with the tariff related to exports from from China. As you can imagine when that came into place from a customer standpoint, that's a that's a pretty big issue and and of course, it's our objective to surpass appropriately those costs on.
And and so it's taken some time to work with customers as they assess their their supply situation. The role that we play in their supply chain. Both in terms of not just product, but innovation and so we've been making progress in terms of passing that through.
We've been able to pass through.
I will say roughly half of the impact that that we've had so far and we're working to bring that level up or as is appropriate to change the supply chain. So we can avoid the tariff from period.
Got it I appreciate the color. Thank you.
Thank you.
Your line is now open.
Don't count on.
Yes, hi, EBITDA on 2020.
The growth be above mid to high single digits, given the depressed base in 2019 and some other potential a one off we saw this past year.
Well one of the one of the things that will that we will have in 2020 is carryover from the cost out program.
Some of the some of that we will have we will have full year benefit. This year, we will have full year benefit next year.
A lot of that cost out.
And so that will be the basis for what I would what I would call initial initial growth over and above where we are right. Now we are we will likely in the fiscal year you look at it as you look at end market demand.
Yes.
Part of part of what we're going to have to work through and figure out is.
Kind of what 2020 is going to look like from a top line perspective, and what we can do to manage and improve our mix on an overall basis really driving toward more of the of the consumer consumer facing areas like personal care and pharma.
As bill talked about on the sunscreen front, we are going to have to you have to deal with with some of that from a tear perspective, and and some re formulation but.
Teams on that so as I think about it as I think about 2020.
Certainly the mid single digit growth.
Should be achievable and really the the rest of it is going to depend on end market dynamics and what we see there and so more to come on that but.
We're we're certainly pushing the team hard from a growth perspective on on driving that end market growth, whether it's share gains new products with higher margin profiles.
Et cetera.
Are you seeing any impact from this consumer backlash against.
Chemical based on screen formulations.
It's it's I think it's limited part of course it does affect.
I will say demand in those areas and Hawaii, they have some limits and in a couple of areas, but I think.
That's not as fundamental as the factors, which we referenced in our results now so it's obviously an important issue that we want to stay close to.
But but I wouldn't point that out is the primary driver for the sunscreen results, we have in the quarter.
Thank you very much.
Thank you Justin.
Oh Im sorry, a quick quick reference also because I think it's important that that dynamic that were referencing is really primarily a us centric diet dynamic.
So we have a global sunscreen business and and as we talk about some of these factors.
It's that youre referencing to use driven dynamics and demand.
Thank you.
Our next question comes from Jim Sheehan from Suntrust. Your line is now open.
Good morning, Thanks for taking my question I know pricing versus raw material spreads are you finding pricing more difficult to achieve given the you know more lackluster demand environment and how do you expect to execute on price increases increases going forward.
Sure so.
Easier I'll say two to pass those along in terms of customers understanding.
The rationale if we step back from that though we really.
Need to do and have been focusing on better defining and selling the value that our solutions provide in the marketplace and with that continue to price accordingly.
As we introduced new products, while that's not per se pricing that does positively impact our overall mix and so we are focused on sustaining pricing actions I would say that from a supply demand standpoint that is not quite as relevant, especially in places like pharma.
As we move into some parts of our business you may see that dynamic more but we've done a really good job of filling up for example, our energy system. We're up on again this year I think it's about 6% in terms of actual output in sales from that system and what that does is that puts us in a position to also look at opportunities to upgrade the mix. So.
Clearly, it's a it's a focus it's always a challenge for the commercial team, but we view it right now is.
We're not in a commodity dynamic.
Let's leave it as that.
Very helpful and it looks like on pharma can you may have pulled some orders forward or that you made some reference to changes in order timing there.
Are you going to be giving some of that back in the in the fiscal fourth quarter.
How do you see orders shaping up in foreign Mccann.
Yes. It really is there was some timing of some orders and with that in mind, we would expect that.
We won't have the same type of growth that we saw in Q3 in Q4 and but in the aggregate I think you can see we've been making progress in that business and we'll continue to do so.
Thank you.
Thank you.
And our next question comes from Mike Tyson from Keybanc. Your line is now open.
Hey, guys.
Bill I was wondering if you could maybe walk us through how the higher managing the business going forward, meaning you are giving us more information by end market and is the structure of your reporting team is coming from each of these little businesses personal care pharma Karen and.
Yes. It is each of these units have its own finance accounting sales and I'm, just kind of curious kind of how the operating structure is set up now going forward now that you're just specialty ingredients.
Sure sure. Good question. Okay. So we have if you will functional leadership that goes across the business and for example, Butoh consigliere ill, who is our chief commercial officer. Ultimately has responsible responsibility for for all of the end markets and we have leaders of those end markets and of course, they focus on the imperatives to succeed in those spaces. They also have technical resources, which are aligned to leverage our technology across our from across the company into their respective markets.
They have limited if you will financial resources. For example, veto has has financial resources to help him assesses business, but we don't build a whole infrastructure around each one of those.
Markets like pharma personal care, it's really more at the group level. So we have a strong commercial focus and strong focus on commercial contribution. The accountabilities are very clear in terms of revenue in terms of.
Pricing versus.
Raw material inflation and also driving the needed absorption to make sure that we have well utilize facilities.
Below that we are in addition to that we have our operations and we run our operations. Some some of them facilities are of course different from each other but we we run them as a as a network we track the profitability of each one of the core technology platforms that we have and have teams that review with the executive leadership team on a regular basis. The actions that we can take to make our HCC or to sell or pvp platforms more more profitable.
And of course, we have an R&D function, which overtime.
While we have a strong central leadership for all of our technical resources, we've tried to deploy those resources much more closely aligned with the specific leaders in the end markets, because we really need to focus on driving solutions that that are relevant in the marketplace and we've also built out regional network because part of that is as you can appreciate the needs that we have in one region are different than another from a technology standpoint, and then behind that the broader infrastructure that we might call supply chain corporate purchasing and so forth is really more central or centrally managed.
I hope that was enough detailed but not too much yes, that's great. Thank you and.
I guess Kevin.
In terms of your kind of soft framework for 2020.
To get to the midpoint sounds like you don't need a lot of economic recovery started get there on minimal sales growth and.
Is that right and then if you do get sales growth how much does that.
Come down to the bottom line, given you've got a lot of cost savings and such.
And could potentially drive some upside to your initial framework.
Yes, Mike certainly certainly the.
Carryover from the costs cost out initiatives will help provide.
Nice base platform.
Yes, I think if we continue to see a weak demand if the weak demand environment were to persist, which we don't believe it's going to be the case just based on.
Of all the all the macro things, we see out there, but if it were to persist.
Yes that would put us that would put us in.
Low to mid single digit.
Growth EBITDA growth in 2020, if we return if we return to more normalized.
On a more normalized environment, if that were to happen for the full fiscal year.
You'd be you'd be high single digits potentially low double.
And the likely outcome is probably going to be somewhere in the middle of that I mean, we're still very much.
Working on our 2020 plan.
From a commercial perspective, NSG in a perspective and an operations perspective and so it's.
We still have a lot of wood to chop when it comes to that but.
Our expectation would be this obviously be to grow EBITDA in 2020, and we feel like we've got a nice tailwinds there just with the cost out and we will continue to leverage over and above that to help drive earnings higher to the extent that we see the macro micro building to do it.
Got it thank you.
Sure.
Thank you and our next question comes from Laurence Alexander from Jefferies.
Your line is now open.
Hi, everyone. This is Dan Rizzo off Lawrence how are you.
Good good morning, Ben Good morning, One question you mentioned the product pipeline, how have you ever quantified how big that product pipeline is and to do use a vitality index at all.
Yes, so what we have said is that we have.
Close to 30% of our sales coming from new and differentiated products we.
A significant we'll say over a third of that is developed internally.
Some of that comes from acquisitions that we make that enhance our technology base and some of them are.
Very proprietary patented type products that have a longer cycle say for example in the pharma market or places where it takes a while to qualify and we do we do track our vitality index and we've been growing were not only that but we we havent equation that we used to.
Really look at our productivity, we look at the size of the pipeline. We look at our technical hit rate, we look at our sales impact relative to what the expectations are and we look at the time that it takes two to drive a project through the system.
And we haven't shared more specific details would be a little hard in this call, but we've actually made improvements across each one of those areas. So.
We feel good that we're making progress, but I will tell you also that I think that this is a real key for our future to accelerate growth and reach our full potential is that we do need to continue to enhance the impact of innovation in our in our sales mix and and we think that we have the capabilities and we have the systems and we're working as a team to drive that and I think that will will help us to grow faster and allow us to better better buffer or deal with the types of things that weve faced over the course of this fiscal year.
And.
One of the thing you mentioned sustainability or steel solutions and personal care is kind of a growth driver can you. Just give you. An example of how you how you guys kind of fit into sustainability, what you offer and what it means.
Kind of illustrated.
Yes. So there are lots of different definitions as you can imagine in the personal care area. There is a broader thought process or matrix. If you will that has to do with the source of the materials, whether they're naturally sourced materials, one dimension and the other is the great ability or biodegradability of those materials and so as you can imagine when you talk about things like HSBC, and you're starting with cotton winters and wood pulp from its great because we're starting with a natural based material.
We have really focused extensively on the Biofunctionals business has been a big portion of the growth.
That involves our business in bonds since it involves our zeta fraction.
Business. These are the areas that are keen interest to our customers and importantly.
Not only does it help us to grow our our sales overall, but.
Or in those specific areas, but but it makes us a more relevant and important partner to our customers, allowing us to drive a greater position for will set a broader range of products. So I would say the great majority of our research and development efforts are really focused on those materials that have stronger biodegradability and our from natural based products are sourced from natural based products.
Thank you very much.
Thank you and ladies and gentlemen, if you have a question. Please press Star then the one you touched on telephone again, if you have a question. Please press Star then one.
Yes, Tom telephone.
Please limit yourself to one question and one follow up our next question is going to come from Mike Harrison from Seaport Global Securities.
Your line is now open.
Hi, good morning.
Good morning.
Wondering if you can break out the.
The revenue growth or decline in personal care between skin care hair care and oral care in the context of that overall, 12% year on year decline.
Yes, well.
Of course, and not surprisingly oral care has been a challenge this year as it relates to the Colgate business.
And and we also referenced that in skin care, we've had challenges with the sunscreen I'd say overall.
I mean, we did see just in general a a weaker personal care demand environment.
Than than we've seen in previous quarters, and we think some of that is really if I'm role and some of it as we've talked about we'll need some specific.
We will say product and customer solutions.
All right and so his hair care up for what's your carried out.
Hair care would have been down in the quarter really driven by a couple of customers L'oreal and hinkle demand.
We actually saw strong hair care demand in Asia in General China included.
Russ rest of the World was was definitely weaker than I am and we had positive growth in Q2. So.
We've had growth in that base.
And then was also wondering and personal care are you seeing any trading down happening in past downturns.
You've seen that consumers are not willing to pay up for very expensive products, what you tend to be.
Better position under that tend to use your ingredients more intensively.
But I also know that you've made some efforts to improve your position within some of the mid tier.
Products.
So are you seeing that trading down on it and maybe talk about how you're positioned to weather that type of phenomenon. If it were to happen.
Yes, so when we look at them.
What I would say is that we have not seen as much of that as we've seen maybe in the past and as you say, we've really tried to change our mix.
In China, we've seen as Kevin just referenced some good growth in skincare, we've seen in rest of Asia. Some growth in hair care Latin America has been a little bit softer on the personal care side.
So that may be a little bit of the dynamic that that you're referencing there but.
I really think the items that we identified and spoken about are the primary drivers of what's driven our results and the opportunities that we have to improve our results and really get back to the growth we are targeting.
Okay, and then one last one on the coatings business Im just wondering if you're seeing some improvements.
I know that North America has been relatively weak any improvement there and do you have a sense of kind of where your customer inventory levels are.
As we come out of the fiscal third quarter. Thanks.
Sure.
Well.
I talked with the team here pretty much every day about what they're seeing from an order standpoint, and so forth and we actually believe that our growth in Q3 and year to date has been stronger than the market. Some of that's been really based upon efforts that we've had in Asia, we're making really good progress of gaining share there with Nippon in China, which is outstanding and helping us to to drive growth overall.
We have defined supply positions with the primary coatings manufacturers within our architectural coatings manufacturers in the us and other parts of the globe and and I would say that that's a group that.
Is more cautiously optimistic about what the fall will bring than maybe maybe other parts of our business. There, there's a little more sense of optimism that.
At least from the order builds that were seeing were seeing a little bit of a pickup in demand.
Sounds good thank you.
Thank you.
And our next question is going to come from Dimitri Silverstein from Buckingham Research. Your line is now open.
Hi, good morning, Thanks for taking my question.
A couple of things that we.
Notice that the adhesives business was that was a negative grower for you.
This quarter.
It was one of the businesses, particularly sort of be slashed consumers less industrial.
Borderline if you will that was actually doing well. So can you talk about what you're seeing in your end markets for you at pieces business that has changed.
Here on how we should think about that for the second half of the year.
Sure sure. So yeah, we had nice growth last year, we had about 4% growth in Q1 that flattened a bit in Q2 and I think what you see is that we've got on a broad base of end markets.
Pressure sensitive adhesives that go into food packaging and applications like that which tend to be don't don't have a cyclical dynamic to it we do sell some of our adhesives materials into transportation automotive and the like and we also provide.
In construction and if you will the boards that are put together the the sandwich boards that are used in construction. So we're seeing a little bit of demand weakness in those areas and I think those are the areas that are primarily driving the negative demand.
That we saw on and once again, we believe that that will will not sustain itself that we'll get back to more normalized performance as.
As the market stabilizes little bit comes to equilibrium and starts to grow so transportation and building those portions of the adhesives business really is what drove the negative <unk> percent.
Got you is there a piece of business.
More U.S centric or more European centric compare to your.
Aside business overall.
Yes, much much more much more U.S centric, we've been seeking to to globalize it and we have.
Our position in Europe , but.
It's really primarily a north American business.
Got you Okay. Thank you and then just one more question if I may.
If you look at.
The reduced guidance that you provided over over the past.
Year or so.
Yes.
Free time, it's been maybe something you want to do something getting little bit worst was okay. If you kind of have to look back and look at sort of the rank of headwinds that you've experienced weather was foreign exchange, where there was cost where there was a slowdown in particular end market demand.
Kind of how should we think about this coil springs sort of reversing itself as we get into 2020 in 2021. So can you sort of size for us the impact of each of these headwinds on you over the past year or so.
Yes, so and look to Kevin here to correct me, if I missed anything but last last year in fiscal year 18, we didn't provide any revised guidance for ASI. We we had arranged that was within the started at three in the year. We narrowed as we went through the year and we actually ended up right in the middle of the range. So there was no recast last year, so I'm not specifically sure what you're referencing there.
Lastly, you're probably referencing.
Pardon me.
At the last three quarters.
Yes, well the last two.
Yes, right, Okay fair enough and I think that that is specifically the things that we have been talking about which has been overall the reduced demand.
That we've seen that's was driven the revisions it's not dissimilar to what a lot of other companies have seen and the trade we've talked about those when you look at from a year to date basis that you have.
Roughly half of the negative impact, which by the way we anticipated.
Came from FX and Colgate and the other half is really related to overall market demand that weakened as the year went on and that's the market demand portion is what really drove our our change in outlook that we made at the.
End of Q2, and the end of Q3 here.
Gotcha. So so basically it's the lack of recovery that perhaps you have anticipated and other companies have anticipated.
That that's behind the last two revisions versus.
The Colgate is you obviously foreign exchange that you were able to sort of bracket appropriately.
Thats right Dimitri Thats correct.
I appreciate it thank you.
Thank you.
Thank you.
And I'm showing no further questions I would now like to turn the call back to Seth Mrozek director of Investor Relations at Ashland for any further remarks.
Thank you Justin Thank you all for your time this morning, but we have a great day, we'll speak soon.
Ladies and gentlemen, thank you participating in today's conference. This concludes today's program you may all disconnect everyone have a great day.