Ashland (ASH)
Q1 2013 Earnings Call
January 29, 2013 09:00 AM ET
Executives
Jason Thompson - Director, IR
John Panichella - SVP and Group Operating Officer, and President, Ashland Specialty Ingredients
Lamar Chambers - SVP and CFO
Jim O’Brien - Chairman and CEO
Analysts
John McNulty - Credit Suisse
Laurette Alexander - Jefferies
Jeff Zekauskas - JPMorgan
David Begleiter - Deutsche Bank
Mike Sison - KeyBanc
Mike Harrison - First Analysis
Dimitri Silverstein - Longbow Research
Presentation
Operator
Good day, ladies and gentlemen, and welcome to the Ashland Inc. First Quarter Earnings Call. (Operator Instructions) As a reminder, this call is being recorded. I would now like to turn the conference over to your host for today, Mr. Jason Thompson, Director of Investor Relations. Sir, you may begin.
Jason Thompson
Thank you, Ben. Good morning, and welcome to Ashland’s first quarter fiscal 2013 conference call and webcast. We released results for the quarter ended December 31, 2012 at approximately 6 a.m. Eastern Time today and this presentation should be viewed in conjunction with the earnings release. These results are preliminary until we file our 10-K.
On the call today are Ashland’s Chairman and Chief Executive Officer, Jim O’Brien; Lamar Chambers, Senior Vice President and Chief Financial Officer; and John Panichella, Senior Vice President and Group Operating Officer responsible for Ashland Specialty Ingredients and Ashland Water Technologies.
As shown on Slide 2, our remarks today will include forward-looking statements as that term is defined in securities laws. We believe any such statements are based on reasonable assumptions but cannot assure that such expectations will be achieved.
Please also note that during this presentation, we will be discussing adjusted results. We believe this will enhance understanding of our performance by more accurately reflecting our ongoing business.
Please turn to slide 3 for our first quarter highlights. In the December 2012 quarter, we reported earnings of $1.27 per share from continuing operations. On adjusted for key items, EPS was $1.12 as compared with $1.20 in the year ago quarter.
We acquired ISP on August 23, 2011 and the prior year includes a full quarter of the ISP results and related financing. Sales during the quarter were $1.9 billion. When we normalize for currency and adjust for divestitures and joint ventures, sales would have flat with the prior year quarter.
I will note that our fiscal first quarter is our seasonally weakest, coupled with this typical seasonality was a very soft month of December impacting Specialty Ingredients. Our adjusted EBITDA was $268 million which was a 11% below the prior year.
During the quarter, we took about $31 million loss on straight guar, $6 million higher than the $25 million loss we previously described at our Analyst Day in early December. This includes an inventory write down as well as some transactional losses on a higher cost inventory.
Total after-tax guar EPS impact was $0.25 per share, excluding this effect adjusted EPS would have been up 14% versus prior year. We have addressed the Straight-guar issue and it is behind us. Outside of guar we experienced reduced demand and energy, coatings and construction most notably during the latter half of December. For the remainder of our business we have mixed results.
Water Technology saw year-over-year decline in sales and volume offset by an increase and gross profit margin due to a stronger business mix. Performance Materials was negatively affected by reduced margins in the Elastomers business and weakness in the European economy. Consumer market's EBITDA increased by 34% year-over-year due to lower raw material cost and a strong quarter for the international business. Slide 4 details are key items.
In total three key items had a net favorable EPS impact on continuing operations of $0.15 in the December 2012 quarter. First key item is an insurance settlement resulting in a $22 million game or a positive $0.16 per share due to a business interruption insurance. We expect to receive the cash for this in the second quarter. This is related to a supply disruption and our Specialty Ingredients site in Calvert City that occurred in 2011. The settlement was for damages incurred while the normal source of a key raw material was disrupted. The supply chain and associated cost structure was back to normal for the full December quarter.
The second key item is a $5 million after tax charge or a negative $0.06 per share related to various cost restructuring efforts. Roughly 1/3 of this charge steamed from plant rationalization projects which when completely should lead to better utilization rates and improved fixed cost absorption. The remaining two-third is related to the ISP integration.
Lastly, we had a tax benefit of $4 million or a positive $0.05 per share due a deferred tax adjustment related to foreign corporate income tax rate changes. In the year ago quarter, two key items combined for a net unfavorable impact on earnings of $0.44 per share. To aid in your analysis, versus the peer group Ashland’s results included $29 million of intangible amortization expense during the December 2012 quarter. We carry higher than average amortization due to our corporate transformation and prior acquisitions. Without this amortization, earnings would be roughly $0.25 higher or $1.37 per share.
Please turn to slide 5 for Ashland’s adjusted results. Ashland’s December quarter sales decreased 3% over the prior year to $1.9 billion. We did not achieve the sales growth we were expecting due to softness across three of the four business units. Sales declined 9% sequentially. December is our seasonally weakest quarter which accounts for some of this decline.
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