Ashland Inc.

Good day, ladies and gentlemen, and welcome to the Ashland Global Holdings, Inc. First Quarter Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star then zero on your touch-tone telephone. As a reminder, this conference is being recorded. I would now like to introduce your host for today's call, Mr. Seth Morozik. Director of Investor Relations. Mr. Morozek, you may begin.

Thank you, Cherie. Good morning, everyone, and welcome to Ashland's first quarter fiscal 2019 earnings conference call and webcast. My name is Seth Morozek, Director, Ashland Investor Relations. Joining me on the call today are Bill Wolson, 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 December 31st, 2018, shortly after 5 p.m. Eastern Time yesterday, February 5th. Additionally, we posted slides to our website, Ashland.com, under the Investor Relations section and have furnished each of those documents to the SEC 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 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 yesterday's 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 of 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 the ongoing business. Non-GAAP measures should not be considered a substitute or superior to financial measures calculated in accordance with GAAP. The most directly comparable GAAP measures as well as reconciliations of the non-GAAP measures to those GAAP measures are available on our website and in the appendix of yesterday's slide presentation. With that, I will turn the call over to Bill.

Thank you, Seth, and good morning, everyone. Thank you for calling into Ashland's first quarter fiscal year 2019 earnings call. In May 2017, we shared our strategic vision to become the premier specialty chemical company. That plan had three core financial performance targets driven by seven core operating levers. This is the seventh quarter since we presented our Investor Day in 2017. In each of those quarters, Specialty Ingredients has reported organic, year-over-year adjusted EBITDA growth, excluding any benefit of currency and acquisitions. In addition, we have improved Specialty Ingredients adjusted EBITDA margin year over year in each of the last four quarters. In fiscal year 19, Q1, we continued those trends. In the quarter, like other companies, we saw some choppy market conditions and experienced unfavorable foreign currency translation. Still, we delivered solid gains relative to each of our three core financial deliverables. More specifically, we achieved significant adjusted EPS growth. We improved adjusted EBITDA margins by 140 basis points. We improved our Q1 cash flow over the prior year, consistent with our outlook for the full year. And we did so by focusing on the areas we could control to drive results. Now, beginning with specialty ingredients, Organically, we grew sales by 3%, excluding the impact of FX and the Colgate product reformulation that we outlined on our fourth quarter earnings call. To do so, we continued to drive double-digit growth in pharma. We demonstrated strong growth in our innovative biofunctional ingredients for hair and skin care applications. We grew the PharmaChem business as we implemented our new market strategy for the business. And we demonstrated disciplined pricing plus share gains for our adhesive products. The specialty ingredients team also improved gross profit margins year over year by 20 basis points in spite of a stronger dollar. To do so, we capitalize on gains we have made in implementing our asset utilization program by substantially increasing plant absorption. We also succeeded in driving price over raw material cost inflation. Now, as you will recall, we have made steady progress towards pricing through rapid and dramatic raw material price increases, which we experienced over the last year. We have implemented disciplined pricing practices. new pricing governance, new sales incentive practices, along with comprehensive account planning and value selling training. The result is that we drove price above raw material inflation in the quarter in the context of continuing and lingering year-over-year raw material inflation. And we expect the impact of our pricing actions combined with the impact of falling oil prices, which we believe will begin to benefit us in Q2 to strongly drive year-over-year gains in this important area for the remainder of the fiscal year. To augment these actions, the team is achieving strong results from our cost reduction program. As you will recall, this is the effort we kicked off last year, and from a specialty ingredients perspective, this program had two core objectives. The first was to enable the specialty ingredients organization to become leaner, more nimble, and competitive while increasing our ability to accelerate growth in our core markets. The ASI target also included reducing fixed costs by approximately 200 basis points to accelerate our achievement of our targeted 25% to 27% adjusted EBITDA margin target. In the quarter, Specialty Ingredients realized 150 basis point reduction in SG&A as a percent of sales. To be clear, the cost reduction program is delivering and will be completed on time in full. Putting this all together in the quarter, we increased revenue, improved gross profit margins, reduced SG&A, which resulted in a 7 percent improvement in adjusted ASI EBITDA, and that represents 120 basis point improvement in EBITDA margins. Now, if you assume constant currency, adjusted EBITDA growth would have been 9% for ASI on the quarter. For all of Ashland, adjusted EBITDA increased 8% to $100 million. SG&A for the company was down $9 million compared to the prior year. And adjusted EBITDA margins were also up 140 basis points year over year. And leveraging these earnings gain in combination with disciplined capital expenditure programs, we improved cash flow performance year over year. So in summary, the Ashland team delivered on its commitments in quarter one of fiscal year 19. And these gains have given us confidence to reaffirm adjusted EBITDA, adjusted EPS, and free cash flow target outlooks for fiscal year 19. As we head into Q2, we expect FX and demand in certain industrial markets to remain soft. But rather than focus on this, we are focused on executing on the levers we can control. More specifically, within specialty ingredients, we expect aggregate top-line gains to be rather limited in the quarter due to negative FX and continued softness in several of our industrial markets. But that said, to ensure we deliver on our targeted EBITDA dollar and margin growth objectives, we are committed to drive positive gross profit, margin, and dollar growth by continuing to drive substantial mix improvement through innovation and new product introductions, We also intend to reduce manufacturing costs resulting from our asset utilization program, and we also expect to benefit from continued price discipline in the context of a more favorable raw material pricing environment. Augmenting specialty ingredients gains, we expect Lima to return to year-over-year earnings growth in the corridor with our planned Q1 shutdown behind us, and of course, We expect lower SG&A as we drive cost reductions across the entire organization. In Q1, we achieved our targeted $50 million run rate. We expect that run rate to increase to nearly $70 million by the end of Q2. So combined as a company, Ashland remains on track for the guidance we provided at the end of December. As part of this, we are forecasting adjusted EPS in the range of 80 cents to 90 cents in Q2. In addition, it is important to note that we continue to make strong progress to stay on track for the planned sale of the composites business and the MARL BDO facility. So, in summary, we remain focused and confident on our ability to deliver our financial targets, the $120 million of cost reduction, and the planned sale of the Composites Business and Marl BBO Facility. And with that, I'll turn the call over to Kevin. Thank you.