Ashland Inc.

Good day, ladies and gentlemen, and welcome to the Ashland Global Holdings Inc. Third Quarter Earnings Call. At this time, all participants are on a listen-only mode. Later, we conduct a question-and-answer session. Instructions will follow at that time. If anyone should require operator assistance, please press the star and the zero key on your touch-tone telephone. As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Seth Morozek, Director of Investor Relations at Ashland, so 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 Morozek, Director, Ashland Investor Relations. Joining me on the call today are Bill Wolfson, 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 30th, 2019, shortly after 5 p.m. Eastern Time yesterday, July 30th. Additionally, we posted slides to our website, Ashland.com, under the investor relations section and have furnished each of these documents to the SEC in a Form 8K. 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 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 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 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. 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-Gantres oral care reformulation. Now, more recently, and like 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. and Europe, and also new tariffs for materials exported out of China. The 25% tariffs impacted the competitiveness of certain sunscreen and other products we export into the US. New China 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 ASI's 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 SG&A spend by 9% on an FX neutral basis, and we have also reduced plant fixed costs by consolidating our production footprint and by improving reliability and reducing costs with the implementation of Ashland's 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 2019 results to date. As we take a very early look at fiscal year 2020, 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 reformulation. And while difficult to predict in terms of exact timing, we believe current market weakness is short-term in nature. More importantly, we are 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, reformulating 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 face 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 Ashland to ultimately grow its 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% ASI EBITDA margin targets. through a combination of pricing actions, mix improvement, volume leverage, and additional cost productivity initiatives. Thirdly, we remain on track to close the composites and marl business sale late this summer, as anticipated. Following continued discussions with the FTC, we announced an agreement with INEOS to exclude the malac and hydride business from the sale. The purchase price will be adjusted to $1 billion, $15 million, and Ashland will retain all rights to the Malay business, including the retention of any subsequent sale proceeds. The Malay business consists of one facility in Neal, West Virginia, and generates annual revenues of approximately $75 million. We continue to work with INEOS 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 terms. So in summary, We have 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.