Ashland Global Holdings Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended March 31, 2022. The registrant is Ashland Global Holdings Inc. Ashland is a global specialty additives and materials company. Following the February 28 sale of Performance Adhesives, continuing operations comprise Life Sciences, Personal Care, Specialty Additives, and Intermediates; prior periods were recast to exclude the divested business.
Key financial results
| Metric | Quarter ended Mar. 31, 2022 | Prior-year quarter | Six months ended Mar. 31, 2022 | Prior-year six months |
|---|---|---|---|---|
| Sales | $604 million | $509 million | $1,115 million | $977 million |
| Gross profit / gross margin | $220 million / 36.4% | $160 million / 31.4% | $380 million / 34.1% | $307 million / 31.4% |
| Operating income | $93 million | $48 million | $135 million | $66 million |
| Continuing-operations income | $38 million | $25 million | $70 million | $68 million |
| Diluted EPS from continuing operations | $0.66 | $0.40 | $1.20 | $1.10 |
| Adjusted EBITDA (non-GAAP) | $163 million | $116 million | $269 million | $218 million |
- Sales grew 19% for the quarter and 14% year to date. Pricing contributed $71 million and $96 million to the respective increases; volume/product mix and the Schülke acquisition also contributed, while currency was a headwind.
- Quarterly operating income improved across Personal Care, Specialty Additives, and Intermediates; Life Sciences also increased. Intermediates’ operating income rose to $27 million from $3 million, largely on higher pricing. Six-month Life Sciences operating income was flat at $64 million.
- Reported net income was $786 million for the quarter and $834 million for six months, heavily influenced by the $732 million after-tax gain on the Performance Adhesives sale. Discontinued operations contributed $748 million and $764 million, respectively; these headline totals are not representative of continuing operating earnings.
- Net interest and other expense was $43 million for the quarter and $49 million for six months, including restricted-investment losses. The effective tax rate was 34% for the quarter and 26% year to date, affected by jurisdictional income mix and discrete items.
Cash flow, debt, and liquidity
- Six-month operating cash flow from continuing operations was $31 million, versus $120 million a year earlier. Capital expenditures were $37 million, producing free cash flow of negative $6 million versus positive $67 million. Ashland reported ongoing free cash flow of $22 million and conversion of 8%, compared with $117 million and 54% a year earlier; working-capital growth, including inventory and receivables, was a key factor.
- Cash and cash equivalents were $964 million at March 31, 2022, up from $210 million at September 30, 2021. Total cash increased $754 million, principally reflecting sale proceeds; discontinued-operations investing cash flow included $1.65 billion.
- Total debt was $1.336 billion, down from $1.970 billion at September 30. Ashland prepaid $250 million of Term Loan A, repaid $365 million of short-term debt and reduced other borrowings. No long-term debt maturities were due within five years.
- Available liquidity was $1.656 billion, including cash, $581 million available under the revolving facility and $111 million under the foreign receivables facility. The U.S. receivables sales program had no remaining availability. An additional $423 million of restricted investments was held for asbestos and environmental obligations.
- Ashland reported covenant compliance, a 0.7 consolidated net leverage ratio against a 4.0 maximum, and a 9.0 interest coverage ratio against a 3.0 minimum. Credit ratings remained BB+ from S&P and Ba1 from Moody’s, both with stable outlooks.
Material changes, outlook, and risks
- The Performance Adhesives sale to Arkema closed February 28 for approximately $1.7 billion net of transaction costs. Proceeds funded debt reduction and share repurchases; management said remaining proceeds would support core-business growth and potential further balance-sheet optimization. Ashland expected roughly $320 million of cash tax payments related to the sale during the second half of fiscal 2022.
- The company repurchased $155 million of shares through March 31 under a $200 million agreement; the repurchase was completed April 8, totaling 2.15 million shares. Quarterly dividends were $0.30 per share, up from $0.275.
- Fiscal 2022 outlook was unchanged: sales of $2.25–$2.35 billion and adjusted EBITDA of $550–$570 million. Ashland did not provide a reconciliation of forward-looking adjusted EBITDA to GAAP net income, citing inability to predict certain items without unreasonable effort.
- Management cited inflation, raw-material and shipping costs, supply-chain and labor constraints, and a large backlog of orders it could not yet commit to supply. It said pricing actions supported cost recovery and described liquidity and operating cash needs as adequate. Russia, Ukraine, and Belarus represented less than 1% of sales and assets; Ashland reported no manufacturing operations in those countries. COVID-19 and the Russia-Ukraine conflict remained sources of uncertainty.
- Asbestos reserves were $301 million for Ashland-related claims and $207 million for Hercules, with related insurance receivables of $98 million and $46 million. Environmental remediation reserves were $192 million; the estimated upper end of the reasonably possible range was approximately $455 million. These estimates depend on uncertain future claims, remediation requirements, costs, and insurer recoveries.
- Management reported no material change in previously disclosed risk factors. Disclosure controls were deemed effective, but Schülke’s controls had not been fully evaluated as of March 31; Ashland noted that deficiencies could exist and remain unidentified.
Important facts for investors to verify
- How much of reported earnings and cash growth reflects the one-time Performance Adhesives disposal, and how sale-related taxes affect cash and capital allocation.
- Whether price increases continue to offset inflation and supply-chain costs, and whether backlog converts into sales without constraining volumes.
- Drivers of weak continuing-operations cash flow and the working-capital investment, including inventory and receivables trends.
- Assumptions, potential changes, and insurance recoverability behind asbestos and environmental reserves.
- Progress against the unchanged fiscal 2022 sales and adjusted EBITDA outlook, and completion of the Schülke internal-control assessment.