Ashland Global Earnings Call: Margins Hold Amid Disruptions

Ashland Global Holdings, Inc. ((ASH)) has held its Q1 earnings call. Read on for the main highlights of the call.

Ashland Global Balances Operational Setbacks With Solid Cash and Margin Gains

Ashland Global Holdings’ latest earnings call struck a cautiously optimistic tone as management highlighted strong cash generation, resilient margins, and standout performance in Life Sciences against a backdrop of operational disruptions, weaker demand in certain regions and end markets, and modest pricing pressure. While short-term headwinds from the Calvert City outage, weather issues, and softer coatings demand in China weighed on results, executives emphasized cost actions, structural improvements, and innovation as key drivers that support maintaining full-year EBITDA guidance and a second-half recovery.

Robust Cash Generation and Strong Liquidity Cushion

Ashland underscored its solid financial footing, reporting $125 million in operating cash flow and $26 million in free cash flow in what is typically a seasonally weak first quarter. Free cash flow conversion approached 50%, a notable output given the sales decline. The company ended the quarter with approximately $900 million of total liquidity and net debt of $1.1 billion, translating to net leverage of 2.7x. This balance sheet strength provides flexibility to weather near-term disruptions, invest in innovation, and continue executing its transformation and cost-savings programs while maintaining financial resilience.

Life Sciences Drives Growth and Margin Expansion

Life Sciences was the clear standout segment, with sales rising 4% year over year to $139 million and adjusted EBITDA increasing 11% to $31 million. Segment margins expanded 140 basis points to 22.3%, powered by resilient pharmaceutical demand, strong injectables growth, and double-digit gains in tablet coatings. Newer offerings such as low-nitride and high-purity excipients also contributed, reinforcing Ashland’s strategy of leaning into higher-value, regulated pharma applications. This business provided a stable and growing profit base that offset weakness in more cyclical areas.

Specialty Additives Margin Recovery Despite Volume Weakness

While Specialty Additives revenue declined 11% year over year to $102 million, the segment delivered a 15% increase in adjusted EBITDA to $15 million, with margins expanding 340 basis points to 14.7%. The margin recovery was driven by cost efficiencies, including consolidation of the hydroxyethylcellulose (HCC) network, and broader productivity improvements. This performance illustrates how Ashland’s structural actions are cushioning profits even when volumes fall, particularly in coatings and construction markets where demand has been under pressure.

Innovation and Globalize Programs Gain Momentum

Ashland’s innovation and Globalize initiatives showed encouraging early traction. The company delivered $6 million of incremental innovation sales toward a $15 million full-year goal and $3 million of incremental Globalize sales toward a $20 million target, with Globalize business lines up 8% year-to-date. New product contributions included around $5 million in Specialty Additives and multiple launches in Life Sciences and Personal Care, such as TVO platforms, low-nitride cellulosics, Colipepto, and Lubrihands. Management framed these programs as key engines for mix improvement and higher-margin growth, helping offset cyclical end-market softness.

Cost-Savings and Productivity Programs on Track

Ashland reiterated that its structural portfolio and manufacturing optimization efforts are progressing as planned and driving margin and mix improvements. The company remains on track to deliver about $30 million of cost savings by fiscal 2026 as part of a broader $50–55 million manufacturing and network savings program, with potential upside to $60 million. A separate $90 million transformation initiative is also advancing, with $25 million already realized in fiscal 2025 and a further $30 million committed for fiscal 2026. These programs are central to Ashland’s strategy to lift profitability regardless of the timing of volume recovery.

Adjusted Operating Income Rises Despite Top-Line Pressure

Adjusted operating income increased 27% year over year, even as sales fell, supported by lower depreciation and amortization stemming from prior optimization actions and underlying business stability. This improvement highlights the impact of Ashland’s portfolio reshaping, asset rationalization, and disciplined cost control. While adjusted EPS excluding intangible amortization declined 7% to $0.26 due to operational disruptions and weaker pricing, the operating income trajectory suggests that underlying earnings power is improving once temporary factors subside.

Personal Care Holds Steady With High-Value Pockets of Growth

Personal Care results were mixed but fundamentally stable. Reported sales declined 8% to $123 million, largely due to the roughly 7% impact from the Evoqua divestiture. Excluding that portfolio change, organic sales slipped just 1%. Within the segment, higher-value areas performed well: biofunctional actives grew at a double-digit pace, and microbial protection gained market share with above-market volume growth. However, unplanned multi-week customer plant outages in North America temporarily reduced volumes in the quarter, with management expecting recovery as those customers ramp back up through the balance of the year.

Headline Sales Decline and Pricing Pressure

Overall, Ashland’s Q1 sales were $386 million, down 5% year over year. Adjusting for the Evoqua divestiture, sales declined about 3%, reflecting mixed end-market demand and modest pricing pressure. Overall pricing decreased approximately 2% versus the prior year, largely due to carryover adjustments rather than aggressive discounting. While the revenue pressure weighed on headline results, management pointed to solid margins and cash flow as evidence that the business model is holding up despite weaker volumes in certain geographies and sectors.

Calvert City Outage and Weather-Related Disruptions

A key overhang this quarter came from the Calvert City facility, where an outage led to an anticipated ~$10 million hit to adjusted EBITDA in Q1. Start-up challenges have pushed some of the impact into Q2, and recent weather issues compounded the disruption. Ashland now expects about $11 million of temporary headwinds in Q2 from the extended start-up and weather, with two-thirds of the volume impact only recoverable starting in Q3 and partially into Q4. Management stressed that these issues are operational and temporary rather than structural, but they do delay the timing of full earnings recovery.

Intermediates Under Pressure From Pricing and Upstream Impacts

The Intermediates segment experienced a sharp profitability drop despite a modest 6% sales decline to $31 million. Adjusted EBITDA fell to $1 million from $6 million a year ago, with margins compressing from 18.2% to 3.2%. The deterioration was driven by lower pricing in BDO derivatives, reduced operating leverage on lower volumes, and approximately $2 million of upstream impacts linked to Calvert City. This segment remains a pain point, and its volatility underscores Ashland’s push to orient the portfolio more toward higher-margin, less cyclical specialty applications.

Specialty Additives Volume Weakness in China and Export Markets

Within Specialty Additives, the sales decline was tied largely to softness in coatings demand, particularly in China and select export markets such as the Middle East, Africa, and India. Construction-related volumes were also weaker, reflecting broader macroeconomic headwinds and heightened competition. While cost actions helped protect margins, the volume slippage in these geographies highlights the ongoing challenges facing global coatings and construction supply chains and dampens near-term visibility for a strong rebound.

EBITDA and EPS Pressured by Disruptions

Reported adjusted EBITDA for the quarter was $58 million, down 5% year over year, although excluding the Evoqua divestiture EBITDA actually increased. The headline decline was driven by operational disruptions, notably at Calvert City, and by softer pricing and volumes. Adjusted EPS excluding amortization fell 7% to $0.26, reflecting the same pressures. Management’s focus on margin improvement, cost savings, and innovation is intended to rebuild earnings power as these temporary issues normalize and demand gradually improves.

Seasonal and Macro Uncertainty Clouds Recovery Timing

Ashland signaled that the timing of a full recovery remains uncertain, especially in coatings and seasonal products. Coatings demand is expected to recover only gradually and unevenly across regions, with typical seasonal uplift between April and September. However, visibility into the recovery of hydroxyethylcellulose (HEC) and other seasonal categories remains limited until closer to March, making it harder to predict when lost plant absorption and volumes will be fully restored. Management is planning for a second-half weighting of results but acknowledged that macro conditions and customer ordering patterns could influence the pace.

Guidance: Narrowed EBITDA Range and Second-Half Weighting

Ashland narrowed its fiscal 2026 adjusted EBITDA guidance to a range of $400 million to $420 million, reaffirming confidence in its cost-savings and growth initiatives despite near-term disruptions. The outlook assumes stable-to-favorable raw material costs and explicitly incorporates about $11 million of temporary Q2 impacts from the Calvert City start-up delay and recent weather, on top of the ~$10 million EBITDA impact already absorbed in Q1. Management reiterated a roughly $30 million FY26 cost-savings target within a broader $50–55 million network savings program (with potential upside to $60 million) and maintained a combined $35 million revenue commitment from the Innovate and Globalize programs, which have so far delivered $6 million and $3 million respectively. Off a Q1 baseline of $386 million sales, $58 million adjusted EBITDA and a 15% adjusted EBITDA margin, the company is clearly signaling a second-half weighted recovery as Calvert issues resolve and cost and growth initiatives gain further traction.

Ashland’s earnings call painted the picture of a specialty chemicals company navigating near-term operational and demand challenges with a strong balance sheet, improving margins, and targeted growth investments. Life Sciences and key Personal Care niches are delivering solid growth, while cost actions and innovation are helping offset softness in coatings, Intermediates, and select geographic markets. With guidance intact and a clear path to additional savings and mix upgrades, investors will now watch whether the promised second-half recovery materializes as the Calvert City disruptions fade and seasonal demand returns.