US Ashland Q2 net income drops 40% on softer demand, refinancing

24 April 2013 12:11  [Source: ICIS news]

LONDON (ICIS)--Ashland reported a 40% year-on-year drop in net income for its fiscal second quarter 2013, as a result of softer demand and debt refinancing costs, the US specialty chemicals company said on Wednesday.

The company’s net profit for the three months to the end of March 2013 was $53m (€41m) compared with $88m in the corresponding quarter last year, while sales were $1.97bn, a 5% drop on the $2.08bn recorded in the same quarter 2012.

Ashland CEO and chairman James O’Brien attributed the drop in net income to softer demand for many of its divisions, and expenses related to debt refinancing. The company estimates the combined cost of the termination of certain interest rate swaps and a charge related to accelerated debt issuance during the quarter at $66m.

"We faced a number of challenges in the second quarter, including economic weakness in several key regions, particularly Europe," said O'Brien. "Each of our four commercial units reported year-over-year declines in sales in the face of soft demand.”

“We also strengthened our capital structure by restructuring our debt to lock in attractive interest rates, extend our maturity schedule and put in place investment-grade covenants," he added.

Operating income during the quarter for the company’s specialty ingredients division fell 24% year on year to $87m, as a result of lower intermediates and solvents volumes, which accounted for the bulk of the decline. The division was also hit by weak pricing for its straight-guar inventory, which was written down to market value in the first quarter and sold at no margin in the second quarter.

Water technologies' operting income fell 57% to $10m during the quarter as a result of “continuing challenges” for the division’s industrial water business, which dragged down improved results for its paper business.

Operating income for thr performance materials unit was flat year on year during the quarter at $21m, as reduced elastomer demand as a result of weak North American replacement tyre sales was balanced out by an increase in adhesive and composites volumes.

Income for the consumer materials division, which includes lubricants, was up 39% to $79m as a result of improved demand in almost every segment of the business.

The company added that its three-year goal announced in 2011 to increase earnings before interest, taxes, depreciation and amortisation (EBITDA) to $1.7bn by 2014 is now unlikely to be met.

"We are now halfway through that three-year plan and the reality is that some of those expectations, particularly those related to growth in emerging markets, have not materialised,” said O’Brien.

($1 = €0.77)

By: Tom Brown
+44 208 652 3214

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