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» Ashland's CEO Discusses F2Q2012 Results - Earnings Call Transcript
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» Ashland Analyst Day Call Transcript
Please also note that during this presentation, we will be discussing adjusted and pro forma results. We believe these adjusted and pro forma results enhance understanding of our performance by more accurately reflecting our ongoing business.In addition, we are providing ISP's historical financial contribution, representing Ashland's best estimate of the appropriate cost allocation and shared resource costs. Reporting results in this manner has inherent limitations, and we do not represent that these financial results were calculated using the same methodology used by ISP. Please turn to Slide 3 for our third quarter highlights. Reporting earnings per share from continuing operations were $2 in the June 2012 quarter. When adjusted for key items, which I'll cover shortly, EPS was $2.04, as compared with $1 in the year ago quarter. Let me note that the $1 in the prior year does not include the results of ISP or the related financing costs. This is the only time this morning that we will present data in this manner. For the rest of the presentation and to aid in your analysis, we will present results on a pro forma basis, which includes the results of ISP in prior periods. While on a pro forma basis, sales declined slightly to $2.1 billion, Ashland achieved large increases in operating margin and EBITDA. Operating income as a percent of sales was 12.8% during the quarter, a roughly 400-basis-point increase over the prior year. EBITDA margins were up a similar amount to nearly 18% during the quarter. These improved margins were primarily driven by strong pricing discipline, with Specialty Ingredients, Ashland Performance Materials and Ashland Consumer Markets all generating significant year-over-year increases in profitability. We are making substantial progress toward our long-term financial goals, and this quarter's margin performance was slightly above the implied 2014 margin expectations that we set out last November.
Our adjusted EBITDA was $381 million, a 24% increase over the $307 million of pro forma adjusted EBITDA in the prior year quarter.Slide 4 details our key items. In total, 3 key items had a net unfavorable EPS impact on continuing operations of $0.04 in the June 2012 quarter. The first key item is a $2 million after-tax charge, or a negative $0.02 per share, related to the ISP integration and cost restructuring efforts we've previously described. We have continued to make progress toward our overall cost reduction goal, and you'll hear more about this from Lamar. The second key item is a $4 million after-tax charge, or a negative $0.06 per share, related to adjustments to environmental reserves during the quarter. This increase was associated with legacy sites unrelated to ongoing operations. The last key item is on the net gain or loss on acquisitions and divestitures line and amounts to a $3 million after-tax benefit, or a positive $0.04 per share. This benefit stems from the transfer of a portion of Ashland Water Technologies' middle-market commercial business to Rochester Midland. This business transfer was completed early in the quarter and allows Water Technologies to focus on higher-margin, higher-growth opportunities. In the year ago quarter, 2 key items combined for a net unfavorable impact on earnings of $0.06 per share. To aid in your analysis versus the peer group, Ashland's results included $29 million of intangible amortization expense during the June 2012 quarter. We carry higher-than-average amortization due to our corporate transformation and prior acquisitions. Without this amortization, earnings would be roughly $0.25 higher or $2.29 per share. Please turn to Slide 5 for Ashland's adjusted pro forma results. As a reminder, results are presented on a pro forma basis, including a full quarter of ISP in the June 2011 quarter. The year ago quarter also includes stepped-up depreciation and amortization related to purchase accounting.
As such, Ashland's June quarter sales decreased 2% over the prior year to $2.1 billion. This decrease was more than accounted for by currency translation, which had a $70 million negative effect on sales.Read the rest of this transcript for free on seekingalpha.com