A few years ago, motor oil and specialty chemicals
) made a decision to get out of slow-growth businesses and move
into areas that could produce better financial gains.
Those efforts continue to pay off for the company as evidenced
by its strong sales and profit growth over the past couple of
years and its upwardly mobile stock price.
In addition to motor oil and chemicals, Ashland supplies
plastics, water treatment solutions and other products through
four business segments: Ashland Specialty Ingredients, Ashland
Water Technologies, Ashland Performance Materials and Ashland
The company is probably best known as the maker of Valvoline
Motor Oil and operator of Valvoline Instant Oil Change quick-lube
franchises. Its history dates back nearly 90 years when it was
founded as an oil refiner.
Ashland has spent much of the last few years diversifying into
higher-growth specialty chemical and polymer businesses and
divesting businesses tied to petroleum refining, coal mining and
"Ashland is a more focused company than before," noted Stephen
O'Neil, an analyst at Hilliard Lyons. "Management may now
concentrate on the core specialty chemical operations."
The company used buyouts to expand its presence in specialty
chemicals. Last year, it spent $3.2 billion to acquire
International Specialty Products, or ISP, which put Ashland into
personal care products, pharmaceuticals, food and energy.
In 2008, Ashland spent $2.8 billion to buy Hercules, a
supplier of specialty chemicals used to make paper and water
Meanwhile, the company's divestitures include last year's sale
of its low-margin chemical distribution unit for $979
Ashland now operates in higher-margin segments and across a
wider geographic footprint, O'Neil says. Before its Hercules
buyout, Ashland only got 30% of its revenue from outside of North
America and only 5% from Asian markets. Since the Hercules
acquisition, those figures have risen to 47% and 13%,
"And the addition of ISP increases the percentage of
international sales," O'Neil said.
The upshot is that Ashland has recorded two straight years of
double-digit sales and earnings growth, the first time that's
happened in at least a decade.
Meanwhile, the company's stock price has been trending higher
for 3-1/2 years. Shares set an all-time high of 78.62 on Dec. 12
Ashland logged revenue of $8.2 billion in fiscal 2012, which
ended in September. That was up 26% from the prior year. Earnings
gained 85% to $6.63 a share.
The company plans to maintain its momentum by rolling out new
"New products are critical to our long-term success. For
fiscal 2012, they represented 21% of overall sales," John
Panichella, president of Ashland Specialty Ingredients, said on a
fiscal fourth-quarter conference call with analysts.
He cited Ashland's new Natrosol Performax technology, which is
sold into the coatings industry. The product is designed to
enable a faster, more flexible production process.
"Initial customer response has been strong, and we expect this
to become a flagship product for the future," Panichella
Ashland logged fiscal fourth-quarter earnings of $1.87 a
share, up 85% from the prior year and above Wall Street estimates
for $1.76. Revenue gained 11% to $2.06 billion, in line with
The Specialty Chemicals segment, which includes the ISP
business, was the main growth driver during the quarter. It
delivered Q4 revenue of $734 million, up 57% from the prior year.
The segment benefited from strong sales to the construction
industry and oil and gas markets.
Ashland's Valvoline business contributed the second-highest
revenue during the quarter, at $522 million. That was up 1% from
a year earlier.
In a recent report, JPMorgan analyst Jeffrey Zekauskas said
Valvoline "is shaping up to be a bright spot in fiscal 2013." He
raised his full-year operating income projection for the segment
to $296 million from an earlier projection of $269 million. That
compares with $237 million in fiscal 2012.
"(Valvoline) should benefit from the recent decline in base
oil prices while holding up to product pricing," Zekauskas noted.
"We project the segment's gross margin to widen to 30.5% in Q1
2013" vs. an average of 27.1% in fiscal 2012.
Growth in the Specialty Chemicals and Valvoline segments
helped offset lower Q4 revenue from Ashland's Performance
Materials and Water Technologies businesses.
Resins And Gelcoats
Products in the Performance Materials segment include
polyester resins and gelcoats used to make reinforced plastics
for the construction, automotive and marine industries. The
business also supplies adhesives used for packaging, structural
applications roofing, and fiberglass reinforced plastic.
Fourth-quarter segment sales fell slightly to $369 million.
"Volumes have been affected by weakness in the domestic
housing and automotive industries, but these industries have been
performing better recently with strong North American results,"
Fourth-quarter sales in the Water Technologies business
declined 12% from the prior year to $431 million. In this
segment, Ashland provides water treatment chemicals used in
manufacturing and food processing industries. It also supplies
treatment chemicals for the utility industry and other
The Water Technologies segment has been hurt by weakness in
printing and industrial markets.
"While the business has stabilized at the sales and gross
profit line, the loss of volume has continued to eat into
profits," Panichella said on the conference call. "The market
potential here is significant, but we must improve our sales
efficiency and overall execution to meet our financial