Quarterly sales were up but so were costs, pushing down Ashland Inc.'s third-quarter earnings.
For the quarter that ended June 30, Ashland reported net income of $87 million or $1.09 a share, compared with net income of $148 million or $1.85 a share for the same period last year. Earnings per share from continuing operations were 86 cents, compared with $1.46 for the same quarter last year. Cash flow from continuing operations also fell, to $12 million, from $96 million last year.
"Our June quarter results were significantly affected by steep raw-material cost increases," said Ashland chairman and CEO James J. O'Brien. "Across our commercial units, raw material costs increased nearly $60 million sequentially — roughly double the average increase in the prior three quarters. Still, the June quarter was one of our strongest for pricing, as we essentially offset all of these increased costs sequentially.
"While we've been generally successful in recovering our raw material costs on a dollar basis, we have yet to recover margins, and as a result, gross profit as a percent of sales has declined."
O'Brien said raw material costs would continue to be challenging.
"Our overall goal has been to return maximum value to shareholders through a mix of options," he said. "The June quarter was a good example of delivering on this goal. We purchased 1.2 million shares of Ashland stock; increased the annual dividend by 17 percent; and most important, we announced the pending acquisition of International Specialty Products, and we have negotiated a very attractive financing package to support this transaction.
"This acquisition will more than double the size of our Functional Ingredients business, deepening relationships with existing customers and enhancing penetration of existing markets. In particular, it will significantly expand our position in higher-margin, higher-growth end markets such as personal care and pharmaceutical.
"Greater participation in these stable, less-cyclical end markets should help lead to more consistent, predictable earnings and cash-flow generation for Ashland. Overall, this defining transaction for Ashland creates a global technology and market-focused leader in specialty chemicals, with the ability to create significant shareholder value."