Thank you, Bella. Good morning everyone, and welcome to Ashland's Second Quarter Fiscal 2019 Earnings Conference Call and Webcast.

My name is Seth Mrozek, Director of Ashland Investor Relations. Joining me on the call today are Bill Wulfsohn, Ashland's Chairman and Chief Executive Officer; and Kevin Willis, Senior Vice President and Chief Financial Officer.

We released preliminary results for the quarter ended March 31, 2019 shortly after 5:00 p.m. Eastern Time yesterday April 30.

Additionally, we posted slides to our website ashland.com under the Investor Relations section and have furnished each of these documents to the SEC in a Form 8-K. As a reminder, during today's call, we will be making forward-looking statements on a number of matters including our financial guidance for fiscal 2019.

These forward-looking statements are subject to risks and uncertainties that could cause future results or events to differ materially from today's projections. We believe any such statements are based on reasonable assumptions, but cannot assure that such expectations will be achieved.

Please refer to yesterday's slide presentation for a fuller explanation of those risks and uncertainties and the limits applicable to forward-looking statements. Please also note that we will be referring to certain actual and projected financial metrics of Ashland on an adjusted basis, which are non-GAAP financial measures.

We will refer to these measures as adjusted and present them in order to supplement your understanding and assessment of the financial performance of our ongoing business. Non-GAAP measures should not be considered a substitute for or superior to financial measures calculated in accordance with GAAP.

The most directly comparable GAAP measures as well as reconciliations of the non-GAAP measures to those GAAP measures are available on our website and in the appendix of yesterday's slide presentation. With that, I will turn the call over to Bill.

Good morning everyone. There has been a lot happening this quarter, both internally and externally, so I'm going to make my comments brief and that will allow us to get to your questions quickly.

In a moment, I'll discuss the solid progress we have made on very important operating initiatives, but before I do, it's important to profile three external factors which worked against us in the quarter. The first is the continuing strengthening of the U.S.

dollar, which negatively impacted ASI revenue by over $25 million and EBITDA by $9 million on a year-to-date basis of which $18 million of revenue and $6 million of EBITDA was in Q2. The second is end-market demand.

Emerging in Q2, we experienced relatively flat demand in coatings, adhesives and performance specialties, which is consistent with the performance of our customers and peers, but below our expectations. And third is the continuing raw material inflation we are experiencing.

Given the lag time between oil price changes and changes to the cost of goods sold, ASI has experienced on a year-to-date basis over $12 million of raw material inflation $5 million of which was in Q2. In this context, the team did some great work in areas that we could control.

From a revenue perspective, the team made solid gains in the important areas to offset weak demand in the end markets I just referenced. Please note that as I speak to our sales in my following comments, I'm referring to sales on a constant currency basis and excluding the impact of the Colgate oral care reformulation.

With that said, I would like to highlight that for the quarter on a year-over-year basis, the personal care team increased revenue by approximately 5% based upon solid HEC gains throughout the entire portfolio. The pharma team grew sales by 2% versus a very difficult year-over-year comp.

As you will recall in Q2 of our last fiscal year, the pharma business sales grew by 17%, as we brought new cellulosics capacity online. To grow year-over-year in this context was a strong achievement by the team.

But the coatings team drove share gains in Latin America and the rest of Asia to offset demand weakness in the U.S. and Europe.

And finally, the remainder of the ASI team drove solid gains in nutrition, energy and construction. Also of note from a regional perspective, the team achieved mid- to high single-digit sales growth in all regions outside of North America with China leading the way by achieving double-digit year-over-year growth.

Putting this all together, overall volume and mix was negative in the quarter. We had gains in less profitable end markets and that did not fully offset weaker-than-expected growth in the coatings, adhesives and performance specialty end markets.

Also note that given the certainty in these important markets, we also lowered finished goods inventory which had a negative impact on our year-over-year absorption. Now to offset these challenges, the team once again drove price increases above raw material inflation, kept total manufacturing costs below prior year and substantially reduced SG&A.

Importantly, relating to our $120 million cost-reduction program, we hit our Q2 target and are now on a run-rate basis over $70 million. These reductions contributed substantially to the $18 million SG&A reduction versus prior year in the quarter.

When you consider that roughly $20 million of overheard will transfer with the sale of the Composites and Marl businesses, we are on a run rate basis over 70% of the way through implementation of our $120 million cost reduction program. So adding this all up, to be clear, I am not happy that we came in below our expectations for the quarter.

That said I do feel good that the team drove incremental revenue gains to keep our assets better utilized, albeit with a lower-profit mix that the team priced over inflation and significantly lowered SG&A. By focusing on what we control in a very difficult context, we enabled ASI to weather the storm far better than we would have just two or three years ago prior to establishing our current strategy.

Looking forward, we've adjusted our outlook to reflect our Q2 results, along with expectations that the dollar will remain strong and demand weakness will last at least through the current quarter in the markets I have previously referenced. I want to emphasize the team is working multiple cost and sales actions to achieve the best results possible in this context.

Switching gears, given our confidence in our business strategy, we believe our stock is a solid investment and as such, we announced yesterday our intention to commence a $200 million share repurchase program to begin in early May. To be clear, as we take this action, we remain committed to achieving our previously communicated leverage target of approximately two times gross debt-to-adjusted EBITDA.

Taken into account, our cash on hand, strong upcoming cash generation and our confidence in the impending sale of the Composites and Marl businesses, we expect to finish fiscal year 2019 close to our targeted debt level. Before I turn the call over to Kevin, I'd like to reflect on some important and recent changes made to the Ashland Board.

Earlier this calendar year, we welcome Craig Rogerson to our Board. In addition, consistent with the path forward that we outlined in January, just Monday, we announced additional changes.

As anticipated, Michael Ward will retire from the Ashland Board at our main meeting and I would like to thank Michael for his 18 years of outstanding service. To fill his seat, in consultation with Neuberger Berman and other shareholders, we have elected Guillermo Novo to join the Ashland Board and we're excited to have Guillermo join given his extensive leadership experience in the industry.

I'll now turn the call over to Kevin.

Thank you, Bill, and good morning, everyone. First, let's start with Ashland's results in the second quarter.

Sales in the quarter were $667 million, down 1% from the year-ago period, including negative three points from unfavorable currency. Adjusted EBITDA in the quarter was $142 million, up 3% year-over-year and including a negative $6 million foreign currency impact.

The U.S. dollar was significantly stronger versus the prior year.

The negative currency impact was led by the euro, which was $0.10 lower than the prior period and there was also impact from currencies in emerging regions. In the quarter, we reported U.S.

GAAP income from continuing operations of $45 million or $0.71 per diluted share. On an adjusted basis, we reported income from continuing operations of $0.83 per diluted share, compared to $0.67 in the prior period.

This compares to our outlook that we provided in early February of $0.80 to $0.90 per share. Our effective tax rate in the quarter was 6% well below our expectation of 15%, due largely to several favorable discrete tax items.

You'll recall that results from continuing operations, include earnings from our Specialty Ingredients segment, plus our BDO facility in Lima, Ohio since Composites and Marl are now being reported as discontinued operations. Free cash flow during the quarter was negative $22 million, compared to negative $3 million in the prior year.

These amounts include $15 million in restructuring costs in the second quarter of fiscal 2019 and $6 million of restructuring in the year ago period. As you will recall, we generate the majority of our free cash flow in the second half of the fiscal year.

We currently expect free cash flow in the range of $165 million to $175 million this year, inclusive of an estimated $40 million of separation and restructuring related costs. Now for an update on the divestiture of Composites and the Marl BDO facility.

As we announced in November, we signed a definitive agreement with INEOS Enterprises to sell the business for $1.1 billion. We continue working closely with INEOS to close the transaction and preparations for the divestiture remain on track.

We continue to await regulatory approvals. Based on where we are right now, we expect to close the transaction by late summer.

We continue to expect to use the net proceeds, roughly $1 billion, for debt reduction following the close of the transaction, in support of our commitment to reduce our leverage to about 2.5 turns. Turning to Specialty Ingredients.

As you may have heard, a large ethylene oxide supplier has been down and declared force majeure. Just to provide some perspective, this impacts only one of our cellulosics facilities.

This plant has been down for about a week and we expect it to be down for several more. Our current estimate of the impact during the quarter is between $1 million and $3 million.

As Bill mentioned, we have revised our financial outlook for fiscal 2019. We will continue to update these ranges during the second half of this fiscal year.

During the March quarter, we saw pressure on earnings from weakened demand in several key end markets, as well as continue the U.S. dollar strengthening versus the euro and several emerging market currencies.

While we are taking actions internally to offset these items, we believe they will persist through at least the current quarter and potentially into our Q4. Our new forecast presumes the current environment continues through the end of the fiscal year.

If we see an improvement in the second half, we could potentially hit the high end of our revised EBITDA range. Otherwise, we believe the middle of the range is an appropriate expectation for the business.

While we are certainly not satisfied with this level of performance, as Bill indicated, it would represent approximately 4% growth over prior year for Specialty Ingredients and around 7% adjusted for currency. Last night we also announced our intention to commence a $200 million share repurchase program under our existing $1 billion share repurchase authorization.

We believe Ashland shares remain significantly undervalued, especially based on the actions we have taken to improve the portfolio and our Specialty Ingredients operations. We intend to use cash on hand, plus free cash flow generated by the business to fund this repurchase.

I think it's important to re-emphasize that this in no way impacts our commitment toward reducing leverage to about 2.5 turns following the closing of the Composites-Marl divestiture. Now I'll turn the call back over to the operator and we'll take your questions.

Thank you.

Great. Good morning, Chris.

Thank you. So on the personal – good morning.

How are you? On the personal care side, can you comment on the materiality of the skin care's growth during the quarter and even more importantly in the next few fiscal years?

Obviously, your customers have been lashing on to this, but just how integral are you to their various processes, given the growth that they're showing? So I'm just trying to get a sense of personal care growth and the profile now, versus well into the future.

Thank you.

Yes. Skin care is a very important part of our Personal Care business and it's actually an area where we've had significant growth with our biofunctionals business, really finding sustainable solutions to help enable our customers.

So we've seen growth over the last year. We expect to see more growth as we go forward.

This all happened, I was in China, meeting with one of our major customers Ajala [ph] and they are growing rapidly and we're a major supplier to them. So we are looking to really continue to focus on sustainable solutions.

We believe that's going to help us to grow that portion of the business.

Got it. And just turning quickly to pharma.

You had pretty decent result on, I'd say, fairly healthy comp. I know you're still poising to grow in the mid-single digit growth range on an annualized basis.

But can you just add just a little -- give us a little more color or comment on any upside optionality you see there? Just, I know, you're obviously no longer capacity constrained.

But just given the industry's healthy volume growth, especially in Asia, are there any other actions you can take to kind of further drive momentum here? Thank you.

Sure. Certainly, I would say that the additional capacity we've brought on in the cellulosics area has enabled us not only to have continued growth, but we've seen increased customer interest in that product line area with the understanding that we now can more effectively supply them, and I would say that's on a global basis.

So we put out a few press releases over the last three, four months. We continue to drive actually innovation by providing new variants of the product.

We are -- and have established local development capabilities. So in places like India and China, we can work with the local often generic manufacturers.

Once again, I had the opportunity to meet with one while I was in China for dinner a couple of weeks ago, and they're very bullish on the market and where that takes us. And I really do think that our products do enable solutions for our customers, whether it be the disintegration properties or the size of the tablets, other aspects.

And by blending together, some of our existing technologies changing the particle size, distribution, working with customers on solutions, I think that's what's going to continue to drive our growth in pharma. And on the subject of Klucel, while it certainly isn't related to pharma, we're seeing that that material has properties that can be used in other markets and we're really just beginning to explore that at this time.

In the past that would've been out of the question, because we needed every pound we had to supply the pharma customers, but it has applications in multiple markets. There is marine paint that's been introduced with Klucel as part of its formula.

So anyway we feel very good about the team that we have, the footprint that we have, the products that we have, and that's what gives us confidence that we can continue to grow our pharma business.

And Chris I would also say that within the nutraceuticals space, we're also seeing more uptake from our excipient packages relative to that as well. So as we continue to see growth in nutraceuticals both in the U.S.

and globally, we should also see some improvement from an overall excipient growth perspective through that particular end market as well.

Thank you very much.

You’re welcome.

Yes, thanks for taking my question. Good morning.

Good morning. So the fiscal 2Q obviously was maybe a little bit on the light side, but the guide seems a little bit worse than I guess what we would have expected.

And so I guess, especially when you consider some of the cost cuts rolling through so, what are the end markets or what are the business lines that you're most concerned with at this point to guide kind of us conservatively as you have been? What sequentially gets worse and how should we think about that?

Yes. I think, well, first of all, when you look at the change in the guidance, it’s represents Q2 results actually and a continuation of what we saw in Q2 adhesives and coatings.

It's possible that we'll see an uptick in demand and that would be great. As Kevin said that would help to push us up in the range.

Clearly, if there was any weakening of the dollar that would help as well. But we didn't want to just assume that there would be a demand recovery, when it's affected us in Q2 and we're not seeing yet a significant recovery in those areas.

I mean -- and as I say that, I mean, I would like to point out a couple of things, because I think it's important. And again, I'm going to emphasize, I'm not happy with the results and the changing of the guidance, so I don't want to give out that impression.

I mean, we're still talking about being flat to up in those markets and I think that's important. And we're also in spite of these changes, whether it be with currency and raw material, some of the market weakness, I mean, our guidance has us growing in terms of sales, earnings and margin.

So yes, we have to, and we need to, and we will do better, but we basically extrapolated what we saw in Q2 and assumed that it would continue as we go forward. And I think as you have followed our coatings customers, especially the ones in North America, I think you've heard that there is some caution in terms of what they are expecting for the spring coatings season.

That's why we're putting a lot of our energy into places like the rest of Asia, India so forth to try to drive additional volume to help us to make sure that, okay, we balanced out what otherwise might be a contraction in that area.

Got it. And then just, I guess, maybe a little bit of clarity on the cost cutting opportunities.

When you think about the run rate that you're at, like how should we be thinking about the sequential benefit from 2Q to 3Q as far as the cost cuts rolling in?

Yes, John, we should continue to see the cost structure improve within this quarter and the next. We'll still have a bit to go by that time we get to the end of the fiscal year, so that in our Q1 of our fiscal 2020 or the December quarter, we'll see the final amounts roll through.

But we're very much on track to a little bit ahead of schedule on that. I will say that as we talk about run rates, it's pretty typical, again, not 100% of the time, but pretty typical for a lot of these amounts that we get to come at the end of the month or at the end of the quarter.

And so the flow-through tends to be more impactful in the following quarter. So if we were at $50 million a quarter ago we're at $70 million now.

You'll really start to see the full impact of that extra $20 million start to flow through in the next quarter. And so that's kind of the way to think about it from a staging perspective in terms of the overall impact on SG&A.

Got it. Very helpful.

Thanks very much.

Thank you. Good morning.

Good morning.

Bill and Kevin what was the impact of the reduced plant absorption in the quarter?

Yes. So it was -- I mean I'm going to be directional here.

It was in the kind of like the $5 million to $7 million range. So, I mean, it was significant enough that we're mentioning it.

We're not trying to come up with a laundry list here but it was significant enough. We thought it was appropriate given some of the things we've seen in the market.

And that also potentially gives us the opportunity if we see market recovery to drive our operations to recover that but that's roughly yes.

Sequentially we took inventories down about $20 million. And directionally Bill's number of around $5 million to $7 million for absorption is correct.

Yes, mix -- really the other piece of the earnings compression was related to overall mix as we've talked about.

That's very helpful. And Kevin just what was actually pricing in ASI in the quarter?

We were actually a couple of million dollars ahead of raws in the quarter on an overall basis which is very encouraging. As you know we've -- it's taken a lot of time for us to climb that curve as we, particularly, over the last couple of years have seen a fair bit of raw material cost inflation.

And I'd say for the last several quarters the team has done an excellent job of not only catching up but really trying to recover some of that margin compression that we've seen in the past. So we're very encouraged by that.

Thank you.

Hey, guys. In terms of the -- you obviously need a better second half in EBITDA growth.

Can you maybe walk us through by product meaning is it mostly in cellulosics or PVP or Pharmachem that really needs to recover in the second half to hit your outlook?

Yes. Well, I mean, all the markets matter.

What I referenced before was that we've adjusted our outlook because of the Q2 results but really with perspective and the reflection that the adhesives coatings and performance specialties would remain soft at least for a good part of the year. And I think that's what a number of people are estimating is that by the second half of the year you'll begin to see these markets recover.

But those are the areas. I mean we continue to grow the Pharmachem business.

We have a strategy, which I know you're aware of which is that while we'd love to sell as much products as we can into the pharma, personal care, coatings, adhesives markets and so forth, when those businesses are a little bit slower we try to leverage our available capacity in cellulosics for example to sell into the construction and energy marketplace, which allows us to keep our facilities running efficiently. So it's not so much of a watch out on those segments.

It's really -- not segments but end markets. It's really in the areas that we've already identified.

And Mike if you look at our second half and the guidance that we're providing around that what we're presuming is those end markets like coatings adhesives and performance specialties they'll return to normalized growth rates but probably somewhere around half that for the second half to the extent that that those end markets end up doing better. There is upside, as I indicated in my remarks, to potentially get to the high end of the range, but it would require more of a demand recovery than we're currently forecasting, which is why we're guiding more towards the middle at the stage of the game.

Right. Okay.

And then when you think about 2020, which I know you don't deliberately give specific guidance but we're not too far away for you given your fiscal year. Can you maybe walk us through what will drive EBITDA growth next year?

You've got some cost savings. What the leverage would be if organic growth comes back to a more normalized state?

And maybe any other areas that help you drive growth in 2020?

Yes. So you did a good job as you outlined the question there really with the answer.

And I mean when you look at a couple of factors, we're seeing that raw material prices -- inflation is abating. We thought that might go down a little further given the oil drop but it's kind of come back up but at the similar level.

The currency really becomes from a year-over-year comparison unless the dollar changes again a non-issue as you get into the first quarter of next year. We've had this Colgate dynamic which will play out for the most part by the end of the fiscal year.

There may be just a little bit of a hang-on over on that but essentially we will have lapped that. And we put the price in place.

So when you put that together I mean we're seeing growth in the personal care market that's consistent with our growth rate, if you will, excluding the currency and the Colgate impact. So we would expect that that would continue, Biofunctionals, some of these very good solutions that we're providing the marketplace.

Adhesives has been a consistent grower and we would expect it to continue to grow. Coatings we'd be growing with the coatings market.

So we don't see a fundamental disruption or change in the market. Again, I'm kind of leaving the Colgate reformulation aside on that one.

And so we think we'll be lapping those. We'll have significant SG&A cost-reduction carryover from the programs that we've put in place based upon the timing.

We've been able to price above raw material inflation as we've experienced today. So we remain bullish on our strategy and bullish on where the business goes.

I'm not here to deliver excuses because like I said, I'm not pleased. It's our job to work different levers to get the right results.

We've really had a Trifecta as it's come in in terms of the things that have challenged us. And the one thing I do feel good about in that context is, we're still driving improvements in the business based upon other aspects of our strategy and we're going to continue to do those, whether that's the operations focus, the SG&A, the pricing.

So that's what gives us confidence that we can return to what we would consider a more normalized growth rate of sales and earnings as we get into fiscal year 2020.

Yes. I think I'll -- and all things being equal basis, we'd expect the business to organically generate mid single digit EBITDA growth on a stand-alone basis.

And you layer in the impact of carryover cost-out. That's going to get you several more percentage points.

So I think again, all things being equal, it wouldn't be unreasonable to expect the ingredients business to grow 7%, 8%, 9% in 2020.

And if you look at it, we did that last year. It was our intention to do this this year.

As we mentioned, we've had some things that have weighed against that. And as we lap those things and get beyond them, there's no reason why we believe that we can't get back to what we would have anticipated at the start of this year and what we achieved last year.

Great, thank you.

Good morning. I guess first just to clarify the inventory work-down that you've done, is that over or is that also in Q3?

I would say for the most part, it's over. I mean our inventories kind of fluctuate a little bit quarter-to-quarter.

Kevin referenced with this EO outage that there will be some adjustments to our cellulosics inventory. And in parts of our market, we're seeing heavy demand, so that's pulling on it.

I think the challenge will be to actually drive increased production to ensure that we have the right inventory levels in the right locations. And so while we'd always like to see lower inventory levels that's not really a core part of our strategy for the rest of the year.

We're really focused on getting more product out to help support sales.

And one of the plans is falling as hard as possible to do it.

And I guess can you tie that last comment into how you're thinking about capacity utilization or asset utilization and mix and where you think margins from a mix effect standpoint should be trending over say the next two to three years if we look out into early next decade?

Sure. So that's a potent question and it's hard to give a simple or concise response to that.

We've done a very good job of filling up our cellulosic assets. And when you get in that situation, you're really focused on two primary points.

One of them is to debottleneck and expand the output which we've done by the way. And as you recall, we added about 3000 tons last year in our Nanjing facility with the change to our dryer system.

So that and then secondly upgrading the mix, selling more differentiated products, selling more Pharma which may be over nutrition products or over certain construction products. That would be essentially in the cellulosics area.

In the adhesives and biofunctionals area, the capacity we can be challenged at times, but it's easier to add more incrementally the capacity there. The Lima facility is full, so it really comes down to the cellulosics.

I think we have opportunities to address and drive more volume through that part of our system which is something we're going to focused on technically, commercially and because we do have some extra capacity in that area that we'd like to leverage.

And then just to understand the mix effects this quarter and then thinking about the dynamics into the lumpiness going forward, if we're to take the basket of lower-margin businesses that you call out, is the differential in margin around 500 basis points or is it north of 1000?

It would be more than 500 basis points between say, an energy product and a pharma much, much more than that. And we'll be communicating more in the near future around so you'll have a better perspective but there really is a significant difference between those top-end products versus the products that fill in the capacity.

So that's why upgrading the mix is really an important part of what we do. In the context of what we saw this quarter, we did the right thing because you don't want to strand those manufacturing costs.

It is profitable to us, but it certainly is at a lower profitability which is why we say in spite of let's say, FX-constant revenue wind-up that we saw an unfavorable volume mix impact.

Yes. So it's -- and it's also important to remember that -- and construction is probably our lowest-margin business in the portfolio but it's also important to remember that our construction business serves a very, very important role and function in that, it supports our pharma business particularly the Benecel line that's coming out of Doel Belgium.

So the first priority there is to produce and sell as much Benecel pharma-grade cellulose as possible and then to optimize that facility with the balance of the material coming out of there going primary to the construction end market. So there's a symbiosis involved in all of those too that we have to keep in mind as we operate these facilities.

Hey, good morning. This is Josh Spector on for John.

So just a question around Pharmachem, growth there has been kind of stable low single-digits over the past few quarters since you've acquire the business. I was just wondering in terms of longer-term expectations is that about the level you were expecting or would you expect top line to be potentially higher over the next couple of years?

Yes. So I would say that the -- what you see with a couple of percent growth is really representative of the fact that we -- as we stated have changed our mix running through that business.

We've gotten out of some low-margin business last year and that's why you saw the substantial pickup in EBITDA when we last reported it at the end of our fiscal year as a percentage of sales. It went up dramatically after although I think it was initially from 20% to roughly above 30%.

So the contribution is much greater. Now that being said, our objective is to grow the business and to accelerate the growth there.

There are opportunities both in North America and globally so over time that mix improvement will have worked its way through and kind of the carryover impact of that in terms of growth. And then the focus will be on a very profitable growth from there.

Yes. Given -- I mean given the opportunity to globalize that business I mean, the vast majority of Pharmachem is North America for us.

And given the opportunity to globalize that business, there's no reason that we shouldn't see mid-single-digit growth rates over time. And I would expect that to persist for a period of time as well as we go through that globalization process.

It could be lumpy, but in the end that's one of the opportunities that will be acquired with that business is the opportunity to leverage our global footprint to grow it in a more global way.

Okay. Just in terms of the divestment it seems like the time is a little bit later than you originally thought.

And I think some of the updated EPS guidance reflects interest being higher assuming that you've had debt paydown later. One, I wanted to check if that's right.

And then two, just in terms of how much interest could be down after that $1 billion paydown, is like $40 million a reasonable number or is there some other number you guide to?

Yes. I'd say it's probably closer to $45 million and that kind of depends on how some of our variable rates stuff pays out and how quickly we do that versus maybe the mix in the bottom portfolio that we might retire.

But $45 million is a pretty good estimate presuming the entire $1 billion goes to debt paydown which would be our current presumption.

Okay. Thanks.

Yes. And from a timing standpoint, I'd just say that really as we said we remain on track.

We're just waiting for the regulatory approvals so we can complete the process.

Right. And another thing to note is, you have to look at -- you have to look both above and below the lines.

We have several interest expenses going through discontinued operations. So as you think about your modeling, you'll need to take a peek down in the part of the balance sheet as well to understand how much is down there.

Thanks very much. Good morning.

Were your ASI volumes down flat or up in April?

In April, of course we've still got to kind of close out the month, so we'll be getting better clarity. It takes us a couple of days to kind of get that information.

But I would say that directionally what we saw was consistent with what we saw in Q2 and so that's really reflected in the forecast that we have.

And the big drivers for what we saw in Q2 were really construction and adhesives. I mean, not only was that a top line and a profitability impact, but it was a pretty sizable volume impact as well.

Those are probably our two highest-volume businesses or end markets in the portfolio. And particularly in North America, we saw volume pressure there.

Which is what we saw in Q2 as well. So we tend to focus on the volume mix as you know, but from a volume standpoint, we were down in Q2 which is what we saw essentially.

And we haven't closed yet on May -- or April excuse me, but that's the trend that we've seen extend.

Okay. And your SG&A in the Specialty Ingredients in the quarter was -- your SG&A expense was $119 million.

Is there any reason why that number should be larger in the third or the fourth quarter? Or should that be a number which stays the same or decreases through the remainder of the year?

It should probably decrease a bit through the rest of the year. FX will have an impact on that, but in terms of the cost-out flow-through, we should continue to see SG&A on an overall basis continue to decline.

I mean that's our current estimates would indicate that.

Okay. Thank you.

When you look at it the FX impact had a -- was very significant obviously in the sales line and on the gross profit line. In the current context, we actually do get a benefit from currency when you look at it in the SG&A line.

Okay. Good.

Thank you so much.

Sure.

All right good morning. Just wondering if you have been taking any incremental additional cost actions in response to the end market weakness.

So I'm wondering if you're accelerating some of the exiting programs or maybe initiating some new programs or even taking more temporary action like pulling back on G&A expense or instead of comp or anything like that. Did you see any of that in Q2?

Yes. So to that end, we certainly are taking action and we've been working on that with the team.

We're -- as I mentioned about 70% through the existing cost reduction program and we need to get through that and we need to transfer for the business. So we're looking at what we can do to accelerate the cost-outs in that area and we've had some progress on that.

We have quite a list of things that we've put together as it relates to hiring, as it relates to travel, as it relates to aspects of what we sell within our plant. We have an extensive list of things that we're working on to try to achieve the best results in this context.

And yes, at this level of performance, it does negatively impact our incentive compensation. Some of that's reflected on a year-to-date basis, but that would continue through as we go through.

Now we would like to have that expense go up, but that expense will only go up, if we can deliver a better result for you the shareholders. So we're aligned in that regard.

And then a couple of questions related to coatings. I guess first of all a lot of the coatings weakness that we're hearing about in North America appeared to be weather related in other words should be more temporary.

Yet you guys seem to be a little bit more cautious on the outlook for North America. And wondering also if you can maybe expand on your efforts or on your -- the comment on selling more coatings into emerging markets maybe a little more detail and how big that opportunity could be?

Yes. So, I mean, the people who can speak best to the dynamics that they're seeing and the impact of weather or other factors are our customers and so it's hard for me to specifically comment there.

We have an internal expression that hope is not a strategy, so we don't want to put something out there that assumes that we'll have a sunny spring and that will trickle through to a high demand. If it does, that's awesome.

That's why we have a range and that would help us to go to the upper part of the range. But for now we think that that's a good thing to hope for, but we can't count on that.

Secondly, as it relates to other parts of the world. I think there have been a number of developments and it's been a very focused effort.

We focus on trying to develop grades that are most relevant for the very specific customer needs. I keep going back to this trip I had to China a few weeks back.

I met with the largest plant manufacturer or coatings manufacturer in China. And there are very different things that they look for there.

The stone texture is more important in many instances than a smooth type coating. So the radiology, differences and the products we have are different.

So we're enabling the team to develop more localized formulations to meet those needs. The importance of sustainability in places like Europe is increasing, which creates opportunity for us.

So it's been a focused effort to really leverage the infrastructure we have and make sure we're focusing on the local needs that the regional customers have and that's been a big part of it. I think in China you don't see a ton of or a groundswell of construction.

That may change over time, but the team still has been working to gain share in that context and we have -- we've got some really great programs that are in place. So that's what we're doing to offset it.

All right. Thanks very much.

Good morning. Thank you for taking my call.

Just wanted to clarify a couple of things. First of all you put your -- in discussing, sort of, what was growing and what wasn't growing, in the quarter you talked about nutrition as something that you leaned on to get your volumes on absorption.

I take it to mean that nutritional products are not amongst your higher margin portfolio of products?

Yeah, that's correct. I mean, of course, we have some of our very niche products, which would have a more specialized nature.

But literally CMC can go into tortilla chips and it can go into in some parts of the globe, fillers that go into meat and sausages and things like that. And as you can imagine that's less differentiated than you'd have in the other spectrum of our products.

Whereas on the other hand, you've got things like clarifiers for beer wine and juices that tend to be much more specialized in our margin. I think if you look at the three end markets we're referencing, nutrition on an overall basis tends to be certainly better than construction, and I would say marginally better than energy.

But we would put it in our call it lower third of end markets from an overall profitability perspective.

Got you, okay. That's helpful.

Secondly, you mentioned that your HEC sales were up 5%. My understanding was that at least a good chunk of HEC growth came from the coatings market and yet the coatings market was one of the markets you identified as being weak.

So can you reconcile those for me please?

Yeah. The biggest difference is that we have seen a greater amount of that product going into hair skin home care so that really is the difference and making up the difference from relatively flat coatings dynamic to a growth on the HEC.

HEC was I believe, I’m sensing we had a record production sale of HEC as a product in the month of March, so the team is making progress, and if you don't mind me just using this as a digression because it's just consistent with our strategy. We always look by markets because that's where our products are most relevant and we've got to meet the needs.

But what we've done is we've established the product technology platform teams that really look, for example, across all of HEC across all of HEC, across all of CMC, across all of PVP, and say how is that asset or series of assets performing? What are the key needs that we have and what are the opportunities?

So that we can allocate capacity, we can allocate investment, and we can allocate technical and development time into trying to drive gains from a full system standpoint and as a result not be just as dependent when we have some of these bigger assets on one market even though that one market may be the primary use.

And I think just to add to that commentary, the volumes that we run through in areas like personal care have tend to be much, much smaller than what -- and it makes perfect sense that they'd be much, much smaller than what we tend to run through the coatings end market. But the profitability difference is pretty significant as well.

So to the extent that we can continue to move more HEC -- different grades of HEC through the personal care space and certainly the pharma space, which we're maybe the only company that actually moves HEC through the pharma space that will help us to improve the overall mix. Whether you see it in the volume numbers or not won't be as consequential because those volume numbers will be much more impacted by coatings.

So we're trying to drive niche play differentiation, and really develop customer solutions for the technologies that we have and HEC is a nice advantage for us in that regard.

Got you. Got you.

One final question if I may. My understanding was that your adhesives business is sort of leaning towards the semi-permanent adhesives if you will kind of the tapes and labels and packaging perhaps much more seldom construction related.

And this just goes to the earlier question asked. If the weakness in adhesives demand is not North American construction weather-related, what is it related to?

Yeah. First of all, we do have adhesives that go into construction.

I mean, that's important here. I think you're right in your assessment, it's not the primary market, but it is an important part of it.

It goes into laminated I-beams. And as a result, yeah, as that market grows, so will demand.

I think the other point is we've been pressing hard on the pricing front in that market. And so, I mean, that's good, because of the progress we've made.

And I think that -- I think the adhesives business we've got some timing issues, but I feel like the business is strong and we'll continue to get back fairly quickly to what we consider to be more historical growth rates.

Okay. So, if I just heard you correctly then there was some impact from construction, but there was also some volume attrition as you were intent on recovering margin and just pushing I guess customers that weren't willing to payoff to the side?

Yeah. I mean, I wouldn't attribute any of this to share loss.

I'd have to go through every win and loss we have and so forth. But there's nothing that comes to mind in terms of any share loss.

What it can do is it can affect timing sometimes. Sometimes customers will buy some material before a price increase.

Or when you're raising price, they may be a little cautious in terms of the signal they send by purchasing more. So, it's a dynamic, but I don't see it as a structural shift.

And as I mentioned, we have had the negative impact that's associated with the construction part which isn't the majority, but it does impact the business.

Okay. Fair enough.

Bill, thank you.

Thank you.

Thank you. Good morning.

On your end markets coatings and adhesives, I think you referenced North America coatings being weak. But are you seeing weakness basically across the board in those end markets or is it -- is North America or one region weaker than the others?

Yeah. I would say that in -- as it turns out, I would say that North America really is probably the weakest end market that we -- or not end market, but end region that we have.

As mentioned, we've had good growth in China, Europe, Latin America, rest of Asia. We've seen good growth.

And so the kind of negative spot in this whole equation has been in North America.

Okay. And then raw materials, you talked about oil-based raw materials.

Can you talk more about cellulosic? Are you getting any relief on cellulosic raw materials?

And what is your outlook for that over the next couple of quarters?

Yeah. So right now, we see it as being stable.

We don't see a big change. Wood pulp will be down just a little bit in terms of the cost, but we don't use nearly as much as cotton linters.

And so that as we see it right now has been pretty stable, both in Q2 and as we look into Q3.

Okay. And on your comments on the fiscal fourth quarter, you said you thought that demand would normalize.

What gives you the confidence in making that comment? Do you have any visibility on orders out that far?

We have limited visibility on orders out that far. Our confidence is really in just the discussions that we have on an ongoing basis with our customers.

You've seen -- you talk more to some of our customers and suppliers and you pickup a sense of optimism that this is less fundamental and will work its way through the system. But that is once again why we have a range out there.

And if we see that on the markets stay or turn down, that's what leaves us to the lower end of our range. Conversely, if we see something come back stronger and sooner that moves us towards the top.

But we don't have anything that would say fundamentally we're confident that our Q4 the demand will be substantially stronger. We need some more time on that.

But our customers are not indicating that as we talk to them just as we're indicating it to you that our customers have the same dialogue with us.

Thank you.

Thank you, Bella. Thank you all for your time this morning and for your interest in Ashland.

I hope everyone has a great day.