Basic materials provider Ashland (ASH 0.48%) had a solid quarter but trimmed its full-year estimates in response to its portfolio optimization efforts. Investors weren't sure what to think, sending Ashland shares down as much as 5.2% Wednesday before the stock recovered to trade down slightly heading into the close.
Mixed results in a tough operating environment
Ashland earned $1.27 per share on revenue of $575 million in its fiscal second quarter ending March 31, topping Wall Street's $1.14 per-share earnings estimate on revenue that was on target with expectations. Sales were down 5% year over year, with personal care and specialty additives showing positive trends but life sciences ingredient volumes light.
"The improving sales trends experienced in December and January sustained for the second quarter as our volumes continue to converge with customer end market demand," CEO Guillermo Novo said in a statement. "While still early from a trending perspective, the breadth of our ongoing recovery as well as constructive economic and industry data, reinforces our belief that a demand normalization is underway within the personal care and specialty additives segments."
Ashland sees current quarter revenue coming in at $560 million to $580 million, a slight disappointment compared to the $584 million consensus estimate. For the full year, the company narrowed the high end of its revenue guidance, going to $2.15 billion-$2.23 billion from $2.15 billion to $2.25 billion.
Is Ashland stock a buy?
The company is forecasting demand to be flat to up slightly in 2024. There are signs the business is normalizing after years of pandemic and post-pandemic shortages and excesses, but the full recovery will take time.
In the meantime, Ashland is working to streamline and focus on higher-end products. The company recently announced the closure of a production unit in Belgium, which will result in volume declines but is primarily tied to lower-margin, more cyclical end markets like construction.
Shares of Ashland trade near where they did three years ago. If management is right and end markets are finally normalizing, over time the stock can go higher from here.