Ashland Inc.

Ashland Inc. (ASH - Snapshot Report), the chemical manufacturer, posted a big second quarter surprise as cost cutting helped the bottom line. The company has surprised on estimates 3 out of the last 4 quarters by an average of 15.32%.

Company Description

Ashland manufactures specialty chemical products for customers in 100 countries. The company has 5 segments: Ashland Aqualon Functional Ingredients, Ashland Hercules Water Technologies, Ashland Performance Materials, Ashland Consumer Markets (Valvoline) and Ashland Distribution.

On June 22, the company announced it would sell its global marine services business, known as Drew Marine, to J.F. Lehman & Company, a private equity firm, for $120 million before tax. The after-tax proceeds will be used to pay down debt.

Drew Marine had revenue of approximately $140 million a year with employees in 47 countries. The transaction is expected to close in the next 2 months.

Ashland Surprised by 109.68% in the Fiscal Second Quarter

On Apr 30, Ashland reported its preliminary fiscal 2009 second quarter results which surprised on analysts' estimates by 34 cents. Adjusted earnings per share were 65 cents compared to Wall Street estimates of just 31 cents.

Revenue, however, declined 3.4% to $1.99 billion from $2.059 billion in the year ago period.

Sales volume fell anywhere from 10% to 40% across all business segments. The quarter was aided by declining raw material costs and the idling of capacity. Cost-cutting and integration of the Hercules business acquired in 2008 led to $60 million in realized savings.

2009 Outlook

The company expects demand to remain flat for the rest of 2009 due to the global recession. Ashland intends to use cash to reduce debt and will continue to resize its businesses to meet current demand and economic conditions.

Consensus Estimates Rise Sharply

Despite the decline in sales from the year ago period, covering analysts expected the fiscal second quarter to be much worse. Therefore, with the big surprise on EPS, analysts have scrambled to adjust earnings estimates for both the third quarter and the full year.

Third-quarter consensus estimates rose 32 cents to 82 cents in the last 2 months.

Fiscal 2009 consensus estimates jumped 60.13% to $2.53 from $1.58 in the prior 60 days.

Value Fundamentals

Ashland is a Zacks #1 Rank (strong buy) stock. It has a forward P/E of 9.6 and a price-to-book ratio of 0.50. The company pays a dividend with a current yield of 1.20%.