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Ashland Provides Operational Updates Post Fire Outbreak

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Ashland Global Holdings Inc. (ASH - Free Report) provided an update on the impact of shutdown on its production operations after a fire broke out on Aug 10 at its manufacturing facility in Marl, Germany.

The company had declared a force majeure in Europe on 1.4 butanediol (BDO), formaldehyde and tetrahydrofuran (THF) and initiated an investigation into the extent and cause of fire continues.

According to Ashland, there were no significant injuries from the incident and its emergency response systems and safety procedures worked properly. However, the company noted that the facility is presently unable to produce any THF, 1.4 BDO or formaldehyde which combined with a significant reduction in the availability of these products led to the force majeure in Europe.

The reports of initial investigation indicate that production will remain suspended until late September. Ashland anticipates volume to remain constrained till first-quarter fiscal 2018. Loss associated with the incident is estimated between $15 million and $20 million. This includes lost profitability associated with any loss of sales due to supply constraints. However, Ashland maintained that with the availability of new data, the initial loss estimate figures could change. The updated numbers will be reflected in the company’s September fiscal quarter.  

Further, Ashland clarified that its adjusted earnings for the September quarter will not be impacted due to the unusual nature of loss, but the adjusted sales figure of its Intermediates and Solvents (I&S) segment will reflect the profitability lost associated with sales lost from the incident. Given that, the company expects adjusted EBITDA for I&S segment to range $5-$10 million in the fiscal fourth quarter.

Ashland is working with customers who have been affected from this incident and is trying to minimize the impact to their respective businesses. Ashland will also continue to provide updates concerning its supply capabilities.

Shares of Ashland have declined 7.1% in last three months, underperforming the industry’s 1.4% fall.


 

Ashland reported a net loss from continuing operations of $16 million or 26 cents per share in the third quarter of fiscal 2017 (ended Jun 30), against a net income of $24 million or 38 cents in the year-ago period. Barring one-time items, adjusted earnings were 83 cents per share which beat the Zacks Consensus Estimate of 70 cents.

In the fiscal third-quarter, Specialty Ingredients unit recorded a 7% year-over-year increase in revenues while sales of Composites grew by 20% on the back of disciplined pricing and robust volume expansion in various global end markets. I&S unit also witnessed a 9% increase in sales owing to continued recovery in butanediol pricing and improving global demand.

Ashland closed the acquisition of Pharmachem Laboratories, Inc., in May 2017. The company expects to achieve meaningful cost synergies from leveraging combined capabilities along with tax synergies resulting from Pharmachem integration.

Ashland currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

Some better-ranked stocks in the basic materials space are The Chemours Company (CC - Free Report) , POSCO (PKX - Free Report) and Kronos Worldwide Inc. (KRO - Free Report) . All three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.

Chemours has expected long-term earnings growth rate of 15.5%.

POSCO has expected long-term earnings growth rate of 5%.

Kronos has expected long-term earnings growth rate of 5%.
    
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