COVINGTON, KY — Ashland Inc. has announced preliminary income from continuing operations of $38 million, or 60 cents per share, for the quarter ended Dec. 31, 2007, the first quarter of its fiscal year. This compares with income from continuing operations of $53 million, or 81 cents per share, in the same prior-year quarter. Among the factors contributing to the decline were a 21-percent increase in depreciation expense and a 6 percentage-point increase in the income tax rate.
Net income for the quarter was $33 million, or 52 cents per share, as compared with $49 million, or 75 cents per share, in the year-ago quarter. Net income included losses from discontinued operations of 8 cents per share in the December 2007 quarter and 6 cents per share in the 2006 quarter, primarily the result of a post-closing tax adjustment on the sale of Ashland Paving And Construction, Inc. (APAC), which was sold in August 2006.
"There were both positive and negative aspects to Ashland’s performance in the first fiscal quarter," said James O’Brien, chairman and chief executive officer. "The unfavorable conditions in the North American building and construction and transportation markets continued to negatively affect our results. Overall operating income declined 21 percent to $46 million. Improving trends in our businesses’ fundamentals during the months of October and November were largely offset by a weak December. Ashland Distribution’s earnings for the December 2007 quarter declined 57 percent versus the same prior-year quarter, and Ashland Performance Materials was down 54 percent.
"On the positive side, Valvoline achieved record results for a December quarter, while Ashland Water Technologies’ results were roughly comparable to the December 2006 quarter," O’Brien continued. "In addition, we did see improvement in Ashland’s overall operating income versus the September 2007 quarter, due in part to increases in Distribution’s and Valvoline’s operating income. We also generated $69 million of cash from operating activities from continuing operations versus a use of cash of $122 million the year before."
Valvoline delivered record first-quarter operating income of $20.1 million as compared with income of $18.2 million in the year-ago quarter. Sales and operating revenues increased 8 percent over the December 2006 quarter to $380 million, while lubricant volume grew 4 percent. Both the Valvoline Instant Oil Change and Valvoline International units contributed to the record quarter. Earnings from Valvoline Instant Oil Change more than doubled, while Valvoline International achieved a record first quarter, with a nearly four-fold increase. Earnings at Valvoline Instant Oil Change were driven by a higher average ticket, representing higher premium oil changes and ancillary services. Premium oil changes now represent more than 50 percent of all oil changes at Valvoline Instant Oil Change centers.
Unallocated and other contributed $3.5 million of income in the December 2007 quarter as compared with an expense of $4.7 million in the prior-year quarter. The favorable change was largely due to a reduction in expense for certain employee benefits tied directly to the market value of Ashland stock.
Net interest income was $12 million in the December 2007 quarter as compared with $16 million in the same 2006 quarter. The effective tax rate for the December 2007 quarter, including all adjustments recorded in the respective periods, was 34.8 percent versus 28.6 percent for the December 2006 quarter. The increase in the effective tax rate is primarily due to the significant tax benefit that was included in the year-ago quarter from the October 2006 special dividend payment on shares held in Ashland’s leveraged employee stock ownership plan.
Commenting on the outlook for fiscal 2008, O’Brien said, "The U.S. industrial economy continues to struggle, and this affects our businesses to varying degrees. We have seen improvement in our distribution business from the highly depressed September 2007 quarter. This segment derives approximately 50 percent of its business from the U.S. transportation and building and construction markets, which remain subject to the economic cycle. The impact of the termination of a North American plastics supply contract last March should diminish as we replace that business with new customers and new suppliers. We believe that Performance Materials’ product mix, which is more premium-focused than in prior economic downturns, and recent international growth help cushion it from the full effects of domestic economic downturns.
"Valvoline has generally been a steady contributor to Ashland’s bottom line, with the exception being fiscal 2006, when severe hurricane-related supply disruptions caused base oil costs to rise faster than Valvoline could implement price increases. While we received two base oil cost increases effective this past December, we have responded with price increases to the marketplace, which we should begin to realize in February.
Concluding, O’Brien said, "While the global economic outlook may be uncertain, Ashland’s ability to effectively compete in a liquidity-constrained environment is not. With cash and short-term securities of more than $1 billion and essentially no debt, we look to strengthen our competitive position in the quarters ahead."
For more information about Ashland, go to: http://www.ashland.com.
