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Ashland (ASH) Up 1.1% Since Last Earnings Report: Can It Continue?

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Zacks Equity Research
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A month has gone by since the last earnings report for Ashland (ASH). Shares have added about 1.1% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Ashland due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Ashland's Earnings and Sales Surpass Estimates in Q4

Ashland logged profit of $5 million or 7 cents per share in the fourth quarter of fiscal 2020 (ended Sep 30, 2020), down from a profit of $411 million or $6.71 per share in the prior-year quarter.

Barring one-time items, adjusted earnings came in at 99 cents per share, up from 77 cents in the year-ago quarter. It topped the Zacks Consensus Estimate of 79 cents per share.

Sales were flat year over year at $609 million, surpassing the Zacks Consensus Estimate of $585.5 million. Sales rose 6% on a sequential comparison basis on the back of strength in the Consumer Specialties segment and improved demand within the Industrial Specialties division. The company saw strong demand in its Life Sciences and Personal Care & Household business units in the quarter.

FY20 Results

The company recorded a loss of $508 million of $8.39 per share for fiscal 2020 compared with a profit of $505 million or $8.03 per share a year ago. Sales for the fiscal decreased roughly 7% year over year to $2,326 million.

Segment Highlights

Consumer Specialties: Sales in the segment rose 4% year over year to $344 million in the reported quarter. The company saw strength across pharmaceutical excipients, biofunctional ingredients and additives for hand sanitizers. Its nutraceuticals business also returned to growth in the quarter.

Industrial Specialties: Sales in the division slipped 3% year over year to $240 million, hurt by reduced industrial demand due to the coronavirus pandemic.

Intermediates & Solvents: Sales in the segment dropped 33% year over year to $28 million, impacted by reduced merchant and captive volumes.

Financials

The company ended fiscal 2020 with cash and cash equivalents of $454 million, a roughly 96% increase year over year. Long-term debt was $1,573 million at the end of the quarter, up around 5% year over year.

Cash provided by operating activities was $160 million in the reported quarter, up from $135 million in the prior-year quarter. Free cash flow was $116 million for the quarter, up from $83 million in the year-ago quarter.

Outlook

Ashland said that its continued self-help actions will position it well for the upcoming fiscal year and beyond. The company’s priorities for fiscal 2021 include driving margin expansion, boosting free cash flows, improving mix from innovation, focusing on more profitable strategic segments, driving productivity and accelerating profitable growth. The company also expects continued recovery in global demand in fiscal 2021.
 

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

VGM Scores

Currently, Ashland has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision looks promising. Notably, Ashland has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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