Earnings Call: Q3 2019

Jul 31, 2019

Good day, ladies and gentlemen, and welcome to the Ashland Global. Ashland Global Holdings, Inc. 3rd Quarter Earnings Call At this time, all participants are in a listen only mode. Later we will conduct a question and answer session and instructions will follow at that time. As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Seth Mrozek, Director of Investor Relations at Ashland. Sir, you may begin. Thank you, Justin. Good morning, everyone, and welcome to Ashland's third quarter fiscal 2019 earnings conference call and webcast. My name is Seth Mrozek, Director, Ashland Investor Relations. Joining me on the call today are Bill Wilson, Ashland's Chairman and Chief Executive Officer and Kevin Willis, Senior Vice President And Chief Financial Officer. We released preliminary results for the quarter ended June 30, 2019 shortly after 5 pm Eastern Time yesterday, July 30. Additionally, we posted slides to our website ashland.com under the Investor Relations section and have furnished each of these documents to the SEC in a Form 8 K. As a reminder, during today's call, we will be making forward looking statements on a number of matters, including our financial guidance for fiscal year 2019. These forward looking statements are subject to risks and uncertainties that could cause future results or events to differ materially from today's projections. We believe any such statements are based on reasonable assumptions, but cannot assure that such expectations will be achieved. Please refer to yesterday's slide presentation for a fuller explanation of those risks and uncertainties and the limits applicable to forward looking statements. Please also note that we will be referring to certain actual and projected financial metrics on Ashland on an adjusted basis, which are non GAAP financial measures. We will refer to these measures as adjusted and present them in order to supplement your understanding and assessment of the financial performance of our ongoing business. Non GAAP measures should not be considered a substitute for or superior to financial measures calculated in accordance with GAAP. The most directly comparable GAAP measures as well as reconciliation of the non GAAP measures to those GAAP measures are available on our website and in the appendix of yesterday's slide presentation. With that, I will turn the call over to Bill. Thank you, Seth, and good morning, everyone. In my remarks this morning, there are three key themes I'd like to cover. First, we have taken action to offset areas outside of our control to stabilize earnings in a very difficult environment. As largely anticipated when we established our annual plan, we have been impacted by the strengthening of the U. S. Dollar and the loss related to the Colgate Gantrez oral care reformulation. Now more recently, and like others, we have been impacted by market demand weakness and negative trade dynamics. More specifically, impacting our demand was a weak season for sunscreen products in the U. S. And Europe and also new tariffs for materials exported out of China. The 25% tariffs impacted the competitiveness competitiveness of certain sunscreen and other products we export into the US. New China regulatory requirements also impacted demand for certain preservative formulations. In the aggregate, we estimate that on a year to date basis these factors could have negatively impacted ASI's EBITDA by approximately 10% More specifically, we have grown our sales at or faster than the market in Pharma, nutraceuticals, coatings and nutrition We have raised prices over and above raw material inflation. We have reduced year to date SG and A spend by 9% on an FX neutral basis. And we have also reduced plant fixed cost by consolidating our production footprint and by improving reliability and reducing costs with the implementation of Ashland's production system. And while the net result is not what we expected earlier this year, we have achieved year to date earnings growth versus prior year for Ashland, a 90 basis point improvement in EBITDA margins and essentially flat specialty ingredients adjusted EBITDA margins on a year to date basis. Importantly, These results demonstrate that our actions and our portfolio evolution has led to much lower levels of cyclicality than in prior periods. Second, we are confident in our strategy and our future. In fiscal year 2018, we grew Ashland's adjusted EBITDA by 20% and adjusted EPS by 47%. The same operating levers have made a meaningful impact on our fiscal year 2019 results to date. As we take a very early look at fiscal year 2020 The negative factors beyond our control should lessen substantially. We are and the Colgate reformulation. And while difficult to predict in terms of exact timing, we believe current market weakness is short term in nature. More importantly, we are taking aggressive action to drive improved results including driving share gains through new product launches, renegotiating contracts and adapting our supply chain to offset negative tariff related impacts Reformulating and gaining approval for new products in response to new ingredient regulations. Achieving the full impact of And lastly, we continue to make strong manufacturing gains as we increase our focus on lean and plant reliability. Stepping back in the bigger picture from an innovation perspective, while we face challenges this year, We view ongoing changes and customer partnering skills to enable Ashland to ultimately grow its share position. We have made significant changes to our innovation process and resource deployment over the last 2 years. The result is an increase in the size of our new product pipeline and the impact of to focus less on business maintenance activities and instead focus more on new product development. It is important also to note that we remain committed to meeting our 25% to 27% ASI EBITDA margin targets through a combination of pricing actions, mix improvements, volume leverage and additional cost productivity initiatives. Thirdly, we remain on track to close Following continued discussions with the FTC, we announced an agreement with INEOS to exclude the maleic and hydride business from the sale. To the maleic business, including the retention of any subsequent sale proceeds. The Malayk business consists of one facility in Neil, West Virginia and generates annual revenues of approximately $75,000,000. We continue to work with INEOS to close the transaction and preparations for the divestiture remain on track. We anticipate receiving remaining regulatory approvals shortly and expect to close the transaction by late summer. We continue to expect to for debt repayment and reduction following the close of the transaction in support of our commitment to reduce our leverage to about 2.5 turns. So in summary, we had strong growth expectations for this fiscal year. Like others, we have had significant factors outside of our control. Gains from our actions are helping to offset the current market dynamics. The result, while less than what we were targeting, is year over year return to more normalized sales and earnings growth when the market demand recovers likely later this year. We believe we have a for a more detailed discussion of our 3rd quarter results. Thanks, Bill, and good morning, everyone. First, let's start with Ashland's results in the 3rd quarter. Sales in the quarter were $641,000,000, down 4% from the year ago period including negative two points from unfavorable currency. Adjusted EBITDA in The U. S. Dollar remains stronger than in the prior year as has been the case throughout this fiscal year. Negative currency impact was led by the euro, which was $0.07 lower than the prior period, and there was also an impact from currencies in certain emerging regions. In the quarter we reported or $0.37 per diluted share. On an adjusted basis, we reported income from continuing operations of $0.77 per diluted share which was consistent with prior year results. Of $0.76 to $0.78 per share. Our effective tax rate in the quarter was 6% which was below our expectation of You'll recall that results from continuing operations includes earnings from our Specialty Ingredients segment plus our BDO facility in Lima, Ohio, since composites in Marl are now being reported at discontinued operations. Free cash flow during the quarter was These amounts include 22,000,000 structuring in the year ago period. Including restructuring and transaction related payments of approximately $60,000,000, We now expect free The change from the previous outlook is due primarily of approximately $20,000,000 Turning to specialty ingredients, as you have seen, we have revised our financial outlook for fiscal 2019 to reflect the market demand weakness to bill adjustment We believe these factors look. When market conditions improve, we should return to more normalized sales growth and mid to high single digit EBITDA growth on a percent basis. Finally, I'd like to provide an update on the $200,000,000 accelerated share repurchase program we announced during the June quarter. In May, we retired approximately 2,200,000 shares and we expect the program to conclude in August. I think it's important to re emphasize that this program in no way impacts our commitment toward reducing leverage to about 2.5 times following the closing of the Composites Marl divestiture. At this point, I'll turn the call back over to the you. Our first question is going to come from Christopher Parkinson from Credit Suisse. Your line is now open. Cool. Thank you. Good morning, Chris. You've been facing a few Good morning, gentlemen. You've been facing a few unexpected challenges just over the past year in Personal Care, the Gantra's reformulation volume loss in oral care, magnitude of ins in sunscreen markets this past quarter. Can you just speak to whether or not you're facing additional reformulations you're positioning skin care market specifically bioactives and some of the trends there. And your ultimate ability to sustainably achieve 3% to 4% top growth, hopefully higher. If you could just hit on that and how integral PC success is to reach above 25% margins, that would be very helpful. Thank you. Great. Well, thank you. And a very good question. As we have discussed in the past as it relates to the personal care business, every year you have a certain amount of product maturing or attrition just as products go from new to new and improved down to less less relevant in terms of the overall product mix. Sometimes that happens more quickly than other years we have strong R and D efforts to offset and ultimately outpace those dynamics And if you look back, for example, in fiscal year 2018 and really through the first half of fiscal year 2019, the pace of the gains reformulations or regulatory and consumer preferences. We are expanding our investment in the development of sustainable solutions for the personal care market and we believe that that's essential to maintain a more consistent growth pattern within personal care. We think that that will happen as we go into and through fiscal year 2020, we'll see the momentum building around that. And when you look at the margin profile, clearly personal care is an important part of our overall portfolio. It's a great business and has very attractive margins. What I will tell you is that when we look at our overall plans for margin improvement about 20% of the gains that we are targeting to get come from mix improvements and personal care is a part of that but it is only a part of the overall mix. Obviously continuing to move and have good growth in pharma and to move from things like construction and energy into areas like coatings and personal care is part of that equation. So we do feel good that the we've been able to outgrow the market based upon introducing new products at a faster rate than than they have matured this year as we've been particularly hard hit. The Colgate reformulation was a very significant item. What's going on in China right now? We just have to reformulate our way through it to make sure that the products that we have are meeting all of their expectations for import. And we're doing that. We're doing that right now. So it'll take a little bit of time, but we're very confident we can sustain the growth rates we're targeting. Yes, Chris, this business from a personal care perspective, should return to that 3%, 4% growth trajectory, I would expect on a run rate basis, we'll hit that in fiscal 2020. That would certainly be our intention. And your question around biofunctionals is a good one. That's a really important part of our personal care business, not only because of the actives that we make, which are really down the middle from a sustainability perspective, provide a lot of functionality to our customers. But they also they also result in certain amount of pull through in other product categories and personal care. So, we're very focused on that biofunctionals business because while it's relatively small, it is a very important part of personal care, especially skin care. So we're going to continue to be very focused on that business. Thanks. And just as a quick follow-up, also moving you are moving in the right direction on costs. Can you just comment on your updated views regarding your global cost structure from the top to bottom? What do you think you're doing well? What you feel your team could still potentially do better? And just given the normalized pricing and production environment, given the current portfolio. Just how should we think about from the broader targets of where Ash needs to be another 2 to 3 years out? Thank you. Sure. Sure. So, not sure how you define top to bottom, but if I start with the kind of corporate support groups, we through this $120,000,000 overall cost reduction program are reducing those expenditures by in the range of 25% to 30%. So we're clearly taking aggressive actions in this area. We see that when we complete our program, which will be at the end of this calendar year, will be at a run rate without amortization of around 16% to 17% of sales. And we do think that there is an opportunity or or we will focus on driving that down another 100 basis points or so. And that can be done through getting volume leverage on what's on the infrastructure that we have. And it can also be because we're continuing to focus on further cost productivity efforts. We're clearly very much engaged in the execution of the current reduction program And it's interesting to note that we've made a lot of progress in terms of reducing what our in theory stranded costs, while we still have the business the earnings, albeit in discontinued operations. So from a corporate standpoint, we're making good progress, but I think that we would focus on continuing to drive productivity. In the commercial and technical area, of course you always want to drive productivity, but I would say that And that's the engine for making the company grow stronger. And I think we want to drive and enhance the impact that we have from we'll say sizable cost reductions. We need to make sure we're just getting the most that we can from the investments that we're making. And then finally, while it's not necessarily in SG And A in our manufacturing environment, we've really done a nice job of driving productivity not just on the plant floor, but also through plant consolidations. Also the way we run the plants, combining, if you will, regions or asset types so that we can better leverage our infrastructure and reduce our costs. And I think there's more opportunity for us in that area as we move forward. Yes, I would agree with that. Getting to that 25% to 27% ingredients margin target is going to require a combination of good profitable solid growth in the business in our end markets, especially the more consumer oriented end markets. But it's also going to require continued cost discipline and a real focus on driving productivity, so improving the overall cost structure as we go. Those two things are going to have to work in concert to get us where we need to be. Thank you. Thank you. And our next question from John Roberts from UBS. Your line is now open. Thank you. Good morning. When you talk about temporary issues. Do you mean a supply chain inventory correction or do you think something else temporary is going on? Well, what I'm referencing is when you look at and most specifically in the personal care area, some of the things that impacted our results in the quarter. It has been a weak demand profile for sunscreens this year in both the Europe Europe and the U. S. And the season will be coming to a close here fairly, fairly soon. In addition, as we mentioned that, tariffs say, for example, on sunscreens that we export from China into the U. S, they've been hit by 25 percent tariffs. And that affects the competitiveness of those products. Now that's just a portion of what we sell. And Actually, we've been able to already negotiate through the increased tariffs on a substantial part of our customer base. So we anticipate that by adjusting our supply chain and working through with our customers, we'll get through the dynamics on that. And as I also mentioned, when it comes to issues like preservatives that might have new requirements for import into China, ultimately, we view those as opportunities for us to innovate to provide solutions and it takes a while to commercialize those and it takes a while to get approvals for those. But, we're confident that we can make sure that those are not structural in nature. And how hard do you think it will be to get a fair value for the maleic plant? And how much of the output of that plant goes to the composites business being sold? Yes, it is somewhat integrated with the composites business, but mean, as you know, it's a commodity business. Top line is about $75,000,000 and that's 3rd party sales today. And we're still a relatively new development, John, in terms of this free real time. And we're still evaluating how we're going to ultimately approach the business. But based on past history and our connectivity to marketplace around M And A, I don't think it's going to be difficult to achieve a sale of that business. Would you give us the gross sales including the intercompany sales to composites? Yes, frankly. Yes, that is the number. $75,000,000. That's a growth. Okay, got it. Thank you. Thank you. And our next question comes from John McNulty from BMO Capital. Your line is now open. Hey, good morning. This is Bhavasto for John. If I heard correctly on the order book commentary, it sounds like early indications are looking for an improvement in fiscal 4Q. As we think about the next few quarters, obviously, you'll get the benefit of the additional cost savings, but can you add some color on the moving pieces, assuming there is no change in the current macro? Just trying to get a sense of the earnings power of the business over the next few quarters. Okay. So I would say that we have assumed and are assuming that we don't see substantial improvements in the overall macro environment as we enter into Q4. We are taking actions as we talked about Kevin also referenced that the month of July started off fairly weak, but the order book began to fill up in a way which is consistent with our outlook. So we feel good about that. In terms of moving forward into fiscal year 2020, of course, we will comment on that in our next call in more detail. But as we referenced, some of the things that have impacted us, we will lap and other things we will be addressing in a way that we believe there'll be less substantial in terms of impact on our results. And so we'll provide more of an update. What's really difficult to predict is general demand conditions around the globe in terms of the timing for more business confidence. And as such, we'll say more aggressive buying behavior and inventory stocking. It may come soon or it may take a few quarters it's difficult to predict right now. So we'll leave it at that. Yes. And then you mentioned renegotiating some of the contracts in your prepared remarks, can you give us some color as to what you've done so far? Which businesses they are focused in? How's the reception been? Yes. In that particular case, I was referencing specifically, sunscreens and dealing with the tariff related to exports from from China. As you can imagine, when that came into place from a customer standpoint, that's a pretty big issue. And And of course, it's our objective to pass appropriately those costs on. And so it's taken some time to work with customers as they assess their supply situation, the role that we play in their supply chain both in terms of not just product, but innovation. And so we've been making progress in terms of passing that through. We've been able to pass through we'll say roughly half of the impact that we've had so far and we're working to bring that level up or as is appropriate to change the supply chain so we can avoid the tariff from period. Got it. I appreciate the color. Thank you. Thank you. Our next question comes from David Beglitter from Deutsche Bank. Your line is now open. Thank you. Good morning. ASI EBITDA in 2020, why wouldn't the growth be above mid to high single digits given the press base in 2019 and some of the potential one offs we saw this past year? Well, one of the things that we will have in 2020 is carryover from the cost out program. Some of that we won't have full year benefit this year. We will have full year benefit next year. A lot of that cost out And so that will be basis for what I would call initial growth over and above where we are right now where we'll likely end the fiscal year. As you look at end market demand, part of what we're going to have to work through and figure out is kind of what 2020 is going to look like from a top line perspective. And what we can do to manage and improve our mix on an overall basis, really driving toward more of the consumer consumer facing areas like personal care and pharma. As Bill talked about on the sunscreen front, we are going to have to deal with some of that from a perspective and some reformulation, but teams on that. So as I think about 2020, Certainly the mid single digit growth should be achievable. And really the rest of it's going to depend on end market dynamics and what we see there. And so more to come on that. But we're certainly pushing team hard from a growth perspective on driving that end market growth, whether it's share gains, new products with higher margin profiles, etcetera. Very clear. And just, sorry, back to the sunscreen again. Are you seeing any impact from this consumer backlash against chemical based sunscreen formulations? It's I think it's a limited part. Of course, it does affect we'll say demand in those areas in Hawaii, they have some limits in a couple of areas. But I I think, that's not as fundamental as the factors, which we've referenced in our results now. So it's obviously an important issue that we want to stay close to But I wouldn't point that out as the primary driver for the sunscreen results we have in the quarter. Thank you very much. Thank you. I'm sorry, a quick reference also, because I think it's important that that dynamic that we're referencing is really primarily a U. S. Centric dynamic. So we have a global sunscreen business and And as we talk about some of these factors, it's that you're referencing to U. S. Driven dynamics and demand. Thank you. Our next question comes from Jim Sheehan from SunTrust. Line is now open. Good morning. Thanks for taking my question. On the pricing versus raw materials front, are you finding pricing more difficult to achieve given the more lackluster demand environment? And how do you expect to execute on price increases going forward? Sure. So Not surprisingly, when you're in a strong inflationary environment, it's easier, I'll say, to pass those along in terms of customers understanding the rationale. If we step back from that though, we really need to and have been focusing on better defining and selling the value that our solutions provide in the marketplace. And with that, continue to price accordingly. As we introduce new products, while that's not per se pricing that does positively impact our overall mix. And so we are focused on sustaining pricing actions. I would say that from a supply demand standpoint that is not quite as relevant, especially in places like Pharma, as we move into some parts of our business, you may see that dynamic more, but we've done a really good job of filling up, for example, our HE system, we're up again this year. I think it's about 6% in terms of actual output and sales from that system. And what that does is that puts us in a position to also look at opportunities to upgrade the mix. So clearly, it's a focus. It's always a challenge for the commercial team, but we view it right now as we're not in a commodity dynamic. Let's leave it as that. Very helpful. And it looks like on Pharmachem, you may have pulled some orders forward or that you made some reference to changes in order timing there. Are you going to be giving some of that back in the fiscal fourth quarter? How do you see orders shaping up in Pharmachem? Yeah, it really is there was some timing of some orders. And with that in mind, we would expect that, yeah, we won't have the same type of growth that we saw in Q3 and Q4. And but in the aggregate, I think you can see we've been making progress in that business and we'll continue to do so. Thank you. Thank you. Our next question comes from Mike Sison from KeyBanc. Your line is now open. Bill, I was wondering if you can maybe walk us through how the how you're managing the business going forward, meaning you're giving us more information by end market And is the structure of your reporting teams coming from each of these little businesses, personal care, pharmacare, and does each of these units have its own finance, accounting sales? And I'm just kind of curious of kind of how the operating structure is set up now going forward now that you're just specialty ingredients? Sure. Sure. Good question. Okay. So we have, if you will, functional leadership that goes across the business. And for example, Rubito Coniglio, who is our Chief Commercial Officer, ultimately, has responsible responsibility for all of the end markets. And we have leaders of those end markets and of course, They focus on the imperatives to succeed in those spaces. They also have technical resources, which are aligned leverage our technology across our from across the company into their respective markets. They have limited if you will, financial resources, for example, Vito has financial resources to help him assess his business, but we don't build a whole infrastructure around each one of those markets like pharma and personal care. It's really more at the group level. So we have a strong commercial focus and strong focus on commercial contribution. The accountabilities are very clear in terms of revenue. In terms of pricing versus raw material inflation and also driving the needed absorption to make sure that we have well utilized facilities. Below that, we are in addition to that, we have our operations and we run our operations. Some of them facilities are of course different from each other, but we run them as a network. We track the profitability of each one of the core technology platforms that we have and have teams that review with the executive leadership team on a regular basis, the actions that we can take to make our HEC or Klucel or PVP platforms more profitable. And of course, we have an R and D function, which over time, while we have a strong central leadership for all of our tech resources. We've tried to deploy those resources much more closely aligned with the specific leaders in the end markets because we really need to focus on driving solutions that are relevant in the marketplace. And we've also built out a regional network because part of that is, as you can appreciate, the needs that we have in one region are different than another from a technology standpoint. And then behind that, the broader infrastructure that we might call supply chain, corporate purchasing and so forth, is really more central or centrally managed. I hope that was enough detail, but not too much. Yes, that's great. Thank you. And I guess, Kevin, in terms of your kind of soft framework for 2020, To get to the midpoint, sounds like you don't need a lot of economic recovery. You can sort of get there on minimal sales growth. And if you is that right? And then could you get sales growth, how much does that come down to the bottom line given you've got a lot of cost savings and such and could potentially drive some upside to your initial framework? Yes, Mike, certainly the carryover from the cost cost out initiatives will help provide a nice base platform. Yes. I think if we continue to see a weak demand if the weak demand environment were to persist, which we don't believe is going to be the case just based on kind of all the macro things we see out there. But if it were to persist, that would put us in low to mid single digit growth EBITDA growth in 2020. If we return to a more normalized environment. If that were to happen for the full fiscal year, you'd be high single digits potentially at low double. And the likely outcome is probably going to be somewhere in the middle of that. I mean, we're still very much working on our 2020 plan from a commercial perspective and SG and A perspective and an operations perspective. And so, yes, it's we still have a lot of wood to chop when it comes to that. But, our expectation would be to obviously be to grow EBITDA in 2020 and we feel like we've got a nice tailwind there just with the cost out. And we'll continue to leverage over and above that to help drive earnings higher to the extent that we see the macro ability to do it. Got it. Thank you. Sure. Thank you. And our next question comes from Lawrence Alexander from Jefferies. Your line is now open. Hi, everyone. This is Dan Rizzo on from Lawrence. How are you? Good. Good morning, Dan. Good morning. One question mentioned the product pipeline. Have you ever quantified how big that product pipeline is? And 2, do you use a vitality index at all? Yes. So what we have said is that we have, close to 30% of our sales coming from new and differentiated products. We a significant, we'll say over a third of that is developed internally. Some of that comes from acquisitions that we make that enhance our technology base. And some of them are very proprietary patented type products that have a longer cycle, say for example, in the pharma market or places where it takes a while to qualify. And we do, we do track our vitality index and we've been growing not only that, but we we have an equation that we use to really look at our productivity. We look at the size of the pipeline. We look at our technical hit rate we look at our sales impact relative to what the expectations are and we look at the time that it takes to drive a project through the system. And We haven't shared more specific details. It'd be a little hard in this call, but we've actually made improvements across each one of those areas. So We feel good that we're making progress, but I will tell you also that I think that this is a real key for our future to accelerate growth and reach our full potential is that we do need to continue to enhance the impact of innovation in our sales mix and we think that we have the capabilities and we have the systems and we're working as a team to to drive that. And I think that will help us to grow faster and allow us to better buffer or deal with the types of things that we've faced over the course of this the year. And one other thing, you mentioned sustainability or sustainable solutions in Personal Care is kind of a growth driver. Can you just give an example of how you guys kind of fit into sustainability? What you offer and what it means? Just kind of illustrate it Yes. So there are lots of different definitions as you can imagine. In the personal care area, there is a broader thought process or matrix, if you will, that has to do with the source of the materials, whether they're naturally sourced materials. One dimension. And the other is the degradability of biodegradability of those materials. And so as you can imagine, when you talk about things like HE see and you're starting with cotton linters and wood pulp, it's great because we're starting with a natural based material. We have really focused extensively on the biofunctionals business. It's been a big portion of the growth that involves our business in Bonscience. It involves our zeta fraction business. These are the areas that are keen interest to our customers. And importantly not only does it help us to grow our sales overall, but or in those specific areas, but for, we'll say, the broader range of products. So I would say the great majority of our research and development efforts are really focused on those materials that have stronger biodegradability and are from natural based products are sourced. From natural based products. You. Our next question is going to come from Mike Harrison from Seaport Global Securities. Your line is now open. Hi, good morning. Good morning, Buck. I was wondering if you can break out the revenue growth or decline in personal care between skin care, haircare, and oral care in the context of that overall 12% year on year decline? Yes. Well, of course, not surprisingly, oral care has been a challenge this year as it relates to the Colgate business. And we also referenced that in skincare we've had challenges with the sunscreen. I'd say overall, I mean, we did see just in general a a weaker personal care demand environment than we've seen in previous quarters. And we think some of that is really ephemeral and some of it as we've talked about, we'll need some specific, we'll say product and customer solutions. All right. And so was hair care up or was hair care down? Hair care would have been down in the quarter really driven by a couple of customers, L'Oreal and Henkel demand. We actually saw strong hair care demand in Asia in general, China included rest of the world was definitely weaker though. And we had positive growth in Q2. So We've had growth in this space. And then was also wondering in Personal Care, are you seeing any trading down happening in past downturns you've seen that consumers are not willing to pay up for very expensive products where you tend to be better positioned or tend to use your ingredients more intensively. But I also know that you've made some efforts to improve your position within some of the mid tier products. So are you seeing that trading down and maybe talk about how you're positioned to whether that type of phenomenon if it were to happen? Yes. So when we look, what I would say is that we have not seen as much of that as we've seen maybe in the past. And as you say, we've really tried to change our mix. In China, we've seen, as Kevin just referenced, some good growth in skin care we've seen in rest of Asia, some growth in hair care. Latin America has been a little bit softer on the personal care side So that may be a little bit of the dynamic that you're referencing there. But I really think the items that we identified and have spoken about are primary drivers of what's driven our results and the opportunities that we have to improve our results and really get back to the growth we're targeting. Okay. And then one last one on the coatings business. I'm just wondering if you're seeing some improvements, I know that North America has been relatively weak. Any improvement there? And do you have a sense of kind of where your customer inventory levels are as we come out of the fiscal third quarter? Sure. Well, I talk with the team here pretty much every day about what they're seeing from an order standpoint and so forth. We actually believe that our growth in Q3 and year to date has been stronger than the market. Some of that's been really based upon efforts that we've had in Asia. We're making really good progress of gaining share. They with Nippon in China, which is outstanding and helping us to drive growth overall. We have defined supply positions with the primary coatings manufacturers within or architectural coatings manufacturers in the U. S. And other parts of the globe. And I would say that that's a group that is more cautiously optimistic about what the fall will bring than maybe other parts of our business. There's a little more sense of optimism that, at least from the order builds that we're seeing, we're seeing a little bit of a pickup in demand. Sounds good. Thank you. Thank you. And our next question is going to come from Dimitri Silverstein from Buckingham Research. Your line is now open. A couple of things. We noticed that the Adhesives business was a negative grower for you in this quarter. It was one of the businesses, particularly sort of the consumerindustrial, border line, if you will, that was actually doing well. So Can you talk about what you're seeing in your end markets for your adhesives business that has changed here and how we should think about that for the second half of the year? Sure. Sure. So, yeah, we had a nice growth last year. We had about 4% growth in Q1. That flattened a bit in Q2. And I think what you see is that we've got a broad base of end markets pressure sensitive adhesives that go into food packaging and applications like that, which tend to be don't have a cyclical dynamic to it. We do sell some of our adhesives materials into transportation, automotive and the like. And we also provide in construction and if you will, the boards that are put together the sandwich boards that are used in construction. So we're seeing a little bit of demand weakness in those areas. And I think those are the areas that are primarily driving the the negative demand that we saw and once again, we believe that that will not sustain itself that we'll get back to more normalized performance as the market stabilizes a little bit comes to equilibrium and starts to grow. So transportation and building those portions the adhesives business really is what drove the negative percent. Got you. The adhesives business, more U. S. Centric or more European compared to your ASI business overall? Yes, much, much more U. S. Centric, we've been seeking to globalize it. And we have a position in Europe, but it's really primarily a North American business. Got you. Okay. Thank you. And then just one more question, if I may. If you look at, the reduced guidance that you provided over the past year or so. Every time it's been maybe something new or maybe something getting a little bit worse, it was okay. You kind of had to look back and look at sort of the rank of headwinds that you've experienced, whether it was foreign exchange, whether it was cost, whether it was a slowdown in particular end market demand, kind of how should we think about this coil spring sort of reversing itself as we get into 2020 2021. So can you sort of size for us the impact of each of these headwinds on you over the past year or so? Yes. So, and look to Kevin here to correct me if I'm misstating, but last year, in fiscal year 2018, we didn't provide any revised guidance for ASI, we had arranged that was within the started at the end of the year, we narrowed as we went through the year and we actually ended up right in the middle of the range. So there was no recast last year. I'm not specifically sure what you're referencing there. You're probably referencing. Pardon me? As of the last three quarters? Yes. Well, the last two? Yes, right. Okay. Fair enough. And I think that that is, specifically the things that that we have been talking about, which has been overall the reduced demand, that we've seen. That's what's driven the revisions. It's not dissimilar to what a lot of other companies have seen and the trade we've talked about those. When you look at from a year to date basis, that you have roughly half of the negative impact, which by the way we anticipated came from FX and Colgate. And the other half is really related to overall market demand that weakened as the year went on. And that's the market demand portion is what really drove our change in outlook that we made at the end of Q2 and the end of Q3 here. Got you. So basically, it's the lack of recovery that perhaps you've anticipated and other companies have anticipated, that that's behind the last two revisions versus that the Colgate issue obviously in foreign exchange that you were able to sort of brag it appropriately. That's right Dimitry. That's correct. I appreciate it. Thank you. Thank you. Thank you. And I'm showing no further questions. I would now like to turn the call back to Seth Mrozek, Director of Investor Relations at Ashland for any further remarks. Thank you, Justin. Thank you all for your time this morning. You have a great day. We'll speak soon. Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone have a great day.