Good day, ladies and gentlemen, and welcome to the Ashland Global Holdings Inc. fourth quarter earnings call. At this time, all participants are on a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will follow at that time. If anyone should require assistance during the conference, please press star then 0 on your touch-tone telephone. As a reminder, this conference is being recorded. I would like to introduce your host for today's conference, Seth Mrozek. You may begin.
Thank you, Tiara. Good morning, everyone, and welcome to Ashland's fourth quarter fiscal 2016 earnings conference call. My name is Seth Mrozek, Director, Ashland Investor Relations. Joining me on the call today are Bill Wulfsohn, Ashland's Chairman and Chief Executive Officer, Kevin Willis, Senior Vice President and Chief Financial Officer, and Luis Fernandez-Moreno, Senior Vice President of Ashland and President of the Chemicals Group, which includes Ashland Specialty Ingredients and Ashland Performance Materials. We released preliminary results for the quarter ended September 30, 2016, at approximately 5:00 P.M. Eastern Time yesterday, November 8. Additionally, we posted slides and prepared remarks 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, some of the matters discussed today and included in our presentations may include forward-looking statements, as such term is defined under U.S. securities law. We believe any such statements are based on reasonable assumptions but cannot assure that such expectations will be achieved. Please also note that we will be discussing adjusted results during this call. We believe this enhances understanding of our performance by more accurately reflecting our ongoing business. When discussing the Chemicals Group, we also refer to the following. Core markets, these are the highly differentiated markets of personal care, pharma, and coatings, which we identified during our November 2015 investor day as core platforms for targeted growth. Niche markets, where we deliver unique value propositions based on our technology platforms, and foundational businesses that provide cash and critical mass. With that, I will turn the call over to Bill. Bill?
Thank you, Seth. Good morning, everyone. As you will recall, at this time last year, the Ashland team established four core investor priorities for fiscal year 2016. The first was to keep the team focused to deliver on our fiscal year 2016 strategic and financial objectives during this busy and transformational year. While we won't speak much to the Valvoline results on this call, I would like to acknowledge what a great job the team did. More specifically, they achieved record business results, completed the acquisition of Oil Can Henry's, continued to expand the Valvoline Instant Oil Change network, and they reported strength in their international growth markets. To learn more about Valvoline's results, I encourage you to reference their released materials. Moving now to the Chemicals business, which will ultimately make up the new Ashland.
As anticipated, earlier in the year, ASI faced a number of macroeconomic challenges from foreign currency and from the negative impact related to reduced oil and gas market activity in North America. That said, ASI made good progress on a number of key fronts. We added new commercial leadership, which has a disciplined focus on driving results and enhancing our global leadership positions. We instituted new commercial excellence initiatives, and we enhanced our R&D processes under a newly created role of Chief Technology Officer. Ultimately, as anticipated, the ASI team returned to volume growth in the fourth quarter. I will speak more to these efforts later in the call. Within APM, the composites division proved resilient in a low-growth global environment.
The team focused on controlling costs, and they drove innovative solutions across their wide range of industries, from automotive lightweighting to enabling the purification of drinking water across the globe. Also within the APM business is the I&S division. This business negatively impacted our overall Ashland earnings as BDO prices decreased during the year. That said, our team, which we believe is the strongest in our industry, took action in Q4 to stabilize pricing. Moving on now to our second core investor priority for fiscal year 2016. The Ashland team worked hard and made strong progress to improve cash conversion. As you will recall, we took action in fiscal year 2015 to help drive cash conversion in fiscal year 2016 and beyond.
More specifically, we established a $335 million asbestos trust, and we also made a $500 million voluntary contribution to better fund the U.S. pension and reduce ongoing cash funding requirements. Adding to those gains, in fiscal year 2016, we tightly managed working capital and drove productivity improvements, which enabled us to defer certain capital capacity expansions, and that ultimately led to lower capital spending versus our original plan. These actions, in combination, enabled Ashland to produce 24% higher free cash flow in fiscal year 2016 when compared to fiscal 2015. Our third core investor priority for fiscal year 2016 was to effectively deploy this cash to create shareholder value. To this end, during fiscal year 2016, we bought back approximately 5 million shares of Ashland stock under a $500 million accelerated share repurchase program.
We completed the Oil Can Henry's acquisition in February, and we paid down, on a consolidated basis, nearly $500 million of debt. We also annuitized approximately $400 million of pension obligations. In that context, we continued to make important investments in ASI to support growth in our highly differentiated core growth end markets. More specifically, we constructed new production and laboratory capabilities to support the rapidly growing pharmaceutical market in China, and we expanded our cellulosic capacity in both North America and China. Finally, our fourth core investor priority for fiscal year 2016 was to take the required action to separate Valvoline from Ashland. This was a major undertaking. The time and energy expended by the organization to achieve this objective should not be underestimated or underappreciated.
Ultimately, we took the necessary actions to ensure the separation would be cost neutral, essentially offsetting incremental costs associated with becoming a public company by taking actions including redesigning and ultimately outsourcing much of our IT infrastructure, expanding the scope of our shared service activities in both Poland and India, and in addition, we made the difficult decision to freeze our pension plan and eliminate retiree medical. Beyond cost neutrality, to affect the separation, we also built the capabilities needed for Valvoline to operate as a standalone company. For example, we onboarded a new Valvoline CFO, CIO, CHRO, and we built the required corporate infrastructure to run a standalone company, including creating a new instance of SAP. It took a tremendous team effort, but on September 28th, one year after announcing the separation, we successfully completed an IPO for approximately 17% of Valvoline.
I will now turn the call over to Kevin and Luis to discuss Ashland's results in the quarter.
Thank you, Bill. Good morning, everyone. I'll start with a review of our fourth quarter results. Our adjusted EBITDA was nearly in line with the prior year as Specialty Ingredients delivered consistent performance led by both consumer and industrial volume growth. In addition, while Valvoline and the corporate segment income both grew year-over-year, Performance Materials declined due to the unplanned outage and weak year-over-year pricing in the I&S division. Luis will spend more time discussing the segment results in a few minutes. While I don't usually focus on corporate line items during these calls, I think this quarter it might be helpful. First, adjusted interest expense increased by $9 million year-over-year. More than half of this reflects the timing associated with the separation-related financing activities leading up to the Valvoline IPO.
You may recall that during July, we used $370 million of proceeds from the Valvoline senior notes to repay existing Ashland bank loans. Due to the success of the financings and the IPO since June 30th, excluding Valvoline, Ashland has reduced its gross debt balance by $1.6 billion. This will result in reduced interest expense for Ashland during fiscal 2017. Our effective tax rate in the fourth quarter was 27%. While this was slightly better than we expected, it was well above the 23% effective rate in the fourth quarter of last year. This reflects the evolving regional sales mix during the quarter. After taking all of this into account, Ashland's total operating income was consistent with the prior year. I would like to turn briefly to the issue of financial reporting and consolidation now that the Valvoline IPO is complete.
As you probably read in our prepared remarks, in the fourth quarter, Valvoline results on the income statement are consolidated into Ashland's results. This applies to all line items except for adjusted EBITDA and the bottom of the income statement, net income attributable to Ashland. Valvoline income related to the 17% we don't own is excluded from both of these line items. That being said, since the IPO closed so late in the fourth quarter, the Valvoline net income attributable to Ashland's non-controlling interest was very small, or about $1 million. After tax, this amount did not have a meaningful impact on our calculation of adjusted EPS attributable to Ashland. Subject to market conditions and other factors, we presently intend to distribute the remaining Valvoline Incorporated shares next spring following the release of March quarter earnings results by both Ashland and Valvoline respectively.
As a result, we will continue to consolidate the Valvoline results in this manner during the first two quarters of the fiscal year. Once the distribution occurs, historical Ashland results will be restated such that nearly all of Valvoline results will be reclassified into discontinued operations. Now let's turn to an overview of our cash flows for the quarter and the year. I continue to be pleased with our cash-generating capabilities. Our team took a strategic, disciplined approach to managing capital spending in the second half of the year, which helped to generate free cash flow of $149 million in the fourth quarter. For the year, we generated free cash flow of $403 million, a 24% increase over last year.
From a balance sheet perspective, it's worth reiterating that during the fourth quarter, excluding Valvoline, Ashland reduced gross debt by $1.6 billion using proceeds from the Valvoline financings, IPO, and cash on hand. On a consolidated basis, including Valvoline, gross debt was reduced by nearly $500 million compared to the prior year. Our liquidity remains strong. As of September 30th, we had cash and borrowing capacity of $1.8 billion. In addition, as Bill mentioned, prior to the separation, we executed an annuitization program for a portion of retiree population pension obligations to continue down the path of de-risking this liability. Overall, I am pleased with the progress we made on the balance sheet during the course of the quarter and the year. Lastly, I want to spend a few minutes on our outlook and plans for fiscal 2017.
As Luis will highlight, beginning this quarter, we will be providing more detail regarding our expectations for the full year. In addition to our normal process of providing quarterly sales and adjusted EBITDA margin ranges for the business, we will also provide full-year forecasted ranges for adjusted EBITDA. We plan to update these each quarter. We believe this will provide more visibility into our thinking about overall business conditions. With that, I will now turn the call over to Luis for his comments about the segments during the quarter. Luis?
Thank you, Kevin, and good morning, everyone. This morning, I would like to start with the Specialty Ingredients results during the quarter. At a high level, adjusted EBITDA was nearly in line with the prior year. We returned to volume growth in the quarter and continued our progress towards profitable growth. I am encouraged that the year-over-year declines we experienced earlier in the year are behind us. Under new commercial leadership, our consumer specialties team drove growth in a number of our key end markets, including skincare, haircare, and nutrition. Results with our pharma customers were consistent with a strong year-ago period. I am pleased to report that in late October, Ashland took a very important step to expand our global leadership position in pharmaceutical excipients. We opened a world-class production facility in Nanjing, China, to better serve China's growing pharma industry.
Demand for polymer excipients is rising in China as the industry moves to modernize oral drug manufacturing and comply with new regulatory standards that will become effective in early 2017. We are pleased to offer the production capabilities and an advanced quality control lab to our customers as we continue to grow our global leadership position in pharma. Returning to consumer specialties results, total volumes grew by 2% over the prior year. The volume improvement was offset by some lower selling prices, primarily for synthetic polymers, attributed mainly to lower raw material costs and a slightly lower mix of our higher-margin products. We also drove overall volume gains within Industrial Specialties. Again, under new commercial leadership, we drove gains in each of our coatings, adhesives, and other specialties end markets.
Furthermore, as you may have seen during the quarter, we announced price increases for a number of our industrial cellulosic product lines. While it is too early to figure out the complete impact of these announcements, these price increases are part of our strategy to better capture the value we are delivering to our customers. Overall industrial growth in the quarter was somewhat offset by weaker construction demand. In total, Industrial Specialties grew volume 1% over the prior year. Lower raw material pricing compared to the prior year also contributed to generally lower pricing, yielding a 3% sales decline in the quarter. Turning to our outlook, as Kevin mentioned, I would like to share some insight into our current thinking for fiscal 2017. First, we fully expect that Specialty Ingredients will continue the trend toward improving growth and profitability.
We expect to leverage our leading technology positions across our core end markets, enhance our ongoing commercial excellence initiatives, and introduce new products to help our customers win in the marketplace. This comes against an expected backdrop of low global economic growth and in the context of flat global currency exchange rates. We also expect to continue to keep our fixed costs in check while leveraging our commercial excellence initiatives to offset competitive pricing dynamics in the marketplace. For the year, we expect adjusted EBITDA to be in the range of $480 million-$510 million, with similar seasonal patterns as in 2016. For the first quarter of fiscal 2017, we expect sales to be in the range of $470 million-$485 million, and adjusted EBITDA margin to be in the range of 19.5%-20.5%.
You may remember that the first quarter is seasonally ASI's lowest quarter from a commercial standpoint. While we won't have the elevated level of plant turnarounds that we had in the year-ago period, we expect overall manufacturing expenses to be generally consistent as we continue to effectively manage our working capital. Turning now to Performance Materials. Adjusted EBITDA declined to $17 million in the quarter. This decline was driven almost entirely by I&S pricing and the impact of the I&S plant outage. Composites operating results were generally consistent with the prior year. While composites sales declined, overall margin improved due to lower raw material costs and a scheduled plant turnaround in the prior year. Our composites business continues to be resilient despite the generally low growth global economic environment. Intermediates and Solvents year-over-year adjusted EBITDA decline during the quarter was more than we originally anticipated.
We had an unplanned shutdown at the U.S. I&S facility during the month of August that lasted for approximately five weeks. The outage resulted in incremental costs of roughly $4 million during the quarter. We were able to continue serving our customers through proactive inventory and supply chain management. Despite the outage, I&S volumes actually grew by 1% during the quarter compared to prior year. During the quarter, we performed an asset impairment review of the I&S division. As a result, we recorded a non-cash impairment charge to the I&S division assets. Turning now to our outlook for APM in 2017, I would like to provide some insight into our current thinking. For composites, we expect volume and operating results to be generally consistent with 2016. In INS, we expect BDO and related derivatives pricing to remain well below prior year levels through the first three quarters of the year.
Assuming the prices remain stable at fourth quarter levels, we expect the full year impact to Performance Materials adjusted EBITDA to be approximately $20 million, with the largest impact being in the first half of this year due to the impact of fiscal 2016 price declines. For the full year, we expect APM adjusted EBITDA in the range of $95 million-$105 million, reflecting these assumptions for both composites and INS. For the first quarter of fiscal 2017, we expect APM sales to be in the range of $210 million-$230 million, with adjusted EBITDA margin to be in the range of 6%-8%. The forecast includes the impact of a planned turnaround at our U.S. BDO facility. This work has been scheduled to complete a required catalyst change at the plant that occurs once every four to five years.
With that, I will turn the call back over to Bill for his closing thoughts. Bill?
Thank you, Luis. As we look forward to fiscal year 2017, we have established three core investor priorities. The first is to complete the separation of Valvoline and establish the new Ashland as a focused specialty chemical company. As Kevin described, we are well on our way on this front. Our second core investor priority is to meet or exceed our fiscal year 2017 business plans. For ASI, we are targeting mid-single-digit growth in adjusted EBITDA. This will be in a low growth market environment. ASI will need to leverage its differentiated research, technical, and supply chain capabilities. It'll also need to price aggressively to capture the value we create. We will need to prune less so the positive impact of our share gains become more visible and impactful. As in the past, we will maintain strong cost discipline.
Within APM, we expect composites results will be in line with fiscal year 2016 by driving value pricing, providing solutions to customers' needs, and by continuing to reduce overhead costs. Also within APM, in fiscal year 2017, while BDO prices appear to have stabilized, we believe the I&S division will be negatively impacted by carryover price reductions experienced in fiscal year 2016. Put together, we expect overall chemicals EBITDA growth from the combination of ASI and APM to be in the low single digits in fiscal year 2017. That brings us to our third core investor priority for fiscal year 2017. We believe now is the time to pivot the company from a focus in 2016 that was heavily concentrated on the Valvoline separation, to a new focus on driving the new Ashland to achieve its full potential as the leading specialty chemical company.
To achieve this objective, the Ashland team is focused on four critical success factors. The first is, quite obviously, to ensure that we have a true specialty chemicals portfolio. In our November 2015 Investor Day, we defined a specialty chemical as being a material that has a small portion of our customer's product's cost but delivers a big impact on our customer's product's performance. It took a tremendous amount of work over the years by the organization to create and ultimately recraft our ASI business to meet that definition. Not surprisingly, we see ASI as the new Ashland's primary area for growth and investment. Moving to composites, this business meets part of our definition of a specialty chemical. The composite team clearly leverages innovation and service to enable solutions which positively impact the performance of their customers' end products.
That said, as our composite materials are a major part of the customer's end cost, we know this business will always have a greater price sensitivity. Still, the composites division plays an important role in our portfolio due to its strong North American-centric cash flow. To put it in perspective, the composite business produces cash flow roughly equal to the cash required to pay the new Ashland's dividend. That leaves us with I&S, which, while well managed, does not meet our criteria as a specialty chemical. It's a cyclical business where profitability is driven largely by supply and demand. Thus, while we believe we are at the bottom of the BDO cycle, as we emerge as the new Ashland, it will be important that we further assess the role of I&S within our portfolio.
Rest assured, as in the past, Ashland's board and management team will have a bias for action in terms of enhancing and further evolving the portfolio at the appropriate time. The second critical element to being the premier specialty chemical company is to deliver top-quartile EBITDA margins and growth in excess of GDP. To achieve this level of performance within ASI, we are re-engineering our approach to prioritizing and commercializing new product development activities. Our target is to increase our sales from new products to 30% of sales within ASI by 2020. We also believe new product sales should carry gross margins at least 5% higher than the average today. We start this journey with a highly differentiated set of technology platforms, the best scientists in our industry, and world-class laboratory analytical scale-up and manufacturing infrastructure.
We currently have more than 2,800 active patents around the world, over the last year, we've filed for over 30 unique patents, including 19 to protect our new hybrid technology, which bridges the benefits of our unique combination of technology platforms. To accelerate our progress in this important area, we recently kicked off a multifunctional engagement team, which is tasked with expanding the size of our pipeline and speeding new technology to commercialization. Next, to capture the value our solutions bring to our customers, we are bringing new tools and training to our industry-leading commercial teams. Our journey to commercial excellence has accelerated with the new commercial leadership we put in place late in fiscal year 2016. These leaders bring a new sense of purpose and discipline to our commercial efforts.
To augment their impact, we are now moving forward with a focused price to value initiative led by those commercial leaders and leveraging new approaches from external experts. To drive targeted EBITDA and growth levels, we are also taking actions to redefine our functional roles. Our functional teams have always had a steadfast focus on governance and compliance. We must now augment this focus with a commitment to operate at a competitive cost structure while enabling our commercial organizations to expand their sales. On the cost front, as previously discussed, we have taken actions to ensure the Valvoline separation will be cost neutral, essentially offsetting incremental standalone company costs. In addition, we are making strong progress towards achieving the $25 million of cost savings we announced during our Q3 earnings call. We expect these savings to more than offset inflation over the next 18-24 months.
That brings us to the fourth critical element to meet our full potential as the premier specialty chemical company, that is to ensure that we effectively drive our earnings to cash, we deploy that cash effectively to create shareholder value. To that end, we are targeting to keep changes in working capital plus capital expenditures to less than 7% of sales in fiscal year 2017. This will require that we reduce our capital expenditures relative to fiscal year 2016, that we also manage down inventory levels during the year. As for our capital deployment strategy, we will keep the same priorities going forward. We will prioritize organic investment in our specialty product markets first. That said, we already have a healthy level of R&D investment, we do not believe we need significant capital to support our near-term growth objectives.
We have the financial flexibility and remain open to bolt-on acquisitions if they're close to our core in highly differentiated areas and at a price that delivers compelling investor returns. That said, this is not our primary focus at this time, as valuations are high, and we want to keep a laser-like focus on driving EBITDA growth through execution within the businesses. That leaves us with two other uses for cash, reducing debt to lower our interest expense and returning cash to shareholders. Please note we still have $500 million remaining on the share buyback authorization by our board, which is active through December 2017.
In conclusion, while we've had numerous challenges, we made great progress in many fronts in 2016, especially as it relates to driving record performance in Valvoline, achieving a major milestone in the separation of Valvoline with the September IPO, and returning ASI to volume growth in Q4. As we move to fiscal year 2017, we are pivoting our focus to achieve our full potential as the premier specialty chemical company. We have much work to do, and it will take some time to see the full impact of our efforts. However, we are committed to making the tough decisions to further evolve our portfolio. We're also committed to improving our margin and growth rates with a fundamental focus on new products, commercial excellence, and reducing our infrastructure costs.
We are also committed to take actions to drive increased cash conversion and then deploy that cash effectively to drive shareholder value creation. I believe we have a great team which is aligned around a clear strategy. We are excited to complete the Valvoline separation as it will complete our journey to create two great companies. It will also enable us to focus all our efforts on moving the new Ashland to the next level and ultimately create the premier specialty chemical company. Thank you for your interest in Ashland, and I will now turn the call over to the operator to take your questions.
Thank you. Ladies and gentlemen, at this time, if you would like to ask a question, please press star then one on your touch- tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Again, if you would like to ask a question, that's star one. Our first question comes from the line of John Roberts from UBS. Your line is open.
Good morning. Quick question, Bill. Speaking of growth, you've talked about global GDP in 2017, 3%-3.5%. Do you expect ASI's growth to exceed the market? Can ASI grow above that for next year?
Well, certainly, I think that's a function of the segments that we operate and the geographies that we operate in. We would expect that, for example, in the pharma market, we would continue to grow at rates that are greater than that. There are other parts of the market which we'll say have a little bit more cyclical component, and we may grow at a slower rate in those areas. Luis, you may want to add a few specifics to that.
Yeah, no, thanks, Bill. That's a perfect answer. There are areas like, obviously, energy where we, at this time, are not assuming any recovery of the energy market. Even though it's a small portion of our business, that's one that we wouldn't expect to grow. The vast majority, definitely in our core segments, we are seeing now volume growth, and we expect to grow close to that GDP, slightly ahead or above that level in both pharma, personal care, coatings, some of our niche business like adhesives and so forth. Again, the areas where we're more conservative is more in energy and construction, where, again, we still see more muted growth.
Okay, just as a follow-up. The issues you've had in the past in ASI in terms of emerging markets or Latin American customers trading down, is that still going on? What can you do to serve those markets if this is like a longer-term issue than initially expected?
No, I think that I have good news to report there. Definitely we have seen some improvement in Latin America, specifically in Brazil, where we saw both reduction of demand as well as trading down as the new government there is stabilizing the economy. The currency has actually recovered somewhat. Actually, we're seeing both the return of demand and return of customers back to buying the products that they really like. Although it was still a decline year-on-year, the decline was much smaller and we're starting to see a turn into Latin America. At the same time, we continue to do what we do well, which is reformulate our customers' products and help them drive products that the consumers will be able to buy. We're seeing both impacts at this time.
Kevin and I were just in China, what, a week or so ago. The overall sentiment and mood of the team is much more buoyant now than it was one to two quarters ago. We're cautiously optimistic we'll see a stabilizing and hopefully ultimately an uptick in demand in those important regions for us.
Yeah.
That's great.
I was in India three weeks ago, and I think it's similar in India as well.
Okay. Thank you very much.
Thank you. Our next question comes from the line of Mike Harrison from Seaport Global Securities. Your line is open.
Morning, Mike.
Hi. Thanks for taking my question. Curious, the volume growth in Specialty Ingredients seemed to come a little bit at the expense of margins. I think some of us would have thought that as you started to see volume growth, that you'd be able to leverage that to the bottom line and see better margin performance. Why do we seem to be getting less margin traction even though volumes are improving?
Yeah, that's a very good question. I'm glad that you asked it. Yes, we started to see volume growth. Fundamentally, our mix of market segments was slightly different. We had comparable sales in pharma. Pharma is definitely one of our highest margin business on the backdrop of a very strong quarter last year. While some of the growth that we started to see came back in areas like personal care, like adhesives that have lower margins. Really we had a little bit of an impact of mix. As we continue to grow in all of the segments, I expect that to be more evident, the fact that the growth is also driving higher margins. Again, I do want to highlight that we're working very aggressively in managing our working capital, and that also has an impact on margins.
Justin, that really relates to just the activity levels within our facilities. Just to highlight also, we are taking, I think, fundamental and aggressive action as it relates to really making sure that we are very disciplined in terms of understanding, defining, and ultimately pricing to value, as I mentioned earlier, and so that should help as well.
Curious in terms of the capital deployment, what capital projects did you delay and why?
Yeah. We had a couple of expansion projects that we expected to start working on as we speak on some of our cellulose chain. The good thing here is throughout the last year, we have worked on productivity initiatives, and we actually have been able to increase the capacities of our plants. At this time, we don't see the need for those expansions. That's true, again, for some of our cellulose, some for some of our PVP plants, fundamentally driven by productivity initiatives that have increased the capacity of our facilities, which at this time allow us to delay the expansions that we thought we were going to need at this time. We will continue to work on those productivity initiatives in that regard.
Luis, just in terms of the BDO plant in the U.S., you had the five-week unplanned outage during this quarter, you're going to be changing the catalyst during Q1. Why didn't you change the catalyst while you had the unplanned outage?
That is a good question and one that I ask myself. I'll tell you what it is. Fundamentally, this is an incredibly complex catalyst change. It's a very specific catalyst. It happens four to five years. Both getting the catalyst on time, this is a catalyst that cannot see humidity, cannot see air. It requires months of planning. Unfortunately, even though we had the unplanned outage, it really couldn't come at a worse time because we just couldn't do this, what is really one of the most complex operations in these plants. Again, only happens every four to five years. I will tell you, the team tried hard to make them happen together.
Because of the complexity of the operation, both from a safety perspective and from the type of catalyst and the type of equipment that we needed, we were just not able to do it. It is a very unfortunate situation in that regard. The good thing is this only happens every four or five years in that facility, and we're going to do it in the quarter. We tried, trust me.
All right. Thanks very much.
Thank you. Our next question comes from the line of David Begleiter from Deutsche Bank. Your line is open.
Thank you. Good morning.
Good morning.
Good morning, Dave.
Bill, Luis, just on ASI, the low end of the guidance is $480. What needs to occur for you to hit that number? Just how conservative is that guidance of $480 that you put out there?
Well, at this time, we're trying to put a number that is consistent with our expectations. I think that Bill was very clear that our target is to have mid-digit EBITDA growth, that's what we're planning to do. What could need to happen? Obviously, lower growth than what we're expecting. Some slowness that we are seeing in the emerging economies to continue in a way that we're not expecting. I think it's in the realms of the possibility, obviously we are trying to put a guidance where hopefully the middle is where we believe is where we're going to be. We want to make sure that we have all of the probable aspects. We will continue to update the guidance throughout the year as we move forward. We did want to share where our thoughts were.
Again, our objective is to have mid single digit EBITDA growth for the business.
Yeah, I think that that's an important point Luis just made, is we do plan to provide some update as we go forward, it would be logical that we would pull that range in a little tighter as we begin to get quarters behind us. As we learned this year, a fiscal year can be actually a long time, many things can change. There are some surprises out there in the world last night and this morning, the types of things like that that will have some impact on the world, it will be interesting. We're ready. I think our focus on the fundamentals, controlling the things that we can control, managing our costs, managing our price, driving productivity and ultimately volume through our facilities, driving share shifts.
Those are the things that we can control that make a difference and can help to drive our results more to the top end of that range, which ultimately, of course, would be our logical objective.
Very good. Just one last thing on Performance Materials, the guidance in that segment, the improvement in Q2 through 4 versus Q1. Any more color you can provide on what's driving that improvement and how much confidence you have in that being realized?
Are you referring to fiscal year 2017?
Yes.
Okay. I think Luis can provide more color on it. One of the things to note is that the BDO prices were falling throughout the fiscal or the margin related to pricing was falling throughout the fiscal year. When you start in Q1, you have the biggest gap between where we are today and where prices were last year. You combine that with the outage, which is significant as Luis said, then ultimately, as we begin to move past those sequentially through the year, that's where we begin to see things, if you will, improving. We are working hard to drive prices up. It's still a challenge in this market, but we're making some progress.
While we don't talk a lot about it, this big outage that Luis is referencing related to the catalyst, it actually does change our plant productivity and our yields, and that should help us as well. Clearly Q1 is the most difficult as we see it within the I&S business.
That's where we're going, but nothing to add.
Thank you very much.
Thank you. Our next question comes from the line of Christopher Parkinson from Credit Suisse. Your line is open.
Thank you. Can you just talk a little bit more about your new product pipelines, specifically in personal care and coatings? Within personal care, I believe you've previously launched some new products in hair care, but you're discussing some new stuff in skin and oral care. Is there anything to consider that as we head into 2017?
Yes, definitely. Actually, as we speak, there is the in-cosmetics show in Thailand, we have a variety of products that we're introducing there. One is a hair care. We're also introducing a fair number of biofunctionals, some of them naturally based on our Zeta Fraction technology. That would be an example of our pipeline. Obviously, we're introducing them at the show, that's again, just to show that we're starting to move things. The biofunctionals go mostly for skincare. In terms of oral care, we'll again, we have a pipeline. We're not introducing anything this quarter, but we have a couple of other products that we're working on with our customers. That's true also for the coatings area, where we are working with some of our customers moving forward. Again, some of the introductions are market-related, so we introduce it in the market.
Some others are very specific to a customer, we don't announce them publicly. The example I wanted to give is, again, in in-cosmetics, we're introducing a new set of products, hair care, skincare, and we've also introduced new products in nutrition. I feel stronger about our pipeline and then the commercial excellence initiatives to drive that to commercialization faster.
The only thing I might just add is that, as we're talking about with the lab that we established in pharma and the capabilities and the infrastructure that's been established around the globe, making sure that we take the core technology and localize those to meet the very specific needs of the local market, those are really critical and ultimately would fall within our definition of new products. Some of those are not headline in terms of it's a new patented molecule, but they're relevant to the customers and enable solutions for the customers. That's why we're making the investment, and we feel very good about that global footprint to support, whether they be global customers or local customers, meet their local needs.
That's helpful. Can you just give us a little more of a glimpse into your updated thought process on capital allocation, specifically buybacks versus M&A? On the M&A front, can you just broadly discuss any key trends you've seen, whether it's geographic or from an end market perspective, and how you're thinking about targeting assets complementary to your portfolio? Thank you.
Sure. As referenced just a few minutes ago, we really want to maintain a strong discipline. Things that are very close to the core that enhance our position in our more differentiated areas. Those things, I believe, where cost synergies can enable the fundamental economics are really key to us. Yet, at the same time, and also I would mention really more bolt-on related as opposed to very large acquisitions. I also want to emphasize while we will be, if you will, opportunistic in that area, valuations still do remain high, and I think we feel that as we're pivoting to become the new Ashland, we have opportunities within our core business to continue to drive greater gains. As important and valuable ultimately as acquisitions can be, we'd like to make sure that we execute at a high level on those.
We want to maintain our focus. We'll be opportunistic, but it'll be close to the core if we were to take any actions.
I think what I would add to that is, as we indicated, we still have a $500 million share repurchase authorization that is active through the end of December. Obviously, we pay a dividend, and as in the past, we don't view these things as mutually exclusive. We can do any combination of these things over the course of time.
That was really a key part of creating and the way we established the separation to two great companies, is we ultimately wanted both of the companies to have the financial flexibility to ultimately pursue their strategy. We feel good about that.
Great. Thank you very much.
Thank you. Our next question comes from the line of Laurence Alexander from Jefferies. Your line is open.
Laurence.
Laurence.
You guys mentioned changing dynamics and with the outcome of the presidential election, would you think a change in policy would have an outsize effect on ASI, given the relatively large exposure you guys have in that segment from the emerging markets?
Yeah. Your guess on that front is as good as ours in terms of what will be the net effect on, we'll say, overall GDP and the relative growth and health of the global economy of which we're part of. We'll have to see the effect of that result on the strength of our dollar. That's an area that we'll keep a close focus on. There's nothing specific other than what you would expect to see really with all industrial companies related to the impact of the election. We're just like so many people waking up with interesting news to digest, and that's the only reason why I mention it.
Okay. Then you did talk about I&S and potentially strategic alternatives. Is it large enough to be spun, or is it something where you're looking for a sale, or just kind of everything's on the board, so to speak?
Well, I think what's important is we do need to, and we recognize we do need to have a truly specialty portfolio. We know that on the range of businesses within our overall company, the new Ashland, that that is on the commodity end. There are different ways to reduce the volatility that's associated with I&S. I'd rather not get into specific thoughts and specific actions and just leave it that the company has had a good discipline and a good bias for action, and we understand the issue at hand. We will probably talk more about this in the future.
All right. Thank you very much.
Thank you. Our next question comes from the line of Mike Sison from KeyBanc. Your line is open.
Hey, guys. Good morning.
Good morning, Mike.
When I think about your outlook for ASI, the first quarter EBITDA growth is essentially flat. I understand the seasonality on a sequential basis. When you think about 2Q, particularly, what type of growth do you think you need to see in the beginning of the year to sort of get to that mid-single digits? Any particular areas of growth that you need to see on a volume basis to get there?
I think that there's three things that we are working on that are relevant to get us to that mid-single digit EBITDA growth. Clearly, volume growth is one of those, and there are commercial excellence initiatives in specifically managing the pipeline of new opportunities and new products is key. Again, if we get volume growth in that low single digit level, that GDP number, that would be one key. Again, we're working very specifically on driving that. Secondly is the work that we're doing in our price to value initiatives, which include both our general price increases, but very specifically, driving to get the value that our products deliver to our customers will be a second element of increase. The third one is maintaining cost discipline. Those three things together, as we execute them, should get us to that level.
Volume growth, GDP-like, success on their price initiatives, and cost discipline will get us there.
I just want to highlight that, and we've mentioned this before, that really we've had a good history of growing in our key segments like pharma. Unfortunately, some of that growth has been obscured by some of the things that we've faced over the last year and other companies have, as well as decisions to really be pruning our portfolio. We understand our mantra now is really more focused on growth. I think some of the things that have been happening in the business will be more apparent as we go forward.
Got it. When I think about each of the major businesses within ASI, that Consumer Specialties, Industrial Specialties, in terms of their specific EBITDA growth, I know you don't report in that manner, but would you have Consumer Specialties going faster than mid-single digits to get to your goal than Industrial Specialties lower?
Yeah, I think that, again, we normally don't talk specifics about those, but I would say what we're trying to do is grow faster our core segments. Obviously, pharma, consumer, and coatings. We are seeing that, followed very closely by our niche businesses. Within that, adhesives, nutrition are businesses that are growing at a good pace. It's very consistent with the strategy that we've said in the past. Those are the areas of the business that, again, if they grow faster, automatically our EBITDA grows faster because those are the higher margin businesses.
Great. Thank you.
Thank you. Again, if you would like to ask a question, please press star then one on your touch-tone telephone. At this time, I'm showing no questions in the queue. I would like to turn the call back over to Seth Mrozek for closing remarks.
Thank you, Tiara. Thank you all for your time this morning, and thank you for your interest in Ashland. I hope everyone has a great day.
Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.