John McNulty: Yeah. Thanks for taking my question. Guillermo, I know last year, a lot of the big issues you had were around freight and logistics, and it looks like those channels or those issues have largely been resolved. Can you speak to what kind of cost relief you’re seeing there? I know we’ve seen the availability of things like freight to improve, but on the cost side, I guess I’d be curious how much of a tailwind that actually might be for you at this point.
Guillermo Novo: So definitely, we’ve seen improvement into the last quarter of last year. We were starting to see improvement throughout this quarter. Our first quarter, we continue to see that. So I think that’s stabilizing our inventory and that’s allowed us to rebuild a lot of our inventory levels. There are still — I mean it’s not back to normal. It’s still that on-time shipments are still catching up, and it really depends on which lines you’re talking about, but clearly, a big improvement. On the cost side, we’re also seeing some improvement. Just a reminder, as we did — our shipments are from Europe and the U.S. out. So some of the ultra-high costs from exporting from China out were not the big driver for us. Our bigger problem was the on-time, the reliability of the supply chain was a bigger challenge. So it is an improvement area, but it’s not relative to maybe other companies, it’s not the same size, given where our channels are of flow are going to.
John McNulty: Got it. Okay. Fair enough.
Kevin Willis: John, those costs continue to ramp through a lot of ’22 just based on energy prices, et cetera. So for our Q1, freight logistics was still higher than prior year. Probably, call it, around $10 million, give or take. So that was — that continued to be a negative from a cost perspective. But again, obviously, that’s slowed down. As the year progresses, those comps should get better.
John McNulty: Got it. Okay. No, that makes sense. That’s clear. And then I guess with regard to the buyback that you guys have in place, the $100 million 10b-5, I guess can you help us to think about the timing or how — like the duration of that buyback? And how much you’re kind of committing to for your fiscal 2023? How should we be thinking about that? And just given higher rates at this point, given the market’s unwinding a little bit over the last, whatever, nine to 12 months in terms of valuations, do you see more opportunities at this point to put capital into M&A? I know it’s a target for you, but I guess, can you help us to think about whether it’s a more target-rich environment at this point or maybe not?
Guillermo Novo: Let me comment on the M&A side, and Kevin, you can comment on the buyback process. I think our focus right now is driven with bolt-ons. I think we’re in a good position to do that in terms of our cash position and our overall capital availability. So this does not change the interest or opportunities. I think the reality is, it takes a little bit of time for the valuations to reset, and we’re looking at specific opportunities that we continue to work on, but we’re going to be patient. Our view is, we got — organic growth has to be the big driver. Innovation, the capital has to be where the engine is, and we want to do these bolt-ons to augment our portfolio. But don’t want to be — we don’t want to be in the mode of having to do it or going and paying prices that we will not create value in the long term.
So we’re going to be patient. We’re going to be disciplined as we move forward. And I do think the environment will improve as we move into the back half of 2023 from an M&A perspective. So I don’t think we’re changing our ability or interest to do that. But Kevin, do you want to talk about the process?
Kevin Willis: Sure. So in terms of the value, we are committed to the $100 million. I mean strictly speaking, these plans can be turned on and off, but our intention is to spend the $100 million. In terms of how long it will take, it will be a function of price and the volume of Ashland shares that are traded. The way these programs work is, we will have an agreed grid — price and volume grid with the bank that’s executing this buyback for us, and they’ll be in the market each day, and the amount of shares that they buy will be dependent on how many shares are trading and at what price. I would expect us to be able to complete this by the end of the quarter. That would be my expectation, but will remain to be seen. And if not by the end of the quarter, certainly, by early in the June quarter.
John McNulty: Got it. Okay. Thanks very much for the color. That’s actually a bit faster than we were thinking, so good to hear. Thanks very much.
Operator: Thank you. And again, one moment for our next question. Our next question will come from Mike Harrison of Seaport Research Partners. Your line is open.
Mike Harrison: Hi. Good morning. I was wondering, if you can give a little bit more color on the strong demand that you’re seeing in the pharma business. Is this increasing penetration or share of wallet with existing customers, as new customers, new products? And I guess, maybe what are you seeing in terms of underlying market growth? Really just trying to get a sense of whether this growth that you’re seeing there or strength is sustainable through the rest of fiscal ’23?
Guillermo Novo: Yeah. The underlying market has remained resilient. So it’s not that the overall market is growing at the same pace. We clearly have gained share. And this segment, as we said last year, we did not expect a lot of reset there. Significant concerns, still about availability of product, both supply chain was a headache prior year, but obviously, the situation in Europe and specifically, in Germany, has had a lot of impact on availability of product, reliability of supply. So as in a broad base, that entire industry has been focused on reliability, given the products and the importance of their products to society and to the health — welfare of people. That’s been the big driver, and we saw that as we move forward.
Now looking out, we expect demand to continue to remain strong. We probably will not see significant resetting of stocks or things of that nature, and I think we will continue to do well as we look out. Will things normalize in Europe and supply? I’m sure, towards the back end of the year, there could be some improvement, and will normalize some of our growth rates towards the back end of the year. The question is going to be, what’s going to happen in Europe, and I don’t think there’s a lot of certainty. So we’ve made commitment to our customers and them to us to make sure that we’re guaranteeing as best we can the supply reliability.
Mike Harrison: All right. And then a question on the Calvert City disruption that you had. Is part of the $15 million impact related to winterization or backup power or other measures to help make sure that, that facility is more resilient in future cold weather? And then do you expect any insurance recoveries associated with that outage?
Guillermo Novo: Most of it — and Kevin, you can comment a little bit more, but it’s maintenance to repair, bring it up to speed and the absorption impact. This plant is not a new plant. It has been in that weather. This weather was not the worse. It was a very unique problem we had in one of unit that had later on implications with others. And that’s why the maintenance and the downtime was much more significant than expected. So it was really very specific to a unit that in our compressed air that you think of in freezing weather about liquids and things like that. Air is probably not the area that you’re more concerned, and there was just a failure in a specific area that had a downstream effect in boilers and other areas. So that’s really the big driver. The plant historically has done very well in this kind of weather. So it’s more of a unique situation. But Kevin, if you want to give a little bit more color on the numbers.
Kevin Willis: Yeah. The biggest chunk of it is lost absorption. Repair costs are going to be smaller — a smaller piece of the equation. From an insurance perspective, we actually maintain pretty high deductible to keep our rates as low as possible. We have historically been very, very comfortable with that simply because we just haven’t had that many issues over the course of time. And so we’ve banked a lot of saves premium as a result of that, but it’s probably three to five of the total impact is going to be repair cost and the rest is going to be lost absorption.
Guillermo Novo: And this is where, for the third and fourth quarter, we had plant shutdowns, obviously. Since we had shutdowns, we try to do as much other maintenance as possible, too. So that’s what the team is working is what work was completed, what do we — what can we avoid in terms of future shutdowns. And that’s why the timing of the offsets will be not in the same quarter, it’s going to be more around when we had some of those other activities planned.
