June 7, 2010 - Ashland Inc. (ASH-NYSE) operates as a specialty chemicals company internationally. Its Ashland Aqualon Functional Ingredients segment produces cellulose ethers and pale wood rosin derivatives; and specialty additives and functional ingredients. Its products offer functionality, such as thickening and rheology control; water retention; adhesive strength; binding power; film formation; protective colloid, suspending, and emulsifying action; foam control; and pH stability.

Its Ashland Performance Materials segment manufactures and supplies specialty chemicals and customized services to the building and construction, transportation, metal casting, packaging and converting, and marine markets. It also offers unsaturated polyester and vinyl ester resins, and gelcoats; adhesives and specialty resins; and metal casting consumables and design services.

The company's Ashland Consumer Markets segment produces and markets packaged automotive lubricants, chemicals, appearance products, antifreeze, and filters to the private passenger car, light truck, and heavy duty markets. It also operates a quick-lube franchise under the name of Valvoline Instant Oil Change.

The company's Ashland Distribution segment distributes chemicals, plastics, composite raw materials, and plastics, as well as provides environmental services, including hazardous and nonhazardous waste collection, recovery, recycling, and disposal. The company was founded in 1918 and is headquartered in Covington, Kentucky.

Things are looking very good at ASH. That wasn't the case in 2008 and early 2009. The stock took a beating, going from $58.60 down to $5.40 before it was all over. Since early 2009, the stock has been on a tear, running as high as $63.70 recently before pulling back to its current level.

Sales improved during the same time period as earnings took a step back, going from $7.785 billion in 2007 to $8.381 billion in 2008. Last year they declined to $8.106 billion. For this year, 8 analysts have a consensus estimate of $8.81 billion, up 8.7%. Next year, they forecast $9.18 billion, a gain of 4.2%.

In the second quarter, sales jumped 13% compared to last year's first quarter. Earnings did even better, up 20%, after nonrecurrring items. All of the company's divisions showed sales improvements. Costs were lower as management continues its focus on expense reduction and resizing the company's cost base, a program started 2 years ago. Even with higher raw material costs, thanks to the new cost structure, operating and profit margins widened.

The dividend was just doubled to 15 cents a quarter. While it was cut severely (from $1.10 in 2007 to 90 cents to 30 cents last year), it seems the company is now confident enough in the future to start raising it again. It only takes about 10% of the profits to pay at this level. Dividends are paid in March, June, September and December. A major reason for the lower dividend was the purchase and incorporation of Hercules in 2008 that cost $2.6 billion. Another reason: paying down debt, taking it to 23% of capital. The company also worked on creating operating leverage and built up internal growth opportunities. Now, with those events in the rear view mirror, cash flow is strong and can be used to raise the dividend, buy back stock or pay down more debt.

More numbers: Market Cap is $4.11 billion. Trailing P/E is 16.12 while the Forward P/E is 11.31. Price sales ratio is .48. Price to book is 1.11. Book value is $46.90. Operating margin for the last 12 months was 6.69% and Profit margin was 2.97%. Return on equity was 6.75% and Return on assets was 3.81%. Total cash is $499 million or $6.36 a share. Total debt is $1.46 billion. Beta is a very high 3.46. There are 78.50 million shares outstanding with a Float of 72.26 million. Insiders own 24.47% of the stock. Institutions have 70.80%.

Ashland has managed to prosper in spite of a tough economy, domestically and abroad. With its new cost structure and the Hercules purchase fully integrated, its future looks very bright. As long as global economies continue to recover, the stock seems to have a good chance of doing better over the next several years.

- Company Web site: www.ashland.com

- Ted Allrich