S&P Global Ratings downgraded Ashland Inc. to BB from BB+ on Monday, saying it has re-evaluated the company's business risk profile and concluded that credit metrics have weakened. The outlook on the rating remains stable.
S&P noted that Ashland has materially reduced its overall size over the last decade by divesting several businesses to concentrate on higher-value-per-pound chemistries and more specialized activities. Key divestitures cited include the sale of Valvoline Inc. in 2017, the transaction to exit the Performance Adhesives business in 2021, and the phased disposal of assets tied to the Pharmachem Laboratories acquisition, culminating with the sale of Avoca in 2025.
Those strategic shrinkages have coincided with a decline in top-line and profitability measures: consolidated revenue fell to $1.8 billion in fiscal 2025 from $5 billion in 2016, while adjusted EBITDA dropped to $407 million from $855 million over the same interval. S&P said the downgrade reflects Ashland's reduced scale and manufacturing footprint and its more niche positioning inside the chemicals industry compared with larger, more diversified peers.
On operating performance, S&P judged fiscal 2025 results to be below expectations. Organic volumes showed a mixed pattern across end markets. Ashland's life sciences and personal care segments presented relative stability, but the specialty additives segment underperformed. The ratings agency pointed to global demand weakness, including softness in building and construction activity in China and North America, as a factor weighing on specialty additives.
Looking ahead, S&P anticipates fiscal 2026 earnings will face headwinds tied to operational and weather-related outages in the first half of the fiscal year, which the agency expects will create additional costs and produce weaker absorption. S&P also expects the specialty additives and intermediates businesses to continue exerting pressure on results, and it said any meaningful recovery in Ashland's coatings-related business will likely be constrained until building and construction markets strengthen, particularly in China.
On credit metrics, Ashland's funds from operations to debt declined to 21% in fiscal 2025 from 25% the prior year. S&P projects this ratio to be roughly 20% for the current year given ongoing earnings pressure. The agency expects weighted-average funds from operations to debt to be around 20% over the next 12 months, a level it views as consistent with the current BB rating and stable outlook.
S&P said it expects Ashland's EBITDA margins will remain above 20% and to gradually improve to about 25% by 2028, supported by continued cost savings measures and growth in higher-margin businesses. At the same time, S&P anticipates the company will prioritize the majority of its free operating cash flow toward shareholder returns, including dividends and share repurchases.
The ratings agency outlined the scenarios that could prompt further action. A negative rating move could follow if weighted-average funds from operations to debt declines to the weaker end of the 12% to 20% range on a sustained basis. S&P said such a deterioration could result from a deeper drop in demand for specialty additives, underperformance in life sciences or personal care segments, failure to realize targeted cost savings, or persistently negative free cash flow after dividends and share buybacks.
Conversely, S&P noted a positive rating action could be possible if end-market fundamentals improve meaningfully. Examples the agency provided that could support an upgrade include stronger-than-expected growth in life sciences and personal care segments, gains in market share, or EBITDA margin improvement beyond expectations that lead to weighted-average funds from operations to debt moving sustainably toward the higher end of the 20% to 30% range.
The stable outlook indicates S&P's view that Ashland's credit measures should remain broadly in line with the current rating through the next year, barring the downside scenarios it described. The downgrade itself reflects the agency's reassessment of business risk tied to the company's smaller scale and more specialized market position, along with recent and anticipated near-term earnings pressures.