Good day. And thank you for standing by, and welcome to the Ashland Global Holdings Inc. Third Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Seth Mrozek, Ashland Director of Investor Relations. Please go ahead.

Thank you, Justin. Good morning everyone, and welcome to Ashland's Third Quarter Fiscal Year 2021 Earnings Conference Call and Webcast. My name is Seth Mrozek, Director, Ashland Investor Relations. Joining me on the call today are Guillermo Novo, 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 30th, 2021 at approximately 5 p.m. Eastern Time yesterday, July 27. The news release issued last night was furnished to the SEC in a Form 8-K. During this morning's call, we will reference slides that are currently being webcast on our website, ashland.com, under the Investor Relations section. We encourage you to follow along with the webcast during the call. As a reminder, during today's call, we will be making forward-looking statements on several matters, including our outlook for fiscal year 2021. 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 Slide 02 of the presentation for a more complete explanation of those risks and uncertainties and the limits applicable to forward-looking statements. You can also review our most recent Form 10-K under Item 1a for a comprehensive discussion of the risk factors impacting our business. Please also note that we will be referring to certain actual and projected financial metrics of 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 reconciliations of the non-GAAP measures to those GAAP measures are available on our website and in the appendix of today's slide presentation. Please turn to Slide 03. Guillermo will begin the call this morning, with an overview of Ashland's results in the third fiscal quarter. Next, Kevin will provide a more detailed review of financial results for the quarter. Finally, Guillermo will close with key priorities and planning in this current economic environment in addition to providing his thoughts on important next steps. We will then open the line for questions. On a final note, we continue to work on planning for an upcoming Investor Day. Our intent is to host this event during the back end of the calendar year. Please turn to Slide 05 and I will turn the call over to Guillermo for his opening comments. Guillermo?

Thank you, Seth, and good morning to everyone. Thank you for your interest in Ashland and your participation this morning. Before I start, I would like to clarify that we will not be making any comments or responding to any questions about our ongoing strategic review process for our Performance Adhesive business. For now, I would just comment that the process is well underway and going well with significant interest. As you will hear during the call, in line with our June 10th update, the major issues impacting our Q3 performance revolved around the supply chain challenges linked to shipping constraints and raw material availability as well as the pace of raw material cost inflation. For the most part, market dynamics for our underlying businesses or business performance behaved in line with our commentary from prior calls. Despite the supply chain headwinds, we continue to operate safely with a clear focus on the safety and wellbeing of our employees as we manage through the challenges of the pandemic. I'm also pleased by the progress our business units are making as we continue to execute our strategy. Before I comment on a Q3 performance, let me start by summarizing some of the tailwinds and headwinds we saw in the quarter. From the tailwind side, our self-help cost side savings activities progressed as planned. We continue to see strong recovery in industrial and market demand, and our nutraceuticals and nutrition business continue to deliver improved performance. We saw favorable impact from FX related to the Schulke acquisition and BDO pricing. Our capital discipline also delivered strong free cash flow and pre-cash flow conversion. On the headwind side, global constraints on logistics and shipping continued to impact sales and costs. As an example, June confirmed orders for direct shipments to customers on ocean freight were impacted by the significant drop in on-time shipping reliability. This has been a recurring theme for the last few months. For June, we had $20 million to $30 million of orders that were at warehouses ready to be loaded on ships but were not invoiced due to delays in shipping arrivals and loading. Most of these orders were invoiced in early July, and indications are that the shipping reliability challenges will persist for the foreseeable future. Raw material availability continues to be a challenge, causing unplanned shutdowns as well as inefficiencies in our manufacturing productivity that negatively impacted costs. For our Performance Adhesives business, volume was strong but the magnitude and pace of raw material inflation impacted margins. The business continues to act on pricing to cover these cost increases, but the incremental inflation has impacted the timing of margin recovery. Personal care dynamics have not changed much as the pandemic-related impact on consumer behaviors continues to delay demand recovery. Additionally, as we discussed in the last call, we continue to see demand weakness in hand sanitizers and Avoca. Clearly, although the longer-term dynamics remain favorable, managing through these near-term supply challenges and cost inflation dynamics is a critical priority and focus for all businesses. Please turn to Slide 06. This quarter presented new challenges for our teams and our customers. However, regardless of these near-term challenges, we continue to deliver growth and improve performance. Sales of $637 million were up 11% driven by the continued recovery of our industrial businesses and continued resilience of our consumer businesses. We're also starting to see the benefits of the Schulke acquisition, which was driven by strong BDO pricing. Currency was favorable by 3%. Life Sciences continue to perform well, pharma sales were down compared to a strong prior-year period as customers worked to build inventory as the global pandemic took hold. Sales in the quarter were also impacted by ocean freight shipping challenges. Nutraceutical demand remains strong and the team has demonstrated strong year-over-year growth, thanks to their efforts to change the business trajectory. In Personal Care, the global pandemic continues to impact some market segments linked to consumer social and recreational behavior. We have not seen the global demand recovery to date, but we're confident that it will develop once there is broader vaccination across the globe. Specialty Additives continues to see strong demand recovery across all markets, except the energy sector. The global architectural coatings business demonstrated significant volume recovery driven by both DIY and contractor segments. Our Performance Adhesive business also saw broad-based growth across applications. However, the availability of certain raw materials continues to constrain sales. EBITDA of $148 million was up 4%. The impact of strong sales and our self-help actions were offset by higher costs from supply chain and raw materials impacting logistics and manufacturing costs as well as raw material cost mix. Although we took significant pricing actions, they were offset by additional incremental raw material cost inflation. More practical pricing actions are already being implemented. Our free cash flow conversion focus continues to deliver strong results, generating $210 million of free cash flow in the quarter. Despite these challenges during the quarter, our business priorities remain unchanged, demonstrating organic growth, expanding margins, and maintaining strong free cash flow. I'm pleased with the progress made by the Ashland team during the quarter. They managed very well through another difficult external challenge, ensuring the safety of all of our employees, that our customers were supplied, and that we maximized our performance. Let me now pass it over to Kevin for the financial update. Kevin?

Thank you, Guillermo. And good morning, everyone. Please turn to Slide 08. Total Ashland sales in the quarter were $637 million, up 11% versus the prior year. Favorable currency contributed 3% growth during the quarter. Excluding key items, SG&A, R&D, and intangible amortization costs increased modestly to $118 million in the quarter, primarily reflecting increases to incentive accruals and deferred compensation, plus the addition of the Schulke & Mayr business. In total, Ashland's adjusted EBITDA was $148 million, a 4% increase compared to the prior year adjusted EBITDA of $143 million. Ashland's adjusted EBITDA margin was 23.2%, a 170 basis point decline compared to the prior year again reflecting the items discussed above. Adjusted EPS excluding acquisition amortization was $1.22 per diluted share, up 9% from the prior year. Now, let's review the results of each of our three business groups. Please turn to Slide 09. First, I'll begin with consumer specialties. Sales were $340 million, down 1% from the prior year quarter. Currency favorably impacted sales by 3%. Within Life Sciences, pharma sales were down compared to the strong prior year quarter, and our customers built inventory levels as the pandemic's impact on the global supply chain was in question. Nutraceutical sales were again up double-digits as the team has done an excellent job stabilizing and growing the business. Sales to nutrition and other end-markets also grew by double-digits reflecting improved trends for consumer dining behavior. In total, Life Sciences' sales increased 2% during the quarter, inclusive of favorable currency. Sales to Personal Care end-markets were down 6% during the quarter due to several factors. The global pandemic continues to impact certain consumer behaviors related to hair styling, sun care, and oral care in the context of social activities, leisure activities, and mask wearing. In addition, demand for ingredients used in hand-sanitizer formulations has normalized at or below prior year levels. We also closed on the Schulke & Mayr acquisition during the quarter, which contributed roughly two months of sales and earnings to Personal Care results. The integration is proceeding as planned and we're excited about the future growth opportunities that the team and technology bring to our portfolio. For all of consumer specialties, lower manufacturing and SARD expenses led to improved adjusted EBITDA margins of 27.1%, a 90 basis point increase over the prior year. In total, consumer specialties adjusted EBITDA increased by $2 million to $92 million. Please turn to Slide 10. Industrial Specialties had a very strong quarter with sales of $263 million, up 28% from the prior year. Industrial demand was significantly improved compared to the June quarter in 2020 when pandemic-driven lockdowns were implemented across the globe. We saw broad-based growth across the industrial end-markets consistent with the industrial demand recovery. In fact, Industrial Specialty sales essentially returned to pre-pandemic levels last seen in the fiscal 3rd quarter of 2019. Favorable currency contributed 4% of overall sales growth. Our coatings business was up double-digits during the quarter, reflecting strong global demand for architectural paints in both DIY and contractor applications. The only exception to strong sales growth in Industrial Specialties was the energy markets, where demand continues to remain weak across the globe. In total, sales for specialty additives grew by 25%. Sales for Performance Adhesives grew by 34%, reflecting growth in all three primary adhesive end markets. While sales and demand were strong, the combination of higher raw material costs, raw material availability, constrained global logistics, and shipping availability resulted in increased costs and hampered our ability to meet incremental customer demand. These issues impacted overall margins. The adjusted EBITDA margin for Industrial Specialties declined by 540 basis points to 20.9%. However, given the strong sales growth, adjusted EBITDA was $55 million, a $1 million increase above the prior year. Please turn to Slide 11. Turning to Intermediates & Solvents, sales were $49 million, up over 30% compared to the prior year period. Pricing for BDO and related derivatives drove the sales growth in the quarter. Extended outages and force measures at competitors' facilities contributed to the elevated pricing levels, which we expect to continue to experience for the balance of our fiscal year. Adjusted EBITDA for I&S was $15 million, up from $11 million in the prior year period. Please turn to Slide 12. As I have done for the last few quarters, I'd like to spend a few minutes talking about free cash flow, which continues to be an important component of our value creation strategy. Total free cash flow in the quarter was $210 million, a $98 million increase compared to the prior year. While we generated higher cash flow from lower capital expenditures, greater earnings, and lower cash interest expense, we also received $90 million as part of the new accounts receivable sales program that we implemented during the quarter. This sales program replaces the previous U.S. A/R securitization program. Excluding any inflows or outflows from the new A/R sales program, we still expect to convert significantly more than 50% of our adjusted EBITDA to free cash flow in fiscal year 2021. And we continue to expect that conversion rate to push higher in future years, demonstrating the free cash flow generation capability of the company. As we stated, our goal was to consistently convert at least 60% of EBITDA to free cash flow. Guillermo will spend more time discussing our fiscal '21 outlook and our underlying assumptions in his closing remarks. With that, I'll now turn the call back over to Guillermo. Guillermo?

Thank you, Kevin. Please turn to Slide 14. As we look at our market demand outlook, we continue to see positive dynamics. Life Science demand is expected to remain strong for pharma, nutraceuticals, and nutrition. Although there are still some uncertainties regarding the pace of COVID reopening in the U.S., where reopening has started to take place, our Personal Care business is starting to see some strengthening in demand. Although a small part of our portfolio, I would note that we do not expect to see any recovery in the hand sanitizer application. Industrial demand is expected to continue to remain strong. And although it's a small part of our portfolio, I would also note that we are starting to see demand recovery in the energy end markets. Clearly, the biggest risk and uncertainty to revenue and margins will continue to come from the supply-chain and raw material challenges the world is experiencing. As a result, given their broadened uncertain nature, it's very difficult for us to forecast their impact. As we did last year at the beginning of COVID, rather than trying to predict the unknown, we're focusing on building resilience so that we can respond quickly to developments, maximizing the positives and minimizing the negatives. Please turn to Slide 15. With that context in mind, we continue to maintain our full-year guidance for sales of $2.4 billion to $2.5 billion and EBITDA of $570 million to $590 million. This outlook is based on expected continued demand in industrial segments, continued stable demand in life science, and no significant acceleration of global demand recovery in Personal Care. No changes in our underlying operating performance; pricing actions continue to be implemented to offset higher raw material costs, and the acquired Schulke business will contribute favorably to the business. Although we have factored in some of the impact of the current supply chain dynamics on our business, we cannot forecast unique one-off events that are unknown. To qualify our guidance, excluding the Schulke acquisition, our outlook would be at the lower end of the range. With the Schulke acquisition results included, our outlook would be in the middle of the range. We are not forecasting any major one-off items caused by supply chain issues such as plant shutdowns or major raw material shortfalls. Additionally, quarter-end logistics uncertainty could have a positive or negative 3% to 5% impact on revenue in the quarter. Please turn to Slide 16. In summary, I'm pleased to report that regardless of the supply chain and raw material headwinds, our business units are performing well, continue to drive improvement, and execute their strategy. We are maintaining our long-term focus on growth, business resilience, margin expansion, and free cash flow conversions. However, we do recognize the added focus and urgency on managing through these near-term supply chain challenges. Managing pricing and raw material dynamics to recover margins and building operating resilience through improved planning, communication with our suppliers and customers, and cost management. We managed through higher levels of uncertainty and change during 2020 and I am confident that our business units and teams are ready to manage through the current supply chain challenges. Please turn to Slide 23. In closing, I want to thank the Ashland team once again for their leadership and for active ownership of their business in an uncertain environment. We're fortunate to be a premier specialty materials company with high-quality businesses that have leadership positions in defensive markets. I am pleased with the resilience demonstrated by our people and businesses and look forward to the opportunities that lie ahead. Thank you for your attention, and operator, let's open up for Q&A.

And thank you. And our first question comes from John McNulty from BMO Capital Markets. Your line is now open.

Yes, thanks for taking my question. So, I guess a question on how to think about the fourth quarter because I think, based on where 3Q ended, you're looking for what should be EBITDA that kind of improves by $20+ million kind of even at the low end of the range. And yet, it sounds like a lot of these freight issues that kind of plagued you and the rest of the industry, it sounds like a lot of these are still really kind of wreaking havoc on things. So, I guess what confidence do you have that you can kind of get that incremental improvement and start this kind of catch-up when it comes to the freight side? Can you help us to think about that?

I think the important perspective to have is unlike another situation, most of the discussion and most of the outlook is based on what does demand look like or how our customers position in terms of their needs for products. And the fact is that it's still very strong across the board. We have a lot of orders in hand, so we're confident with what we have at hand. The issue now is how do we forecast some of these uncertainties. We have factored in some of the items that impacted our demand, especially around raw material availability. We had some plant closings, those kinds of things that we don’t expect to be repeated. So, we factored that in. As we felt qualified in our guidance, we do recognize that there are going to be some degree of uncertainty; we cannot plan for a major force majeure by a supplier like we have this quarter. Things are improving, so we expect some of these issues to ease off. For us, I think one of the unique things for us, it's about the shipping. Really, that's the biggest problem for us. We had constraints in supply chain availability but we actually were able to produce and deliver a lot of our core demand that we had planned. The shipping is the part that really is out of our control. As I said in the example, we have the material ready to ship. So, I think we've captured that in some of the outlook. And frankly there's potential upside; it's not just downside that we could see in the quarter. We're talking about what's going to happen at the end of the quarter. September the last two weeks of September is what's going to define things. So, it's very hard for us to forecast that, and it's easy to be very negative if you want to pile all that, but there's no real foundation for that negativity in terms of concrete facts that we have at our disposal at this point in time. So, we'll provide additional updates if we need to but this is our best estimate at the time.

Yes, I completely agree with that, Guillermo. The only thing I would add is the teams across the board have been taking significant pricing actions, and John, we would expect some positive impact during Q4 from pricing actions that have been taken during Q3 and early end of Q4. So, that should provide us with some improved momentum. And there were some one-off items from the operating cost perspective that could also be a net positive. But it's really about the shipping.

Okay.

And to just build on Kevin's outlook. The current outlook would be especially in the Adhesive business that margins would recover by the end of the quarter. Like the part that we don’t know is there might be more incremental inflation that will come; we'll have to react to that as it comes.

Got it. And that's helpful color. And that actually goes to kind of the final question that I had. When you think about the raw material inflation that you saw in the quarter and the price difference from that, I guess can you quantify that and maybe just answered it a little bit on the last answer. But how much of that do you think you actually get back as we look into Q4?

Yes. I think in raw material—I mean I would look at some core drivers and then there's noise across the board if you look at the broader things on smaller items. But the two big items are the Adhesives and that's pretty very—you know it's very clear across the industry and it's really about the ability to pass on and the speed; more than the ability, the speed of passing on. We have been moving on pricing, we've recovered most of the past increases; it's just that the pace of these new pricing raw material increases we just need to catch up with that. So, that's being played out. I think the other big impact and it impacts mostly Life Science and Personal Care, but mostly Life Science is BDO, which is a core raw material and we are transferring at market. So, we're seeing the inflation coming through and they're moving on pricing too. Obviously, we're seeing the benefit in the I&S segment at this point in time. But those are the two areas that are the biggest drivers. The rest, I would classify as just broad-based inflation on secondary raw materials and freight and those kinds of things which we're also managing through.

Great. Thanks very much for the color.

Thank you.

Thank you. And our next question comes from John Roberts from UBS. Your line is now open.

Thank you. I know you're not taking questions on the adhesive review process, but what would be the priority for the proceeds?

John, we'll be communicating all that once we have our plans for next year and once there's clarity on what's going to happen. But obviously growth is a major priority for us as we look at where we want to invest, and our capital allocation to where we order shareholders is also going to be a big part of what we do. So, more to come there, but this that is a very important part of our longer-term plans for the portfolio.

Okay. And although some of us I guess would like to see I&S at least deconsolidated, this was probably a pretty good quarter to have it in the fold. What's the outlook for that business? I mean you had the highest earnings I think since you've been reporting that segment. Does it stay up for one more quarter or does it spike back down?

I think we will see continued strength at least during the fourth quarter. I think we'll see how things play out starting 2022. I think some of the shipping dynamics and things like that; when we look at global supply chains, we'll have an impact on how the pricing evolves. But I think into 2022 we'll see some softening on pricing there.

Okay. But not in the September quarter?

Not in the September quarter.

Thank you.

It should continue to be strong.

Thank you. And our next question comes from Jeff Zekauskas from JPMorgan. Your line is now open.

Thanks very much. Can you talk about the pricing trends in your industrial businesses? What were prices up in the quarter, what are the price increases that you're trying to put through? How much more raw materials up, can you supply some granularity of the tale?

So, we've been moving on pricing across the board. I would say the biggest area obviously is the Adhesive side of the equation. And the issues I said is not the recovery; it's reacting to the new inflation that has come through in the quarter, but we've been moving very aggressively on pricing. I think we didn’t cover all of the pricing in the quarter if you look at, but a lot of it, I would say 90% of it we were able to cover in the quarter and the same thing for Q4. So, our expectation right now unless there's another wave of raw material inflation is that we'll be caught up by the end of the fourth quarter on the pricing side.

Yes. No, that does correct, and again just to reiterate, most of that is in—most of that's in Adhesives; there's a little bit in some of the other businesses, but it's mostly Adhesives. And the team there is doing a great job on the pricing front. It's just margin recovery; it's going to be the question.

Okay. Right.

And by the end of Q4, we should be there.

And the other one is, as I mentioned in the prior question, is BDO. We've moved on pricing and it'll be very favorable. It was favorable this quarter. We expect it could be very favorable next quarter. In the I&S side, on the consumer side, we're passing on; there is a little bit more of a lag there just the way our contracts are set up and how we pass on pricing. So that will take a little bit longer than Q4 to catch up on pricing. Those are the main two.

What was your organic volume growth in consumer specialties and industrial productions in the quarter? Of volume.

The organic growth—yes, so for total volume growth, Kevin, do you have just the organic side of it because we had the exits and we had a few other items? And I will get back to you with the specific volume number. The majority, I mean the majority if you look at it versus prior year as we said in the call, the nutraceutical and nutrition were the parts that were up organically and in the double digits. So, very strong. The pharma, I think it's much more of the comp versus prior quarter. It's not demand per se; it's the inventory building that occurred last year. I think that you'll see the next quarter will be much stronger versus the prior year comp for us. In the Personal Care, most of the businesses if you look at hair care, skin, oral, they were slightly down; we're talking basically the marks have been fairly flat. The biggest headwinds for us in volume really, although it was small, it's just been a significant drop is the hand sanitizers and the Avoca. So net-net, we didn’t have a lot of organic growth, but within each segment we had significant variation.

That's right, Guillermo. In total company, volume growth is up 10% year-over-year with the industrial piece being up more than 10%, and like you said, some hand sanitizer or focused on some other items on the consumer side driving that part of the equation. But overall up 10% year-over-year.

Thank you very much.

Thank you. And our next question comes from David Begleiter from Deutsche Bank.

Thank you, good morning. Guillermo, as we approach 2022, do you have an early view on how we should think about next year the earnings cadence versus this year?

I think overall demand and overall conditions are still very favorable. As you've heard in the call, I mean, we're really talking about reacting to some of these current dynamics. If I look at the longer-term dynamics for each of the business, they are all very positive. So that the—as we look at 2021, we'll have to see how the supply chain situation, especially the ocean freight, I think that's going to take the longest to clarify how it improves. I think raw materials buying a big storm or something that causes a supply disruption across the entire industry. We should continue to see recovery in that part of it. So, our focus is going to be more on normalizing our business activity around the growth. And that means organic growth is the top priority and it's about innovation and what we're going to be launching. That's going to be a lot of the focus of what we want to cover in on Investor Day. But it's really focusing on some of these longer-term dynamics. And we're very excited on that side; we've been making significant progress. Look at the R&D portfolio change that we made as we go into the back end of the fourth quarter and into the early part of 2022, we're going to be making many significant launches of new products and that’s when a new sector comes. Promote it from there, but we're very positive overall in terms of the longer-term outlook. I think the supply chain is the part, like everybody else, we're going to have to manage there.

Very good. And just on Schulke, what did it add in Q3 and what do you think will add in Q4 on both sales and EBITDA?

Yes. So, Kevin, you may want to provide the numbers. What I would qualify, this first quarter obviously we had two months, but just the normal transitions, it wasn't the ongoing run rate impact that was slightly lower just in terms of inventory transitions and all that normal integration activities, but for the next quarter, it should be more of a normal quarter. But Kevin, you want to provide a little bit of color there?

Yes. On the EBITDA front, Dave, it'll be high-single digits for the five months that we bounded. Again, as Guillermo indicated, you've got some initial costs on an upfront basis there that we've been dealing with just normal transition stuff but then more normalized in Q4 from an overall perspective. But do you think high-single digits for this full-year impact.

Thank you very much, Kevin.

And thank you. And our next question comes from Mike Sison from Wells Fargo. Your line is now open.

Hey guys, how are you doing?

Hey, Mike.

In terms of your guidance for 2021, the 575-598, and maybe I apologize if I didn’t understand your comments, but does that include some degree of negatives and the key risk I recall that was something like $5 million to $10 million in the third? So, are you including sort of a negative hit in that 70 to 590?

Yes. So, the $5 million to $10 million was a Q3 comment, and you saw we had the actual results. I would say for Q3, the actual was slightly higher than the top of the range that we communicated on June 10th, maybe a million worse. We have been and it's offsets; we had little positives and better costs and things that offset it, but that's included in the numbers. So, the 575-590 is the range. Without Schulke, it would be in the lower end of the range. With Schulke, which will add to a lot of the numbers now and consensus are more built with Schulke, so the Schulke would be more in the middle. And as I said, the part that we are not forecasting because it's very difficult to predict the unknown is any major force majeure shutdowns and major raw material availability issue that's not on the radar screen would not be included there. And I do think there is an up plus/minus potential on the revenue side because of the supply chain challenges. And we'll monitor that during the quarter-end and report if there is any need to give any communication. But we have a lot of pent-up demand, and as we saw this month, it's not—we didn't have a lot of raw material availability issues for a little missed orders. It was sitting in warehouses and ready to load, and frankly, the material was in warehouses by mid-month and did not get invoiced. And it really shows I think ocean shipping reliability dropped to less than 25%. And that's the biggest impact, and there's no way we can forecast that.

Got it. And then, for the fourth—got it—sorry.

And so, the teams—look Mike, the teams are taking into account what new knowledge we have. So, as this has progressed over the last several months, each of the business units has tweaked their processes to do what they can to offset and mitigate some of these unknowns. And that said, the unknown unknowns; we still don’t know when looking at forecasts. But we have forecasted for Q4 what we believed to be our best estimate of what's going to happen. And to Guillermo's point, if we see some big negatives or big positives either of which could happen coming out of the hatch, we'll let you know. I mean, we'll update as if it's appropriate to do so.

Got it. And then, in terms of consumer specialties for the fourth quarter, excluding the 25 or mid-20s in Schulke, will organic sales go term positive? And then if you think about that business into '22, how do you feel about sort of turning the corner and generating some organic growth?

Yes. So, if you look at just to give some color on a lot of the longer-term outlook for the consumer side, and I'll go segment by segment. I think Personal Care and pharma never really dropped, and so the recovery here is just the continued growth market plus several 100 basis points that we feel that we can achieve. I think the dynamics and outlook are going to continue. Obviously, the comp this year because of COVID dynamics last year, we’re going to have several quarters that might—the behaviors of when inventory was built was different, but we see continued momentum there. As Kevin mentioned, the nutraceuticals business has remained strong; the issues we had last year with were are, I think you're starting to see just a good recovery. The teams have really gotten new business; its margins are improving. This is just hard work from the team and it's starting to pay off. We do see recovery in the nutrition side of the equation, so the outlook seems very good. But I wouldn’t say it’s a recovery of the market; it's the markets are good, and it's really how we play them. In Personal Care, I do think we're going to start seeing unless something turns around from the pandemic side; if the vaccination continues to roll out, we will see recovery. As I mentioned, we are already starting to see it in the U.S. Hair care, for example, demand in the U.S. is strengthening, and that is as a result of the opening. So, we hope that will continue; Europe probably will be next, and then it'll carry around. So, more positive momentum for us. I think we will have behind us the hand sanitizer dynamics of last year and this year; next year, we will not be there. So, it's really going to be more about the demand recovery and the new product launches. We have a lot of new products that we're going to be launching, so we feel very good about the Personal Care side of the equation. And Industrial, I think the big question for Industrial; demand continues to be strong as we hit the seasonal low that usually comes in our Q1. Q2 will be stronger than normal because there is a lot of pent-up demand in projects. So, my outlook right now would be that it will probably be stronger than normal because of that pent-up demand. So, overall it's really going to be dependent on the supply chain questions. Remember, our supply for a lot of these products come out of the U.S. and Europe. So shipping, the issues from China to U.S. or not would impact us. It's more shipping U.S. out and Europe out. This quarter, the biggest challenge in shipping was Europe, and the European ports were the biggest problem for us. So as those things open up into next year, that will be favorable for us.

Thank you.

And thank you. And our next question comes from Mike Harrison from Seaport Research. Your line is now open.

Hi, good morning.

Hi, Mike.

I wanted to ask a couple questions on your coatings business. You've mentioned that for now DIY and contractor demand remains pretty strong in architectural coatings. Are your additives used more intensively in the types of higher-end paints that are used by DIYers such that if we are expecting to see DIY demand come off and contractor activity improve, that could actually drag on your additive sales into the coatings market?

Yes. So, if you look at our additive coatings, the rheology is the biggest one and that's both the cellulose-based being the major driver and then in the synthetics, it would be the Aqua Flow. Aqua Flow goes more into the DIY, while HEC is broad-based across the board. Demand continues to be very strong. We are seeing the DIY market starting to stabilize relative to a very strong prior year; it's still very strong. We are pretty global and we're very broad-based in terms of the customer base. Some customers are more DIY focused; others are mixed; some are more contractor focused. So, we'll see a little bit of that dynamic of the contractor market probably being the stronger part of the portfolio as we go into next year. I will say HEC is an example, the entire market is very tight and running out of capacity. So, pricing is going up. So we are going to be investing for added capacity and incremental and more fundamental capacity additions in that area. But the industry is tight and especially given the strong demand for cellulosic both from the recovery of the markets as well as cellulosic in many of the consumer markets; obviously, more natural-based products, the demand and interest from new applications is still very high.

All right, then not really a question on the adhesives process. But just wondering if there will be any stranded costs associated with a potential divestiture there? Can you quantify that and maybe discuss what actions you would be taking in order to counteract those costs?

Right. So we are taking actions in terms of our transformation of our portfolio. That's the big theme for our Investor Day as we look at it—becoming much more of an additive ingredient company, less petrochemical-based, more natural-based. So this is going to become a much different company with different dynamics. We are factoring all these issues into smaller plants. If you look at actions we're taking with the Schulke acquisition, we're planning to grow and replace the impact. So, all that will be factored in, and we'll communicate more at the appropriate time. But we want to present the full picture of what we want to do and what the company is becoming as we do this transformation.

All right, thanks very much.

And thank you. And our next question comes from Laurence Alexander from Jefferies. Your line is now open.

Good morning. Two questions first. How are you thinking about lumpiness for the next four to eight quarters compared to your normal lumpiness in incremental margins? And secondly, as we think about the innovation tailwind in 2022, is it kind of setting a new cadence for the firm or is it going to be significantly above or below normal?

So, to your first question on just the demand outlooks, and I'm assuming from your question, it's more around plant load and some of the lumpiness –

If it helps, I'm really just getting at the level of unpredictability. It used to be sort of you'd have like a 2% lumpiness; I think you called out like 3% to 4% just your incrementals. So how do you think about the total swing factors quarter by quarter in the current environment and what it normalizes?

Okay. So the bigger lumpiness that we're seeing right now would have been manufacturing and loading of our plants more than the supply chain costs, logistics costs, I think that's not going to be as lumpy as it's inflating, and we're managing through that. But with regards to our manufacturing side, a lot of our demand is very strong in many of our products and we're running the plants fill out. HCC is a great example. I mean, the market is very tight at this point in time. So from an operating perspective and some of the lumpiness that used to come from that, that will level off because we'll be producing as much as we can across the year. So, the issue is really going to be more about the demand side of the equation in terms of revenue and as I said, especially on the industrial side, I do think that we're going to see continued strength into the first and second quarter, which tend to be—from the lumpiness perspective, that's where a lot of the seasonality comes in and we might not see as much seasonality this year.

Okay. Thank you.

And thank you. And our next question comes from Vincent Anderson from Stiefel. Your line is now open.

Yes, good morning. Thanks for taking my questions. So I just wanted to touch on the adhesives quickly. How much of that drag currently is a fixed cost issue? And at what point does it make more sense to maybe just walk away from a clearly staged contract and compare the other capacity out and then find a better long-term solution?

Right. So I would say the issue is, as you point out, it's on the adhesive side of the portfolio. The team is developing new business, new application. So that part of the equation is going well. I think the issue actually last year, it was more of the production loading this year. That actually we've worked off inventory. So production to stabilize. The issue is more it's a lumpier order pattern and bigger customers that place bigger orders. As an example, the fourth quarter, there are some very strong orders in that part of the portfolio. So, we're monitoring those very closely especially around shipping. A lot of that goes to Europe and other regions. So it's really about monitoring that. No, I think that's stabilizing; I think the longer-term view is growth and innovation is going to come through new applications. And that's what the team is working on, and we are making very good progress there.

Okay, great. So yes, just more of an order timing perspective. And then I guess they're just quickly to end on feeling a bit more forward looking in the flavors world as an example, there's some pretty obvious products you kind of need just to have a seat at the table in customer conversations. Is there anything like that in nutrition that you're lacking and that your product pipeline, development pipeline is specifically geared towards trying to address?

Yes. So if you look at the nutrition side of it, a lot of the growth that we're focused on right now is on plant-based protein. So a lot of the cellulosic products and other additives that we have for that area that's growing very well. So this is sort of as we look at our markets, pharma, personal care coatings are like the major ones; this would be that second tier of markets where we leveraged the additive and innovation activities from these bigger parts of the portfolio. So we continue to see good opportunities there. But this is not our major business; it is a secondary market. We're not in the food and flavors. That's not the core of what we do.

Right. All right. Well, thank you. I appreciate it.

And thank you. And I'm showing no further questions. I would now like to turn the call back over to Guillermo Novo for closing remarks.

Okay, thank you. Well, I want to thank everyone for your interest. As I hope you've seen, the challenges for this quarter and for the near term are about some of these external dynamics. But if you look at the longer term trends and outlooks, we're very excited. I think we're in a very good position. And as I said, the teams are really doing a great job in managing through this continued uncertain environment. Thank you very much, and we look forward to talking to you in the coming weeks.

This concludes today's conference call. Thank you for participating. You may now disconnect.