Huntsman Corporation — Form 10-Q Summary
Period clarification: The supplied filing is for the quarter ended September 30, 2022, not 2021 Q3 as specified in the request. It was signed November 4, 2022. Huntsman International LLC is Huntsman Corporation’s wholly owned principal operating company; the filing presents both registrants.
Business context and reporting period
Huntsman manufactures differentiated chemicals through Polyurethanes, Performance Products and Advanced Materials. Beginning in Q3 2022, its Textile Effects business is presented as discontinued operations. Comparisons below are generally against Q3 2021 or the nine months ended September 30, 2021, as stated.
Financial performance and condition
- Q3 2022: Continuing-operations revenue was $2.011 billion, down 4%; gross profit was $349 million, down 20%; operating income was $138 million, down 40%; and Huntsman Corporation net income was $100 million versus $209 million. Diluted EPS was $0.50 versus $0.94. Gross margin declined to about 17.4% from 20.8%.
- Q3 adjusted EBITDA: $271 million, down 22% from $349 million. Polyurethanes contributed $138 million, Performance Products $110 million and Advanced Materials $58 million; corporate and other was a $35 million loss. Adjusted EBITDA is a non-GAAP measure.
- Nine months 2022: Revenue was $6.373 billion, up 15%; gross profit was $1.356 billion, up 17%; operating income was $699 million, up 32%; and Huntsman Corporation net income was $551 million versus $448 million. Diluted EPS was $2.66 versus $2.02. Adjusted EBITDA was $1.068 billion, up 16%.
- Cash flow, nine months: Operating cash flow from continuing operations was $595 million versus $182 million; capital expenditures were $186 million versus $241 million; and reported free cash flow from continuing operations was $409 million versus negative $59 million. Financing activities used $905 million, including $755 million for share repurchases and $132 million of common dividends.
- Liquidity and debt at September 30: Cash was $515 million; total debt was $1.488 billion, including $12 million current and $1.476 billion long-term. Cash less total debt was approximately $973 million. Huntsman reported $1.946 billion of cash and combined unused borrowing capacity, including $1.189 billion under its revolving facility and $242 million under receivables programs. It stated it was in compliance with material debt covenants.
- Balance sheet changes: Cash declined from $1.041 billion at year-end 2021; working capital fell $276 million to $1.601 billion. The company attributed changes in part to share repurchases and settlement-related cash payments. Total assets were $8.132 billion and total equity $3.984 billion.
Material changes and management commentary
- Q3 revenue fell as lower sales volumes across segments outweighed higher average selling prices. Management cited weaker demand, particularly in Europe and construction markets, and unfavorable foreign-exchange translation.
- Polyurethanes Q3 revenue and adjusted EBITDA declined 10% and 44%, respectively, year over year, reflecting lower volumes, weaker European and Asian MDI margins, currency effects and lower China joint-venture earnings. Performance Products and Advanced Materials adjusted EBITDA increased to $110 million and $58 million, respectively, helped by pricing and mix.
- For the first nine months, higher prices drove revenue growth across segments. Performance Products and Advanced Materials adjusted EBITDA rose 61% and 28%; Polyurethanes adjusted EBITDA declined 11%, including lower China joint-venture earnings.
- Huntsman agreed to sell Textile Effects to Archroma for $718 million enterprise value, including assumption of approximately $125 million in net underfunded pension liabilities (as of December 31, 2021). Closing was anticipated by the first half of 2023 and remained subject to conditions, including regulatory approvals.
- The company received the final $332.5 million payment under the Albemarle settlement in May 2022 and paid approximately $255 million in related legal fees and cash taxes in Q2.
Outlook, risks and contingencies
- Q4 2022 adjusted EBITDA outlook: Polyurethanes $55–$85 million; Performance Products $60–$80 million, with an expected margin of 20%–25%; Advanced Materials $40–$45 million. Management cited European energy costs and declining demand, weaker Americas construction markets, lower volumes in Europe and construction, and industrial-market headwinds. It expected lower Polyurethanes production to reduce inventory and match demand.
- The company expected a 2022 adjusted effective tax rate of approximately 22%–24%. It forecast approximately $280 million of 2022 capital expenditures and about $10 million of additional pension contributions for the remainder of the year.
- A new European restructuring program announced in early November was expected to incur approximately $50 million in restructuring expenses through 2023 and deliver approximately $40 million in annualized savings by end-2023. Other previously announced cost programs also carry expected restructuring costs and savings.
- A jury awarded Huntsman approximately $94 million in its dispute with Praxair/Linde; Huntsman expected damages to exceed $125 million after interest. The award was subject to appeal and had not been recognized in earnings.
- Environmental cleanup obligations and other legal proceedings remain contingencies. Recorded environmental liabilities were $4 million; the company said possible remediation losses above accrued amounts could not be estimated. It could not reasonably estimate potential liability at the North Maybe Canyon Mine site.
- Key risks include completion and timing of the Textile Effects sale, execution and disruption risks from restructuring, demand and energy-cost pressures, foreign-exchange and commodity-price exposure, and pension and environmental obligations. Management cautioned that forward-looking statements are subject to risks and may differ materially from actual results.
Important facts for investors to verify
- Confirm the intended reporting period: this filing covers Q3 2022, despite the request stating 2021 Q3.
- Track Textile Effects sale conditions, closing timing, proceeds and pension-liability assumption against the $718 million enterprise value.
- Assess whether Q4 segment EBITDA guidance and stated demand, pricing, energy-cost and production assumptions were achieved.
- Reconcile operating cash generation and liquidity with substantial buybacks: 22.9 million shares for about $752 million in the first nine months, plus 1.5 million shares for about $40 million through October 25.
- Monitor the appeal and recognition of the Praxair/Linde award, environmental exposures, and expected restructuring costs and savings.