Huntsman Corporation — Form 10-Q Summary
Period: Quarter and six months ended June 30, 2019; filed July 30, 2019. The request metadata says “2018 Q2,” but the supplied filing is for 2019 Q2. Huntsman International LLC is the wholly owned principal operating subsidiary; figures below generally refer to Huntsman Corporation unless stated otherwise. Financial statements are unaudited.
Business context
Huntsman is a global differentiated chemicals manufacturer operating through Polyurethanes, Performance Products, Advanced Materials and Textile Effects. Venator, formerly consolidated and reported as discontinued operations, was deconsolidated in December 2018; Huntsman retained approximately 49% and accounts for the investment at fair value.
Financial performance
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $2.194 billion | $2.404 billion | $4.228 billion | $4.699 billion |
| Gross profit | $433 million | $555 million | $830 million | $1.095 billion |
| Operating income | $203 million | $299 million | $348 million | $595 million |
| Net income attributable to Huntsman Corporation | $110 million | $414 million | $229 million | $688 million |
| Diluted EPS | $0.47 | $1.71 | $0.98 | $2.82 |
| Adjusted EBITDA | $318 million | $415 million | $575 million | $820 million |
| Operating cash flow from continuing operations | Not separately provided for quarter | Not separately provided for quarter | $273 million | $339 million |
Gross margin was approximately 19.7% in Q2 2019 versus 23.1% in Q2 2018; operating margin was approximately 9.3% versus 12.4%. Q2 2019 continuing-operations income attributable to Huntsman was $112 million, compared with $268 million a year earlier. Prior-year reported net income and EPS included substantial discontinued-operations income, so they are not directly comparable with 2019.
- Q2 revenue fell 9% year over year, primarily from lower selling prices and lower volumes in Advanced Materials and Textile Effects. Gross profit declined 22%, with lower margins across all segments.
- Q2 segment adjusted EBITDA: Polyurethanes $201 million (down 25%); Performance Products $71 million (down 24%); Advanced Materials $55 million (down 11%); Textile Effects $28 million (down 3%).
- Six-month adjusted EBITDA declined 30%. Polyurethanes fell 36%, Performance Products 23%, Advanced Materials 11% and Textile Effects 9%.
- Six-month net income included a $58 million gain from fair-value adjustments to the Venator investment; Q2 included an $18 million loss. Fair-value movements may fluctuate with Venator’s market price.
Cash, debt and liquidity
- At June 30, 2019, cash and cash equivalents were $449 million, compared with $340 million at year-end 2018. Working capital was $1.363 billion, up $16 million from year-end.
- Six-month operating cash flow from continuing operations was $273 million; capital expenditures were $136 million; free cash flow, as defined by the company, was $139 million, versus $230 million in the prior-year period.
- Total debt was $2.505 billion, versus $2.320 billion at year-end 2018. Current debt was $228 million and long-term debt $2.277 billion. Huntsman reported $1.538 billion of cash and unused borrowing capacity: $449 million cash, $1.007 billion available under its revolving facility and $82 million under receivables programs.
- In March, Huntsman International issued $750 million of 4.50% senior notes due 2029 and redeemed $650 million of 4.875% notes due 2020. The refinancing generated a $23 million early-extinguishment loss. The company said it was in compliance with material debt covenants.
- Huntsman repurchased approximately 5.54 million shares for $115 million and paid $77 million of common dividends in the first half. It had $418 million of cash and cash equivalents, including restricted cash, held by foreign subsidiaries.
Outlook, commentary and risks
- Management expected volume growth and stable differentiated-business margins in Polyurethanes, but lower overall component MDI margins, and continued demand headwinds in Europe and China. An unplanned Rotterdam outage was expected to reduce Q3 2019 EBITDA by approximately $20 million.
- Performance Products outlook included growth in gas treating and oilfield services, stable maleic anhydride margins, and lower margins in upstream intermediates and ethyleneamines. Advanced Materials expected steady aerospace growth but demand headwinds in Europe and China. Textile Effects expected specialty-market growth amid China and foreign-currency headwinds.
- 2019 capital expenditures were forecast at approximately $350–$360 million; the forward adjusted effective tax rate was expected to be approximately 22%–24%. The company also expected about $51 million of additional pension and postretirement contributions in the second half.
- After quarter-end, Huntsman agreed to buy Sasol’s remaining 50% interest in their maleic anhydride joint venture for $92.5 million, subject to adjustments, approvals and closing conditions; closing was expected in Q4 2019.
- In July 2019, Huntsman sold its Basel Textile Effects facilities and offices and expected approximately $40 million of proceeds and a corresponding disposal gain in Q3.
- Key risks include weaker chemical pricing and demand, particularly in Europe and China; U.S.-China trade-related uncertainty; foreign-exchange and commodity-price exposure; and the potential impact of facility disruptions. The filing also discusses environmental remediation obligations, including sites where potential liabilities cannot yet be reasonably estimated, and ongoing legal proceedings. Huntsman stated that other disclosed proceedings were not expected to materially affect its financial condition, results or liquidity.
Important facts for investors to verify
- Confirm the intended reporting period: the supplied filing covers Q2 2019, not Q2 2018.
- Assess continuing-operations results separately from prior-year discontinued-operations results and the 2019 Venator fair-value gain/loss.
- Monitor chemical pricing, segment margins, Europe/China demand and the expected Q3 Rotterdam outage impact.
- Review debt maturities, revolver and receivables-program availability, covenant compliance, and planned capital spending, dividends and share repurchases.
- Track completion, price adjustments and funding of the Sasol-Huntsman transaction, as well as the expected Basel disposal proceeds and gain.
- Evaluate environmental and legal contingencies, including the North Maybe Canyon site, where the company said potential liability could not be reasonably estimated.