Huntsman Corporation — Form 10-Q Summary
Period note: The supplied filing is for the quarter ended June 30, 2021, not 2020 Q2 as stated in the request metadata. It was signed July 30, 2021. Amounts are in millions of dollars except per-share data.
Business context and reporting period
Huntsman is a global differentiated chemicals manufacturer operating through Polyurethanes, Performance Products, Advanced Materials and Textile Effects. Huntsman International LLC, its wholly owned principal operating subsidiary, is also a registrant in this filing. Results below primarily reflect Huntsman Corporation’s consolidated statements; the operating results are substantially similar for Huntsman International.
Key financial metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $2,024 | $1,247 | $3,861 | $2,840 |
| Gross profit | $431 | $162 | $823 | $459 |
| Operating income (loss) | $209 | $(69) | $335 | $(15) |
| Net income (loss) attributable to Huntsman Corporation | $156 | $(62) | $239 | $643 |
| Diluted EPS | $0.70 | $(0.28) | $1.07 | $2.90 |
| Adjusted EBITDA | $334 | $54 | $623 | $219 |
Q2 gross margin was approximately 21.3%, compared with 13.0% a year earlier; operating margin was approximately 10.3%, versus a loss in the prior-year quarter. Adjusted EBITDA is a non-GAAP measure. Q2 continuing-operations income attributable to Huntsman was $155 million; the difference from total attributable income includes discontinued operations.
- Cash flow and investment: For the first half, cash used by continuing operating activities was $23 million, capital expenditures were $174 million, and free cash flow from continuing operations was negative $197 million. Investing activities used $369 million; financing activities used $691 million.
- Liquidity: Cash was $510 million at June 30, down from $1,593 million at year-end 2020. Huntsman reported $1,943 million of combined cash and unused borrowing capacity, including $1,196 million available under its revolving facility and $237 million under receivables programs. Working capital was $1,420 million.
- Debt: Total debt was $1,565 million, down from $2,121 million at year-end; $44 million was current. The company issued $400 million of 2.95% notes due 2031 and redeemed $400 million of 5.125% notes due 2022. It also redeemed €445 million (approximately $541 million) of 2021 notes. The 2031 refinancing generated a $27 million Q2 early-extinguishment loss.
- Dividend: Q2 dividend paid was $0.1875 per share, a 15% increase from the prior dividend. The company reported no common-stock repurchases in Q2.
Material changes versus the prior comparable period
- Q2 revenue increased 62% year over year, reflecting higher sales volumes across all segments and higher average selling prices in Polyurethanes, Performance Products and Advanced Materials. Management attributed stronger demand in part to recovery from the global economic slowdown.
- Q2 adjusted EBITDA rose to $334 million from $54 million. Each segment improved: Polyurethanes $208 million, Performance Products $88 million, Advanced Materials $58 million and Textile Effects $28 million. Corporate and other was a $48 million loss, worsening by $16 million, primarily from a LIFO inventory reserve charge and higher corporate overhead.
- First-half 2021 attributable net income was below first-half 2020 despite stronger continuing operations. The 2020 comparison included $782 million of after-tax discontinued-operations income, predominantly the gain on the sale of the Chemical Intermediates Businesses.
- Cash conversion weakened: continuing operating cash flow shifted to a $23 million use from $45 million provided in first-half 2020, primarily because of an unfavorable working-capital variance. Receivables and inventories increased, alongside payables.
- Huntsman acquired Gabriel Performance Products for approximately $251 million in January 2021. The acquired business contributed $51 million of revenue and $8 million of net income through June 30.
Outlook, management commentary, risks and unusual items
- Q3 2021 adjusted EBITDA outlook: Polyurethanes $240–$260 million; Performance Products $75–$80 million; Advanced Materials $50–$55 million; Textile Effects $19–$22 million. Management cited positive construction, automotive and elastomer trends; year-over-year volume growth in Performance Products; improving Advanced Materials markets, including aerospace; and favorable sustainable-solutions trends in Textile Effects.
- Management expected a 2021 adjusted effective tax rate of approximately 22%–24%. It forecast 2021 capital expenditures of $355–$360 million, including approximately $100 million for a new MDI splitter in Geismar, Louisiana. It also expected approximately $29 million of additional pension and postretirement contributions during 2021.
- Management expects more than $120 million of annualized cost savings and synergies by the end of 2023, with approximately $100 million of associated net cash restructuring and integration costs. Further restructuring charges were expected in certain programs.
- Material operating risks include commodity and raw-material costs, demand and pricing cycles, foreign exchange, interest rates, working-capital volatility, and operational disruptions. The filing notes first-quarter 2021 Winter Storm Uri production outages and supplier shortages in Performance Products, and a scheduled Rotterdam turnaround affecting Polyurethanes volumes.
- Huntsman disclosed environmental remediation obligations, including an accrued $4 million environmental liability; potential additional environmental losses could not be estimated. It also could not reasonably estimate its potential liability at the North Maybe Canyon Mine CERCLA site. The company said it did not expect other disclosed legal matters to materially affect financial condition, results or liquidity.
- A Rockwood-related arbitration concerning the Augusta, Georgia iron-oxide facility had concluded its hearing, with closing arguments at the end of July; a decision was expected in Q3 2021. The potential outcome was not stated.
- Unusual Q2 items included the $28 million pretax earnout gain from the 2020 sale of the India-based DIY adhesives business, the $27 million debt-extinguishment loss, and a $6 million loss from fair-value adjustments to the Venator investment and related option. First-half Venator fair-value losses were $25 million.
- On July 1, 2021, after quarter-end, the company amended its U.S. and European receivables programs, extending their scheduled termination dates to July 2024. Management stated it believed the company was in compliance with material debt covenants.
Important facts for investors to verify
- Confirm the intended filing period: the source is a Q2 2021 10-Q, despite the request specifying Q2 2020.
- Review the reconciliation and assumptions behind adjusted EBITDA, adjusted net income, free cash flow and the forward adjusted tax-rate guidance; these are non-GAAP measures.
- Assess whether working-capital investment and negative first-half free cash flow are temporary, and how projected capital spending and dividends will be funded.
- Check the timing, final purchase-price allocation, goodwill and integration progress for the Gabriel acquisition, and the expected realization of announced cost savings.
- Monitor the Q3 arbitration decision, environmental exposures and the fair value and option terms associated with the remaining Venator interest.