Huntsman Corporation — Form 10-Q summary
Period clarification: The supplied filing is for the quarter ended September 30, 2021, filed October 29, 2021—not 2020 Q3 as stated in the request. It reports Huntsman Corporation and its wholly owned operating subsidiary, Huntsman International LLC. Financial amounts below are in millions of U.S. dollars unless noted.
Business context and reporting period
Huntsman is a global differentiated chemicals manufacturer operating in Polyurethanes, Performance Products, Advanced Materials and Textile Effects. The filing compares Q3 and the first nine months of 2021 with the corresponding 2020 periods. The results are unaudited; management states interim results are not necessarily indicative of full-year results.
Key financial metrics
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $2,285 | $1,510 | $6,146 | $4,350 |
| Gross profit | $483 | $279 | $1,306 | $738 |
| Operating income | $245 | $59 | $580 | $44 |
| Net income | $225 | $57 | $497 | $706 |
| Net income attributable to Huntsman Corporation | $209 | $48 | $448 | $691 |
| Diluted earnings per share | $0.94 | $0.22 | $2.02 | $3.13 |
| Adjusted EBITDA | $371 | $188 | $994 | $407 |
Q3 gross margin was approximately 21.1%, versus 18.5% a year earlier; operating margin was approximately 10.7%, versus 3.9%. Adjusted EBITDA is a non-GAAP measure and should be considered alongside GAAP results.
- Cash flow: Nine-month operating cash flow from continuing operations was $163, up from $110. Capital expenditures were $250, versus $170; company-defined free cash flow from continuing operations was negative $87, compared with negative $60.
- Cash and liquidity: Cash and cash equivalents were $505 at September 30, 2021, down from $1,593 at December 31, 2020. Huntsman reported $1,955 of combined cash and unused borrowing capacity: $505 cash, $1,190 revolving-facility availability and $260 A/R-program availability.
- Debt: Total debt was $1,583, down from $2,121 at year-end 2020; $16 was current. The company had no revolving-facility borrowings and reported covenant compliance. The $1.2 billion revolving facility matures in 2023.
- Working capital: Reported working capital was $1,490, down $99 from the reported $1,589 at year-end; the filing’s acquisition-adjusted comparison shows a $138 decrease. Receivables and inventories increased, partly reflecting higher sales, costs and volumes.
Material changes versus the prior comparable period
- Q3 revenue rose 51% and adjusted EBITDA rose 97%; management attributed higher revenue primarily to selling prices and volumes increasing across all four segments during the economic recovery.
- Each segment reported higher Q3 revenue and adjusted EBITDA. Polyurethanes benefited from stronger MDI pricing and margins; Performance Products from higher prices and volumes; Advanced Materials from volumes, pricing and the Gabriel acquisition; Textile Effects from demand and pricing.
- Nine-month 2021 net income was lower than 2020 despite stronger continuing operations. The prior-year period included $782 of income from discontinued operations, principally associated with the sale of the Chemical Intermediates Businesses. Nine-month 2021 continuing-operations income attributable to Huntsman was $451, compared with a $91 loss in 2020.
- Huntsman acquired Gabriel Performance Products in January 2021 for approximately $251, funded from available liquidity. It recorded $174 of preliminary goodwill; purchase-price allocation remained preliminary.
- Debt declined following redemptions of the 2021 and 2022 Senior Notes. Huntsman issued $400 of 2031 Senior Notes at 2.95% and used the proceeds, with cash, to redeem $400 of 2022 notes; the redemption generated a $27 early-extinguishment loss for the nine-month period.
- Share repurchases resumed in Q3: 3.97 million shares were repurchased for approximately $102. The quarterly dividend was $0.1875 per share, a 15% increase from the previous rate.
Outlook, commentary, risks and unusual items
- Q4 2021 segment adjusted EBITDA outlook: Polyurethanes $200–$220; Performance Products $95–$100; Advanced Materials $47–$52; Textile Effects $20–$22. These are management estimates, not GAAP guidance.
- Management cited positive construction trends but raw-material constraints, a weak automotive market, continued aerospace recovery, pricing actions to offset raw-material costs, and favorable demand trends in sustainable textile solutions. For full-year 2021, it expected an adjusted effective tax rate of approximately 19%–20%; its forward adjusted rate expectation was 22%–24%.
- Operating risks and disruptions included higher raw-material costs, supply constraints, and unplanned downtime related to Winter Storm Uri and Hurricane Ida, as well as a scheduled Rotterdam turnaround. The filing also identifies exposure to foreign exchange, interest rates, commodity prices, COVID-19 effects and environmental obligations.
- Huntsman recorded a $28 gain in Q2 2021 after meeting the earnout target for the India-based DIY business sale. It recorded $28 of nine-month losses from fair-value changes in its Venator investment and related option, and $34 of restructuring, impairment and plant-closing costs.
- Litigation: An arbitration panel awarded Huntsman more than $600 in its Rockwood dispute, including punitive damages and statutory interest; Huntsman expected to net more than $400 after attorney fees. The award remained subject to court confirmation and limited appeal. Texas separately sought $250,000–$1 million in penalties over alleged emissions and reporting violations at the former Port Neches facility; Huntsman said it believed it had contractual indemnification.
- Environmental contingencies: Accrued environmental liabilities were $5. The company said potential remediation losses could exceed accruals but that it could not estimate the possible excess; it also could not reasonably estimate its potential liability at the North Maybe Canyon Mine site.
Important facts for investors to verify
- Confirm the reporting period: this is Q3 2021, not Q3 2020.
- Review the quality and sustainability of earnings and cash conversion, including working-capital investment, negative free cash flow and the distinction between GAAP income and adjusted EBITDA.
- Track liquidity and debt after substantial cash use for debt repayment, capital spending, acquisitions, dividends and resumed buybacks.
- Assess whether Q4 segment EBITDA estimates were achieved, particularly amid raw-material constraints, weak automotive demand and facility disruptions.
- Monitor the Rockwood award’s confirmation or appeal, the Texas emissions case, environmental exposures and the final Gabriel purchase-price allocation.