Huntsman Corporation — Form 10-Q Summary
Period clarification: The request metadata says 2018 Q1, but the filing is for the quarter ended March 31, 2019, with comparisons to the quarter ended March 31, 2018. Amounts are in U.S. dollars; financial figures are generally in millions. Huntsman International LLC is Huntsman Corporation’s wholly owned principal operating subsidiary.
Business context and reporting period
Huntsman is a global manufacturer of differentiated chemicals, operating through Polyurethanes, Performance Products, Advanced Materials and Textile Effects. Results exclude Venator’s operating results, which were reported as discontinued operations; after deconsolidating Venator in December 2018, Huntsman retained approximately 49% and accounts for its investment using the fair value option.
Financial performance and liquidity
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Revenue | $2,034 | $2,295 |
| Gross profit / gross margin | $397 / 19.5% | $540 / 23.5% |
| Operating income / operating margin | $145 / 7.1% | $296 / 12.9% |
| Adjusted EBITDA | $257 | $405 |
| Income from continuing operations | $130 | $236 |
| Net income attributable to Huntsman Corporation | $119 | $274 |
| Diluted earnings per share | $0.51 | $1.11 |
| Operating cash flow from continuing operations | $(31) | $111 |
| Capital expenditures | $70 | $55 |
| Free cash flow from continuing operations | $(101) | $56 |
Revenue declined 11%, gross profit 26%, operating income 51% and adjusted EBITDA 37%. Management attributed the revenue decline mainly to lower average selling prices across most segments and lower volumes in Performance Products and Textile Effects. Lower gross margins affected all segments. Operating expenses increased 10%, primarily from acquired businesses and higher SG&A.
Segment adjusted EBITDA was $140 for Polyurethanes (down 46%), $80 for Performance Products (down 22%), $53 for Advanced Materials (down 10%) and $22 for Textile Effects (down 15%). Corporate and other was a loss of $38, versus a loss of $43.
At March 31, 2019, cash and cash equivalents were $444; total debt was $2,599, including $276 current, and working capital was $1,418. Huntsman reported $1,445 of combined cash and unused borrowing capacity: $444 cash and restricted cash, $957 available under its revolving facility and $44 under receivables programs. Debt fair value was estimated at $2,717 versus $2,599 carrying value. The company stated it was in compliance with material debt covenants.
Material changes, outlook and risks
- Segment conditions: Polyurethanes faced lower MDI and MTBE prices and margins, partly offset by higher MDI volumes. Performance Products was affected by weaker market conditions and lower upstream volumes and prices. Advanced Materials faced currency, raw-material and fixed-cost pressure. Textile Effects saw lower volumes amid China demand and trade uncertainty, plus higher raw-material costs.
- Debt refinancing: Huntsman International issued $750 of 4.5% notes due 2029 and redeemed $650 of 4.875% notes due 2020. The refinancing produced a $23 loss on early extinguishment. The revolver had $235 drawn against a $1.2 billion commitment; $8 of letters of credit were also outstanding.
- Nonrecurring and valuation items: A $76 pretax Venator fair-value gain supported reported earnings; management noted the value may fluctuate with Venator’s market price. The quarter also included a $32 noncash tax expense from a Swiss tax-rate change and the $23 debt-extinguishment loss. Discontinued-operations income was $1, versus $114 in Q1 2018.
- Management outlook: For 2019, Huntsman expected approximately $380 of capital expenditures and a forward adjusted effective tax rate of 21%–23%. Segment expectations included differentiated Polyurethanes volume growth and stable margins, improving MDI margins in China but lower overall component MDI margins, continued European and U.S. automotive and construction headwinds, downstream growth but lower upstream margins in Performance Products, aerospace growth with raw-material and currency headwinds in Advanced Materials, and growth in sustainable Textile Effects solutions amid cost and China-demand pressures.
- Cash demands: Management expected approximately $71 of additional pension and postretirement contributions during the remainder of 2019. Working capital absorbed approximately $138 during the quarter, and management expected working-capital volatility to continue.
- Other risks and contingencies: Huntsman disclosed environmental remediation obligations, including a $7 accrued environmental liability; potential excess remediation losses could not be estimated. It also could not reasonably estimate potential liability at the North Maybe Canyon Mine site. The company disputed an indemnification demand related to litigation and had made no accrual. Management reported effective disclosure controls and no material change in internal control over financial reporting.
- Subsequent event: On April 18, 2019, amendments extended the U.S. and European receivables program termination dates to April 2022; the European program’s maximum funding availability was reduced from €150 to €100.
Most important facts for investors to verify
- Confirm the intended reporting period: the supplied filing is Q1 2019, not Q1 2018.
- Assess the extent to which lower prices, margins and volumes—and segment-specific market pressures—persist beyond the quarter.
- Separate underlying operating performance from the $76 Venator fair-value gain, the $23 refinancing loss and the $32 Swiss tax charge.
- Review the causes of negative operating cash flow and free cash flow, inventory growth, and planned capital and pension spending.
- Monitor debt maturities, revolver and receivables-program availability, covenant compliance and the refinancing’s effect on interest costs.
- Track the value and market-price sensitivity of Huntsman’s approximately 49% Venator investment, alongside environmental and legal exposures.