Huntsman Corporation — Form 10-Q summary
Period: Quarter and nine months ended September 30, 2020. The request metadata says 2019 Q3, but the supplied filing is for 2020 Q3.
Business context
Huntsman is a global differentiated chemicals manufacturer operating through Polyurethanes, Performance Products, Advanced Materials and Textile Effects. Huntsman International LLC is its wholly owned principal operating subsidiary; the filing presents both registrants.
Key financial results
| Metric | Q3 2020 | Q3 2019 | First nine months 2020 | First nine months 2019 |
|---|---|---|---|---|
| Revenue | $1.510bn | $1.687bn | $4.350bn | $5.140bn |
| Gross profit | $279m | $340m | $738m | $1.072bn |
| Operating income | $59m | $152m | $44m | $419m |
| Income from continuing operations | $57m | Loss of $27m | Loss of $76m | $164m |
| Net income attributable to Huntsman Corporation | $48m | $30m | $691m | $259m |
| Adjusted EBITDA, non-GAAP | $188m | $215m | $407m | $664m |
Q3 gross margin was approximately 18.5%, versus 20.2% a year earlier; operating margin was approximately 3.9%, versus 9.0%. Q3 diluted EPS was $0.22, compared with $0.13. Nine-month diluted EPS was $3.13, including $3.54 per share from discontinued operations; continuing-operations EPS was a loss of $0.41.
- Cash flow: Nine-month operating cash from continuing operations was $110m, down from $434m. Capital expenditures were $170m, resulting in reported free cash flow from continuing operations of negative $60m, versus positive $253m. Total operating cash flow, including discontinued operations, was $88m.
- Liquidity: Cash and cash equivalents were $1.168bn at September 30, 2020. Management reported $2.467bn of combined cash and unused borrowing capacity, including $1.194bn available under the revolving facility and $105m under receivables programs. Working capital was $1.080bn.
- Debt: Debt was $2.124bn, down from $2.389bn at year-end 2019; net debt was approximately $956m using reported cash. The $519m 2021 Senior Notes were classified as current, within $567m of current debt. The company reported covenant compliance.
Changes and notable items
- Q3 revenue fell 10% year over year and nine-month revenue fell 15%. Management attributed declines to reduced volumes across segments and lower selling prices in several businesses amid COVID-19-related economic weakness. Demand improved in most core markets in Q3 but remained modestly below the prior-year quarter.
- Q3 adjusted EBITDA declined 13% year over year; nine-month adjusted EBITDA declined 39%. Polyurethanes Q3 adjusted EBITDA rose to $156m from $146m, while Advanced Materials and Textile Effects declined to $25m and $8m, respectively, from $51m and $16m. Nine-month EBITDA declined in Polyurethanes, Advanced Materials and Textile Effects; Performance Products was nearly flat.
- The January 2020 sale of the Chemical Intermediates Businesses generated $1.92bn of proceeds and a reported $748m after-tax gain. Nine-month net income therefore substantially reflects discontinued-operation income, rather than continuing operating performance. Huntsman paid $188m of related taxes during the period.
- Two acquisitions were completed in 2020: Icynene-Lapolla for $353m and CVC Thermoset Specialties for $306m. Their purchase-price allocations were preliminary. Together, the acquisitions contributed to acquisition-related cash outflows and integration costs.
- Venator fair-value changes were volatile: a $6m gain in Q3 2020 versus a $148m loss in Q3 2019, and a $100m loss for the first nine months of 2020. These changes are non-operating and management excludes them from adjusted EBITDA.
Outlook, risks and contingencies
- For Q4 2020, management expected Polyurethanes adjusted EBITDA to be nearly in line with Q3, including an estimated $15m adverse impact from a roughly five-week partial outage at the Geismar MDI facility following a third-party supplier mechanical failure. Performance Products was expected to be relatively flat sequentially; Advanced Materials slightly lower; and Textile Effects higher.
- Management forecast a 2020 adjusted effective tax rate of approximately 20%–22%, and a forward adjusted rate of approximately 22%–24%. These are non-GAAP measures.
- COVID-19 impacts remained uncertain. The company had implemented wage increases and hiring restraints and restructuring programs, and expected adverse effects to continue for some time. Management expected more than $100m of annualized cost savings and synergies by end-2021, with approximately $100m of cash restructuring and integration costs.
- Management expected capital expenditures of $250m–$255m for 2020 and approximately $16m of additional pension and postretirement contributions in the remainder of the year. It had suspended share repurchases after Q1 to preserve liquidity, while continuing the quarterly $0.1625-per-share dividend through Q3.
- A planned Venator share sale was expected to generate approximately $100m and, if completed by December 31, facilitate about $150m of cash tax savings. If it did not close by then, the company expected about $187m of additional Q4 tax payments, with the tax benefit deferred to late 2021 or early 2022. The agreement was subject to regulatory approval.
- Other announced transactions included the planned sale of the India DIY adhesives business for up to $285m and a Basel property sale-leaseback for approximately $70m, both subject to closing conditions. The filing also notes that a significant portion of a $34m Venator-related tax receivable was expected to be written off upon the share sale.
- The filing describes ongoing environmental remediation obligations and legal proceedings. Environmental reserves were $4m; the company cautioned that remediation costs could exceed accrued amounts and that potential excess could not be estimated. It could not reasonably estimate its potential liability at the North Maybe Canyon Mine site.
Most important facts to verify
- Confirm the reporting-period mismatch: the supplied filing is for September 30, 2020, not 2019 Q3.
- Assess continuing results and cash generation separately from the Chemical Intermediates disposal gain and other discontinued-operation effects.
- Track the 2021 Senior Notes maturity, available borrowing capacity, and the timing and amount of remaining Chemical Intermediates sale-related taxes.
- Verify the completion, proceeds and tax consequences of the proposed Venator, India DIY and Basel transactions.
- Monitor COVID-19 demand recovery, Geismar outage costs, restructuring charges, and whether targeted savings and synergies are realized.