Business context and reporting period
This filing is Huntsman Corporation and subsidiary Huntsman International LLC’s unaudited Form 10-Q for the quarter ended September 30, 2019—not 2018 Q3 as stated in the request metadata. Huntsman manufactures differentiated and commodity chemicals and reports four continuing segments: Polyurethanes, Performance Products, Advanced Materials, and Textile Effects. The Chemical Intermediates Businesses were classified as discontinued operations in Q3 2019, with comparative periods recast.
Key financial metrics
Amounts are in USD millions except per-share data. Unless noted, results below are for Huntsman Corporation.
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Continuing-operations revenue | $1,687 | $1,968 | $5,140 | $5,783 |
| Gross profit | $340 | $467 | $1,072 | $1,412 |
| Gross margin | 20.2% | 23.7% | 20.9% | 24.4% |
| Operating income | $152 | $223 | $419 | $691 |
| Operating margin | 9.0% | 11.3% | 8.2% | 11.9% |
| Continuing-operations income (loss), attributable to Huntsman | $(38) | $173 | $133 | $562 |
| Net income (loss), attributable to Huntsman | $30 | $(11) | $259 | $677 |
| Basic EPS | $0.13 | $(0.05) | $1.12 | $2.83 |
| Adjusted EBITDA | $215 | $308 | $664 | $954 |
Q3 revenues fell 14% year over year; gross profit fell 27%. Management attributed the declines mainly to lower selling prices and weaker volumes across segments, with Polyurethanes volumes an exception. Segment adjusted EBITDA in Q3 was Polyurethanes $146 (down 33%), Performance Products $38 (down 30%), Advanced Materials $51 (down 9%), and Textile Effects $16 (down 36%).
Cash flow, debt and liquidity
- For the first nine months, cash from continuing operating activities was $434, versus $446 in 2018. Capital expenditures were $181, versus $148. Management’s non-GAAP free cash flow from continuing operations was $258, versus $300.
- Cash and cash equivalents were $418 at September 30, 2019. Huntsman reported $1.707 billion of cash and unused borrowing capacity: $1.193 billion available under its revolving facility and $96 million under receivables programs, in addition to cash.
- Huntsman Corporation reported $2.336 billion of debt, including $132 million current and $2.204 billion long term. Huntsman International reported $2.727 billion including $391 million of notes payable to its parent. The company reported compliance with material debt covenants.
- Nine-month financing cash outflow was $431, including $662 of long-term debt repayments, $742 of new long-term debt proceeds, $196 of share repurchases, and $115 of common dividends.
Material changes and unusual items
- Huntsman agreed to sell its Chemical Intermediates Businesses, including PO/MTBE and surfactants, to Indorama for $2.0 billion in cash plus assumption of up to approximately $76 million of specified underfunded benefit liabilities, subject to adjustments and closing conditions. Closing was expected in early 2020; anticipated proceeds net of taxes and related costs were approximately $1.6 billion. The businesses’ results were classified as discontinued operations.
- A $148 million Q3 loss from marking Huntsman’s remaining Venator investment to fair value drove the continuing-operations loss attributable to Huntsman. The nine-month statement reports a $90 million fair-value loss; the filing notes a $91 million investment valuation loss alongside other period adjustments.
- In July, Huntsman sold its Basel, Switzerland, Textile Effects facilities and offices for $49 million and recognized a corresponding $49 million gain, reflected in restructuring/plant-closing credits.
- Huntsman acquired Sasol’s remaining 50% interest in the maleic anhydride joint venture for $100 million, funded with a 364-day, $101 million-equivalent term loan maturing in September 2020.
- Huntsman issued $750 million of 4.50% senior notes due 2029 and used proceeds to redeem $650 million of 4.875% notes due 2020; it recorded a $23 million early-extinguishment loss. The new notes extend maturities, while the 2019 term loan creates a near-term refinancing or repayment requirement.
- Adoption of lease accounting on January 1, 2019 added $495 million of operating lease liabilities and $466 million of right-of-use assets. The September 30 balance sheet reported $386 million of operating lease liabilities.
- Nine-month income tax expense was $113 million; the company cited a $32 million noncash expense from Swiss tax-rate changes and the non-tax-benefited Venator valuation loss. Management’s forward adjusted effective tax-rate outlook was approximately 22%–24%.
Outlook, commentary and risks
- Management expected stable differentiated margins but demand headwinds in Polyurethanes, pressured component MDI margins, weaker ethyleneamines volumes and margins, and demand weakness across many industrial markets. Textile Effects faced weak global demand and continuing trade-related pressure.
- 2019 capital spending was projected at approximately $270 million for continuing operations and $70 million for the businesses held for sale. Management also cited approximately $100 million of multi-year maintenance spending at the Port Neches PO/MTBE facility, including approximately $20 million in the second half of 2019 and the remainder in the first half of 2020.
- The Indorama sale remained contingent on closing conditions, including regulatory approvals such as CFIUS approval. Failure to close, management distraction, operational disruption, transition costs, and realignment requirements could adversely affect Huntsman.
- Foreign-exchange, interest-rate and commodity exposures remain; Huntsman stated that its currency hedging does not eliminate the effect of exchange-rate changes. It had $177 million of outstanding forward foreign-currency contracts and approximately €480 million of euro debt designated as a net-investment hedge.
- Environmental liabilities accrued were $7 million. The filing says potential remediation costs could exceed accruals and that Huntsman could not estimate potential excess exposure at the North Maybe Canyon Mine site. Huntsman reported no material expected effect from other disclosed proceedings; the Credit Suisse Wisconsin litigation was dismissed with prejudice in September 2019.
Important facts for investors to verify
- Confirm the reporting period and the recast treatment of Chemical Intermediates and other discontinued operations when comparing results.
- Track the Indorama transaction’s regulatory and other closing conditions, final working-capital and debt adjustments, timing, and net cash proceeds.
- Assess continuing-segment pricing, volumes and margins, especially Polyurethanes/MDI and the demand pressures described by management.
- Review the market value and potential further earnings volatility of the remaining Venator investment.
- Monitor the September 2020 term-loan maturity, receivables-program availability and covenant compliance, alongside planned capital, maintenance and pension spending.
- Distinguish GAAP results from adjusted EBITDA, adjusted tax-rate guidance and free cash flow, which are non-GAAP measures with company-defined adjustments.