Huntsman Corporation — Q1 2023 Form 10-Q
Reporting-period note: The request metadata says 2022 Q1, but the supplied filing is for the quarter ended March 31, 2023, filed May 5, 2023. Figures below are in U.S. dollars; financial amounts are in millions unless stated otherwise. The filing covers Huntsman Corporation and its wholly owned operating subsidiary, Huntsman International LLC.
Business context and reporting period
Huntsman is a global diversified chemicals manufacturer operating in Polyurethanes, Performance Products and Advanced Materials. Results are presented for continuing operations; the Textile Effects business was sold on February 28, 2023, and prior-period results were recast as discontinued operations.
Financial results and liquidity
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $1,606 | $2,192 |
| Gross profit / gross margin | $269 / 16.7% | $515 / 23.5% |
| Operating income / operating margin | $61 / 3.8% | $283 / 12.9% |
| Income from continuing operations attributable to Huntsman Corporation | $31 | $205 |
| Net income attributable to Huntsman Corporation | $153 | $223 |
| Diluted earnings per share | $0.83 | $1.04 |
| Adjusted EBITDA | $136 | $387 |
| Operating cash flow from continuing operations | $(122) | $67 |
| Free cash flow from continuing operations | $(168) | $3 |
- Net income included $122 million of after-tax discontinued-operations income, including a $153 million pretax gain on the Textile Effects sale. Continuing-operations earnings fell sharply year over year.
- Cash and cash equivalents were $615 million at March 31, 2023, versus $654 million at year-end 2022. Total debt was $1.520 billion, down from $1.737 billion; cash exceeded reported debt by approximately $905 million.
- Management reported $2.040 billion of cash and unused borrowing capacity: $615 million cash, $1.187 billion available under the revolving facility and $238 million under receivables programs. The $1.2 billion revolving facility had no borrowings outstanding; receivables programs also had no borrowings outstanding.
- Continuing-operations capital expenditures were $46 million. Investing cash flow included $541 million of net proceeds from business sales, primarily the Textile Effects sale. Financing cash outflow was $379 million, including $220 million of facility repayments, $97 million of share repurchases and $44 million of dividends.
Material changes versus the prior comparable period
- Revenue fell 27%, primarily on lower volumes across all three segments. Segment adjusted EBITDA declined to $185 million from $437 million: Polyurethanes $66 million versus $224 million; Performance Products $71 million versus $146 million; Advanced Materials $48 million versus $67 million.
- Management cited lower demand and volumes, weaker MDI margins, currency headwinds and lower equity earnings in Polyurethanes; slower construction and industrial demand and inventory destocking in Performance Products; and weaker infrastructure demand in Advanced Materials.
- Adjusted EBITDA for Huntsman Corporation was $136 million versus $387 million; adjusted net income was $37 million versus $237 million. These non-GAAP measures exclude specified items and should be considered alongside GAAP results.
- Quarter-end working capital was $1.403 billion, down $41 million from year-end. Cash decreased by $39 million; inventories and receivables each increased by $53 million.
Outlook, management commentary and risks
- Management expected 2023 capital expenditures of approximately $240 million to $250 million, funded with cash from operations, and an additional approximately $28 million in pension and postretirement contributions during the remainder of 2023.
- Cost programs targeted annualized savings of approximately $140 million in 2023 and a further approximately $100 million by year-end 2023. A European restructuring program targeted approximately $40 million of annualized savings by year-end 2023. Associated expected cash costs and capital expenditures extend through 2024.
- Management expected approximately $30 million of additional cash taxes related to the Textile Effects sale; final sale-price adjustments were still pending. Net proceeds received at closing were $530 million.
- A $94 million jury award against Praxair/Linde, expected to exceed $125 million with interest before taxes and legal fees, was under appeal and had not been recognized. If affirmed, Huntsman expected net proceeds of approximately $50 million to $60 million; timing was unknown.
- Environmental liabilities accrued were $5 million. The filing says remediation losses could exceed accruals but does not provide a reliable estimate of potential excess; Huntsman also could not reasonably estimate potential liability for the North Maybe Canyon Mine site.
- Other exposures include foreign-exchange, interest-rate and commodity-price movements. Huntsman reported $387 million of notional forward currency contracts and stated that its hedging does not eliminate currency effects. It believed it was in compliance with material debt covenants.
- The filing provides no specific near-term revenue or earnings guidance. Management cautioned that interim results are not necessarily indicative of full-year results. Disclosure controls were assessed as effective, with no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Confirm the intended period: the supplied document is Q1 2023, not Q1 2022.
- Assess the durability of demand, segment margins and the substantial year-over-year decline in adjusted EBITDA and continuing-operations earnings.
- Review post-closing adjustments, taxes and cash use from the Textile Effects sale, and distinguish the sale-related gain from recurring operating performance.
- Monitor operating cash flow, working-capital requirements, planned capital spending, pension contributions, debt repayment and continued shareholder returns.
- Track restructuring savings and cash costs against management’s targets, and the appeal and possible recovery in the Praxair/Linde litigation.
- Review environmental and other contingencies, including exposures that the filing says cannot yet be reasonably estimated.