Huntsman Corporation (NYSE:HUN) Q3 2023 Earnings Call Transcript

Huntsman Corporation (NYSE:HUN) Q3 2023 Earnings Call Transcript November 1, 2023

Operator: Greetings. Welcome to the Huntsman Corporation Third Quarter 2023 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. At this time, I would like to hand the call over to Ivan Marcuse, Vice President of Investor Relations and Corporate Development. Thank you. You may begin.

Ivan Marcuse: Thank you, Daryl. Good morning, everyone. Welcome to Huntsman’s third quarter 2023 earnings call. Joining us on the call today are Peter Huntsman, Chairman, CEO and President; and Phil Lister, Executive Vice President and CFO. Yesterday, October 31, 2023, after the U.S. equity markets closed, we released our earnings for the third quarter 2023 via press release and posted to our website, huntsman.com. We also posted a set of slides and detailed commentary discussing the third quarter on our website. Peter Huntsman will provide some opening comments shortly. We will then move into the question-and-answer session for the remainder of the call. During the call, let me remind you that we may make statements about our projections or expectations for the future.

A scientist in a lab working on a beaker of chemicals used in biopharmaceuticals.

All such statements are forward-looking statements, and while they reflect our current expectations, they involve risks and uncertainties and are not guarantees of future performance. You should review our filings with the SEC for more information regarding the factors that could cause actual results to differ materially from these projections or expectations. We don’t have plan on publicly updating or revising any forward-looking statements during the quarter. We will also refer to non-GAAP financial measures such as EBITDA, adjusted net income or loss and free cash flow. You can find reconciliations to the most directly comparable GAAP financial measures in our earnings release, which has been posted to our website, huntsman.com. I’ll now turn the call over to Peter Huntsman.

Peter Huntsman: Ivan, thank you very much, and thank you all for taking the time to join us this morning. This past week, I had the opportunity to visit one of our largest aerospace customers with our Board of Directors. We watched firsthand as Huntsman’s composite raw materials were applied to some of the most fuel efficient and modern aircraft built anywhere in the world today. We also visited one of our plants that is making Germany’s premier sports cars lighter and consume less electricity. We spoke to our associates at the same plant who are responsible for making components for a smarter, more reliable power distribution and grid system. I’d go on about the numerous applications that Huntsman is now pushing to serve a less energy intensive, but more energy-reliant economy.

All this give me cause for optimism, and it’s a great reminder about our company’s position in the global marketplace. Over the past 24 months, we’ve seen some of the strongest economic performance as we recovered from a global pandemic and subsequently among the most chaotic economic conditions as European energy policy seemingly collapsed, China’s bounced back stumbled along and North America’s construction markets took a beating over high interest rates and consumer uncertainty. As we now have some visibility into the beginning of the fourth quarter, as I said during our last earnings call, we expect this to be a tough quarter depending on the amount of customer deinventoring we see and lack of consumer confidence. Our projections for the fourth quarter remain murky, as the real year-end seasonality does not yet start for a couple more weeks.

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Q&A Session

However, our customer and plant business demonstrates how vital our products are in an evolving global economy. We continue to see the recovery of the aerospace industry. In all of our other divisions, we will be a vital supplier to both the EV and ICE automotive industry. We continue to see growing demand in power and electronics, building insulation materials, cleaner solvents for the chip industry and expanding markets for lightweight and stronger materials. We will pace our share buyback program to make sure we are both returning value to our shareholders and preserving a strong balance sheet that will assure our flexibility and allow us to capitalize on M&A opportunities. During 2024, we will complete a $280 million cost realignment, a European restructuring program we announced over the past 2 years.

This will help offset inflation, flatten our organization and allow us to compete more aggressively and respond quicker to market conditions. As mentioned in our prepared remarks, we will be very conservative on our capital spend this next year. We will spend what is needed to assure our reliability and safety as well as investing in high-priority growth projects. Depending on the speed of an expected recovery in 2024, we will be ready to proceed with other projects as market conditions may warrant. In short, as we conclude what has been a year with more challenges and opportunities, we believe that we’re in a unique position to rebound quickly as markets shift direction. We will also be calibrating our operations around a conservative approach to and capital allocation towards long-term shareholder return and reliability.

Thank you very much. And with that, we will open the line up for questions. Operator?

Operator: [Operator Instructions] Our first questions come from the line of Aleksey Yefremov with KeyBanc Capital Markets.

Aleksey Yefremov : Peter, it seems like China could be one of the main reasons, things global or so tough in MDI, in particular. Do you see anything in China to suggest a path for better 2024?

Peter Huntsman: Well, I think that it’ll — actually, first of all, it’s good to hear from you. And as I look at China, look, we’ve been saying for the past year that we’re seeing a slow and steady recovery taking place in China. I think we’re a little bit of an outlier earlier in the year when we were saying that people we’re expecting that there was going to be a very sudden bounce back. But I — we’re seeing in the housing market that interest rates are dropping. And typically, that will mean that there’ll be a recovery following, but we’re not overly reliant on that. I think where we are invested on the domestic energy conservation in China around insulation, around building materials, around the EV market. We continue to get market share in the auto, both in ICE and in EV and in consumer goods and appliances.

So our focus is not on the export segment of the Chinese economy rather the domestic consumption and building side of the Chinese economy. And in that, I think that we’re going to just continue to see slow but steady growth and recovery in that area. And to that end, as I look at Chinese prices from the beginning of the year, they’re actually slightly up from where they started the year. And I think that we’re going to continue to see continued improvement throughout 2024 in China.

Aleksey Yefremov : And as a follow-up, it seems like raw materials spiked some time in Q3, affecting margins in Q4. Do you see this as sort of a temporary issue for Q4 such that margins should improve in subsequent quarters? Or is it sort of a reset that could last longer?

Peter Huntsman: I don’t think that it’s going to be a permanent reset, but it is something when we look at raw material volatility. Remember, for most chemical companies, I don’t think there were any different by the time you buy the product today, and I guess, I suppose some of this still is how you end up doing your accounting. But if you buy the material today, you’re shipping it from various places around the world. You’re bringing in your inventory, you’re working it. It works through your inventory goes to your customer, you’re billing your customer and you’re getting your money for that inventory. That value of the inventory, it can be anywhere from 2 months to 4 months. If you get into slower demand periods and rising raw material costs, that’s kind of the worst of all worlds in my opinion.

And I think that’s the reason why we were saying a quarter ago is we were seeing the global uncertainty and the rising cost as we go into the fourth quarter, which is usually a time when people are deinventorying anyways. I think that we were kind of expecting to see higher costs, slower demand, and that would typically mean a drag on earnings. I think that’s what we tried to reflect in the forecast that we’ve given.

Phil Lister: Yes. Aleksey, I think it’s clear we’ve got a headwind going to the fourth quarter, particularly when you look at benzene, which averaged about $3.10 in quarter 3. It settled in October over $4. It settled for November at $3.65. Spot price is lower, but that is our largest raw material. Natural gas in Europe has also risen from approximately $10 a Btu to about $14 to $15 today. So some headwinds there, there are some benefits in the chlorine chain, with chlorine coming down, epichlorohydrin is falling. But those are outweighed by benzene and natural gas.

Operator: Our next question comes from the line of Michael Sison with Wells Fargo.

Michael Sison : Peter, when you think about, I guess, Polyurethanes in total, you’ve done a lot of things over the last several years going downstream and trying to improve the quality of the business. This year’s, for a lot of businesses, look really tough to see those changes. But when you think about, again, just thinking where the business see when things recur, maybe talk about whether EBITDA margins can get back to all this destock in difficult times end?

Peter Huntsman: Yes. I think that as we look at MDI, fundamentally, I do think that we’re in unprecedented downdraft right now with MDI, putting it mildly. The reason I say that is this is a product since I’ve been in it for the last 25 years, and some of the veterans that been in the last 30-plus years, we’ve not seen 2 consecutive years of falling demand. And that’s largely not about because of macroeconomic conditions. We’re not seeing competing materials. We’re not seeing a lots of people that are — or stopped building homes with OSP. They’ve stopped using MDI and furniture and bedding. And so it wasn’t anything. We see MDI continuing to expand its application base, its chemistry base and getting better. So — I mean, if I look at the bare fundamentals, there’s absolutely no reason why this material during normal economic conditions, or even normal economic minus a bit, shouldn’t be doing immensely better than it’s doing today.