Huntsman NYSE: HUN said it expects relatively stable conditions in the third quarter after improving margins in the second quarter, while management cited subdued demand growth, weaker North American housing indicators and uneven consumer confidence across major regions.
Chairman, CEO and President Peter Huntsman said the company was able to raise prices in its MDI business during the second quarter, largely to recover higher raw-material costs. He said the company’s EBITDA nearly doubled from the second quarter of the prior year, although he remains concerned about the pace of demand recovery.
“On the supply side, I think it’s pretty well-balanced,” Huntsman said of the MDI market. “On the demand side, I’d like to see a little bit more.” He estimated global demand growth at roughly 0% to 2%, depending on geography, and said stronger North American housing activity, improved Asian consumer confidence and lower energy inflation in Europe would support the market.
Third-Quarter Outlook and Polyurethanes
Huntsman described July results and order patterns heading into September as stable. He said the company sees both headwinds and tailwinds entering the third quarter, but that current conditions appear balanced.
In Europe, Huntsman said pricing actions and the company’s cost structure should enable its operations there to be EBITDA-positive in the third quarter. However, he identified European energy costs and consumer demand as the principal risks. Natural gas prices in Europe had increased from roughly $13 to $14 per MMBtu to above $20 per MMBtu over the preceding two to three weeks, he said.
Management estimated global MDI industry capacity utilization in the mid-80% range, with U.S. utilization tighter than that level, Europe somewhat looser and Asia near the global average. Huntsman said industry outages had occurred, but that markets would be tighter if demand were expanding at historical annual rates of 4% to 6%.
The company does not expect significant effects from the return of supply disruptions in the U.S. MDI market during the third quarter. Huntsman said inventory had entered the second quarter at elevated levels in anticipation of a stronger housing season that did not develop as expected, leaving the supply-demand environment relatively flat heading into the third quarter.
Regarding U.S. anti-dumping duties on MDI, Huntsman said the measures should improve the market floor over time compared with a year ago, but cautioned that the benefits would likely emerge over multiple quarters and depend on a recovery in housing and demand. He noted that MDI can still reach the U.S. market indirectly through trade flows involving Canada, Mexico and Latin America.
Huntsman said a competitor’s polyol outage provided a low-$2 million to $3 million benefit during the second quarter. CFO and Executive Vice President Phil Lister said the upstream outages are over and supply is returning to the market in the third quarter.
About 40% of the company’s Polyurethanes contracts are formula-based and extend beyond a quarter, according to Huntsman. Those arrangements typically reopen for negotiation every six to 12 months and are designed to account for movements in benzene, natural gas and other inputs. The company is pursuing surcharges where possible while continuing to honor contractual pricing commitments, he said.
Advanced Materials Growth
Management said Advanced Materials volume increased 8% in the second quarter. Huntsman attributed the growth to broad-based improvement across applications, with power-grid infrastructure and aerospace among the stronger areas.
The company is seeing demand for products used in grid modernization, renewable-energy connections and electricity infrastructure supporting artificial intelligence-related investment, Huntsman said. In aerospace, recovery in wide-body aircraft production continues, although build rates for the Boeing 777 and 787 and Airbus A350 remain below 2018 and 2019 levels, he said.
Huntsman also cited growth in aerospace interior parts and adhesives, along with better-than-expected automotive growth supported by newly qualified electric-vehicle applications. Coatings, construction and automotive markets generally are tracking purchasing managers’ indexes, he said.
In Polyurethanes, Huntsman said industrial growth was led largely by its higher-margin Elastomers business, which posted double-digit gains in Asia, Europe and the Americas. The business serves specialty coatings, adhesives and related industrial applications.
The company also reported continued low-double-digit growth in spray foam insulation despite a weak construction market. Huntsman credited supply-chain improvements, cost initiatives and marketing and sales execution in that business.
Olin Merger and Synergy Plans
Huntsman reiterated its support for the proposed merger of equals with Olin Corp., announced June 16. Peter Huntsman said the two companies’ teams are collaborating on closing preparations and expect to begin pursuing identified synergies on the first day after closing.
Management has identified approximately $300 million in expected synergies, including about $75 million from purchasing, logistics and integration; roughly $75 million from overlap in the companies’ epoxy operations and related integration; and about $150 million in selling, general and administrative savings.
The company also outlined more than $100 million of additional benefits expected after an existing chlorine supply contract expires. Huntsman said the largest and longest contract in the Americas runs through the end of 2030 and will be honored. Afterward, the combined company expects to internally supply chlorine and capture associated caustic value.
Huntsman said the synergy estimates do not include potential commercial opportunities from combining the companies’ technologies, supply chains and customer relationships. Lister said the company expects some synergies to be realized early after the deal closes through Olin products that can be integrated into Huntsman’s EDC, EPI, LER and caustic requirements.
On leverage, Lister said Huntsman’s net debt was approximately $1.7 billion and its net leverage ratio improved to 5.4 times from 6.1 times in the first quarter. He expects cash inflow during the second half to move leverage closer to four times by year-end.
Looking toward 2027, Lister said projections included moderate improvement in global economic conditions, construction and housing activity, as well as continued gains in Advanced Materials’ power and aerospace businesses. The assumptions do not contemplate housing returning to prior peak levels, he said, but instead reflect a gradual move toward more cycle-average earnings through 2028.
About Huntsman (NYSE:HUN)
Huntsman Corporation is a global manufacturer and marketer of specialty chemicals with headquarters in The Woodlands, Texas. Founded in 1970 by entrepreneur Jon Huntsman Sr., the company has grown through strategic acquisitions and organic expansion to establish a broad portfolio of products serving diverse end markets. Huntsman maintains a presence in more than 30 countries, operating manufacturing facilities across North America, Europe, Asia-Pacific, Latin America and the Middle East.
The company organizes its operations into several core business segments, including Polyurethanes, Performance Products, Advanced Materials, and Textile Effects.
This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to contact@marketbeat.com.
Before you consider Huntsman, you'll want to hear this.
MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and Huntsman wasn't on the list.
While Huntsman currently has a Hold rating among analysts, top-rated analysts believe these five stocks are better buys.
View The Five Stocks Here
With the proliferation of data centers and electric vehicles, the electric grid will only get more strained. Download this report to learn how energy stocks can play a role in your portfolio as the global demand for energy continues to grow.
Get This Free Report
