Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Huntsman Corp (HUN, Financial) reported a 9% year-over-year and 8% quarter-over-quarter increase in volumes across the entire business.
- The company generated over $50 million in cash flow from operations in the second quarter.
- Cost initiatives over the past three years have been effective, helping the company stay ahead of inflation.
- The construction, aerospace, infrastructure, power, and elastomers businesses continue to show improvement.
- Huntsman Corp (HUN) has a strong focus on cash and cost management, which remains a priority.
Negative Points
- Concerns remain regarding Europe's de-industrialization and excess chemical capacity flowing out of Asia.
- The single largest catalyst for margin improvement, a resurgence in commercial and residential construction demand, is contingent on interest rate reductions.
- Third-quarter order patterns appear flat compared to the second quarter, indicating cautiousness for the second half of the year.
- The company faces competitive pressures in performance products, particularly in Europe due to Asian-based maleic imports.
- Advanced materials experienced a 10% year-over-year decline in price mix, primarily due to mix impacts.
Q & A Highlights
Highlights of Huntsman Corp (HUN) Q2 2024 Earnings Call
Q: In terms of MDI industry operating rates, where are we now and how do you think this will shape up for the rest of the year?
A: (Peter Huntsman, CEO) Operating rates are somewhat squishy due to unreliable real-time data. Europe has seen a slight drop, Asia has tightened a bit, and the Americas have stayed flat. Overall, we are still in the mid-80s percentage-wise, trending in the right direction but moving slowly.
Q: What are your thoughts on polyurethanes EBITDA if construction demand improves?
A: (Peter Huntsman, CEO) If construction normalizes, we could see mid to upper mid-teens margins for polyurethanes. This requires stronger growth in China, some traction in Europe, and a rebound in US housing.
Q: Your volumes were up 8-9% and inventories down about 10%. Why is that?
A: (Peter Huntsman, CEO) We managed cash carefully and recovered some lost volumes. We saw de-inventorying in elastomers and industrial applications. It's a capital discipline around supply, demand, and production. (Philip Lister, CFO) Volume in inventory is down 4% overall, and on a DIO basis, down about 10%.
Q: How should we think about variable margin improvement in polyurethanes for the next quarter?
A: (Peter Huntsman, CEO) It will likely be flat with some give and takes. We experienced an outage in Rotterdam and have a Chinese joint venture headwind. We hope for volume growth and pricing momentum to offset these. (Philip Lister, CFO) We aim for an inventory build towards the end of Q3, which will give a one-time EBITDA benefit.
Q: Could lower interest rates improve your operating environment in Europe?
A: (Peter Huntsman, CEO) Lower interest rates will impact Europe but not as materially as in the US. The US housing market could see a strong rebound with rate cuts and improved consumer optimism.
Q: What is driving the competitive dynamics in performance products, and will this persist?
A: (Peter Huntsman, CEO) The hardest hit area is maleic anhydride in Europe due to a tidal wave of Asian imports. Europe has lower duties compared to the US, which affects competitiveness.
Q: What is the acquisition pipeline in advanced materials, and can we expect activity this year?
A: (Peter Huntsman, CEO) The pipeline is picking up, especially with private equity assets coming to market. Advanced materials offer opportunities for vertical and horizontal integration, making it a target-rich environment. However, we will remain disciplined in pricing and integration.
Q: How do you see the seasonality for Q4, and will it be normal?
A: (Peter Huntsman, CEO) Seasonality should be normal compared to the last couple of years. Demand has been steady, and there is not much inventory in the supply chain. However, geopolitical issues and consumer confidence could impact overall demand.
Q: How is your spray foam business doing, and is it gaining share from other forms of insulation?
A: (Peter Huntsman, CEO) The market is competitive, and demand is sluggish. We are optimistic about government initiatives and building codes coming into effect in 2025, which should benefit the business.
Q: What kind of vertical integration are you interested in for advanced materials?
A: (Peter Huntsman, CEO) We are focused on downstream and lateral integration, not upstream. Recent acquisitions have enhanced our core business, and we aim to go further downstream.
Q: How far are we from reaching normalized levels of volumes in polyurethanes?
A: (Peter Huntsman, CEO) We need to see a recovery in residential construction markets. Globally, we are probably in the low to mid-80% capacity utilization, with room for expansion.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
