The Urethane Blog

Epoxy Comments from Huntsman Investors Call

Huntsman Corp (HUN) Q1 2021 Earnings Call Transcript

HUN earnings call for the period ending March 31, 2021.

Peter HuntsmanChairman, President & Chief Executive Officer

Let’s turn to slide number four. The Performance Products segment reported adjusted EBITDA of $63 million compared to $58 million in last year’s first quarter. We saw growth in our Asia business and strong demand and margins for most of our division’s products. This combined with lower fixed costs, more than offset the approximate $14 million of headwind that resulted in winter storm Yuri.

Total volumes for the division declined 3% due largely to the storm and due to the recent discontinuation of certain tolling arrangements associated with the chemical intermediates business that we sold this past year. On a pro forma basis, we estimate that our underlying volumes were actually up 6% year-over-year, leading the way with strong demand in our performance amines portfolio, largely in our sustainability related products, such as amines that are sold in new VOC-free polyurethane catalysts and into the wind market.

Growth in the construction markets have also benefited our amines that go into coatings and adhesives as well as the maleic anhydride business that serves the UPR markets. Volumes increased 6% year-over-year within our maleic anhydride business. Raw material costs have been rising, but we’ve been successful in passing through price increases to offset higher costs. We believe that some of the lost sales in the first quarter due to the winter storm will be captured in the second quarter. This combined with some of the seasonal strength and improved margins, should translate into EBITDA growth in the second quarter over the first quarter of about 5% to 10% for Performance Products.

Let’s turn to slide number five. Our Advanced Materials business reported adjusted EBITDA of $44 million, down 8% versus the prior year. The first quarter last year still experienced solid aerospace results before the global pandemic started significantly impacting the commercial aerospace industry.

As a result, our aerospace sales were down approximately 40% year-over-year. It’s the primary reason that our adjusted EBITDA declined year-over-year. As we previously stated, we believe our aerospace business bottomed in the fourth quarter of 2020. While we still anticipate full recovery to pre-pandemic levels will take at least a couple of years, we did see a sequential improvement in our aerospace sales, and we are encouraged that recovery is a bit better than we had anticipated.

When excluding aerospace, the underlying volumes of our other core specialty businesses experienced growth year-over-year from improved trends, as well as positive contribution from our recent acquisition of CDC Thermostat Specialties and Gabriel Performance Products. Our non-aerospace business, EBITDA grew 8.5% over last year. While our non-aerospace EBITDA, including our recent acquisitions and divestitures, grew at 28%. The integration of both acquisitions remain on track and we’re confident that we will achieve the run rate synergies that we communicated at the time each respective transaction was announced. We believe that overall fundamental demand is improving in our core businesses.

Looking toward the second half of 2021, with improving fundamentals, as well as contributions from the recent acquisitions, we expect adjusted EBITDA for our advanced materials division to be about 10% better than the first quarter.

Sean DouglasExecutive Vice President & Chief Financial Officer

Thank you, Peter. Turning now to slide seven. We were pleased to see a continuation of a strong recovery in the first quarter of 2021. The adjusted EBITDA increased by $124 million year-over-year and by $49 million quarter-over-quarter. This is in spite of approximately $25 million of negative impact to EBITDA in the first quarter of this year from winter storm Yuri that slam the Gulf Coast in February. The overall decrease in volumes year-over-year is primarily attributed to our aerospace business where sales in the prior year period were strong before the pandemic.

As Peter has commented, aerospace revenues were down approximately 40% versus the prior year. However, they have bottomed, and we saw a meaningful improvement in the first quarter this year versus the fourth quarter of the prior year. Variable margins significantly improved year-over-year and quarter-over-quarter as demand for products has steadily improved and increases in our sales prices have exceeded increases in our raw material prices, allowing overall adjusted EBITDA margins to recover to mid-teens.

Turning to slide 8. Regarding synergies from recent acquisitions, we have now exceeded the $20 million target we set, facilitated by combining our polyurethane spray foam businesses and creating our Huntsman Building Solutions platform. With respect to the CVC Thermoset acquisition, we estimate having already achieved a current annualized run rate of approximately $9 million of synergies and are on target to achieve $15 million near the end of 2021. We are also on target to achieve the Gabriel synergies of $8 million by early 2023.

John RobertsUBS — Analyst

Thank you. Best wishes as well, Sean. We hear another company in the epoxy market is targeting 30% EBITDA margins. Do you think Huntsman has a better or worse mix than the competition? And any thoughts on that kind of target?

Peter HuntsmanChairman, President & Chief Executive Officer

Well, I think our mix is far, far better than the competition, but I’m slightly biased in saying that. So without knowing who you’re talking about or anything, look, if we’re able to-if we’re able earn it, we’re going to earn it. And I think we’ve got a great batch of customers and so forth.

I think that, again, we are probably a bit different than our competition and the amount of volume that we’re moving into the aerospace industry. That might seem like a bit of a frustrating position for us to be in right now.

But I think over the past decade and over the decade to come, that position is going to serve us extremely well. It’s been a very reliable earner for us and with margins that are on the high end of our spectrum of customers we have globally.

So I think that in an area like epoxies, I really don’t compare us with our competition because we really don’t compete a great deal with the more widely recognized epoxy producers around the world. I think our biggest competitors we have in that business really are smaller blenders and formulators that are downstream. And those are the people that we probably are competing more aggressively against.

So again, I don’t-I say that tongue and cheek about us being far superior than our competition. I really just don’t see us competing head to head with a lot of them.

David BegleiterDeutsche Bank — Analyst

Thank you. Peter, just on aerospace, with that market beginning to bottom return as we speak, do you think you could still get back the entire, I think, roughly $80 million of EBITDA loss last year? Or could you even do maybe better going forward?

Peter HuntsmanChairman, President & Chief Executive Officer

Well, I think we’ll do better going forward. We’ve got — I think that the idea that you’re going to be producing planes five, 10 years from now with the aluminum content that you had a couple of years back.

I just-I don’t know it’s going to happen. I think when you look at the next-generation 320 Airbus, the wing of the next-generation 777X, the Boeing 787 and so forth, if anything, these are going to be having more carbon composite materials on a per plane basis.

I’d also note that with the recent acquisition of the CBC Specialty Polymers Group, we’ve-there’s additional exposure there, been a bit frustrating for us this year. But longer term, that additional exposure into the aerospace business is going to be significant. It’s going to be something that we’re going to be continuing to guard right now and make sure that we’re nurturing it, but carrying forward now because I think longer term. It’s going to add to what would otherwise be a normalized EBITDA in the aerospace industry.