Huntsman(US:HUN)2022-11-04 18:00Financial Data and Key Metrics Changes - Adjusted EBITDA for the third quarter was $271 million, a decline of $78 million or 22% compared to the third quarter of 2021, and a sequential decline of $139 million or 34% [22] - Sales volumes declined by 15% during the quarter, with Europe down 23%, the Americas down 14%, and Asia down 7% [23] - Earnings per share for the quarter came in at $0.71 compared to $1.02 in the prior year [30] Business Line Data and Key Metrics Changes - Polyurethanes division reported adjusted EBITDA of $138 million, with sales volumes declining 16% [7] - Performance Products reported adjusted EBITDA of $110 million, a 7% increase year-over-year, with a strong adjusted EBITDA margin of 25% [15] - Advanced Materials reported adjusted EBITDA of $58 million, a 21% increase over the previous year's third quarter, despite a 16% decline in volumes [18] Market Data and Key Metrics Changes - Demand in Europe decreased significantly by 23%, while demand in China was impacted by lower economic growth due to COVID policies [15][10] - The joint venture in China contributed approximately $18 million in equity earnings for the quarter, down from $32 million a year ago [11] - Natural gas prices in Europe remain at historically high levels, significantly impacting profitability [9] Company Strategy and Development Direction - The company is implementing a European restructuring plan to reduce costs by at least $40 million by exiting certain legacy commercial and R&D facilities [36][29] - The focus is on aligning production with customer demand and managing costs effectively, particularly in the polyurethanes business [13][46] - The company is committed to returning cash to shareholders through dividends and share buybacks while exploring bolt-on acquisitions [41][66] Management's Comments on Operating Environment and Future Outlook - Management highlighted the challenges posed by high inflation, energy volatility, and geopolitical tensions affecting the European market [35] - The company expects continued destocking in the U.S. and a muted economy in China, with significant headwinds anticipated in Europe [14][42] - Management remains cautiously optimistic about improvements in 2023, contingent on stabilizing inflation and economic recovery in China [70] Other Important Information - The company achieved an annualized run rate of $160 million in cost savings by the end of Q3, with expectations to exceed $170 million by the end of 2022 [27] - Free cash flow from continuing operations for Q3 was $228 million, with total free cash flow over the last 12 months approximately $1.1 billion [30] - The company expects to receive approximately $540 million in after-tax cash proceeds from the sale of its Textile Effects business [32] Q&A Session Summary Question: Sequential move from Q3 to Q4 regarding energy costs, destocking, and volume declines - Management indicated that about 50% to 60% of the decline in demand is related to inventory adjustments, with expectations for inventory depletion by early 2023 [50][51] Question: Asset footprint in polyurethanes and potential rationalization - The company is exploring options in Southeast Asia for rationalization, focusing on higher-margin materials [54] Question: Performance Products margins amidst weaker volumes - Management confirmed that margin discipline has been strong, with pricing strategies in place to offset raw material costs [57] Question: Loading on the new splitter and potential delays due to the economy - The automotive sector remains strong, and management anticipates shifts in production from Europe to North America [60] Question: Fourth quarter free cash flow expectations - Management expects to generate over $100 million in free cash flow in Q4, supported by net working capital inflow [65] Question: 2023 EBITDA outlook - Management anticipates a year similar to 2022 but with potential improvements as cost reduction initiatives take effect [68] Question: MDI competitive environment and pricing dynamics - The company is focused on matching production to customer demand and maintaining pricing discipline despite market volatility [72][74] Question: European restructuring characterization - Management indicated that the restructuring is primarily a cost realignment, with further adjustments possible as customer decisions evolve [95]