Huntsman (HUN) Q3 2011 Earnings Call November 02, 2011 9:00 am ET Executives Peter R. Huntsman - Chief Executive Officer, President, Director and Member of Litigation Committee Kurt D. Ogden - Vice President of Investor Relations J. Kimo Esplin - Chief Financial Officer and Executive Vice President Analysts Gregg A. Goodnight - UBS Investment Bank, Research Division P.J. Juvekar - Citigroup Inc, Research Division Robert Koort - Goldman Sachs Group Inc., Research Division Bill Hoffman - UBS Laurence Alexander - Jefferies & Company, Inc., Research Division Frank J. Mitsch - Wells Fargo Securities, LLC, Research Division William Young - Longbow Capital Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division Roger N. Spitz - BofA Merrill Lynch, Research Division Kevin W. McCarthy - BofA Merrill Lynch, Research Division Presentation Operator
In addition, we may also refer to non-GAAP financial measures. You can find reconciliations to the most directly comparable GAAP financial measures in our earnings release posted on our website at huntsman.com.As we refer to earnings, we will be referring to adjusted EBITDA, which is EBITDA adjusted to exclude the impact of discontinued operations, restructuring, impairment and plant-closing costs, income and expense associated with the terminated merger and related litigation, acquisition-related expenses, unallocated foreign exchange gains and losses, certain legal and contract settlement costs, losses from early extinguishment of debt, gain on the consolidation of variable interest entity, and losses and gains on disposition and acquisitions of businesses and assets. A reconciliation of EBITDA, adjusted EBITDA and adjusted net income or loss can be found in the appendix of our slides and in our third quarter earnings release. Let's turn to Slide 2. In our earnings release this morning, we reported third quarter 2011 revenue of $2,976,000,000, adjusted EBITDA of $345 million, and adjusted earnings per share of $0.45 per diluted share. Our adjusted EBITDA was $345 million in the third quarter 2011 compared to $273 million in the prior year, an increase of 26%. Compared to the prior quarter of $318 million, our adjusted EBITDA increased 8%. I will now turn the call over to Peter Huntsman, our President and CEO. Peter R. Huntsman Thank you, Kurt. Good morning, everyone and thank you for joining taking the time to join us. Let's turn to Slide #3. Adjusted EBITDA for our Polyurethanes division for the third quarter 2011 was $140 million. I'm generally encouraged by the demand trends we saw in our MDI products, though we saw different regional trends within the quarter. In Americas, we saw a strong growth both sequentially and on a year-over-year basis led by improvements in insulation and the automotive sector demand, and further market substitutions for our wood products and furniture sectors.
In Europe, demand was essentially unchanged as we focused on margin protection and seeded some less profitable business to the competition. From a demand perspective, we saw the most improvement sequentially and on a year-over-year basis in the Asia region. However, the effect of tightening credit and an increased regional supply led to sequentially lower average selling prices and margin. One of the sectors where we continue to see strong growth is insulation, which compared to the prior year, grew 21% in the quarter and 17% year-to-date. The supply-demand balance for the MDI industry as a whole is relatively unchanged compared to the second quarter. We estimate the MDI industry operated around 90% of nameplate capacity in the third quarter. Propylene oxide and its co-product, MTBE, have performed very well for this entire year. Earnings in the third quarter were above historical averages and comparable to those in the second quarter of this year. Strong Latin America demand combined with the large spread between Brent crude, which has an impact on MTBE pricing and WTI crude, which drives certain MTBE raw material cost have the effect of maintaining our high margins. We expect margins to contract in the fourth quarter consistent with typical year-end seasonality.Turning to Slide #4. In the third quarter, our Performance Products division earned $97 million of adjusted EBITDA. As announced in our second quarter earnings call, during the third quarter, our Port Neches, Texas facility underwent some planned maintenance which had an impact negatively of about $8 million on EBITDA. Demand within this business was generally stable across all regions, though we did see some pockets of softness in amines and surfactants. We have seen increased supply of ethyleneamines come online within the last year. This increased competition has split downward pressure on volumes and margins. We expect an industry-wide seasonal slowdown in demand in the fourth quarter, accompanied by lower selling prices as the cost of some of our raw materials has moderated. This business benefits more than any other in our portfolio from the low cost of North American natural gas, and we expect that to continue. Approximately 2/3 of our production capacity is located along the U.S. Gulf Coast, giving us a unique cost advantage where over 60% of our raw materials and manufacturing costs are ethane based. Read the rest of this transcript for free on seekingalpha.com