Huntsman (HUN)

Q4 2011 Earnings Call

February 16, 2012 10:00 am ET

Executives

Kurt D. Ogden - Vice President of Investor Relations

Peter R. Huntsman - Chief Executive Officer, President, Director and Member of Litigation Committee

J. Kimo Esplin - Chief Financial Officer and Executive Vice President

Analysts

Kevin W. McCarthy - BofA Merrill Lynch, Research Division

Laurence Alexander - Jefferies & Company, Inc., Research Division

Brian Maguire - Goldman Sachs Group Inc., Research Division

Mike J. Ritzenthaler - Piper Jaffray Companies, Research Division

Eric Petrie

Frank J. Mitsch - Wells Fargo Securities, LLC, Research Division

Andrew W. Cash - UBS Investment Bank, Research Division

Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division

Roger N. Spitz - BofA Merrill Lynch, Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2011 Huntsman Corporation Earnings Conference Call. My name is Gina, and I will be your coordinator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's conference, Mr. Kurt Ogden, Vice President of Investor Relations. Please go ahead.

Kurt D. Ogden

Thank you. Thank you, Gina, and good morning, everyone. Welcome to Huntsman's Fourth Quarter 2011 Earnings Call. Joining us on the call today are Jon Huntsman, Executive Chairman and Founder; Peter Huntsman, President and CEO; and Kimo Esplin Executive Vice President and CFO.

This morning, before the market opened, we released our earnings for the fourth quarter and full year 2011 via press release and posted it on our website, huntsman.com. We also posted a set of slides on our website which we intend to use on the call this morning in the discussion of our results.

During this call, we may make statements about our projections or expectations for the future. All such statements are forward-looking statements, and while they reflect our current expectations, they involve risks and uncertainties and are not guarantees of future performance. You should review our filings with the Securities and Exchange Commission for more information regarding the factors that could cause actual results to differ materially from these projections or expectations. We do not plan on publicly updating or revising any forward-looking statements during the quarter.

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, certain legal and contract settlement costs, losses from early extinguishment of debt, gain on consolidation of variable interest entity and losses and gains on disposition and acquisitions of businesses and assets.

Starting in the fourth quarter 2011, we no longer exclude unallocated foreign exchange gains and losses in adjusted EBITDA and adjusted net income or loss per share. We believe this more accurately reflects the ongoing cost of operating a global business. All relevant information for prior periods has been recast to reflect these changes. A reconciliation of EBITDA, adjusted EBITDA and adjusted net income or loss can be found in the appendix of our slides and in our fourth quarter earnings release.

Let's turn to Slide 2. In our earnings release this morning, we reported fourth quarter 2011 revenue of $2,632,000,000, adjusted EBITDA of $243 million and adjusted earnings per share of $0.28 per diluted share. Our adjusted EBITDA was $243 million in the fourth quarter 2011 compared to $219 million in the prior year, an increase of 11%. Our adjusted EBITDA decreased compared to the prior quarter of $346 million primarily due to seasonality and customer de-stocking.

I will now turn the call over to Peter Huntsman, our President and CEO.

Peter R. Huntsman

Thank you, Kurt. Good morning, everyone. Thank you for taking the time to join us. Let's turn to Slide #3. Adjusted EBITDA for our Polyurethanes division for the fourth quarter of 2010 was $79 million. Sales volume for our MDI products increased 6% in 2011 compared to the prior year, supporting our assumption that MDI will continue to grow at a multiple of underlying GDP. Demand slowed in the fourth quarter as we saw customers' slow purchases, consistent with seasonality and accentuated by customer de-stocking throughout the value chain. The primary challenge for this business right now is improving its MDI contribution margins. Price increases have been announced for the first quarter, which will partially offset the increased cost of benzene. We expect additional price increases in the first half of 2012 will expand margins.

Propylene oxide and its coproduct MTBE performed very well in 2011, though margins did contract in the fourth quarter consistent with year-end seasonality. We continue to see favorable, strong Latin American demand for MTBE, combined with an attractive spread between Brent Crude, which has an impact on MTBE pricing, and North American natural gas, which drives certain MTBE costs. We expect strong margins to continue in 2012.

By reducing our fixed costs, aggressively increasing prices to offset raw materials and taking advantage of our low-cost energy in the U.S., we expect higher earnings in 2012 and 2011 for this business, primarily driven by expanding MDI and Polyurethanes' system margins. This business has more upside potential than any other within our company.

Turning to Slide 4. In the fourth quarter, our Performance Products division earned $60 million of adjusted EBITDA. Approximately 2/3 of the production capacity for this business 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 natural gas liquids. As a result, earnings for upstream intermediate products have remained high through 2011.

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