Huntsman (HUN)

Q1 2012 Earnings Call

May 01, 2012 10:00 am ET


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


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

Robert Walker - Jefferies & Company, Inc., Research Division

Kevin W. McCarthy - BofA Merrill Lynch, Research Division

Robert Koort - Goldman Sachs Group Inc., Research Division

P.J. Juvekar - Citigroup Inc, Research Division

Edlain Rodriguez - Lazard Capital Markets LLC, Research Division

Andrew W. Cash - UBS Investment Bank, Research Division

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

Michael J. Ritzenthaler - Piper Jaffray Companies, Research Division

Roger N. Spitz - BofA Merrill Lynch, Research Division

Gregg A. Goodnight - UBS Investment Bank, Research Division



Good day, ladies and gentlemen, and welcome to the First Quarter 2012 Huntsman Corporation Earnings Conference Call. My name is Tahisha, and I'll be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Kurt Ogden, Huntsman Corporation's Vice President of Investor Relations. Please proceed.

Kurt D. Ogden

Thank you, Tahisha, and welcome to Huntsman's First Quarter 2012 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 first quarter 2012 via press release and posted it on our website, 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 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, plant closing and transition costs, income and expense associated with the terminated merger and related litigation, acquisition-related expenses, certain legal and contract settlement costs, losses on the early extinguishment of debt, gain on consolidation of variable interest entity, extraordinary gain or losses on the acquisition of a business and losses and gains on disposition and acquisition 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 first quarter earnings release.

Let's start -- let's turn to Slide 2. In our earnings release this morning, we reported first quarter 2012 revenue of $2,913,000,000, adjusted EBITDA of $397 million and adjusted earnings per share of $74.04 per diluted share. Our adjusted EBITDA was $397 million in the first quarter 2012 compared to $304 million in the prior year, an increase of 31%. Our adjusted EBITDA increased 63% compared to the prior quarter of $243 million.

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

Peter R. Huntsman

Thank you very much, Kurt. Good morning, everyone. Thank you for joining us. Let's turn to Slide #3. Adjusted EBITDA for our Polyurethanes division in the first quarter 2012 was $177 million, an improvement of $63 million compared to the prior year of $114 million. Sales volume for our MDI products increased 4% compared to the prior year. We saw improved demand geographically in each of our regions and across the majority of our end market segments. Despite troubling economic headlines, we saw a growth in Europe with stronger demand in Northern Europe where we sell the majority of our product following the negative impact of the recession plague in Southern Europe. We continue to see growing demand in U.S. automotive and insulation. The Southeast Asia ASEAN markets have countered the slowdown in growth that we are seeing in China. We successfully raised our MDI selling prices in the quarter, which increased our contribution margin though these increases were partially offset by an increase in the cost of benzene. We expect further positive traction on our MDI average selling prices in the second quarter.

Propylene oxide and its co-product, MTBE, continue to perform very well, primarily as a result of an attractive spread between premium gasoline and lower price natural gas-based raw material. In the first quarter, we saw exceptional margins in part due to industry supply outages. Coupled with strong demand, these outages led to an increase of approximately $55 million to $60 million compared to the prior year and prior quarter. By the first 2 weeks of the second quarter, most of these idle facilities had restarted, so we do not expect this benefit to continue into the second quarter.

Turning to Slide #4. In the first quarter, our Performance Products division earned $90 million of adjusted EBITDA, an increase of 50% compared to the prior quarter. We believe that the demand for amines is improving and production from new industry supply is being absorbed into the market. As a result, we saw increased margin and an improvement in volumes compared to the prior quarter. It will take a while, however, for the industry to ramp up to the profitable levels we enjoyed in early 2011. Our margins of a year ago also had some benefits from industry outages that carried some short-term margin expansions. We continue to invest in our Performance Products businesses. We recently announced the increase of our North American ethylene oxide capacity by 250 million pounds to supply our growing downstream ethylene oxide derivative businesses. This specific project represents one of the ways we are leveraging the North American low ethylene cost advantage to supply our downstream derivatives business in amines and surfactants. Our upstream businesses continue to perform well. It's worth noting, however, that we look forward to the -- that as we look forward to the remainder of the year, we will take our ethylene oxide unit down for planned maintenance in the third quarter of this year. This maintenance is performed once every 4 years, and we expect the EBITDA impact to be approximately $15 million.

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