Please ensure Javascript is enabled for purposes of website accessibility

Huntsman Still Looks Worth Hunting

By Neha Chamaria – Updated Apr 6, 2017 at 6:48PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Huntsman’s second-quarter profits remain flat as costs offset higher revenues.

Chemicals maker Huntsman (NYSE: HUN) couldn’t do what its peers could -- that is, boost profits by passing on higher costs to customers. In spite of higher revenues, the company’s bottom line remained flat, missing Street estimates.

But why did the shares plunge an astounding 31%? Was it just because of the numbers, or is there something more that we can’t see upfront? Let’s dig a little deeper to find out.

In detail
Huntsman’s revenues jumped 25% from the year-ago quarter to $2.9 billion. While all the other segments reported a rise in revenues, its textile division continued to be the dampener. Low demand and manufacturing constraints led to a 6% fall in the segment’s sales.

Not surprisingly, sales in the pigment segment clocked the highest growth, 48%, driven by soaring titanium dioxide (TiO2) prices.

High costs of key raw materials, however, offset the revenue growth. Moreover, a stronger Swiss franc accounted for a nearly $19 million fall in Huntsman’s EBITDA for the second quarter, as two of its businesses (including textiles) are Switzerland-operated. As a result, Huntsman’s net income remained flat at $114 million.

But if we take a closer look, Huntsman’s earnings from continuing operations actually surged from $54 million to $124 million year over year. This is more relevant than the net income figure, as last year’s income included earnings of $62 million from discontinued operations. 

One important point to note here is that Huntsman continues to reduce debt on its books. Its total debt–to-equity ratio, though high, has improved to 187% from 232% year over year. But with an interest coverage ratio at 3.2 times and available cash at $683 million, the situation looks under control.

The company has also announced a quarterly dividend of $0.10 per share and a share repurchase of $100 million.

Optimistic signs
Like most industry players, Huntsman has been passing on costs to customers by hiking prices.

Prior to the beginning of the second quarter, both Huntsman and Dow Chemical (NYSE: DOW) raised prices for MDI products, a key product of Huntsman’s largest polyurethanes segment. This was one of the important drivers for Huntsman’s revenue growth in the just-concluded quarter. MDI supply is expected to remain tight, which is good news for these companies. 

Chemical companies have been raking in the moola from high TiO2 prices. Continuing the aggressive price-hiking trend, DuPont (NYSE: DD) and Kronos Worldwide (NYSE: KRO) both have recently announced fresh price hikes. Huntsman did the same in June, which helped its pigment segment’s revenue grow. This is expected to continue, as the impact of the recent price hikes will get reflected in the forthcoming quarters.

Two-thirds of Huntsman’s textile business is oriented toward cotton and wool. Prices of both soared, leading to lower demand and revenues. But in the last two months, cotton prices have eased considerably. This should bode well for Huntsman in the forthcoming quarter.

Another positive factor is Huntsman’s presence in the emerging markets. The company has recently acquired an Indian chemical producer. Such expansions should be positive for Huntsman.

Foolish bottom line
I don’t see any strong reason for investors to dump the stock currently. Fools should take note.

Click here to add Huntsman to My Watchlist.

Neha Chamaria does not own shares of any of the companies mentioned in this article. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Huntsman Corporation Stock Quote
Huntsman Corporation
HUN
$23.95 (-2.88%) $0.71
E. I. du Pont de Nemours and Company Stock Quote
E. I. du Pont de Nemours and Company
DD
DuPont de Nemours, Inc. Stock Quote
DuPont de Nemours, Inc.
DOW
Kronos Worldwide, Inc. Stock Quote
Kronos Worldwide, Inc.
KRO
$10.99 (-2.92%) $0.33

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
329%
 
S&P 500 Returns
106%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/24/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.