Huntsman's (NYSE: HUN) top management is looking better with Jon Huntsman, Jr. back on board after withdrawing his run for the GOP presidential nomination. And the company is looking good with a more than threefold jump in its fourth-quarter bottom line.
Huntsman seems to be tackling the company's challenges nicely as well, which gives me enough reasons to be bullish about it. Let's take a look.
Gassing up margins
Huntsman is trying to rev up MDI's contribution margin, as it has been under some pressure due to high variable costs, and MDI is a key product of the company's largest division, polyurethanes. Huntsman plans to accomplish this by raising product prices and taking advantage of the dip in the price of natural gas -- a key input. In an interview to Bloomberg, CEO Peter Huntsman said the company will "incrementally be expanding capacity and continuing to look at capacity in North America to take advantage of the gas situation" over the next year and a half. Such moves could be a big push to the segment's margins – and that's a great reason to be optimistic.
Lots of restructuring
Huntsman has been busy restructuring two of its divisions -- textile effects and advanced materials -- because of falling sales and rising costs. The appreciation of the Swiss Franc against the U.S. dollar has further exacerbated the situation. Huntsman is closing down its textiles facility in Switzerland and shifting operations to China. Although the transition costs involved have been pressuring margins, the benefits should be visible from the second half of this year.
Huntsman is reducing the advanced-materials business' currency exposure by expanding its North American capacity, and it expects higher earnings from the division this year. It is projecting an overall annual savings of $20 million from the restructuring.
Not so worrisome
One challenge that remains is titanium dioxide (TiO2) -- a key pigment that has been a boon not just for Huntsman but also for chemical biggies like DuPont (NYSE: DD). Both these companies hiked TiO2 prices last year and saw their top lines soar. But demand for the pigment softened in the last quarter, largely due to de-stocking by customers. To top that, input costs have been steadily rising.
This could hurt Huntsman's pigment division earnings this year. That said, I don't see a drastic fall for two reasons: One, Huntsman has already booked some low-price contracts that will take care of nearly 40% of its input requirements; and two, like DuPont, Huntsman has hinted at further TiO2 price hikes this year. And when the world's largest TiO2 producer is expecting the pigment markets to improve by mid-year and remain strong overall, Huntsman needn't worry too much.
The Foolish bottom line
Huntsman is poised to make the most of a housing market recovery, as higher home sales would mean more takers for Huntsman's paint pigments, epoxy and other products. Its share prices have already surged more than 35% this year, and the stock is yielding a handsome 3% dividend.
I have high hopes from Huntsman and wouldn't want to miss out on any updates about its moves. You should keep a tab too, by adding the company to our free stock-tracking service, MyWatchlist.
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