Huntsman Corporation (HUN) Earnings Call Transcript & Summary

Welcome to the Huntsman's Second Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the conference over to Ivan Marcuse, VP of IR and Corporate Development. Thank you. You may begin.

Thank you, Daryl, and good morning, everyone. Welcome to Huntsman's Second Quarter 2016 Earnings Call. Joining us on the call today are Peter Huntsman, Chairman, CEO and President; and Phil Lister, Executive Vice President and CFO. Yesterday, July 30, 2026, we released our earnings for the second quarter 2026 via press release and posted on our website, huntsman.com. We also posted a set of slides and detailed commentary discussing the second quarter 2026 on our website. Peter Huntsman will provide some opening comments shortly, and we will then move into the question-and-answer session for the remainder of the call. During the call, let me remind you that 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 SEC 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. We will also refer to non-GAAP financial measures such as adjusted EBITDA, adjusted net income and free cash flow. You can find reconciliations to the most directly comparable GAAP financial measures in our earnings release, which has been posted to our website, huntsman.com. I'll now turn the call over to Peter Huntsman, our Chairman and CEO.

Ivan, thank you very much, and thank you, everybody, for taking the time to join us this morning. It's been 3 months since the last time we were able to report on market conditions and what we were doing as a company to enhance shareholder value. Needless to say, it has been a rather busy few months on a number of fronts. I'd like to comment on a few things, but I plan to be brief as your questions and comments for the reason for this call. I stated during our last quarter's call that while I was heartened to see the prices and margins were improving across most of our product lines, I emphasize the need for "stable and long-term demand trends to continue". While we improved our margins from the first quarter, I remain concerned as to the growth rates and consumer confidence that we are saying. Since our last call, North American housing stats have softened and Chinese consumer confidence continues to languish. Europe continues its ill-fated energy policy and all that free wind is now costing European consumers and industry near-record amounts. As ongoing conflicts in the Middle East seemingly move weekly from ceasefire to all-out war, moving energy prices, stock markets and consumer sentiment with each action, we continue to keep a wary eye on inflation and consumer spending, especially on durable goods. It seems much of this turbulence will continue through the third quarter. While this is playing havoc on cost and order patterns, it is also demonstrating the value of reliable supply lines contractual assurance of supply and the value of pricing and consistent quality. We will continue to push for greater margins as we believe that this industry still has a lot of room for improvement. In the -- on the 16th of June, we announced a merger of equal with Olin Corporation. Since that time, we've had the opportunity to visit one-on-one with the majority of our largest shareholders. If I had to summarize my feelings towards this transaction, it would be in the answer that I shared when I was asked if I could do anything different than what had been done. My response was that I wish I had met Ken Lane a year earlier and that we were here today earning materially more than we otherwise would be earning. Regardless of market conditions, whether they improve or continue to languish, our company and shareholders will be better off with this proposed merger. If this transaction was a year behind us, we would be today, well on our way to achieving an additional $300 million in synergies. We would be earning more through new found commercial opportunities that are not even part of our $300 million in synergies. We would have a stronger balance sheet that would be improving quarter-by-quarter. In short, should today's market conditions continue through next year, we will be better off than we are today. Should markets improve, we will be the benefactors of not only the forthcoming synergies, but also higher combined volumes and greater integration. Either way, this positions us to improve regardless of market conditions. I have been impressed with the strong collaboration and interaction between the Huntsman and Olin teams that are advancing our closing at a rapid pace. Our teams will be ready on day 1 of closing to commence with achieving our outlined synergies. Between now and closing, we will continue to focus on creating as much shareholder value as possible. Following the completion of this transaction, we'll be able to achieve far more. Operator, with that, we'll open the line up for any questions and comments.

[Operator Instructions] Our first question has come from the line of Frank Mitsch with Birmingham Research.

I was wondering if you could update us on the state of the business from a demand and a supply standpoint, particularly on the supply side, given what's been going on with the Iranian conflict. How do you see that -- how did you see that impact 2Q? What are your expectations for 3Q and beyond?

Well, I think on 2Q, we had the ability to be able to put prices up. Much of that was to recover the increased of raw materials that we were seeing at the time, but we were also able to get ahead as our results indicate that we've nearly doubled our EBITDA since second quarter of last year. Look, on a supply basis, we obviously have a large global MDI plant that is on the wrong side of the trade of 4 moves, I would say. And that is probably representing somewhere around 4% of industry average. So from a supply point of view, Frank, I think that it's pretty well balanced. My disappointment, if I have one, is that we're not seeing greater demand and greater improvement in the macroeconomic situation. I don't want to be overly dire on this. I'm just saying that yes, on the supply side, I think it's pretty well balanced. On the demand side, I'd like to see a little bit more. Right now, depending on where you are around the world, you're probably see anywhere from 0% to 2% very low single-digit sort of growth that is taking place. So an improved economy, improved housing demand, particularly in North America would be very helpful, return consumer confidence in Asia would be very good to see. And frankly, improved sentiment -- consumer sentiment and lower energy inflation in Europe, I think would all be benefactors this time.

I hear you. Obviously, the PMIs have actually ticked positive. So that's on the plus side of the equation. But if I could also -- other than what would you do differently? What else have you been hearing from investors regarding the Olin merger or probably said a different way, what might be the investment community be missing given on how the shares have been trading?

I'm not sure that the investment community is missing a whole lot as much as this industry is -- I'll borrow the -- what is the Missouri that's a show me state. I think that once you can actually get a transaction closed, show me that you're going to get the synergies that you said you're going to get on a timely basis, show me the difference of what 2 companies together, 1 in 1 adds up to 3. Show me this, and I'll reward you with the commensurate results. And I think that the market feedback that I personally am getting is that this makes sense. I like the integration. Let's remember that chlorine and the entire line of raw materials that we're presently buying from chlorine to caustic to epi to LER to EDC, this is the only major supply chain at every single one of the divisions within Huntsman consumes today. and it affects every one of our businesses. We have -- we really have a material opportunity here to improve our economics and to be more competitive on a global basis. And as we see the results of this coming through, I think that the market will be very quick and will be very generous in the reward.

Our next questions come from the line of Josh Spector with UBS.

I wanted to ask on Advanced Materials. I mean you called out some pull forward, and I don't think you actually sized it specifically in the quarter. I'm curious if you could give a comment on that. And it seems like you're assuming that unwinds in 3Q. Just trying to understand some of the phasing there are a bit better.

Sorry, when you say the pull forward into Q2.

Yes.

So Josh, it was a little bit of -- it was a little bit in the aerospace segment where we saw where I think they were getting their supply chains. They just wanted to be more secure there. So you saw I gauge it at a couple of million.

Yes. I think we're talking about low singular millions of dollars there. Sorry, I thought we were actually moving material volumes there or something. No, that will be a de minimis impact.

Okay. And just, I mean, similarly, within that segment, as you look at some of the upstream costs going down, I'm just wondering around some of the timing impacts. Is that something that helps your margins into 3Q? Or is it all relatively quick?

I think it's -- I mean, we respond pretty quickly. We've got low inventories on raw materials. Typically, what we see the raw material movements we see in that industry, it comes through pretty quick. I would say that our biggest impact in Q3 is going to be a basis of what we do in pricing and what we see in demand. more so than raw material movement.

Our next questions come from the line of Hassan Ahmed with Alembic Global.

First question on polyurethanes. Obviously, a lot of stuff moving around. I mean we've seen some TDI outages. I would imagine that may result in some incremental demand on the MDI side of it, then we've obviously seen some outages in MDI itself. So just in terms of effective utilization rates, where do you see the industry and should it be relatively snug over the next quarter or 2? And part and parcel with that, I know you guys have taken some pricing actions in Europe in particular. But obviously, nat gas prices, they continue to rise. So I mean, will you guys be EBITDA positive over there after the price acres? And will the industry over there be EBITDA positive as well.

Well, if I had -- Hassan, thanks very much. Good question. If I had to look at the market today in the snapshot, I would say that, yes, Europe with the pricing actions and with the cost that we have, Europe should be positive as we look into the third quarter. Now again, over the last couple of weeks here, and I'm talking the last 2 or 3 weeks, I've seen gas in Europe go from about $13, $14 per MMBtu rise above $20 per MMBtu. Now should it continue to do that, should electricity continue to rise at these rates. I don't believe that will be the case. But if they were to continue, that obviously is going to pose some headwinds. That's my biggest concern around Europe right now on a macro basis or energy costs and overall consumer demand. It's tough to get prices up when you see demand going down and -- or languishing and people are obviously fighting over a shrinking pie. So as I think about Europe, I continue to be optimistic that we will be EBITDA positive in the third quarter there. As you look at it on a macro basis, I would imagine without looking at industry data because there's not a whole lot that's published, we're probably operating in a capacity utilization rate somewhere in the mid-80s on a global basis. Some areas, I think in the U.S., it's tighter than that. I think in Europe, it might be a little looser than that. Asia is probably right on top of that. There have been a number of outages that are around. And again, if demand were rising at traditional levels of 4% to 6% per annum sort of growth rate, I think you'd see much tighter markets in today.

Understood. And as a follow-up on the merger with Olin, again, going back to the question around your conversations with investors, I mean, are you getting any pushback on the cost synergy numbers. And again, I just wanted to sort of seek some clarification around that. I mean, at least in my mind, part of the cost synergy is obviously the integration of chlorine into your polyurethane asset base, but also part of the synergy -- cost synergy would be the incremental caustic that would sort of be sort of produced as a result of Olin taking up those operating rates to feed into your polyurethane system. So I mean, -- are you sort of seeing investors sort of question that? Or I mean, is there some confusion around that?

No. I think, Hassan, I think it's a very good and fair question. I think that our industry is notorious for cost savings that don't always fall to the bottom line. And you see these massive cost-saving programs that are initiated over a 2- or 3-year period. In the end the 2- or 3-year period, you're kind of asking yourself, well, which 1 was it? Either the industry collapsed or you've got 0 cost savings because I don't really see a whole lot of difference in the bottom line. One of the things that literally in our very first conversations that Ken and I had on a one-on-one basis. This was something that was very important. If we're going to -- if this deal is going to go forward, we're going to have to have real substantive synergies that make sense. We got our senior teams together. They've met multiple times on a face-to-face basis on an ongoing basis over the last couple of months. And we have a bucket of about $300 million, say that $75 million of that is purchasing logistics. That's pretty straightforward. You get your purchasing people together. They're buying products. We're buying products. Many of those are the same products. who's buying at a better rate, great. You've got a cost savings there. We look at the overlap between our Epoxy businesses. We think that the combination of the two businesses coming together make for a a stronger, a more competitive, a more capable company that is able to compete on a global basis. But you've also got overlapping areas where you have an opportunity to become more efficient there. That was approximately another $75 million. That also included between those 2 areas that also included Avid integration that comes by consuming more chlorine more chlorine, more LER more EDC. And as you do that, you're obviously producing and generating internally more caustic credit for that. So that's kind of the 2 buckets of $75 million. And then you've got a $150 million of SG&A. Obviously, the combined companies don't need don't need 2 CEOs. Obviously, we don't need 2 CFOs. We don't need 2 independent Board of Directors and the associated cost filings 2 audits to this and as you start going through all of that, we think that $150 million was a number that was imminently achievable and that after a 2-year basis, the vast majority of these savings would be incurred. Now there's another $100-plus million dollars and I say plus because that's just not only chlorine savings, but it's also caustic value that's generated from that coin savings. And that's merely a contract that exists with a chlorine supplier today that is not land, obviously, Huntsman will continue to honor that contract, and Olin Huntsman will continue to honor that contract through its duration. When it is complete, we will be supplying that internally -- and we believe that, that will be the benefit that will come from that. So it's very straightforward. It's just a question of opening up a valve through an existing pipeline through a system that we've used in the past, and be able to take advantage of that. So the $300 million of synergies, plus another $100 million that is the replacement. And none of that, did I outline any commercial opportunities wherein by being more competitive,by having a more competitive cost basis that we're able to go out and get new customers and we're able to take our technologies of both companies coming together and capitalize on that. So again, I believe that in order to have the full benefit of these synergies you're going to have to offset on an ongoing basis, your inflation pressures on your cost system. And when you can demonstrate that you truly have a combined package of $400 million of synergies, you're able to have the integration, you're able to have the new commercial opportunities. You're able to have your ongoing efficiency programs to offset inflation in addition to the synergies that I've just outlined. That's what will fundamentally make what I believe, when I say 1 and 1 makes 3. The EBITDA benefit from that, the multiple on that will create roughly the value of a stand-alone Huntsman or a stand-alone Olin today. And you're essentially creating an entity of through those cost savings that is equal to either one of us on a stand-alone basis. So I'm sorry, that was way long of an answer here, but it's one that I think that people are rightly focused on. It's 1 that people should rightly be focused on and should be questioning. And it's one that we feel very confident that from day 1, we've been able to have these as a bottom-up number and calculation and not just some third-party consultants coming in and saying, let's pick 5% or whatever of your revenues, and that should be your target.

Our next questions come from the line of Matthew DeYoe with Bank of America.

Good morning, everyone. Can you talk to the potential impacts of the antidumping duties on U.S. MDI and whether you think that lends to a higher floor over time for that business, what that floor could ultimately look like?

I think that -- well, what the floor to looks like. I don't want to -- I wouldn't speculate on that, not that I'm trying to avoid an answer as much as I just simply don't know, but it ought to be better than where we were a year ago. But let's also be honest, I believe that you're going to need demand to pick up. You're going to need housing to get back to a more normalized run rate to see any real material benefit come from this. And let's remember, there's a lot of MDI that's exported from the United States. It goes into Canada that goes into Mexico. It goes into Latin America and so forth. There are still imports from around the world that are going into those regions. And for every ton that goes into those regions and pushes U.S.-produced MDI back from those regions back into the United States market. I mean, we say that, that export-oriented MDI is not coming to the U.S., but it kind of is in a roundabout way, right? And so I think that a lot of people were expecting as soon as this was implemented and put into place, you're going to see a benefit the next quarter. Now this is something that will play out over a multi-quarter basis. And you'll see the greatest benefit of this come about when demand returns and housing returns to a more normalized basis.

Appreciate the answer, Peter. And I've been jumping around a little bit, so I apologize if I missed it, but polyol pricing was pretty strong in the quarter. You had an outage, obviously, 1 of the large competitors, which tightened a fair amount of the market. What was the benefit there? What does that look like in 3Q, 4Q? How is that market managing all that because we also heard some customers on the coating side talking about these shortages domestically as well.

I wouldn't say that it was -- I heard a lot more horror stories and I think actually happened to the industry. Look, our impact and benefit would be in the low $2 million to $3 million sort of a range -- so yes, I'm not sure that it was as big of a deal as some maybe put it out in the media.

And just as a reminder, Matt, obviously, the upstream outages are over in quarter 3. So product is in the -- coming back into the market there.

Our next questions come from the line of David Begleiter with Deutsche Bank.

Peter, U.S. MDI supply disruptions in Q2 helped you guys as these disruptions come back online in Q3. If that were to quantify the impact to you guys quarter-over-quarter?

Yes. I'm -- we -- I wish I could say that we had 100% operating rates during the quarter as well. we had some minor issues, I believe that were reported. But I think across the industry going from second quarter into third quarter, there's quite a bit of inventory going into second quarter. That was built up for a housing season that really didn't take off as much as probably some anticipated. Bottom line, I don't see a whole lot of impact with those restarts going into the third quarter. It looks like it's pretty flat from a demand -- or from a supply/demand basis.

Got it. And in the filing, you guys put out, you did provide some projections specifically 2027 relatively $500 million, could you talk to that projection? And I know things have constantly changed here, but maybe how you think about that number sitting here today?

Yes, David, it's Phil. Yes, as we put the other projections and we looked out through the time period for the for the S-4, we assumed a continued improvement in economies around the world. pickups in construction, nothing significant. Housing not moving back up to 1819,butfairly fairly moderate improvements in housing activity as you move from 26 into '27, continued improvements in our power, our aerospace businesses in Advanced Materials and in general, sort of a moderate improvement as we move towards what we call sort of more cycle average earnings as you move through 2028.

Our next questions come from the line of Kevin McCarthy with Vertical Research Partners.