Q3 2020 Huntsman Corp Earnings Call
[music].
Greetings and welcome to the Huntsman Corporation third quarter 2020 earnings call.
At this time all participants are in a listen only mode.
A brief question and answer session will follow the formal presentation.
If anyone should require operator or technical assistance during the conference. Please.
Star Zero on your telephone keypad.
It is now my pleasure to introduce your host Ivan markets. Thank you Mr. Marcus you may begin.
Thank you Victor and good morning, everyone welcome to Hudson's third quarter 2020, <unk> earnings call joining us on the call. Today are Peter has been chairman President CEO, Sean Douglas Executive Vice President CFO, Tony Higgins, President Oh, you're thinking this morning before the market opened we released our earnings for the third quarter 2020 via press release.
Posted to our web site <unk> Dot Com, we also posted a set of slides to our website, which we will use on that on the call. This morning are presenting our results.
During this call we may make statements about our projections or expectations for the future.
Such statements are forward looking statements and while they reflect our current expectations. They involve risks and uncertainties are not guarantees of future performance you should review our filings with that you see for more information regarding the factors that could cause actual results to differ materially from these projections or expectations, we do not plan on probably updating or revising any forward looking.
Payments 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 on the website on spend dot com well now turn the call over to Peter Huntsman, Our chairman President CEO. Thank you very much and good morning, everyone. Thank you for taking the time to join US, let's turn to slide number three just.
EBITDA for our Polyurethanes division, the third quarter was $156 million versus $146 million a year ago.
This is better than we'd anticipated when we gave an update in early September as demand trends and nearly all of our polyurethane lines, including construction automotive in elastomers came in better than expected.
And it's also improved better that'd be the expected given tightening M.D.I. supply demand conditions throughout the quarter.
These positive market trends and conditions have continued into October.
The third quarter improvement in adjusted EBIT da versus the prior year was driven primarily by the ongoing integration of our ice anymore pull acquisition and lower fixed costs, which more than offset lower margins year over year. We also benefited from lower benzene costs.
Our differentiated volumes grew 2% and our component volumes declined 4% in the quarter compared to the prior year.
Throughout the third quarter variable margins and our differentiated business remained relatively stable at the same time variable margins and our component.
And Paul America systems improved off of the multiyear lows that we experienced in the second quarter the.
A notable increase in component M.B. I prices over the past couple of months have been primarily driven by real global demand improvement as economies continue to recover from the second quarter, a global kobin related locked down.
Well was from various fits in starts and temporary outages within the industry.
Our China business, where we have left and downstream differentiation and in other regions of the world has benefited most from the higher prices.
Europe is also benefited but to a lesser degree.
Our higher downstream differentiated margins continue to show stability and importantly, we saw meaningful improvement demand and our higher margin elastomers business and with an automotive.
As is typical there have been several planned turnarounds within the industry as the industry responded to improving.
Man trends there have been various production disruptions as we reported a few weeks ago, we have our own production issues in Geismar, Louisiana due to a third party supplier of industrial gas, having a mechanical failure, which we estimate will impact us by approximately $15 million in the fourth quarter.
Sure.
As the various temporary production issues across the industry get resolved, we would expect that industry utilization rates will move back to a more balanced environment versus the seemingly temporary above average tightness that we are presently experiencing.
However, we do see demand improving in fundamentals well intact construction, including installation the strong.
It was rebounding well nearly all our other end markets are seeing positive trends subject to uncontrollable an unforeseen events, we would expect component margins normalize at reasonable levels.
As we've shared before we estimate that roughly half of our Polyurethanes business is impacted by trends related to construction with our largest direct exposure being within our insulation business, which makes up close to 40% of our global Polyurethanes segment, our portfolio is well positioned to benefit.
From the expected growth within the global insulation market.
Our single largest market and we expect that it will be one of our highest growth market over the coming years.
A fast growing end of our global installation business is our industry, leading spray foam business Huntsman building solutions, which.
Which continues to exceed our expectations with the delivery of meaningful synergies from the recent ice to name a pull acquisition as well as from strong market conditions.
We expect the $20 million and identified synergies to be achieved ahead of schedule and be largely completed by early 2021.
Continued growth in that North America will be supplanted by an aggressive effort to accelerate growth by scaling up this business internationally.
Just to give you some additional interesting facts about spray foam an average home requires about 1500 pounds.
Great fun materials insulated.
That currently sells for roughly $1.30 to $2 per pound, depending on the type of application utilized.
Additionally, our polyurethane spray foam utilizes our eco friendly huntsman produced polyol, which uses the equivalency of roughly 10000 PE bottles per average home otherwise destined for landfills.
Your thing spray foam is an economically compelling structurally sustainable and environmentally friendly alternative to traditional insulation products. We believe that our polyurethane spray foam, we'll see strong growth for the foreseeable future provide.
Provides an optimal solution in a world that is increasingly sensitive to green and sustainable solutions. We're building standards are becoming more environmentally stringent.
Today, we estimate that our polyurethanes spray foam only represents about 18% of the.
North American insulation market.
And substantially less than that globally, the opportunities for above market growth in North America and globally seem promising.
We sit here today looking to the fourth quarter, we believe the favorable trends of our global construction and automotive markets continue. We also expect to see continued improved components in Poland Merrick system margins roughly.
Roughly offsetting these dynamics will be the 15 million dollar impact from our partial geismar outage.
And some typical seasonality.
Putting all this together, we would expect that our fourth quarter polyurethane results to be in line with the third quarter.
Turning to slide number four our.
Our advanced materials business reported adjusted EBITDA of $25 million down from $51 million in last years third quarter.
The decline in adjusted EBITDA was primarily result of revenue being down in aerospace by 68% year over year aerospace market remains depressed and while we believe it has bottomed in the third quarter, we do not expect it to begin to start to recover until the supply chain fully debt.
Talks and adjust to expected much lower production build rates over the next couple of years.
However, our advanced materials segment should be viewed in two segments.
Looking beyond the depressed aerospace segment, there is a much better recovery story within our other formulated advanced materials business.
Our specialties.
Businesses, excluding aerospace improves throughout the third quarter with revenue was down only 15% and EBIT da down 21%. This includes our India and do.
Do it yourself DIY business, which was heavily locked down during the first half of the quarter.
Our sales into the power electronics transportation industrial markets strengthen throughout the quarter as our EBITDA improved by 50% from the beginning to the end of the quarter and this momentum has carried into October the.
The integration of our recent acquisition of CBC Thermosets is on track and delivered a modest contribution to EBITDA during the third quarter of about $2 million as we stated in our last earnings call. The result of this acquisition are being negatively impacted by a needed inventory adjustment of about.
$5 million in the second half of this year.
Cost synergies expected from integration efforts underway, we expect 2021 EBIT da related to this acquisition to be close to 2019 level. Despite approximately 15% of the business being exposed to the aerospace market.
We remain confident we will achieve 15 million dollar run rate synergies by the end of 2021 would expect to exceed this target as we move through 2022 and beyond because we anticipate identifying additional cost savings and commercial opportunities.
Toward the fourth quarter, we would expect our non aerospace specialty businesses EBITDA to be close to the same levels as prior year and for CBC to make a modest contribution.
Around the back of continued weakness in our aerospace business and the sale of our Indian DIY adhesives business. We expect the advanced materials segment EBIT da to be slightly lower than the third quarter just to be clear on a pro forma basis, meaning if we were to include the deal.
Performance product suggested EBITDA to be similar to the third quarter as its core markets continue to recover.
Turn to slide number six.
Our textile effects division reported and adjusted EBITDA of $8 million for the third quarter.
While volumes in the quarter fell approximately 13% versus last year's third quarter, we did see a significant improvement in volumes and EBITDA versus the second quarter.
The volume recovery, we are seeing is being led by our home textile products and our athleisure sportswear and protective apparel.
We are also see a gradual pickup in demand within our automotive textile products.
We are optimistic that the industry will continue to recover over the coming quarters generally in line with the reopening of retail stores and pent up consumer demand, we believe that inventories in the supply chain or on the tight end as our customers gain more confidence around the eventual recovery, we expect to see more benefits.
From restocking as well.
Are offering of sustainable products and textiles continues to gain momentum just one specific example would be our range of patented Abbott Tara dies, which allows our customers to reduce water and energy consumption by up to 50%.
We are focused within textiles and throughout all of our portfolio of developing profitable sustainable solutions for our customers, while fourthquarter Ebbitt an hour textile division will be down versus the prior year. We expected. This business will continue to show further recovery and improvement versus the third.
Quarter for sharing some concluding thoughts I'd like to turn a few minutes over to Shawn Douglas, Our Chief Financial Officer, Sean.
Thank you Peter turning now to slide seven.
We were pleased to see it better than anticipated recovery during the quarter Jessica.
Just to give you a flavor of that recovery, we saw monthly adjusted EBITDA more than triple from June to September.
At a high level are adjusted EBITDA is down $27 million year over year.
As explained by Peter This is largely attributed to the significantly depressed sales within our commercial aerospace business.
And to still recovering demand for retail apparel within our textiles and apparel business.
For polyurethane volumes were down year over year, and all segments amidst the global recovery that has been underway.
No now improving overall margins, where a bit weaker year over year more than offset by a lower fixed costs largely as a result of a response of suppression to global covid related impacts.
Turning to slide eight.
We ended the quarter with approximately $2.5 billion of liquidity.
Including approximately $1.2 billion of cash.
In relation to the sale of our India based DIY business, we expect to receive $257 million of cash within the next week, which.
We expect tax leakage to be just under 10%. We also expect to complete the sale of approximately 42.5 million shares of <unk>.
Near year and for approximately $100 million.
This includes cash paid 430 months option for the potential sale of the remaining approximate nine 5 million shares at an agreed price of $2 15 per share.
The transaction is subject to regulatory approvals, which are progressing and on schedule.
The capital loss on this transaction unlocks cash tax savings of approximately $150 million relating to the taxable capital gain on the sale of the chemicals intermediates answer Factice business that was completed earlier this year.
Remaining cash taxes owed on this sale are approximately $185 million to be paid in the fourth quarter of this year, depending on the timing of completion on the sale of the benatar shares the net amount to be paid in the fourth quarter may be reduced this year by approximately $150 million if the <unk>.
Transaction closes subsequent to your ear and the $150 million of cash tax savings, where we will be received near the end of 2021 or the beginning of 2022.
We are doing our best to close this transaction before this year and and are on schedule.
We generated $189 million of adjusted free cash flow. During this quarter. This is more than we had anticipated for the quarter versus when we addressed you during our prior quarter's earnings call.
In addition to our adjusted EBITDA being stronger than initially expected.
A sharp enter quarter recovery more support surprising was the increased cash provided by the change in working capital now.
Not only did we see a resulting larger drawdown of inventory, but also a bigger increase in payables downloads expected.
Our days inventory dropped by an additional approximate five days than was expected with a similar increase in days payable than was anticipated. Furthermore, we were effective in manning's managing our receivables through this covid Canyon.
And DSO also reduced by a few days.
As we shared with you last quarter, we effectively managed our inventory lower at the onset of Covid.
Now with this improve recovery our inventory levels are particularly tight.
As we sit here today and look into the fourth quarter, we do not expect the typical seasonal release and primary working capital as typically we experience.
In fact, depending on the nature of the ongoing recovery, we expect to see a modest build inventories.
For your awareness, we have a plan large scale turnaround scheduled at our Rotterdam MDI site for March April of next year. This occurs every four years the estimated duration of which is between 40 and 45 days.
The estimated cash impact will be around $40 million and the projected EBITDA impacts should be under $10 million.
We typically build inventory ahead of turnarounds.
During the quarter, we spent $54 million in capital expenditures for 2020, we estimate that are total span on capital expenditures will now be between approximately 250 and $255 million. This is approximately $25 million more than we had previously guided the.
Increase is largely a result of moving forward some deferred payments on our Geismar, Louisiana splitter for a total spend in 2021 of approximately $55 million.
With respect to the polyurethane splitter, we still estimate a total span of approximately $175 million for just over $180 million, including capitalized interest and a startup in mid 2022.
That leaves approximately $80 million to spend on a splitter in 2021.
And the remaining approximate $30 million to spend in 2022.
In other words in total we are still on budget and still on schedule.
We are days away from renewing our primary insurance programs worth flagging is that the global insurance markets are experienced experiencing at a typical shortage of capacity.
Not only specific the huntsman, but it will impact our annual insurance premiums by as much as approximately $15 million all of which are paid in the fourth quarter.
Putting this all together, we still anticipate a modest positive adjusted free cash flow for the year 2021.
During the quarter, we did not repurchased any shares but we did pay off a term loan of approximately $100 million.
We have a U S equivalent of approximately $520 million of Euro denominated notes maturing in April April of next year and callable in January which we currently expect to redeem next year with cash on hand, this will reduce our interest in 2021 by about $25 million.
We remain focused on maintaining a strong investment great balance sheet being disciplined.
Sensible and balanced in our capital allocation strategy and with the recovery underway generating consistent strong free cash flow Peter back to Ya.
Thank you Sean does move into the final months of the year I think it's worth looking back on some of our objective and where we are in our effort to create more shareholder value beginning in January we sold our chemicals intermedia business for $2 billion.
This further transformed our balance sheet and allowed us greater flexibility to pursue aggressively our ability to grow more strategic pgn's of our business.
<unk> and also allowed us to take advantage of tax losses that we are able to realize with the sale of the remainder of our steak and vintage store, which we announced this past August we're still on track of senior closing of this transaction hopefully before the end of the year, we have not seen any major obstacles getting this completed by them.
And may we closed on the CVC thermal set specialties business as we start to further expand and diversify or advil.
Advanced material division, while we're disappointed to see the slowdown of our commercial aerospace business due to COVID-19 pandemic CVC acquisition will help fill the void created from this temporary loss in sales and Ebbitt.
As this valuable aerospace business begins to recover over the next year or two it will be additives to what we're building with the CVC acquisition and other ends of our advanced materials vision.
We are also well on track to deliver the previously announced $15 million synergies.
July we announced our initiative to realign our costs and streamline our operations at the time, we outlined $100 million of savings from these efforts, which includes acquisition synergies. We are now targeting approximately $112 million I would expect this number may well grew.
So.
We expect some $20 million to be realized by end of this year and we should be running in excess of $100 million by the end of next year.
Last night, we announced the sale of our Indian based DIY business to penalize and all cash transaction valued at potentially $285 million for.
Transaction value represents a multiple of 15 times are 2019 at the da Huntsman will receive $157 million in cash at closing, which is expected to take place within the next week.
Then we will have the potential to receive up to an additional $28 million in cash within 18 months, depending upon achieving certain revenue milestones that approximate 2019 levels.
Rebuild this business from nothing over these past 15 years and I've taken this business about as far as we can without material expansion or investment to the life is a respected adhesives business based in India as well positioned to now take this business to the next level. This as a win win transaction locked significant value.
For Huntsman that we will redeploy in the near term to further reshape our advanced materials business.
Between the multiple of our sale at the beginning of the year of our intermediate business now does India base DIY business. These two divestitures should demonstrate the quality of our businesses and divisions.
We will continue to assess other assets in our portfolio, but given our balance sheet and global footprint. One should expect more acquisitions then divestitures.
Lastly, I'd like to point out that performance of our newly formed Huntsman building solutions.
This is an entity that we form through the acquisition device simien Lapolla and demo like too.
Two polyurethane spray foam businesses that we further combined.
With our <unk> and polymeric MDI production in the past year, we've created the world's largest polyurethane spray foam business the world's best Insolent and the fifth largest installation company we can.
Committed.
We committed to you that we would realize the $100 million of EBITDA by the end of next year I'm pleased to say that during the third quarter, we hit that runway right well ahead of our forecast.
At the beginning of this Covid crisis, we told you that we would emerge from this mess a stronger company and when we entered it at the present time, while I liked the demand and margins going into the fourth quarter. We are also aware and keeping an eye on the rapidly changing market conditions, particularly in Europe.
Where the number of Covid cases, and the national Lockdown. So have all increased in the past two weeks.
Coming days, we will see the depth of over a thousand point drop in the stock market. This past week the effects of Hurricane Zeta and the results of an election, where a much loved Donald Trump will either prevail or lose against the much heated Donald Trump as America, either approves or disapproves of his performance either way this quarter.
Shaping up to be very interesting one thing is certain we will continue to focus on what we can control. We will continue to support our strong customer base keep an investment great balance sheet control, our costs and add value to our shareholders with smart out capital allocation selected divestitures and bolt on acquisitions.
With that operator, why don't we open the lineup for Q&A.
Ladies and gentlemen, we will now have our question and answer session.
If you would like to ask a question. Please press star one on your telephone keypad.
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One moment, please while we know poll for questions.
Our first question comes from Bob Court with Goldman Sachs. Please proceed with your question.
Thanks, Good morning.
Good morning, Bob Peters, maybe to ask Tony a question I think you mentioned he was on the line there. There's certainly been some volatility in production curtailments as you mentioned MDI, but I also sense talking to investors a lot of varying.
Consultants opinions on how much MDI is coming into the world over the next couple of years I was wondering if we could talk maybe specifically Tony what your business intelligence is telling you about supply capacity coming into the MDI market in 2021.
And to the extent, we have a normal world. What you think the demand growth would be in 2021.
<unk>.
Bulk of morning going through with you.
I see the the market to be very balanced right now and over the next two years or no major.
Capacity is coming into the market some debottlenecking.
But overall I think the demand growth and supply growth will be matched and very balanced.
I think as we exit quarter, three we're seeing round about within our business anyway, three 4% MDI growth over the last year.
The recovery console sexes has been really impressive three quarter, three particularly on installation business.
And I see that continuing.
Unforeseen circumstances with Covid, and what that May do and quarter full but right now we're not seeing it we have strong odor patons and.
I think it is people are aware, there's a lot of maintenance going on right now and I would estimate it across the global business route about 20% of MDI capacity is currently illegal.
With maintenance.
But coming back to your question, but I see the situation to be very violent. So I don't expect the supply twix exceed demand over the next.
18 months to two years.
Great, Thanks, and Peter if I could ask sort of broadly through the portfolio.
You mentioned MDI and it's superb insulating properties, but as we start to think about green.
Green energy and and new deals and stimulus for those.
Those sorts of things it would seem you've got wind you've got installation to get construction installation residential installation how.
How can you guys tap that theme, that's continuing to grow insignificance in terms of.
Energy conservation or.
New energy thanks.
Well.
I think that as we look at that.
The entire green new deal.
A lot of it but I have some some consternation about to be honest with you, but there's also a lot of it that when we look at.
Particularly around construction and what we see an installation and OSB and as we continue to make progress in various grays, they're going to say you're going to see in the coming year. So far.
Fire retardant C and so forth coming into a lot of these products will get better properties.
We're environmentally coming up with a number of opportunities here and.
I think particularly around energy conservation if you look at our means business, what we're doing to take sulfur and a lot of the bad actors out of gas treating.
Look at our polyurethane catalysts and other products that take volatile organic compounds out of.
A lot of the Chemistry's of today, we look at the water conservation and color conservation.
The chemical industry needs to be my opinion.
Enhancement in particular, I think we need to be more bold and what we're able to do.
Is providing solutions and transitioning.
An economy to be more green and to be cleaner and more profitable all at the same time so.
Believe me I think regardless of who wins.
Have been internal ideas and strategies and have already met with lobbyists on both sides of the aisle.
We'd like to be part of a solution going forward not.
Not waiting for inauguration day, but it ought to be.
I hope that our influence will be Phil right after the election.
I think that we bring a number of solutions.
To the table.
Great. Thanks very much.
Thank you.
Thank you.
Our next question comes from Frank Mitch with Fermium Research. Please proceed with your question.
Yes.
Good morning, and for what it's worth my vote would be for a much loved Ivan Marcuse.
Versus versus the counter there.
A couple of years ago, you guys did a really good job of detailing the windfalls from some of the outages on the MTI front and how that impacted polyurethane uhm.
Is there a way that is there where they you can kind of quantify what impacted.
If at all that showed up in the third quarter.
Specifically around Earth.
Around.
Of the.
Under utilization of production of MDI.
Well I mean, obviously, we saw some.
Had some some demand constraints, but.
A lot of competitors had downtime, we saw a bunch of course matures announced and.
As you indicated in early.
September you thought you would do 40 40 million higher ebay.
<unk> and polyurethane and it came in a little bit higher than that I would assume that some of that was relate to the horse mirrors was it not.
Yes, I think that as we look at it as I tried to articulate and some of my comments I think we're going to see this most profoundly in China, where we have more commoditize production.
<unk>, North American, where we have more formulaic production and.
And then we look at taking a lot of our commoditize production of the polymeric and moving it downstream into the installation business I mean ideally.
We'd like to be moving as much of of the product that has most impacted by these sort of shortages, we'd like to be moving that product further downstream into spray foam and others, but I think that as we tried to put.
Handle around and economic handle if you will.
I don't like using the word spike.
Because that that with the note that we're going to be up X dollars, one quarter and down X dollars on another quarter, but I think that the overall impact of this would probably of these shortages in pricing and I think it'd probably be somewhere around $20 million.
Two.
On a quarterly basis.
And as we look at that going into the fourth quarter.
We'll probably see the full realization I think it probably ramped up in the third quarter.
That amount.
The beginning of the quarter U I am not sure you would have seen a whole lot of that by the fourth quarter, you probably ought to see that in full effect of around $20 million, but again, that's a really it's a really tough thing to calculate because as you get shortages on a global basis.
There in mind that you are looking anywhere from 30 to 60 days to be able to take.
<unk> from point, a in Asia or point be in Europe, or the U S and move it to other areas of the world. So.
People somehow think that you can instantaneously move product globally. That's just that's just really tough to do and how much of this.
<unk>.
Spike in margins and pricing and so forth how much of it is due to.
To recovery of demand how much of it is due to outages and so forth at the end of the day, it's tough to tell.
Fair enough fair enough.
And then if I could kind of interesting after the first quarter conference call I think some of the discussion was around how the.
<unk> demick might and might impact M&A and move it to the hip move it to the side and obviously you guys have done a heck of a job.
Remaking the portfolio, we're making some some changes here there.
Via M&A since that timeframe and so with the announcement of the sale in India. I think indicated we're talking about advanced materials that you are looking to redeploy that money.
Into M&A in that front, when what sort of timeframe, what sort of what sort of size are you looking at any any sort of.
Color you could provide there would be great.
Well.
All right. We're in the process right now of actively reviewing a number of opportunities and.
As we look at this.
We want something that's going to have synergies hopefully some product pull through some synergies around that something that will be additive to our technology and something that we can globalize.
And as we as we kind of look at that matrix.
We're looking actively right now add it multiple options and.
I would say that again I stress in my comments that we'd like to keep a an investment great balance sheet and.
Certainly don't want to stress.
Those statistics so.
Bit too early for us to.
Name potential.
Potential candidates here, but I think we also mentioned that.
This acquisition would likely be in the advanced materials.
Segment as well.
So that's something we can look forward to kind of the early par earlier part of 21 you think.
I would hope the sooner the better but the way that transactions go.
Just they've kind of have a life of their own.
Perfect. Thanks, so much.
Thank you.
Our next question comes from Mike season, with Wells Fargo. Please proceed with your question.
Hey, guys next corner.
Peter when you think about the installation business.
And there are folks who think that housing.
Housing will remain pretty strong for the next couple of years given.
I think there's a trend maybe move in the suburbs do you think this is a business that goes double digits high single digits. So much.
The cadence of growth.
<unk> head into 2021.
I think that you're going to see high single digits, but.
As you.
You look at this I'd keep a couple of things in mind first of all we look at spray foam in general that's about 18% of the North American installation market. That's for the entire spray foam industry, that's not just constant.
I made misspoke in my comments here, leaving a word out that's entire industry supplying.
And not just on cement, but as we look at that that spray foam opportunity here.
If you were to look at probably one of the easiest ways, we talked about.
The greening economy due to look at one of the easiest ways to conserve C O two.
Just under 50% of all energy consumed globally is consumed to adjust the environment of our homes and offices and.
Installation is one of the easiest ways to do that.
The studies that we've done internally.
With our own customer base of people and spray foam.
You are looking at at heating bills that are cut in half with people that take that cheap pink garbage out of their attics and they put it in our high quality spray foam and so that's not a sales slip by the way.
And so as we look at it.
Really through very little effort, you can have a real impact.
On on.
On the environment, if building standards were to just marginally change or where to match much of what you see in Europe or even in many of the states in the U S.
And you were to see a build rate of a million homes, which is down significantly from where we are today I'm kind of taking a worst case scenario of 1 million homes annually and we would have a 20% penetration and something like that you would see.
You would see.
This business in very short order in the next couple of years doubling.
But I think on a a realistic I mean, it's just kind of look at present market changes without any changes in legislation or anything else. This business. We think will continue to grow and very high single digit.
Sort of numbers.
And that's on a global basis.
Got it thanks, and then I guess I click one for County, I think you said, 20% of global capacity is out how long do you think it'll take to get some of that capacity back online and then when you look at what pricing is now relative to last year sequentially, it's up quite a bit.
Could you maybe talk about how the.
The timing flows I know.
You mentioned peer 20 million, maybe this quarter, but the what you see more of that effect in the first quarter.
Versus this this quarter.
Events.
Question was 20%, so let's say, it's hard to tell because.
These plants around the world that I could test is clear you'll have a better view then.
Good idea wellness, but I think that some of that is going to come back in quarter full geismar plenty scheduled to come back a line on.
On November the 15th.
And the plans when they come back to take some time to get back to full operating right. So.
We're assuming that that.
Most of that outage is going to continue to call to four and then will slowly start to work is back way back into marketing quarter all of next year, but.
History has shown that these plans take longer to come back and people forecast. It is a complicated process to get an empty I planned cycle Street and it always seems to take longer than we expect so.
I think you should assume so next in the next three to six months that capacity is slowly going to work his way back into the market.
And I would just like to clarify the when we talked about about $20 million that has a fourth quarter number and that's assuming that the pricing that we're seeing today holds out.
Through the quarter and I would say that when you look at how much of that was in the third quarter would've been felt.
Very little in the final part of the third quarter.
Got it thank you.
Thank you.
Our next question comes from John Roberts with UBS. Please proceed with your question.
Thank you Peter do you have any thoughts on how quickly performance products and the non aerospace part of the proxies can get back to pre covid levels.
Yes, I think that as we look at it I think by the early part of next year I think that if present trends continue and again I want to emphasize.
If you were asking me that question 10.
10 days ago versus today.
Kind of pre European lockdown versus pose European locked down there. There's there's just a lot of noise and static in fourth quarter non generally a pretty optimistic person.
So I may take take that for what it's worth but as we look at the non aerospace.
Segment of advanced material.
Think that you're.
Somewhere around 90% of where we were.
Today, we're somewhere about 90% of where we were a year ago and I would expect that to be back on year over year, non covid sort of volumes by the early part of next year again, assuming that we continue recovery not that we fall back down the.
The aerospace segment of that.
Just again looking at the.
What's been said by Boeing and by others. I think that you are simply looking I'm looking in kind of a two phased approach. One is how long does it take us to get back to a normal.
A post covid normalized build right that makes any sense.
Because right now I think that.
Boeing essentially is going to have to stop production just clear the inventory of planes that are sitting around victorville and all over the place waiting for customers to take those once the existing inventory of planes clear out then you go through what I would call that new normal.
Which is a greatly reduced production rate and then probably a couple of years down the road you kind of get back to a a post.
Pre covid sort of a level of flying again, and what that world looks like and which planes or actually put back into the.
Into the fleet and so forth.
Time will tell but.
But the non narrow business.
Advanced materials continues to do well continues to grow well and I think we will have a lot of a lot of applications as we as we look to that excess capacity going.
Going elsewhere.
And then could you just remind us what percent of the polyurethane segment sales are component and polymeric MDI, that's not protected by spread margin contracts.
In the U S.
And again, no don't spread contracts are only about that virtually all that's in North America and.
It's about.
60% of that as of the pole American descender contracts.
Thank you again, that's in the U S.
We haven't really that really isn't caught on in other parts of the world.
Thank you.
Our next question comes from Alex Yeah from off with Keybanc. Please proceed with your question.
Good morning, everyone. Peter your current domestic space on business, I think you're saying about 100 million Normalised EBITDAR run rates, how should we think about the international opportunity can you give us some idea.
How soon you can get there maybe some targets for next year next two three years.
So I think that over the next couple of years I think we're really focused in over the next 12 months was look at the habit of that business I would say that.
I think there's a real opportunity today about 10% to 12% of that <unk> coming from international Marr.
Markets and it'd be great. If we could see that go up to a quarter of.
It's a enormous opportunity for us and we look at the penetration of polyurethane spray foaming in Europe and Asia.
Already have the infrastructure there we have the blended capabilities, we have the people there.
We have the distribution networks throughout Russia, and China, and Europe and Southeast Asia.
So I would hope that over time, we're going to continue to see that strong single digit.
Pushing 10% sort of growth on an annualized basis in North America, and hopefully we ought to see better than that.
Internationally and once we're we're up and operational but we're start we're starting at a very low basis, there, but it still is MIDA positive even today.
Thank you and the question.
For you Peter or for tiny.
Some of the trade rags or recording strong demand for rigid insulation panels in Europe.
Is this a normal cyclical recount recovery after locked sales or is this.
I'll also result of maybe the secular impact from some of the new policies.
But I think there's going to be.
Green deal that we're seeing in Europe.
Greatly is a great incentivize incentive for builders to an architect.
And construction firms to be implementing the best practices and the best installations, and the best Energy Conservation and it would be natural that they would be moving to polyurethane. So when we look at that rigid foam section I don't think it's just huntsman, but other companies or.
Seeing a healthy demand, particularly given more of the macro economies are in these countries.
Thank you Alex thing just just to ask will pay to say, we're also saying continued strong demand for DIY, particularly in Europe, and North America, So a lot of that installation and particularly.
Particularly in the composite wood products business continues to see very strong growth in both Europe had America and I think that as a result of the continuing pandemic and people continuing to use discretionary spend on improving their homes, which is benefiting up business very significantly.
Thank you.
Our next question comes from Hassan Ahmed with Olympic Global. Please proceed with your question.
Okay.
Either a question around.
The polyurethane business.
Some of the sort of.
Trade publications have been talking about fairly tight conditions on the polyol side of things and how with rising prices and volleyball's.
Cost availability.
There has been reduced sort of demand for TDI now the question ready is that.
As a sort of how you heard your comments, obviously MDI demand seems to be quite strong. So my question ready is that have you guys been gaining sure from TDA.
Yeah.
I don't really think so I mean, a lot of the applications of the television goes into.
Don't necessarily.
Compete with us head to head I mean, there's that friend Jerry around soft phones going into.
Furniture, and so forth, but I think it's a pretty small segment, we really don't have a marketing effort that would say we're going to target TDI.
TDI applications again, there would be.
There is overlap Hassan you're absolutely right, but it's not something that's a major effort for us.
As we look at <unk>.
I think we're finding ways to.
Relocate replace.
R. R. <unk>, we particularly liked the polyester polyol to move it to the extent that we can build that end of our MDI in our polyurethane business and into the polyester palio are terrible business.
We're we're using that technology of recycled bottles and <unk>.
Moving out ahead I think for us.
That's going to be something that will be a high priority for us.
Very helpful.
And.
As a follow up.
Going back to the sale of the Indian DIY business.
Obviously, you guys got a great multiple.
If I run the numbers, obviously, you're looking.
To replace the sort of 19 $20 million of EBITDA that you guys generated from that business in 2019.
According to the press release, you guys said, rather quickly you want to replace that so I mean is it fair to assume that that 19 $20 million of lost EBIT.
In any business that you acquire.
It would be at I'm, assuming up Ah multiple significantly lower than your sale multiple.
So the two part question is that fair to assume.
And second is how quickly will you be able to replace that.
Well I think that that is.
I think it's August and what I said earlier, but we're not say we are actively reviewing opportunities.
We were in negotiations with options that we think will be.
Will be.
An opportunity to expand particularly advanced materials and.
I don't want to get into.
Where that multiple might be in and so forth.
It's just right now.
I think it's a bit of a sensitive time to be talking about potential acquisitions fur.
Fair enough. Thank you so much Peter.
I would just I would just say whatever the acquisition as we've always said that posts synergies that those multiples will be very close to where we trade or better so.
When you look at at a pulse synergy basis, certainly it could be a lot better.
Excellent. Thank you Sean.
Thank you.
Our next question comes from chips accounts gifts with J P. Morgan. Please proceed with your question.
Thanks very much.
Your <unk> was above where it was last year and volumes or or flat.
And you said this the markets are a little bit tighter than they might be ordinarily, but your volume should grow so order of magnitude should be polyurethane segment earn.
In 2021, what it did in 2019.
Just roughly.
Yes.
I would hope that it would be that it would be close to that.
Yes.
Look at that probably let's see I'm, just really and 20.
You're asking a 2019 number versus of 2020 number 2021.
Right in other words 2021 should look like 2019, given that the third quarter is a little bit better a little bit tighter, it's going to loosen up your volumes kind of growth.
Yeah, I think that as we look at the the the volumes and so forth.
<unk>.
Especially if you factor in the Hbf Huntsman building solutions, we ought to be doing better than 21 than we did in 19.
Okay, and what will it take to get the tech still affects business back to normal.
People going to stores and buying clothes.
Okay. So it's my job I think.
Yeah, Yeah. So I think again, there you will see.
As I as I kind of look at the the the recovery of demand and textile effects.
We were down 60, 70% the lowest point year on year demand and now I look in the fourth quarter.
No we're down single digits from where we were a year ago now granted a year ago and I compare this year's fourth quarter to last year's for for textiles effects was feeling more of the of the impact of covid than the other divisions, because it's so Asian centric and of course.
Being the virus started in China that was impacted in in that area of the world has impacted before any place else. So.
As we look on year on year comparisons.
We'll probably see that exceeding last year first and textile effects, because we look at textile folks will see a rather rapid recovery.
To a point and then that lasts that last point will come about gradually slowly I think through the early part of 2021 stores and retailers start opening we clearly have seen that there are certain clothes.
And apparel and textiles that people will buy online.
Typically by their athletic wear and so forth online people typically don't buy formal clothes and things that need to be fitted things that need to be tailored things that people want to try on and so forth people typically don't buy that online and so there's certain segments that are doing well other segments that are that are not doing very well and it will I think recover.
As does you kind of mentioned recover as the retail.
Outlet start opening auto is gradually recover covering home textiles is recovering and these are recovering a lot faster than the retail end as well and anything dealing of course with with PPE.
The.
Personal protective equipment and everything we're seeing.
Growth in that area as well.
Okay. Thank you very much.
Thank you.
Thank you.
Our next question comes from David Begleiter with Deutsche Bank. Please proceed with your question.
Thank you Peter you mentioned talking about India, and he has a sale that you might be looking into other assets I assume they're pretty small but.
Any more color on what those can be in the size of those other assets that could be reviewed.
No.
Again.
When when we talk about divestitures or acquisitions I never want to use the word never say that there's parameters about what we may or may not do I'm quite pleased with the portfolio in the shape of the overall portfolio.
But at the same time part of our job.
We have is to look at our assets do assess our assets and as I look specifically the DIY business in India, I think that we.
We we took an asset from nothing we built it in for US to have continued to build that at that rate we.
We would have had to have started consolidated market share putting in quite a bit of investment in in capital in retail advertising and so forth and the company that we sold it to penalize is already in that segment doing all those things they put a higher value on it and then we did internally to the extent that we have other products.
And lines in the business.
That would fall into that same sort of of.
Parameter.
I think we ought to our shareholders too to look where we can create the most value.
I think that generally.
I don't see a lot of pieces for sale within the company and I look at the size.
Of the acquisitions look at what we've done over the last couple of years between the ice and in the consolidation of our Malay can hydride CVC demo lack.
I think these are pretty good size acquisitions that are meaningful.
You're not risking your balance sheet, you're not stressing your balance sheet, but we see meaningful synergies and meaningful opportunities to globalize and build these businesses.
I'm just gonna cost savings I think increase the targeted from 100 to 112 modest increase but where does it at $12 million come from.
I think you're looking at hundreds of thousands of dollars here and there and.
You are looking at opportunities I think it's not all coming from one specific segment and I think each segment as they start looking.
Their area of opportunities for consolidation and rationalization and streamlining businesses and so forth.
They are finding opportunities as you start digging through these sort of projects.
Thank you.
Thank you.
Our next question comes from P. J as you have a car with city. Please proceed with your question.
Yes, hi, thank you.
Peter can you talk about performance products business. You know you had 19% volume declines seems to class I should say.
In this quarter and 20% decline in second quarter, So you're not seeing what sequential pick up but despite that dude EBITDA margins have been very resilient.
<unk> is not down that much. So can you just address the top line, which is the bottom line and performance products.
Yeah, our biggest volume that performance products as our Malik and high drive and I would just note that our biggest single facility. That's almost exceeds the rest of the capacities combined globally within Huntsman is our Pensacola, Florida site and that site was down.
For Hurricanes that pass through the area and some of the residual impact of those hurricanes. So I think the third quarter. We had some some one offs on volume in on availability of product.
Certainly the demand for the product grew throughout the quarter.
Lake and hydride is used a lot and.
If you were to go into the.
Think of the bathroom fixtures an apartment fixtures that you would see the kitchen fixtures and that you would see in an apartment or a.
Hotel and so we're seeing very anything that has to do with residential construction and installation or OSB or textiles, though is doing quite well anything that has to do with.
With closed in small unit apartment construction hotel construction.
Has been has been recovering at a much slower rate than the residential I think.
Malik construction applications I don't want to say that they're all tilted towards that apartment and hotels sort of of construction, but they are tilted in a bit and that and so you're going to see.
I think you're going to see a slower quote unquote construction recovery and molec, but you'll see it nonetheless.
So I think you'll see that recovery coming and I think the impact of the insurer excuse me the the hurricane impact.
Production limited the number of pounds that we have for sale.
And can you know the EBITDA can you address that it's been quite resilient towards what accounts for that.
I think that those are are strong products.
I think we have unique businesses and applications margins are stable and.
These are these are great businesses.
And then just quickly you earlier mentioned about.
Green B U spray form that will include PDT bottles.
And how do you charge a product like that do you get some kind of a green premium or is it gonna priced in line with.
Existing product thank you well.
Well I think over time.
As you start seeing.
The quality of the product that we have in the base.
How it's made and and the greening effect I don't think that we're getting a green premium today I do though think that all things being equal.
And you've got an opportunity to to use something that is made there'll be in your house for decades to come.
Made from recycled.
You look at the environmental advantages that come from all this.
Think that there is a premium and I think that over the course of the next year. So as we start more aggressive advertising and more aggressive promotion and so forth in this area again I want to remind you that this is a business at two years ago, we weren't even in this business.
So we view this business really is still to some degree as excited as we are we are still rather than the infancy of the business.
Consumer habits, and consumer sentiment is going to be very high and then they're going to care about this stuff. So yeah I hope that over time, we would be able to have a green premium.
Thank you great idea. Thank you.
Thank you.
Our next question comes from Kevin Mccarthy with vertical Research partners. Please proceed with your question.
Good morning, Thanks for squeezing in.
I wanted to ask about your equity earnings, which came roaring back sequentially to 21 million in the quarter versus quarterly run rate of about $2 million in the first half.
I'm cognizant JV with Sinopec in China that makes propylene oxide and other products was that a meaningful contributor and if so what are your thoughts on on sustainability of the third quarter level as you look into the fourth quarter level and beyond.
Really tight these days and some parts of the world.
Well I think that we did see it an impact in the third quarter from the.
From a joint venture we haven't China for the P. O MTBE facility that we have a sinopec and.
Think that as we look at this on a normalized more normalized basis.
I think that number will probably be around $40 million it'd count on about $10 million a quarter.
On average on something like that.
And.
I'm not sure we mentioned or not but in the fourth quarter I think we do have a TNI.
Adapt facility, so I wouldn't I wouldn't certainly wouldn't be looking for a repeat in the fourth quarter, what we saw in the third quarter.
I see that's helpful and then.
Peter just just coming back to the subject of capital deployment.
You've obviously got a lot more financial flexibility.
Pro forma for the deal that you announced yesterday as well as the Ventura transaction.
It seems as though.
Acquisitions are plan, a but in a scenario, where we started to see more prevalent lockdowns Ah more difficult winter if you will.
Resulting in equity market volatility, how would you characterize opportunity for repurchases incoming quarters.
Repurchases of.
Stock shares of Huntsman shares yes.
Yes.
Look again, I never want to say never but I think that as we look at the balance sheet and as we look at our priorities of a dividend.
Mmk, and then organic investment and organic growth internally.
We look at we will look at the IRR on what we're able to get today.
I'm not sure that that I think it would be quite a while too.
We're buying it any more shares.
Foresee that in the foreseeable future, but again, if something were to radically change.
Something we obviously ought to be considering but.
And present scenario it'd be it'd be tough to see that.
Understood. Okay. Thank you so much.
Thank you operated why don't we take one more question I think we've kind of gone over our time limit here, but we'll take one more question.
Thank you.
Our final question comes from Lorincz Alexander with Jeffries. Please proceed with your question.
Good morning, and just a quick one then how much of your business is run on market facing.
Dynamics similar to the business product building products business, you highlighted and how do you think about the pros and cons of.
Structuring the company on a.
And market basis as opposed to.
A product line basis.
Laura.
I apologize I don't have a.
Precise and clear answered I've always been a bit.
Of a believer that you've got to control your supply chain. So you've got to control the cost and the supply chain, we've looked internally multiple times of looking at having.
And Aerospace Division automotive Division.
A.
Our construction division have all of our products flown to that one division.
I don't know and and there are a lot of our competitors that seemingly every two or three years, I kind, a pendulum back and forth.
I think those opportunities, particularly as we look at construction, an auto which is 60% plus of our overall business.
We tried to capitalize on relationships and and applications and so forth, but if you've got an application it's going into Ah Ah coatings application on a car.
Product going into the seat on a car quite frankly, most car manufacturers don't tied the two together and they're not going to pay you any more or treat you any better because you've got you're supplying with paint and you supply them with foam and you're supplying with wiring cable.
So.
I think you lose some of that efficiency of just looking at the supply chain looking at your working capital looking at your technology now at least semi polyurethane somebody like Tony's transfixed and keeping an eye on benzene down through nitrobenzene, aniline MDI formulations systems, and so forth keeping <unk>.
I on that entire line rather than than.
Kind of.
Being muddled into what we're doing and and and market, but you really have to in my opinion.
Walk and Chew gum at the same time, you have got to be able to look for those opportunities, but I just don't think that they're as prevalent as a as they usually are building materials might be.
Mike will continue to experiment with that as we look at what we're doing with spray foam and how that might overlap with with some of the applications and OSB and how that might apple overlap with some of the rigid foam. We're already in all three of those were market leaders in all three of those to the extent that we can find consolidation and.
Opportunity will certainly be doing it.
But again you look at the customer base regionally you look at it it just varies from company to company and and contractor to contractor and state to state to be honest with you. So I think we'd rather be focused on on kind of a very targeted approach rather than a macro approach.
Thank you sorry.
Sorry that was a really long winded answer but.
Well, let's talk me from asking the second question. So that's perfect.
Okay.
I was victorious in okay.
Thank you very much Lawrence good to hear from you and thanks, a lot for tomorrow is trying to call them no. We didn't get to all of you. So feel free to give me a follow up call afterwards and thanks.
Thanks for joining us.
Ladies and gentlemen. This concludes today's web conscience, you may now disconnect. Your lines at this time. Thank you for your participation and have a great day.