Huntsman Corp. (HUN) said improved margins from polyurethane foam, textile dyes and other chemicals may make up for declining earnings from titanium dioxide, a white pigment, during the second half of the year.
Profit from titanium dioxide, known by its chemical formula, TiO2, will drop by about $350 a ton in the current quarter from the prior three months because of higher ore costs and lower pigment prices, Chief Executive Officer Peter Huntsman said today on a conference call with analysts. Higher margins in other units, particularly polyurethanes, may make up for the TiO2 decline, he said.
“You’ll see the non-TiO2 divisions at Huntsman strengthen over the next couple quarters,” Peter Huntsman said today in a telephone interview from company headquarters in The Woodlands, Texas. “2012 will look a lot like 2011, but TiO2 earnings are going to be down.”
Huntsman plans to cut costs by $350 million with a focus on the textile effects unit, the world’s biggest maker of textile dyes, which should return to profitability next year, he said. Demand excluding TiO2 is rising and there is little new capacity being built, he said.
“Our demand globally certainly is better than what the headlines are blaring-- that markets are falling,” Huntsman said.
Huntsman rose 4.9 percent to $13.27 at the close in New York. The shares have gained 33 percent this year.
Second-quarter net income rose 8.8 percent to $124 million, or 52 cents a share, from $114 million, or 48 cents, a year earlier, Salt Lake City-based Huntsman said today in a statement. Profit excluding costs for restructuring and a terminated merger was 58 cents a share, the company said. That exceeded the 54-cent average of 11 analyst estimates compiled by Bloomberg.
“The star performer, in our view, was the polyurethanes segment,” Hassan Ahmed, a New York-based analyst at Alembic Global Advisors, said in a report.
Profit in the polyurethane unit, which supplies makers of insulation, adhesives, coatings and composite wood, climbed 19 percent on higher demand. Pigment earnings rose 16 percent as higher prices more than made up for lower sales volumes.
TiO2 customers, such as paint makers, will continue to use up excess inventories through the third quarter, keeping operating rates at about 80 percent of capacity, compared with 100 percent a year earlier, the CEO said. Huntsman has about 70 days of TiO2 inventory, compared with 100 days for the industry and a normal level of about 55 days, he said.
Pigment destocking should end in the fourth quarter, a year after it began, leading to higher TiO2 demand and boosting plant operating rates to about 90 percent by year-end, he said.
“You’ll get back into typical seasonal flow of demand sometime during the fourth quarter,” Huntsman said. “Through 2013, TiO2 will have recovered to more of its traditional supply-demand ratio.”
Demand for titanium ore is declining because of high prices for the pigment feedstock, compressing profit margins for Huntsman’s suppliers, Chief Financial Officer Kimo Esplin said in the interview.
“Now would not be a very good time to be an ore producer,” Peter Huntsman said.
To contact the reporter on this story: Jack Kaskey in Houston at firstname.lastname@example.org
To contact the editor responsible for this story: Steven Frank at email@example.com