Huntsman's EPS Beats, Revs Miss

Beating earnings estimates but missing on revenues has emerged as a trend this quarter and specialty chemicals company Huntsman Corporation ( HUN - Snapshot Report ) is no exception. The company’s adjusted earnings of 58 cents a share beat the Zacks Consensus Estimate of 54 cents. The results were also ahead of the prior-year adjusted earnings of 48 cents a share.

Net income, as reported, increased 9% to $124 million or 52 cents per share in the quarter from $114 million or 47 cents per share in the year-ago period.

However, Huntsman’s revenues remained almost flat on a year-over-year basis at $2,914 million, and missed the Zacks Consensus Estimate of $3,077 million.

The improvement in earnings was driven by growth in the company’s Polyurethanes business, which grew 12% on a year-over-year basis, along with the restructuring efforts undertaken by the company. These restructuring measures facilitated a 14% year-over-year improvement in its adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) to $365 million in the quarter.

Moreover, the restructuring is expected to result in an annual EBITDA benefit of more than $150 million from the current levels by the end of 2013.

Growth in Huntsman’s Polyurethanes division was driven by higher sales volumes, partially offset by lower average selling prices constrained growth. However, all the other segments saw their revenues sink from last year.

Revenues from the Performance Products business declined 14% year over year due to lower volumes and lower average selling prices. Lower average selling prices and volumes also resulted in a dip in Advanced Materials, Textile Effects and Pigments businesses in the quarter.

Financial Position

Huntsman had cash and unused borrowing capacity of $1,098 million as of June 30, 2012, as against $1,231 million as of June 30, 2011. Net debt stood at $3,283 million as of June 30, 2012, down from $3,485 million as of June 30, 2011.

Outlook

Huntsman expects earnings from its Pigments business in 2012 to be below the 2011 levels. Also, it expects prices to decline further due to high inventory levels of titanium dioxide in the market. Moreover, titanium-bearing ores are expected to become costlier in the third quarter. These factors might have an impact of $350 per ton on margins in the third quarter. Also, weak demand from Europe represents another headwind for Huntsman in the third quarter.

Huntsman, which competes with The Dow Chemical Company ( DOW - Analyst Report ) and BASF SE ( BASFY ) , currently carries a Zacks #3 Rank, reflecting a short-term (1 to 3 months) Hold rating.