Profits short of estimates for Huntsman

Salt Lake-based Huntsman Corp., the fourth-largest U.S. chemical maker, reported second-quarter net income of $112.7 million as prices for some chemicals rose. Profits fell short of analysts' estimates, and the stock tumbled a record 6.9 percent.

Per-share profit was 48 cents, Huntsman said Thursday in a statement. A year earlier, the net loss was $185.4 million, or 94 cents a share, after payment of preferred dividends. Revenues rose 21 percent to $3.34 billion.

Polyurethane profits jumped 67 percent as Chief Executive Officer Peter Huntsman raised prices for MDI, or diphenylmethane diisocyanate, used to make foam for insulation and furniture. Profits were below estimates for titanium dioxide, a white pigment, and base chemicals, analysts said.

"They have done very well passing through price increases under the cover of higher energy costs," Jeffries & Co. analyst Laurence Alexander said from New York. "The issue this quarter was the soft commodity business," particularly pigments, he said. Jeffries rates the shares "hold."

Excluding costs for early debt repayment, restructuring and plant closings, per-share profit was 73 cents. On that basis, the average estimate of 10 analysts surveyed by Thomson Financial was 82 cents.

Huntsman shares fell $1.63 to close at $21.87 Thursday on the New York Stock Exchange. The percentage decline was the biggest since the Feb. 10 initial public offering. The shares have dropped 4.9 percent since their debut.

In commodity chemicals, "conditions appear to have stabilized and are hopefully poised to recover in the second half of the year," Peter Huntsman said on a conference call with analysts and investors.

Base-chemicals profits fell 0.5 percent to $83 million, Huntsman said. Gains from prices that climbed 24 percent were eroded by higher energy costs and plant maintenance, the company said. The chemical unit was expected to have $125 million in profits, and the missed forecast was responsible for the quarter's earnings shortfall, Merrill Lynch analyst Donald Carson said in a note.

"The remaining segments all performed closely in line with expectations," Carson said. He rates the shares "buy." Merrill Lynch does investment banking with Huntsman.

Chemical profits fell from a record first quarter as average U.S. contract prices for ethylene tumbled 7.7 percent to 38.3 cents a pound, Huntsman said. Higher raw material costs will further erode chemical margins in the third quarter, even as demand stabilizes and producers try to raise prices, he said.

Profit margins in pigments narrowed in the second quarter from the first quarter on lower demand for titanium dioxide, known as Ti02, Jeffries analyst Alexander said.

Profit from pigments excluding some items rose 9.2 percent to $39 million as sales dipped 3.7 percent. Jeffries was estimating profit of $48 million, Alexander said.

"The paint season in Europe just never really took off this year," Huntsman said on the call. "Prospects for those businesses are certainly positive."

Profit from polyurethanes rose to $198.2 million from $119 million as MDI prices surged 42 percent on demand for insulation, composite wood products and adhesives. Huntsman, the world's largest MDI producer, added production capacity in Geismar, La., relieving shortages, Huntsman said. MDI prices remain "very stable," Chief Financial Officer J. Kimo Esplin said on the call.

The added production is part of a plan to boost MDI output by 40 percent, including a new plant in Caojing, China.

Profit in performance products, which includes surfactants for detergents, jumped 79 percent to $65.9 million. Prices gained 26 percent, outpacing higher costs for raw materials and energy. The company plans to close a surfactants plant in Guelph, Ontario, and a research facility in Austin, Texas.

Polymers profit jumped sixfold to $33.5 million as plastics prices gained 31 percent. Profit from advanced materials rose 13 percent to $44.6 million on wider margins on coatings, construction materials and adhesives, the company said.

Huntsman's interest costs fell 30 percent, to $101.1 million, after the company used proceeds from a share sale to slash debt. Net debt was $4.44 billion on June 30, down from $6.05 billion on Dec. 31.

The company will have a $38 million expense this quarter as it continues to retire debt early, and it will have as much as $20 million in restructuring costs, Chief Financial Officer J. Kimo Esplin said.

Capital spending through the first half was $128.7 million and will total $400 million for the year, including construction of a $50 million polyethylene plant in the United Kingdom, Esplin said.

Huntsman in February raised $1.59 billion for the company and some shareholders by selling 55.7 million common shares and 5.75 million preferred shares. The offering was the third-largest in the United States this year behind Halliburton Co. and Genworth Financial Inc.

Jon Huntsman Sr., the company's billionaire founder and chairman, is the father of CEO Peter Huntsman and Utah Gov. Jon Huntsman Jr.

Revenue in the second quarter of 2004 was $2.75 billion.

Dow Chemical Co. is the biggest U.S. chemical maker by 2004 revenue, followed by Exxon Mobil Corp. and DuPont Co.

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