Huntsman Corporation (HUN) Q3 2025 Earnings Call November 7, 2025 10:00 AM EST
Company Participants
Ivan Marcuse – Vice President of Investor Relations & Corporate Development
Peter Huntsman – Chairman, President & CEO
Philip Lister – Executive VP & CFO
Peter Huntsman Chairman, President & CEO
Ivan, thank you very much and thank you for all of those taking the time to join us this morning. Before getting to our Q&A, I’d like to take a few minutes and speak about present market conditions. First of these is the change in our dividend distribution. Every quarter, our Board of Directors deliberates and spends considerable time discussing this matter. We take into consideration a number of factors in determining what should be paid and what should be preserved. Our industry faces 3 challenges that in their duration and magnitude are unprecedented. First, we see the U.S. economy, the effects of several years of decades high inflation and the rising of interest and mortgage rates. This has put enormous pressure on consumer durables and homebuilding. In particular, fewer and smaller homes are being built and consumers are spending less money on large durable items.
The second is the lack of consumer confidence and spending in China. While at the same time, the country has built out their manufacturing capacity that is not being absorbed domestically and in many cases, are flooding markets that struggle to absorb their own domestic production and increased imports. The third of these challenges is the deindustrialization of Europe. Between burdensome bureaucracies and regulations, high business and climate-related taxes and uncompetitive energy and raw material costs, Europe is not attracting innovation, growth or investment. In fact, in the second half of 2025, we’re likely to see more industrial closures than we have seen in the first half.
We believe that the U.S. and China economies will recover to more stable conditions as trade tensions ease, interest rates drop and consumer confidence and spendings returns. Europe will see more of its manufacturing leave unless they change a number of policies very quickly. As industry shuts, it will be relocated to the U.S., Asia or the Middle East. As these capacities relocate, we will see these markets stabilize as the remaining European companies adjust to new supply chains and perhaps a more consolidated industry.
Aside from simply waiting for better times, what will Huntsman continue to do? We will continue to calibrate our cost structure to be — to the market realities that we’re seeing. We are on track to completing our previously announced $100 million cost reduction program. This includes the elimination or relocation of over 600 positions and the closure of 7 sites, mostly in Europe. These efforts will continue through 2026 and we are well on track to meet and likely exceed these targeted savings of $100 million. In addition to cost and asset footprint, our priority has been to manage our cash consistent with a prolonged downturn. We delivered $200 million of operating cash this quarter and our year-to-date free cash flow is over $100 million. We moved early and aggressively on working capital this year and I believe we made the right call to do so. We’re also looking at more energy-intensive raw materials and exploring ways wherein we can source these supplies from other regions with more competitive costs.
Europe will continue to be a vital market for our company. Areas such as aerospace, automotive, adhesives and electronics will not only be profitable but growing markets for Huntsman. However, we need to continue to look at our supply chains and source the most profitable raw materials. An example of this is our recent closure of our maleic facility in Moers, Germany. We will continue to support our maleic customers in Europe but we will do so from the U.S. where we can make maleic cheaper and deliver it at higher margins. We’ll continue to look at our urethanes, amines and epoxy supply chains and assess how we can avoid Europe’s uncompetitive cost structure. These include working within our own company as well as working with other industry players. We will continue to work with other manufacturers to maximize our capacities and competitiveness on the products we produce and supply globally. This includes exploring opportunities for consolidations, rationalizing capacities and other value-enhancing combinations.
I believe that our actions will create further value. Not all of them will happen but we will continue to explore every chance we have. We also need to make sure that we protect our balance sheet for the long term. Our latest dividend levels were set when market conditions were far different than they are today. Our priority was to return cash and value to shareholders. This priority has not changed. It has taken — but it has taken into consideration current market conditions. These are not times when we ought to be taking on more debt to pay a higher dividend. After careful deliberation, we believe that we have found the right balance to reward our shareholders, preserve our balance sheet and invest in the future. As soon as market conditions warrant, consideration for an increase in our dividend payments will take place. Believe me, we’ll be doing this as quickly as possible and I hope this happens sooner rather than later.
Lastly, as we look into the fourth quarter, it is simply too early to make forecasts for 2026. Most supply chains are very tight and visibility is short term as it usually is this time of year. I believe in the fourth quarter that we will see typical seasonality, coupled with a higher-than-average destocking. Earlier this year, some companies bought into the idea that Europe was somehow rebounding and demand was picking up. This has clearly not been the case. We may see conditions in the fourth quarter, especially in Europe, where prices drop as companies cut — push to cut inventories and manage working capital.
During the fourth quarter, we will continue to prioritize cash over EBITDA, especially in our Performance Products division. Our objective is to finish this year with inventories that allow us to produce to meet demand. As we end the third consecutive year of challenging markets in all 3 regions of Asia, North America and Europe, I believe that we’re taking the tough steps today to assure our future is one where we are able to recover quickly as market conditions allow us to do so. We will continue to explore every means and structure possible aside from simply waiting and doing nothing.
Michael Harrison Seaport Research Partners
Just wanted to ask about the cash flow and the inventory reduction actions that you took during Q3. It sounds like your expectation is there’s still some further inventory reduction that will happen in Q4 as you continue to focus on cash generation. My question is, though, what do these inventory reduction actions mean for your utilization rates, particularly in Q3, where you’re running a little bit slower? And will that continue into Q4? I guess my question is, are you running slower now so that you can run harder potentially in the first and second quarter of next year?
Peter Huntsman Chairman, President & CEO
We look at that on a — literally on a product-by-product and division-by-division basis. So if you think where we’ll be in the first quarter, we’re typically starting to build inventories as you go into the second quarter, which is typically the beginning of your construction, housing seasons. Obviously, that’s weather related and it’s also demand related as people are looking to relocate into the summer months. And so you see a lot of buying activity pick up at the time. So typically, across the entire company, you will see inventories rise during that first quarter going into the second quarter in preparation of demand. Now if the demand doesn’t necessarily build and I think 2025 was a good example of that, we really saw a very muted construction market, particularly in North America versus expectations.
And you then see that partway through the second quarter, you’ve got too much inventory. Some of our products such as your MDI materials, not — this doesn’t apply to every single grade of product we produce but to the more commoditized materials in MDI polymeric and so forth, you can typically reduce that inventory by selling it into other markets, into other applications, even into export markets and so forth. I’m not going to say that’s easy and I’m not going to say you can do that fairly quickly but you typically can take care of your inventories through proper management usually within 1 quarter or 2. Other products like your Performance Products, where you’re producing amines that are going into catalysts, you’re producing maleic anhydride that goes into unsaturated polyester resin, you’ve built up your inventory early in the year. And sometimes it will take you longer to reduce those inventories, fewer customers, fewer outlets and so forth to get rid of that inventory. And so you typically — that will happen through the third and in our case with Performance Products through the fourth quarter.
Now you’ve got a decision to make, you asked a very good question that do you reduce your production rates, thereby lowering your inventory so that you can meet production demand as you get into early 2026. I believe that we have an opportunity to see a modest recovery starting in 2026 but I’m not willing to bet our inventories on it. So let’s go into 2026 with our inventories, I would say, lower than average, where we can calibrate our production to the actual demand as we see the demand. I think probably by and large, I can’t speak for our competitors but probably as an industry after 2025 and the muted market — the muted recovery that we saw in early 2025, the beginning of the construction season, I think that people will probably be cautious going into 2026. And therefore, I think that’s why you’re seeing a lot of companies right now focus on the working capital, focus on inventory reduction and perhaps putting their free cash flow and cash generation ahead of EBITDA.
In the case of our MDI business, I believe our inventory levels, while not perfect, I believe that they are in the area where we want them. Performance Products, I believe they’ll be there by the end of the year. And barring any huge change in demand one way or the other — and so yes, in the fourth quarter, I think that as we look at Performance Products, in particular, I’m not very encouraged when I look at the EBITDA outlook for the fourth quarter but I do look at it as somewhat of a one-off because we are going to sacrifice some EBITDA to get rid of what I think is the last of that inventory. Sorry, that was a very long-winded answer but a very good question.
John Ezekiel Roberts Mizuho Securities USA LLC, Research Division
Do you think the increased U.S. MDI imports from Europe is a structural change and that’s here to stay?
Peter Huntsman Chairman, President & CEO
I hope not. I can’t imagine that it makes any economic sense but I’m just speaking of looking at our economics and is that a good deployment of capital. But John, you bring up a very good point. As we look at the U.S. market of around 1,200 kilotons, you’ve got roughly 75,000 kilotons coming in from Europe. You’ve got roughly another 150,000 kilotons that will be coming on this next year. And I would remind you that it’s usually not when the kilotons come into the market when you feel the impact of it, it’s usually the year before, right? When people are out premarketing, preselling, pre — cutting the market to try to find a place for all of that inventory as it comes in. And you still have a lot of Asian material that’s going to Canada and Latin America that is displacing U.S. exports from the United States producers that are typically exporting to Canada in those markets as well.
So I think that it’s — there’s going to be moments of opportunism where people maybe have too much inventory, can’t move it in Europe and so forth. But fundamentally, the economics of moving from a higher cost region, paying tariffs, taxes, transportation, logistics, working capital tie-ups and so forth into another market. I’m not sure that’s a good long-term decision but that’s not my decision to make. What is for Huntsman. We don’t do that.
leksey Yefremov KeyBanc Capital Markets Inc., Research Division
Peter, can you just maybe overall describe the U.S. MDI market? You just made some comments but what about demand side, overall U.S. MDI inventories and how customers are sort of reacting to the tariffs and change in that imports picture? Are your conversations with customers changing at all?
Peter Huntsman Chairman, President & CEO
No, not a great deal. I think that there may have been a lot of hyperbole and so forth that went into the tariffs that you somehow were going to foresee or see these great changes and so forth. But like I said, the U.S. is a 1,200-ton market. And if you look at the amount of tonnage that is being added on in the next 12 months, kind of 150,000 KTS from 1 producer, predominantly another European producer bringing this last year about 75,000 metric tons. You look at the amount of product that was exported to Latin America and Canada that now is kind of set back into the U.S. And you can kind of see where you kind of take last year’s fourth quarter, this year’s first quarter was something like 100 kilotons that came in from China. And you more than offset that, right, with new additions and imports coming in from Europe.
So I’m not sure that there’s really a big net change in production. I’m not going to say that it has no impact. I’m sure it does on those particularly having to pay [ 513% ] antidumping tariffs. But it’s — for us, we’ve seen this last year year-over-year about a 6% growth in MDI. That’s something that we gradually over the last 12 months have gotten back — largely gotten back market share that, frankly, we lost and we probably took too aggressive of a price stand and trying to keep prices stable or even rising in a market that sorely needs it. So I — for us, it continues to be a sluggish market. And I think overall, there’ll be pockets of it, of growth within MDI U.S. But until housing fundamentally, until housing recovers, I don’t think you’re going to see the sort of demand that we’ve seen historically.
Michael Sison Wells Fargo Securities, LLC, Research Division
So for MDI, the fourth quarter polyurethanes, the decline in EBITDA was a little bit more than I thought. But where do you think industry operating rates are going to sort of settle down in the fourth quarter? And then given the cost savings that you’re generating for the segment, is there a lower operating rate you can get to, to kind of restore some of the earnings power for this segment?
Peter Huntsman Chairman, President & CEO
Well, I — again, there’s not a whole lot of information as to where the industry is running. I would say that the industry — it looks like it’s — the demand versus production is somewhere probably in the low 80s. And I’d say that’s probably across all 3 regions, when I say all 3 regions, the U.S., Europe and China. That doesn’t mean that everybody is running at 80%. You’ve got some that are running full out and somehow the notion that the more we sell, the more we make and others that are trying to calibrate more around demand. And others, I mean, it just vary company by company. So I wouldn’t want to represent what competitors are doing when I say that the operating rates are in the low 80s. But I believe that’s where we are as an industry.
You are going to see improvements in polyurethanes by the cost-saving initiatives. There’s no doubt about it. But the singularly best thing that can happen to polyethylene is — polyurethanes is to get prices up and demand needs to return. We simply are not going to cut our way back to normalized margins in this business without a fundamental change in the market. And that could come from an improvement in the demand structure. It can come from consolidation in the market. There’s still small uncompetitive facilities, I believe, that operate in this industry that typically would shut down when market conditions get to this point, which may or may not happen. And so as you look at what it’s going to take to turn urethanes back to a more normalized basis, it’s going to take more than just cost cutting. But that — right now, that’s what we can control and that’s where a large percentage of our time and focus is.
Jeffrey Zekauskas JPMorgan Chase & Co, Research Division
In the old days, you used to talk about polymeric MDI and monomeric MDI and MDI that was a little bit more specialized and there being a margin differential between the 2. What’s happened to that margin differential between the 2 and why?
Peter Huntsman Chairman, President & CEO
I think that when we look at the market 10 years ago, 5, 10 years ago, I think it probably was more of a bifurcated categorization. If something was coming out of a system house, if that was being formulated for a customer and so forth. I think that what we see today is more around, Jeff, a spectrum rather than an either/or. And I think that there still is a value-added component to our polyurethanes business. There’s still applications that are very exciting in automotive and home construction and insulation, applications that — where you’ll have in the automotive sector, you have some of our most commoditized products. You also have some of our higher-end materials. And so I would just say that they’re — what we’re seeing today, perhaps more so than in the past, is it — it’s not an either/or. It’s kind of all of the above. And it’s a spectrum rather than just a 2-sided belt.
Jeffrey Zekauskas JPMorgan Chase & Co, Research Division
Okay. I guess everybody looks at the data a little differently. But I would have thought that China imported into the United States maybe 250,000 tons of MDI and that’s pretty much gone to 0. And so — and you talked about maybe 75,000 tons coming in from Europe and whatever capacity may come on is later. So shouldn’t conditions be ripe for the market to be a little bit tighter at the beginning of 2026?
Peter Huntsman Chairman, President & CEO
Yes. I would say that if demand were picking up and if those were the factors going into it, Jeff, I definitely would agree with you. The simple fact of the matter is, the people that are bringing on 150,000 tons in 2026, which isn’t that far into the future, are out right now marketing that material. They’re out with prices and we’re seeing posture being taken, efforts to move that extra volume. So as I said earlier, it’s not when the volume is produced, it’s when you’re out 6 to 12 months in advance, trying to move that product. So that there is a home when you finally are able to start up the facility. Yes, the 75,000 tons coming in from Europe right now, I just personally as a — from — see as a producer, it doesn’t bring anything in from Europe. That’s kind of a surprise. I wouldn’t have anticipated people doing that but it’s happening.
And again, I think that we’re probably underestimating a little bit how much was exported to Canada and Latin America and how much of that’s been picked up by product that otherwise would be coming to the United States. It’s just merely going a little bit further north or a little bit further south. So yes, a lot of that is happening. And so I look at where we were kind of in the fourth and first quarter of 100,000 kilotons coming in from China. We’re basically down to — the third quarter was 10 kilotons coming from China. So we’re definitely seeing a large drop off but we’re also seeing a pickup in other areas.
Hassan Ahmed Alembic Global Advisors
Look, a question around U.S. MDI volumes, specifically for you guys. I mean, of course, 2025 continues to be — has been and continues to be a pretty sort of weak demand-wise year. But leaving sort of broader macro demand aside, I mean, it certainly was an abnormal year in terms of trade flows out of and into the U.S. for MDI. And you yourself talked about maybe losing some share, being a little more sort of holding on to pricing and the like. Then, of course, back in Q2, you guys talked about how typically sequentially in Q2 there tends to be a 8% to 10% volume uptick in MDI and you guys only saw maybe like 3% or something. I’d like to think maybe that was, one was stuffing the channels. So where I’m going with this question is, let’s even assume the macro doesn’t change that much in 2026 but trade patterns do normalize, how much of a volume increment in U.S. MDI would you see on the back of that?
Peter Huntsman Chairman, President & CEO
That’s a good question. A lot is going to depend on customer sentiment and pricing and where we can get the best value for our production. I’d remind you that in the third quarter, we were up 6% year-on-year and in North America, in the U.S. markets and up 4% on the rest, when you look at the entire division. So — and I wouldn’t say that, that was just one particular area. I think that, that was very strategic and surgical within areas where we can achieve the most value for our product. And so I think that we’re very much going to have the same posture in 2026. I think we want to be smart with our volumes but we will be aggressive in maintaining our volumes and getting prices through as quickly as possible. Beyond that, Hassan, in 2026, I just — I’ll just get in trouble if I try to forecast the particular performance of the division.
Hassan Ahmed Alembic Global Advisors
That makes sense. That makes sense, Peter. And if I could sort of just talk about near-term U.S. pricing as well. Of course, you mentioned incremental capacity coming online in the U.S. market, which will be later in the year. But from the sounds of it, it seems trade normalizing, somewhat normalizing in the early part of next year, antidumping duties, tariffs and the like, I mean, there is at least potential for some pricing tailwinds in the U.S. in MDI. Is that, correct?
Peter Huntsman Chairman, President & CEO
Yes. Hassan, I think you’re absolutely right. And we’re in a little bit of the old joke that when the bear starts to chase us, I just have to outrun you, I don’t have to outrun the bear. And so when I look at the polymeric MDI pricing today in the U.S., and again, I’m talking about polymer, this is the bottom end most commoditized. You’re seeing about a $200 a ton difference between U.S. and China. And you’re seeing another $200 difference between China and Europe. Now that’s not on an absolute basis. That’s going to be on average basis. But you are seeing some stability, more stability in the U.S. than you’re seeing in China and Europe.
And so I would just say that, again, I’m not saying I’m happy with where the margins are in the U.S. but pricing in the U.S. is holding up better than the other 2 regions. And when you look at our manufacturing costs, the U.S. and China, about $100 apart a ton from each other, China being lower. So yes, I think there’s opportunity. What we need, again, more than anything else is just demand. And I don’t think that we’ll really start to see that picture until the end of February, early part of March and we start to see the direction, that proverbial construction demand and homebuilding and seasonality, Chinese New Year’s will be over by then. And what do we see on a global basis that starts to take place at that time.
Salvator Tiano BofA Securities, Research Division
We haven’t been hearing much about the spray foam business for the past few quarters. So I want to get kind of an update on how are things going there? Is it a business that’s EBITDA positive at this point? And when it comes both to that — to the spray foam business but also insulation demand, have you seen any change from the — I guess, in the summer when we replaced part of the IRA bill, I think there was one of the key credits that was canceled there has affected the spray foam demand?
Peter Huntsman Chairman, President & CEO
Yes. I don’t think that we’ve seen any impact from the credit. We do with our spray foam business. It is a contributor to the business. It is up year-over-year. And we are the U.S. leader and we are — we do have a share gain that has taken place there. And so as we look at the markets, the markets are down but our business in the third quarter was up 7% from a year ago. And that’s a business that you just don’t necessarily go out and buy market share. You’ve got to have the service, you’ve got to have the quality, you’ve got to have the reliability, the consistency. And so I think it’s a series of factors but we’re seeing that business for us continues to gradually improve. And I give the management team there some very high marks.
David Begleiter Deutsche Bank AG, Research Division
Peter, you mentioned that Chinese MDI imports into Europe have been pretty steady. Can you discuss the potential for more robust tariffs and/or duties in Europe? I believe there is an EU investigation into MDI imports into the region. So that would be helpful.
Peter Huntsman Chairman, President & CEO
Yes. I don’t foresee the Europeans taking any real material action on that. If it’s anything like what they’ve done over the last couple of years, it’s not going to happen in my lifetime. But it’d be great to see them do something but I’m not counting on that happening.
David Begleiter Deutsche Bank AG, Research Division
Sorry to hear that but so be it.
Peter Huntsman Chairman, President & CEO
So am I.
David Begleiter Deutsche Bank AG, Research Division
MDI, any change in your view of long-term MDI growth rates as we exit this downturn?
Peter Huntsman Chairman, President & CEO
Sure. As you know, I think that as we look at the biggest drivers around MDI, it continues to be a product that displaces other materials. When you look at the large volume side of it, it’s going to continue to be construction and homebuilding and so forth. That’s going to be the principal driver. But by and large, this is going to be a business that is going to grow equal to the rate of GDP plus usually about another 0.5% or about half of GDP in product replacement. So I’d say it’s a business I would expect over the cycle to grow at about 1.5x the rate of GDP through — via economic growth and also product substitution and replacement.
Arun Viswanathan RBC Capital Markets, Research Division
Great. And then just as a follow-up, is there anything else you need to do on the footprint? I mean, as you noted, we’ve gone through significant weakness here for a little while. So maybe is there any rationalization that you see that’s required at this point? Or is it mainly just kind of waiting for demand to kind of get better?
Peter Huntsman Chairman, President & CEO
Well, I mean, we’re in the process right now of completing the 7 site closures that we’ve recently had and some 600 people that we’ve either let go or moved to lower cost positions such as in what we have operating in Poland or Costa Rica or Malaysia. So I — we’re always going to be looking as to where we can source our materials. And if that can be done cheaper, more reliably, more profitably through another third party or consolidated to another site, we’re going to — we’ll be looking at that continuously. All I’d say is, look, if we ever come into the office in the morning and say our work is done, there’s nothing else we can do with the company here, we’ve — we failed. So we’ll continue to look at those things.
Matthew Blair Tudor, Pickering, Holt & Co. Securities, LLC, Research Division
Sounds good. And then the fourth quarter polyurethanes guidance, does that reflect some benefits from cheaper benzene feedstock costs in the quarter? Or is there a lag that we should be thinking about?
Philip Lister Executive VP & CFO
There’s a little bit of benefit, Matthew. I think the average for Q3 on benzene in the U.S. was $276 in the third quarter. It’s trading today at about $250. So it’s a little bit of benefit. In general, there’s a lag as we move it through cost of production on into cost of sales but you’ve got a little bit of a benefit there.
Operator
The next question is coming from Laurence Alexander of Jefferies.
Laurence Alexander Jefferies LLC, Research Division
A couple of structural questions. How are you thinking about the potential impact for North America polyurethane demand from reshoring of appliance production? Have you seen enough announcements for that to be material? And if so, when? And then secondly, when you think about the new 5-year plan in China or at least the first drafts and the focus on shifting the chemical industry downstream, do you see that as a net positive or negative for Huntsman? And then I guess the third one, if I can just ask a third structural question is, given the outlook of probably several more years of volatility and kind of lack of clarity for the Western chemical industry, do you see a return at least on the corporate side of the fashion for conglomerates that we saw in the ’60s and ’70s, kind of similar turbulent period?
Peter Huntsman Chairman, President & CEO
Yes, excellent question. I think on the first one on the appliances, we’re not seeing anything material and I don’t think we’ll see anything in ’26 of materiality that will be coming in. Traditionally, those have been pretty low volume — excuse me, low-margin applications. We have the expertise. We have the knowledge. We have the relationships. If there’s money to be made there, we’ll be there. But I don’t see that much business coming. As far as China going down to the downstream business, look, I think there might be some opportunity for us in some of these areas. We’re right now working with a lot of the Chinese producers — well, I shouldn’t say a lot, we’re working with some Chinese producers as to how we can source material in China rather than exporting it into China as their quality improves and so forth.
But just because you make the product, as we keep saying it again and again, just because you make the product and you even make it at a competitive price doesn’t mean that the product is qualified. So if somebody jumps into epoxy today, that doesn’t mean that they’re necessarily going to be getting Boeing’s business or Airbus’ business in aerospace next year or even in the next 5 years. So there is an issue around qualification. I would say, too, that as you look at what China describes as downstream, in some cases, that means ethylene going to polyethylene and that’s a downstream derivative.
I wouldn’t read too much of it that it’s a big rush into specialty chemicals. Specialty chemicals requires as much of the qualifying and the demand from the customer as it does from the manufacturer. So just because you make it, again, it doesn’t mean, necessarily mean that there’s a home to it. On the conglomerate front, that’s something that we’ve talked about internally quite a bit just to see as we start to think about companies coming together to be able to look at their cost structure, their supply chains and so forth. It’s a possibility that, that might see a resurgence for that and — but it’s yet to — we’re yet to come to any conclusions on that.
