Huntsman Corporation (HUN), Tronox Ltd (TROX): Three Reasons This Chemical Giant Is Poised to Head Higher

Page 1 of 2

If you think Huntsman Corporation (NYSE:HUN)‘s lackluster second-quarter numbers are a precursor of worse times ahead, you may want to pause and dig deeper before jumping to conclusions that could influence your investing decisions.

Sure, a massive 62% drop in year-over-year net profit on a flattish top line is enough to spook investors, but there’s more to Huntsman Corporation (NYSE:HUN)’s earnings report than meets the eye. The company’s ailing businesses are reviving and its growth plans are solid. What’s more, Huntsman Corporation (NYSE:HUN) is making just the right moves that could prove the diversified company one of the best plays on an upturn. Here’s why you should have Huntsman’s stock on your radar.

Diversity counts among Huntsman Corporation (NYSE:HUN)’s biggest strengths. Image source: Company website

It wasn’t unexpected, really!
Huntsman Corporation (NYSE:HUN)’s second-quarter performance would have looked better had it not been for the sharp 18% drop in revenue, year over year, from its struggling pigments business. But investors, who kept abreast of the situation in the titanium dioxide, or TiO2, pigment market shouldn’t be surprised.

The TiO2 industry suffers from high inventory, which has put tremendous pressure on pigment prices. This scenario has played out for months, even quarters, and the pigment producers aren’t out of the woods yet. Just last month, E I Du Pont De Nemours And Co (NYSE:DD), the world’s largest TiO2 producer, reported a staggering 56% drop in the operating earnings from its performance chemicals business, which largely constitutes TiO2 pigment. The reason, as in Huntsman’s case, was lower selling prices.

So what is Huntsman doing to keep its pigments business afloat in these difficult times? Several things, actually.

Three wise moves
Huntsman was one of the first TiO2 producers to increase pigment prices recently, which should help the company salvage some growth on the top line. Sales volumes are already picking up – Huntsman reported a 9% year-over-year increase in its second-quarter sales volumes from the pigments business while E I Du Pont De Nemours And Co (NYSE:DD) registered a 12% jump in TiO2 volumes in the last quarter.

While increasing prices, Huntsman has also started substituting costly feedstock with cheaper sulfate ore to produce TiO2. With input costs showing no signs of easing, several TiO2 producers have been forced to look for alternatives. Tronox Ltd (NYSE:TROX) went to the extent of buying out the mineral sands (titanium ore deposits) business from titanium ore feedstock producer Exxaro Resources last year. Tronox Ltd (NYSE:TROX)’s mineral sands division reported a 39% rise in year-over-year revenue during the first quarter, and the company is now positioned to source its entire TiO2 feedstock requirement internally.

More importantly, Huntsman has an even bigger plan for its TiO2 business in the long run. The volatility in earnings might even encourage the company to exit the business altogether in the future. According to Bloomberg, Huntsman may join hands with a competitor to merge its TiO2 assets and spin it off as a separate company. A possible suitor could be Tronox Ltd (NYSE:TROX), which is keen on acquisitions to expand its TiO2 business.

In short, Huntsman investors should know that their company isn’t going to sit back and watch its pigments business dwindle. It will likely come up with a concrete plan, and soon.

The big threat, and the bigger opportunity
Meanwhile, investors should focus on how Huntsman is growing its largest business, polyurethanes. It accounted for 43% of the company’s total revenue during the second quarter.

While Q2 revenue from Huntsman’s polyurethanes business was down 1% year over year, investors shouldn’t read much into it, because the lower sales were a result of an unexpected disruption in the supply of raw material at the company’s facility in Rotterdam. Excluding its impact, second-quarter global volumes for methylene diphenyl diisocyanate, or MDI, rose 3% year over year. MDI is Huntsman’s key product, and is primarily used in the insulation industry.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

The 5 Most Expensive Cars To Insure in the World

The 10 Most Common Genetically Modified Foods

10 Self-Made Billionaires Who Came From Nothing

The 10 Most Expensive Cities to Live in North America

The 13 Most Expensive Headphones in the World to Represent

The Top 20 Wealthiest Soccer Teams in 2014

4 BuzzWorthy Cannabis Stocks And Some Smoking Derivative Plays

The 10 Healthiest Fast Food Chains in America to Dine At

The 5 Most Expensive Cat Food Brands You Can Spoil Your Kitty With

The 6 Best eCommerce Platforms for Small Businesses

The 10 Worst Mistakes an Entrepreneur Can Make

The 5 Most OP Characters in League of Legends to Carry Games and Crush Foes With

The 5 Best Foods to Eat Before Running that Will Help You Pound the Pavement

10 Glaring Plot Holes in The Walking Dead that a Zombie-Filled Bus Could Drive Through

The 5 Biggest Celebrity Stoners Who Love Their Reefer

The 10 Most Overrated Movies Of All Time by Out-of-Touch Critics

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

Top 6 Cities For The Ultra Rich to Live in Comfort

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

How to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!