Huntsman Corp. (HUN:US), the biggest maker of textile dyes, will consider selling that business, among other options, unless profitability increases soon.
The textile effects unit needs to raise its return on net assets to at least 10 percent in a couple years, from about 2 percent currently, Chief Executive Officer Peter Huntsman said today. The unit, which earned $16 million in 2013 after two years of losses, needs to accelerate returns now that cost cuts are winding down, he said.
“The first quarter and second quarter are going to be very crucial for that business,” Huntsman said in an interview in San Antonio, Texas. “We need to explore options if that business isn’t contributing value to the company.”
Huntsman on March 6 outlined a plan to boost adjusted earnings before interest, taxes, depreciation and amortization to $2 billion by 2016, from $1.2 billion last year. Most of the gain will come from the titanium dioxide pigment business as prices rise and the company closes on its pending acquisition of a unit from Rockwood Holdings Inc.
The CEO declined to comment on what concessions he has offered to European Union regulators to win approval of the $1.1 billion pigment purchase. Huntsman, which is planning an initial public offering of shares in the company created by merging pigment businesses, probably will retain 80 percent of the equity in the new company.
“I’m a believer in pigments and it’s a business I’d like to see us have for the long haul,” Huntsman said.
The Salt Lake City, Utah-based company is benefiting from a new Wal-Mart Stores Inc. policy that requires suppliers to comply with sustainable chemistry guidelines, he said. The policy has increased demand for clothing made without harmful dyes, benefiting the textile effects business, he said.
“We’ve already been effected by it very positively,” Huntsman said. “There are going to be huge winners in this thing, and we are one of the few that can actually comply with it.”
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