UPDATE 3-Huntsman Q2 lags Wall St view, shares plunge

* Q2 EPS of $1.51 vs. 10 cents a year ago

* Ex-items loss of 27 cents per share

* Street expected loss of 11 cents, ex-items

* Sales down 36 percent

* Stock drops nearly 15 percent (Updates with conference call, stock movement, settlement background)

By Ernest Scheyder

NEW YORK, Aug 6 (Reuters) - U.S. chemicals maker Huntsman Corp (HUN.N) said on Thursday its second-quarter profit skyrocketed on a hefty legal settlement, but its adjusted results fell short of Wall Street forecasts, pushing its shares lower.

The Woodlands, Texas-based company reported net income of $406 million, or $1.51 per share, compared with $24 million, or 10 cents per share, in the year-earlier period.

That profit included a gain of $1.7 billion from a settlement earlier in the year with Deutsche Bank AG and Credit Suisse Group AG.

Excluding that and other one-time items, the company posted a loss of $64 million, or 27 cents per share. Analysts polled by Reuters Estimates had expected, on average, a loss of 11 cents per share for the period.

Perhaps most troubling for Huntsman was the drop in sales at all five of its business units during the period. Total sales fell 36 percent to $1.87 billion.

A 15 percent drop in costs did help results.

Huntsman said its volumes improved slightly from the first quarter of 2009 and that customer demand is slowly returning.

"We believe we have seen the worst of this recession," President and Chief Executive Peter Huntsman said on a conference call with investors.

He maintained that the company will now concentrate on producing chemicals and not trying to sell itself or make acquisitions.

Chemical makers PolyOne Corp (POL.N) and Koppers Holdings Inc (KOP.N) beat Wall Street earnings forecasts, but still suffered from weak demand. [ID:nBNG442037]

SETTLEMENT

Huntsman settled a lawsuit with Deutsche Bank (DBKGn.DE) and Credit Suisse (CSGN.VX) on June 23 for $1.7 billion, which included $620 million in cash, $500 million in senior-debt financing, $12 million in legal costs and $600 million in unsecured note financing.

The deal ended nearly two years of buyout drama that started in July 2007 when Huntsman opened talks to sell itself to Basell Holdings.

Not long thereafter, Hexion Specialty Chemicals made a sweetened offer -- with Credit Suisse and Deutsche Bank offering financing -- and Huntsman walked away from Basell.

But last summer Hexion got cold feet and its owner, the private equity firm Apollo Management, tried to scuttle the deal, citing Huntsman's weakening finances.

A judge forced Apollo to close the deal, but the banks said they would not fund it.

In the end, Apollo paid Huntsman $1 billion to walk away, and Huntsman then sued the banks, claiming it would have never accepted Apollo's initial offer were it not for the financing.

"These time consuming and expensive battles are behind us and we're now focused on our future," Peter Huntsman said.

While the bank settlement pushed Huntsman's cash reserves to $2.3 billion, the company's total debt actually rose between the periods to $4.68 billion.

Huntsman shares fell $1.07, or 14.5 percent, to $6.30 in midday trading. The stock has traded between $2.03 and $14.50 in the past 52 weeks. (Reporting by Ernest Scheyder, editing by Gerald E. McCormick, Leslie Gevirtz)