Release Date: July 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Olin Corp (OLN, Financial) demonstrated strong resilience and effective crisis management during Hurricane Beryl, ensuring the safety of all team members and limiting asset damage.
- The company maintained its investment-grade balance sheet and strong liquidity, ending the quarter with $182.1 million in cash and cash equivalents and approximately $1 billion in available liquidity.
- Winchester's military revenues showed continued strength, with expectations for significant growth in the second half of 2024 and beyond, driven by global defense spending.
- Olin Corp (OLN) successfully deferred $80 million in international tax payments to 2025, improving cash flow projections for the second half of 2024.
- The company remains focused on cost discipline and cash generation, reducing capital expenditures and maintaining a disciplined capital allocation strategy.
Negative Points
- Hurricane Beryl is expected to represent a setback for Olin Corp (OLN)'s chemicals businesses, with an estimated impact of approximately $100 million during the third quarter.
- The industrial economic trough is anticipated to be longer-lived than typical, affecting customer demand and global supply.
- Olin Corp (OLN) has lowered its full-year 2024 adjusted EBITDA outlook due to the hurricane's impact and ongoing economic challenges.
- The epoxy business faces challenges from both the impact of Hurricane Beryl and a plant turnaround in Stade, Germany, with additional pressure from government-subsidized dumping of epoxy.
- Commercial ammunition sales for Winchester were sequentially lower, and rising propellant costs and reduced availability generated a headwind.
Q & A Highlights
Q: Why did you defer your international tax payment? And will your payment be larger or smaller next year than it would have been this year?
A: This is the $80 million that we talked about even back in 2023 related to international tax payments that we had successfully deferred into '24. Based on the pace of conclusion of the international tax work, we are able to defer it into 2025 without additional incremental cost to Olin. And it does relate to prior years. So there is no incremental increase in cost other than that $80 million payment. (Todd Slater, CFO)
Q: In terms of your reassessment of demand for the second half, are there particular industry areas that have slowed relative to your expectations?
A: There was a lot of expectation that we were going to start to see the economy improve in the second half of the year. However, as we got closer, the anticipated volume inquiries did not develop because the economy is still struggling. There were a couple of industries, like TiO2 and polyurethanes, where we expected more improvement, but they have remained stable without showing growth. (Kenneth Lane, CEO)
Q: Could you clarify the Freeport start-up or restart timeline? Are we talking weeks or months?
A: We are looking at weeks. The $100 million impact we mentioned assumes that we begin the start-up process around mid-August. The assets won't be running at full capacity immediately, but we expect to start them up safely around that time. (Kenneth Lane, CEO)
Q: On the buyback, it looked like your average price was about $56 a share. Can you explain why the average price was so far off from the quarter's average?
A: We operate under a 10b-5 plan, and generally, our purchases are at or below the weighted average purchase price over the quarter. The 1% tax associated with share repurchases and rounding may have thrown off the numbers slightly. (Todd Slater, CFO)
Q: In your EBITDA outlook for the full year, did you assume that the Beryl impact goes away completely in the fourth quarter? Does the $100 million include any insurance recovery?
A: The Beryl impact is a Q3 event, and we expect it to be fully accounted for in the third quarter. At this point, we do not expect any insurance recovery based on the damage levels and deductibles. (Kenneth Lane, CEO)
Q: How do you think about the sustainability of current operating rates in chlor-alkali for your system and your pricing strategy?
A: We believe we can sustain our current operations and pricing strategy. Our teams have shown flexibility in adjusting operating rates based on market value. We will continue to optimize and reduce costs while maintaining our focus on value. (Kenneth Lane, CEO)
Q: Does the $100 million impact from Beryl include any benefit from the announced price increases for July?
A: The $100 million impact does not include any benefit from the price increases. We do expect some improvement in pricing in the second half of the year, especially in the caustic market. (Kenneth Lane, CEO)
Q: What are your plans for the Freeport site when Dow shutters their PO operation? Do you anticipate getting further downstream?
A: We are working through our asset strategy and will discuss this in more detail at our Investor Day. We are exploring options to find the highest value for the assets at the Freeport site. (Kenneth Lane, CEO)
Q: How do you see Olin performing relative to the market if there is no strong snapback in demand in '25 and '26?
A: We are focused on having the most competitive assets and being prepared for when demand returns. We believe in considering different scenarios and being agile in our response to market changes. (Kenneth Lane, CEO)
Q: What was the biggest driver of the 15% sequential increase in the PCI in the second quarter?
A: The increase is a reflection of our model, which focuses on managing our portfolio for maximum value. We are agile in adjusting our mix to capture the highest value for our products. (Kenneth Lane, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
