Q3 2024 Olin Corp Earnings Call
Good morning, and welcome to Olin Corporation's third quarter 2024 earnings Conference call.
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I would now like to turn the conference over to Steve Keenan Olin's Director of Investor Relations. Please go ahead Steve.
Steve Keenan: Thank you operator, good morning, everyone. We appreciate you joining us today to review Olin's third quarter results.
Steve Keenan: Before we begin I'll remind you that this discussion together with the associated slides and the question and answer session that follows.
Steve Keenan: Food statements regarding estimates or expectations of future performance.
Steve Keenan: Please note. These are forward looking statements and that <unk> actual results could differ materially from those projected.
Some of the factors that could cause actual results to differ from our projections are described without limitations in the risk factors section of our most recent Form 10-K.
Steve Keenan: And in yesterday's third quarter earnings press release.
Steve Keenan: A copy of today's transcript and slides will be available on our website in the investors section under past events.
Steve Keenan: Our earnings press release, and other financial data and information are available under press releases.
Speaker Change: With me this morning are Ken Layne, Olin's, President and CEO.
Speaker Change: And Todd Slater Olin's CFO Wil.
Speaker Change: I will start with our prepared remarks, then we look forward to taking your questions I'll now turn the call over to Ken Layne.
Ken Layne: Thanks, Steve and good morning, everyone Olin's third quarter was significantly impacted by operational disruptions as a result of hurricane barrel damage.
Ken Layne: Want to thank our team at the Freeport site for their efforts to restart our assets, which were shut down in early July due to the hurricane.
Ken Layne: Multiple plants are now returning to normal operations.
Ken Layne: The Olin team worked through the difficult times safely and expeditiously, while facing hurricane related challenges at home and in their communities.
Ken Layne: Now turning to our third quarter results on slide three.
Ken Layne: The quarter unfolded slightly better than expected for our chemicals businesses, excluding the impact of hurricane barrel, which came in at $110 million versus our initial estimate of $100 million during the quarter.
Ken Layne: We will have some residual hurricane impact in the fourth quarter due to additional downtime and the completion of some less critical infrastructure repairs.
Ken Layne: Excluding the impacts from hurricane barrel horror alkali products achieved a solid quarter with sequential improvement.
Ken Layne: The aftermath of recent Hurricanes also drove third quarter demand for bleach and hydrochloric acid higher in support of water treatment and cleaning and uses.
During the third quarter caustic prices increased supported by some demand improvement in export markets as well as continued constraints in supply related to global industry planned and unplanned outages.
Ken Layne: If oxy prices and margins continue to slowly improve the volumes remain weak.
Ken Layne: We remain focused on delivering cost reductions during a very challenging market environment.
Ken Layne: Our third quarter your proxy resin volumes were sequentially lower as we started our plan started Germany turnaround.
Ken Layne: Third quarter Winchester commercial ammunition volume fell significantly short of our expectation.
Ken Layne: Due to softness in consumer demand that our customers retail outlets retailers are now slowing their purchases to normalize inventories by year end.
Ken Layne: This headwind is partially offset by continued strength in defense demand.
Ken Layne: Turning to slide four let's take a closer look at our Chlor alkali and vinyls business.
Ken Layne: With hurricane barrel behind us our free four plants are returning to normal operations.
Ken Layne: Caustic soda has a strong side of E. C. U. It was global industry supply is constrained Olin will stay focused on our value first commercial model to meet demand.
Ken Layne: Caustic soda demand continues to be strong with alumina and pulp and paper leading the way.
Ken Layne: South American demand has been the most robust with two recent world scale pulp and paper plant startups.
Ken Layne: Index pricing for U S. Gulf Coast caustic exports finished the third quarter up by over $100 sequentially, a 30% improvement over the second quarter index.
North American merchant chlorine demand remained steady with positive trade press outlooks for vinyls and titanium dioxide heading into 2025.
Ken Layne: We expect agricultural related consumption to pick up seasonally late in the fourth quarter.
Ken Layne: Pouring into water treatment is expected to slow seasonally and pick up again during the first quarter.
R E D. C participation remains a disciplined E. D. C values are up slightly year over year in line with P. B C. But we remain diligent to keep our EDC position value driven.
For a look at our phosphate business, let's turn to slide five.
Ken Layne: During the third quarter, we began our planned startup, Germany outage, which occurs once every six years and is proceeding on plan and budget for completion in the fourth quarter.
Ken Layne: As the largest and only integrated producer of a proxy of the European Union starter remains an important asset for Olin and that value is expected to increase as we realized contractual cost savings in 2026.
Ken Layne: Despite improving margins resin and formulated solution volumes remained challenged in both the U S and Europe.
Ken Layne: The inflow of China's subsidized epoxy continues unabated, even with local production costs rising in Asia on tightening glycerin feedstocks.
In September the U S International Trade Commission announced preliminary countervailing duties for a posse imports, which only impacted China.
We hope the U S icc's upcoming November anti dumping duties will level, the playing field across Korea, and Taiwan and appropriately value domestic production of these critical materials and stem the flow of unfairly subsidized Asian imports.
Ken Layne: In parallel the European Union is also evaluating epoxy anti dumping duties with preliminary determinations are expected in mid 2025.
Ken Layne: I'll now turn to slide six for Winchester review.
Ken Layne: Third quarter commercial ammunition demand was disappointing.
Ken Layne: So propeller shortages and hopeful for a strong second half demand our retailers bought heavily during the first half of 2024.
Ken Layne: Now with consumer demand remaining stubbornly sluggish retailers have pivoted to reducing inventory in advance of year end.
Ken Layne: We expect Destocking to continue through the fourth quarter.
Ken Layne: Rising for pellets in metal costs remain a headwind for our commercial ammunition business.
Ken Layne: Winchester recently announced ammunition price increases ranging from 5% to 10% to offset these rising costs.
Ken Layne: Our new White Flyer clay target business continues to exceed expectation and has been a welcome offset to weaker commercial ammunition sales.
In contrast to the commercial business Winchester's military sales across all value chains domestic international and project based continue to show strength.
Construction is now underway for the Army's Lake City next generation squad weapon ammunition facility.
Ken Layne: This project was fully funded by the U S Army will grow Winchester's Lake City revenue base and expand our global defense participation or.
Ken Layne: Our defense related revenue was expected to grow as a percentage of Winchester sales in the coming years.
Now I'll hand, it over to Todd for a financial highlights before I wrap up.
Todd Slater: Thanks, Ken.
Todd Slater: Tenured macro challenges reinforce the importance of olin's investment grade balance sheet, and our robust cash flow generation.
Todd Slater: This strong financial foundation enables Olin to continue running our disciplined value focused commercial model, while also deploying a substantial portion of our cash flow toward share repurchases.
Todd Slater: Over the last four quarters Olin has returned approximately 60% of our operating cash flow to shareholders.
Todd Slater: Quarterly dividends and share repurchases over that same time frame, we have repurchased 6% of our outstanding shares.
Todd Slater: We ended the third quarter with $225 $9 million of cash and cash equivalents and approximately $1 billion of available liquidity.
Todd Slater: Our net debt has increased by approximately $164 million from your red.
Todd Slater: Decreasing approximately $65 million during the third quarter.
Todd Slater: After taking into consideration the impact of hurricane barrel.
Our quarter end net debt to adjusted EBITDA ratio was two seven times.
Todd Slater: We continue to make progress on our cash flow initiatives that we outlined in our last quarterly earnings call. Let me give you a brief update.
Todd Slater: During the third quarter, we generated approximately $108 million from liquidating a portion of our seasonal working capital build.
Todd Slater: We now expect working capital to be an approximately $20 million source of cash flow in 2024.
Todd Slater: We have taken additional steps to further reduce our annual capital spending targeting approximately $200 million for 'twenty 'twenty four.
Todd Slater: As a reminder, we have successfully deferred our international tax payment of approximately $80 million into 2025.
Todd Slater: While we expect to reduce debt further in the fourth quarter.
Todd Slater: We believe that net debt at year end 2024 will be approximately $100 million higher than year end 2023.
Todd Slater: After giving effect to a hurricane barrel our year end net debt to adjusted EBITDA ratio is expected to be two six times.
Todd Slater: Our teams continue to focus on cash generation, maintaining cost discipline and exploring additional cost savings opportunities.
Todd Slater: We are committed to a strong balance sheet with investment grade credit ratings, while consistently returning cash to shareholders.
Todd Slater: Yeah.
Speaker Change: I'll turn the call back to Ken for a few additional comments before we begin our question and answer session Ken.
Ken Layne: Thanks Todd.
Ken Layne: Let's turn to slide seven and our outlook for the fourth quarter.
Ken Layne: Overall, we expect to see a seasonally weaker fourth quarter.
Ken Layne: So due to the lingering operational issues at Freeport that extended into the first half of October Hurricane barrel will present, an estimated additional impact of $25 million during the quarter, resulting in a full year impact of $135 million to our 2020 for adjusted EBITDA.
Ken Layne: Including the Hurricane barrel impact, we expect our fourth quarter EBITDA to be in the range of 170 million to $200 million.
Ken Layne: Our investment grade balance sheet strong liquidity and leading market positions continue to support our value first commercial strategy through this extended industrial trough.
Our capital allocation strategy remains focused on returning cash to shareholders.
Ken Layne: Now on slide eight just a reminder, we will be hosting an investor day on Thursday December 12th at the New York Stock exchange with.
Ken Layne: Truly hope you'll be able to join us live whether in person or virtually to learn more about olin and participate in our question and answer session.
Ken Layne: Our entire leadership team will be there to provide an in depth review of our businesses strategy and financial goals. Please mark your calendars.
Speaker Change: Operator, we're now ready to take questions.
Speaker Change: Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing any key to.
Speaker Change: To withdraw your question. Please press Star then two.
Speaker Change: Our first question is from Duffy Fischer with Goldman Sachs. Please go ahead.
Duffy Fischer: Yeah, Good morning, guys.
Duffy Fischer: First question is just around the announcement that your competitors Fintech made back in August that theyre going to build a large integrated chloro vinyl.
Duffy Fischer: Project in the U S. So I just wanted to get your sense on what you think that will do to the market and also remind us you've got a relationship with them, where you supply them coring today, roughly what is the scale or scope of that and do you think that will be impacted by this plant that they're going to build.
Duffy Fischer: Yeah.
Duffy Fischer: Yeah.
Duffy Fischer: Yeah.
Yeah.
Duffy Fischer: Yeah.
Speaker Change: And can you guys hear me, Okay pardon me pardon me one moment please.
One moment please.
Speaker Change: Yeah.
Speaker Change: I apologize for that.
Speaker Change: When you did your line your.
Speaker Change: Your line is open now.
Speaker Change: Okay. Thank you. Thank you.
Speaker Change: So duffy sorry about that we had a little technical glitch.
Speaker Change: Thanks for joining us we appreciate you being here.
Speaker Change: So listen we've known about this announcements going back over a year.
Duffy Fischer: As you know the the strongest growth segment for vinyls or for chlorine is vinyls. So it's not surprising that you see companies like <unk> that are already in a leading position for P. B C to be announcing growth plans.
Speaker Change: Obviously, we're going to stay close to them and in terms of what they're doing.
Speaker Change: Yes, we've got a relationship but I don't see that being a negative for our relationship they want to continue to grow their business and you know ultimately.
Speaker Change: I think that's that's part of their strategy so it's to be expected.
Speaker Change: Fair enough and then.
Speaker Change: If you would maybe just give us a little preview of the Investor day. What is it that you think investors will take away from that or what is it that you want to.
Speaker Change: <unk> wise.
Speaker Change: Kind of show to investors.
Speaker Change: Yeah, well listen.
Speaker Change: I do think that it's important we've not done one of these for a few years I think it's five years since we had done it. So it doesn't it would be important for people to understand how we're thinking about our portfolio. We've we've been doing a lot of work around that and we feel like we've got a very good portfolio of leading positions and in all of the businesses that we have.
Speaker Change: So just resetting some of the things around our financial targets longer term, where we see the growth potential of the company.
Speaker Change: That's gonna be a really important part of the discussion the other side of it is we've got a management team that is really experienced.
Speaker Change: Very very strong team that I want you all to get to know better.
Speaker Change: You know that that's something that's going to feature pretty prominently youre going to have an opportunity to hear from each one of the business leaders about how they see things for their businesses going forward and I think that's an important.
Speaker Change: An important step in our evolution with with a relatively new leadership team, but again, a very experienced team.
Speaker Change: Thank you guys.
Steve Keenan: Thanks Duffy.
Speaker Change: The next question is from Hassan Ahmad with <unk>.
Speaker Change: Hello, Paul Please go ahead.
Hassan Ahmad: Good morning, Ken and Todd.
Hassan Ahmad: You don't question around your Q4 guidance.
Hassan Ahmad: I appreciate how you guys broke out the hurricane impact.
Hassan Ahmad: So I mean, just the way I see it is the hurricane impact was $110 million what's in EBITDA.
Hassan Ahmad: In Q3, and Youre guiding to.
Hassan Ahmad: Lingering 25 million.
Sort of EBITDA hit in Q4, yet.
Hassan Ahmad: Tick from Q3 to Q4, and EBITDA is $10 million to $40 million. So I'm just trying to understand that despite you know some of that EBITDA coming back on tobacco sort of you know.
Hassan Ahmad: Ramping up operations and the like I mean.
Speaker Change: Why is the EBITDA not going up more is it exclusively because of all seasonality.
Hassan Ahmad: Hey, good morning Hassan Thanks for the question. So I think that a big part of it yes. Its seasonality when you think about the chemicals business. So.
We're talking about normal seasonality and a trough market. Okay. So we're not we're not saying seasonality as any more than in a normal year, but it's in a market where we're already seeing you know relatively weak demand. So.
Hassan Ahmad: There's not anything abnormal to what where to what we're indicating for Q4 for the chemicals business I think what people have probably overlooked somewhat is around Winchester.
Hassan Ahmad: Winchester is typically weakest in the fourth quarter and so what we saw in Q3 with our customers reducing their inventory at their retail outlets, that's going to carry into Q4.
Hassan Ahmad: They just did not see the recovery in demand and they were buying ahead of this even going back into Q4 last year. Knowing this is an election year and seeing some of the cost increases they were coming they were buying pretty heavily ahead.
Hassan Ahmad: <unk> that demand a step up in the second half of the year that just hasnt materialized.
Hassan Ahmad: And that hit us pretty hard in Q3, it's not going to hit us quite as hard in Q4, but it's coming down and again there is seasonality in Winchester as well. So I think that's the part of the equation, that's probably not not not been picked up as much.
Okay.
Speaker Change: And I you know I appreciate the fact that you guys. You know I have your December analyst day, coming and I'm sure you would talk a bit about sort of 25 and beyond then but could you just give us just an early preview into how you were thinking about 2025 just qualitatively.
Speaker Change: I mean, obviously rates are coming down historically, you've talked about how you guys as operating rates were in the sixties the industry was.
Speaker Change: Operating probably in the 80, so you know from the sounds of it if at all there was a restocking you guys would be in a pole position to obviously gain market share and the likes so any any sort of beyond the seasonally weak Q4 that you've guided to any sort of quality.
Speaker Change: Dave guidance, you could give us about 2025 and beyond.
Yeah listen we've when I think about 2025.
Speaker Change: The theme of uncertainty that we've seen in the back half of this year is going to continue into 2025 and as you know.
Speaker Change: We've said, we're no longer going to give annual guidance and the reason for that is because of the amount of uncertainty you. Just it just creates a lot of a lot of issues in terms of you know.
Crystal ball, which we don't have.
Speaker Change: I do think that.
Speaker Change: Sitting here a year ago, if you listen to pretty much all industries. They were expecting the back half of this year to look better.
Speaker Change: Right now I would say that next year with the uncertainty that we have probably is going to look pretty similar to this year from a market standpoint until we really see.
Speaker Change: More aggressive cuts in interest rates, you probably noticed here recently interest rates have actually ticked back up.
Speaker Change: That's just adding to the uncertainty in the environment.
You know I'm not I'm not sure exactly where things are going to end up once we see housing come back then we're going to start to see the demand come back and until we see demand come back in housing and some of it some of the other markets that are can be driven by those lower rates and industrial activity following.
Speaker Change: I don't think that youre going to see that that sort of spring unloading.
Speaker Change: Where we would see the benefit so we're anxiously awaiting to see when that's going to happen I still believe firmly that we will benefit from that and we're going to continue to be disciplined and focusing on volume at the value that we like in the marketplace that that's not going to change I think that's more important now than ever.
Speaker Change: And so that's how we're going to play it going into next year.
Speaker Change: Very helpful. Thank you so much.
Speaker Change: Sure. Thanks.
Speaker Change: Thanks Hassan.
Speaker Change: The next question is from Arun Viswanathan with RBC capital markets. Please go ahead.
Arun Viswanathan: Great. Thanks for taking my question.
Arun Viswanathan: I guess I'll just ask on some of your main end markets, what youre seeing as far as supply demand specifically.
Speaker Change: Specifically for caustic soda.
Speaker Change: Was some disruptions.
Speaker Change: Late in our earlier, maybe and appear site and.
Speaker Change: There was maybe some tightening it looks like Theres been some stable demand have you seen any signs of potential pricing opportunities in caustic and then similarly, maybe you could provide some comments on EDC and the.
Speaker Change: Proxy if anything.
Speaker Change: Yeah. Thank you Arun.
Speaker Change: Yeah listen for caustic, we continue to see strength there.
Speaker Change: There have been there have been a number of outages in the third quarter that carried into the fourth quarter.
Speaker Change: That obviously is going to impact supply globally.
Just the outage that we had at Freeport.
Speaker Change: But with that in terms of end use demand the strong areas that we see yeah really are in the export market export pricing has firmed up and increased significantly during the third quarter and that continued into the fourth quarter.
Speaker Change: Hey, paper and pulp and paper is continuing to be strong theres been some new capacity coming on in South America.
Speaker Change: We've also seen some strength in southeast Asia.
Speaker Change: Alumina continues to be our strength there is tightness in the aluminum market.
Speaker Change: So that's you know that's adding support for caustic pricing so.
Speaker Change: In general we feel good about about where the caustic market is <unk>.
And if you look it has been steadily improving through the year and as we see industrial activity.
Speaker Change: Prove next year, which we again going back to the answer we gave a minute ago with all the uncertainty that's out there as you see industrial activity improve that demand for caustic is going to continue.
Speaker Change: To tightened our or two to a you know.
Speaker Change: Gives strength to pricing in the market. So we still feel good about the caustic market going forward.
Speaker Change: Okay, and then if I could just ask a couple of follow ups on that so I.
Speaker Change: I guess when you think about epoxy it sounds like you're expecting a date.
Speaker Change: In November where I give maybe an update on the anti dumping.
Speaker Change: Situation I guess, what are your expectations for that.
And does that maybe drive.
Speaker Change: Some optimism about.
Speaker Change: That business for 25, and I guess, when you think about that.
Speaker Change: If you were to add back some of your Oh, you know impacts of 135.
Is that the only driver that you'd really see adding back for 25 or would there be some other you know.
Speaker Change: Potential.
Speaker Change: Uplifts to 25 EBITDA. Thanks.
Speaker Change: Yeah. Thanks, Arun well, obviously one of the uplift is going to we're not planning on having another hurricane barrel, which is a you know certainly a good thing.
Speaker Change: Yeah, we are expecting the U S government.
Speaker Change: The ITC to make an announcement here in early November.
Speaker Change: It's it's the government I I don't want to get too too optimistic or too pessimistic.
Speaker Change: We've done all we can to make the case that this is unfair trade that's going on.
Speaker Change: Hopefully.
Speaker Change: Hopefully you had a chance to take a look at the op Ed that I had written a week or so ago, but we're doing all that we can to support the case.
Speaker Change: We will see where the ITC ends up.
Speaker Change: We have been more.
Speaker Change: Marginally successful throughout the year of steadily.
Speaker Change: Increasing pricing.
Speaker Change: However, I will tell you that it's it's still in the face of a very strong.
Speaker Change: Volume, that's continuing to come in from Asia.
Speaker Change: And that's that's still very concerning but hopefully we're going to get some favorable outcome here in early November but it's.
Speaker Change: Right now I can't give you a I can't give you a guess, whether it's going to be positive or not.
Okay. Thanks, I'll turn it over.
Thanks Arun.
Speaker Change: The next question is from Jeff Zekauskas with Jpmorgan.
Speaker Change: Morgan. Please go ahead.
Jeff Zekauskas: Alright, thanks very much.
Jeff Zekauskas: In 2024 did you come close to making any acquisitions of size.
Speaker Change: Hi, Jeff Good morning Les.
Speaker Change: Listen we.
Speaker Change: We're not going to comment on anything that may or may not have taken place.
Speaker Change: As you know I've been here about six months and we've been spending a lot of time thinking about the future of the company and the strategy going forward.
Speaker Change: We've been pretty open that where we see opportunities for small bolt on acquisitions that are highly accretive like what we had done with white flyer, we see opportunities like that we may take them, but our focus has really been on thinking about the future of the company and getting us positioned coming out of this trough to show.
Speaker Change: The performance of the company that we think we've got the potential for but.
Speaker Change: That's all I can say about that for now.
Speaker Change: Great.
Speaker Change: And in the Chlor alkali business in the third quarter.
Speaker Change: Overall did prices go up or down sequentially and by how much and likewise in Winchester, how much the prices come down sequentially.
Jeff. So if you if you look at the PCI that we've got at the in the appendix of the deck Youll see that that you know that trended down slightly I'll tell you that that was really noise around mix in the portfolio related to hurricane barrel.
Speaker Change: So we've continued to see strength in caustic pricing and stability in chlorine pricing.
Speaker Change: You know it's.
Speaker Change: It's been a fairly.
Speaker Change: I'd say the market has developed in line with what we expected in the third quarter and what we had indicated is our outlook for for the third quarter we.
We think that pattern is going to continue into the fourth quarter.
Speaker Change: Which is going to be stable chlorine pricing and firming caustic pricing.
Speaker Change: And at Winchester, how much did things Paul.
Speaker Change: Winchester was was volume related it was it was not related to pricing.
Speaker Change: We've actually got a price increase that we've put out there for the beginning of the year, reflecting the continued.
Speaker Change: Higher cost base that we're seeing related to metals in propellants.
Speaker Change: So we're looking to recover some of that with the price increase that we put out there for <unk>.
Speaker Change: For January one.
Great. Thank you so much.
Thank you Jeff.
Yes.
Speaker Change: The next question is from Aleksey <unk> with Keybanc.
Speaker Change: Please go ahead.
Speaker Change: Good morning, everyone. Thank you.
Speaker Change: Wanted to come back to <unk>.
Speaker Change: Is that a realistic scenario, where you need to replace them as a customer after 20 or 30.
Speaker Change: I guess or is it a pretty low probability scenario and and those are the outcome of this depends on whether it's <unk> built this new project or not.
Speaker Change: Good morning, Alexia, So listen it's very that's five years from now six years from now we've got a we've got a lot of water to go under the bridge between now and then we've said it before we've got a very strong position in vinyls at our Freeport site.
Speaker Change: And we're going to continue to you know to look at options for the future of that based on what what may develop where we're not going to sit on our hands and I think through scenarios, but as of now there is nothing that I could say that that would give me any.
Speaker Change: Or give you any indication in terms of what may happen in 2030, it's just too early.
Speaker Change: Okay understood and then in <unk>, you were $200 per ton price increase can you tell us how successful it was so far.
Speaker Change: When do you expect from it in Q4 and Q1.
Speaker Change: Yeah. So we we are a we announced that for October one and we are optimistic we are seeing some traction on that price increase in Q4, I mentioned it a minute ago, we're still seeing the the volume coming in from from Asia. So I think some.
Speaker Change: People are starting to.
You know maybe react a little bit to concerns around what may happen with <unk>.
Speaker Change: With tariffs, but we have seen some success in implementing that that price increase.
Speaker Change: It's really too early to say for the quarter, but I do think we're going to see some price gains in epoxy resins in Q4, but it does not make up anywhere close to where we need to be to get back to a reasonable level of margin there.
Speaker Change: Yeah.
Speaker Change: Thanks, Ken.
Speaker Change: Thanks Alexia.
Speaker Change: The next question is from Josh Spector with UBS. Please go ahead.
Yeah, Hi, good morning, I wanted to ask on the fourth quarter guide relative to what you delivered in first quarter and Chlor alkali vinyls. If you exclude the hurricane impacts it's kind of similar fourth quarter and first quarter are sometimes up sometimes down but I think if we look at the moving parts caustic.
Speaker Change: Rice's have moved higher.
Speaker Change: <unk> was to bring operating rates up maybe that hasn't happened to the hurricane or other pieces, but are there other factors that we should be considering why fourth quarter earnings would be lower kind of in the context right.
Speaker Change: Frame out there.
Speaker Change: Hi, Josh Thanks for the question Yeah, I go back to what to what I had mentioned earlier you know, we've got a $25 million impact that's lingering from.
From Hurricane barrel in chemicals, we've also got <unk>.
Speaker Change: <unk> profitability that we're expecting from Winchester.
Speaker Change: Again, it's it's that seasonality and.
Speaker Change: That's really been accentuated by the Destocking that we see at the retailers. So it's a combination of those two things, but in general I would say that cost.
Speaker Change: Caustic pricing is better.
Then than what we had in Q1.
Speaker Change: And if you take out the impact of Hurricane barrel volume wise is probably looking pretty similar to Q1 of.
Speaker Change: 2024.
Speaker Change: Thanks, Yeah, I guess I apologize I was asking specifically about chlor alkali vinyls and excluding the hurricane So I guess youre volume comment answers piece of that caustic prices are higher so I guess to some extent, we would expect earnings to be higher it seems like theres something else offsetting that I'll ask related to that my follow up around.
Speaker Change: Chlorine pricing you talked about it flat and more mixed effects, but in your slide in the appendix you show it as a negative sequentially. So is that really small and its just noise or is there any other maybe change in strategy or approach can maybe chlorine prices and related to that volumes that you'd highlight.
Speaker Change: Yeah.
Speaker Change: No Josh that really is related just to mix with the with the hurricane impacts.
Speaker Change: We had a lot of capacity down and that did impact our our participation in the market, obviously and unfortunately, it just has a mix effect related to related to that.
Speaker Change: No change in strategy.
Speaker Change: Okay. Thank you.
Speaker Change: Thanks, Josh.
Speaker Change: The next question is from Patrick Cunningham with Citi. Please go ahead.
Patrick Cunningham: Hi, good morning, Curt and Todd.
Patrick Cunningham: So winchester's third quarter EBITDA is down about $20 million versus the first quarter. The Winchester was supposed to benefit from the project to build capacity on behalf of the U S government, but does this mean that core EBITDAR in Winchester is down more than $20 million.
Patrick Cunningham: Yeah.
Speaker Change: Thanks, Patrick No I would not say that I mean, it's what we've seen is we're ramping up on the project side of the next generation squad weapon facility. So that's really just now getting ramped up in Q4.
Speaker Change: So you do see some dilution effects in terms of the EBITDA margin.
But really it was the decline was related to the commercial ammunition side of things and.
Speaker Change: And as I said earlier, it's really more volume related.
Speaker Change: As as the retailers are going to be destocking year, probably.
Speaker Change: Into the first quarter I would say.
Understood and then somewhat related how should we be thinking about in 2025 implications for some of these headwinds you're seeing in Winchester.
Speaker Change: Well I had mentioned it before we have announced a price increase because we still see a headwind related to higher costs for metals in propellants.
Speaker Change: But we do need to see demand coming back to get back to where we were in terms of the earnings floor for Winchester, Let's say in the first half of the year.
Speaker Change: But it will take it will take some time for the retailers to get the inventory back down and believe me we.
Speaker Change: We see them moving to get their inventory levels back down by the end of the year.
Speaker Change: Why you saw such a big impact in Q3.
Great. Thank you Kevin.
Patrick Cunningham: Thanks, Patrick.
Speaker Change: The next question is from Kevin Mccarthy with vertical research. Please go ahead.
Kevin Mccarthy: Yes, Thank you and good morning, Ken.
Kevin Mccarthy: Ken I would appreciate your update updated thoughts on chlorine and maybe over the medium term if I look at the bottom right of your slide 10, it's been the weaker side of the EC you for about a year now and that's expected to continue in the fourth quarter.
Kevin Mccarthy: What needs to happen for the chlorine market to be tightened and at a high level I think a lot of managers.
Kevin Mccarthy: Would argue that we've been in an industrial recession, I normally think of caustic demand as being more industrial in nature and yet cost because it's been the stronger side in action overseas. As you pointed out has been encouraging and caustic I think so.
Kevin Mccarthy: So it seems to me, we need chlorine to re tighten and turnaround as it.
Speaker Change: Is it the case that that's happening, but it's being masked by seasonality do we need vinyls to be more vibrant going into next spring how would you characterize the potential for inflection in chlorine over the next few quarters.
Kevin Mccarthy: Thanks, Kevin.
Speaker Change: Listen if you if you look at the core market, even going back to pre COVID-19.
Speaker Change: The volume has not the demand in the market has not recovered to where it was prior to COVID-19 and a lot of that is related to housing and and durable goods demand still has not gotten back to where it was whether it's automotive or appliances.
Speaker Change: <unk>.
Speaker Change: Once we see that recovering I think youre going to see chlorine demand improve because as vinyls, let's say PVC really starts to come back in housing starts to come back that's going to pull chlorine into into PVC and as housing recovers then youre going to see other markets start to Recut.
Speaker Change: Her as well like titanium dioxide in and some of those end uses so.
Speaker Change: All of that will then start to potentially switch to where chlorine becomes stronger, but we're really going to need to see that that uptick in demand.
Speaker Change: Particularly around vinyls being the largest consumer of chlorine.
Speaker Change: Before we really get that trigger.
Speaker Change: Okay, and then I had a few hurricane housekeeping questions. So of your $110 million hit in the third quarter, how did that split between Chlor alkali any park C C.
Speaker Change: Segments N.
Speaker Change: Maybe you could comment similar relief for the anticipated $25 million in the fourth quarter.
Speaker Change: Yes, Kevin sure no problem.
Speaker Change: In the third quarter.
Speaker Change: Awfully 77 million.
Speaker Change: Was in Chlor alkali.
Speaker Change: And the remainder.
Speaker Change: Was in Epocrates.
Speaker Change: Yes.
Speaker Change: I would say roughly 33, there and then as you think about the 25 for the fourth quarter, you should think about that in Chlor alkali.
Speaker Change: Okay. Thank you very much.
Kevin Mccarthy: Thanks, Kevin.
The next question is from Steve Byrne with Bank of America. Please go ahead.
Steve Byrne: Yes. Thank you just wanted to drill into Winchester, a little bit.
Speaker Change: EBITDA margin was 14% in the quarter.
Steve Byrne: How why is the spread on that between commercial versus military do you have the ability to push price in military ammunition.
Speaker Change: High level are you the best owner of this business.
Speaker Change: Good morning, Steve.
Speaker Change: I had mentioned before as we ramp up the project work.
Speaker Change: At Lake City, that's going to be dilutive.
Speaker Change: Around the military business that we have.
Speaker Change: Or Winchester overall in terms of pricing.
Speaker Change: <unk> is <unk>.
Speaker Change: Definitely more.
Speaker Change: Flexible in terms of our international military business that business has done more on a spot type of a basis and a contract basis.
Speaker Change: For the contract that we've got four for Lake City, that's on a more longer term.
Contract basis, Thats got some things that are that are pass through and some that arent. So it gets to be relatively complicated, but we've said it before obviously the commercial business that we have is the highest value business that we are.
Speaker Change: That we've got in the portfolio, we like to we like to have more of that.
Speaker Change: The future, though in terms of growth and opportunity is going to continue to be around the defense space and how we position ourselves there I think that there are some good linkages.
Speaker Change: With Olin and.
Speaker Change: In terms of Winchester, we're going to talk more about that at the Investor day, but ultimately Winchester is the best brand in the industry and is a very valuable business for Olin Corporation.
Speaker Change: Alright, Ken and then maybe just one more portfolio related question and that is.
And a year from now when the contract.
Speaker Change: With Dol.
Speaker Change: And have you given more thought and have a conceptual.
Speaker Change: Interest in what to do with that.
Speaker Change: Coring capacity and low cost ethylene do you you have some thoughts on that.
Speaker Change: Steve Yeah as you can imagine.
Speaker Change: And we're working through the.
Speaker Change: The strategy that we're thinking about for the company longer term and the Investor day, that's coming up.
You can imagine that that is going to be a topic that we will talk about is is our portfolio not just in terms of businesses, but also assets going forward. So there will be able to share more with that more with you on that at the Investor day in December.
Speaker Change: Very good thank you.
Speaker Change: Thanks, Steve.
Speaker Change: The next question is from Mike <unk> with Barclays. Please go ahead.
Speaker Change: Great. Thank you good morning, guys.
Speaker Change: I wanted to go back to the hurricane barrel impact and I apologies, if I missed it but what exactly was incremental in terms of.
Speaker Change: What actually played out relative to what you're expecting in your operations a few months ago that that's driving the incrementals, so $35 million cost.
Speaker Change: Yes, so so basically what happened is in the third quarter, we had a little bit more impact than we had expected some of that was related to additional repairs that we had to make.
Speaker Change: And then the carryover into the fourth quarter is related to some operational issues that we had.
Speaker Change: When you shut these plants down in an emergency fashion.
Speaker Change: Sometimes things happen in the plant that you can't necessarily see when you restart and Thats what happened in some of the assets when we restarted we thought we had everything.
In good shape as it turned out we still had some issues that we had to come back down for and it makes some additional repairs we completed that.
Just over a week ago. So we got about 10 days or so of run time. So we're feeling good about where we're at right now I will tell you because this may get asked later.
Speaker Change: We had to build some temporary infrastructure that we're still operating there.
Speaker Change: And we're gonna be operating that temporary infrastructure until probably the middle of next year, which we don't particularly particularly like but we had to do it to get the plant back up until we could build the permanent fixes.
Speaker Change: That's that's something we're going to continue to deal with but we think in terms of cost operating cost and meaningful impact to the P&L, we've got that all behind us.
Speaker Change: Got it that's helpful and then second.
Speaker Change: Dow initiated a strategic review yesterday up some other European assets and I believe that includes their startup complex I guess, one are there any dow assets, there that would be of interest to OLED.
Who decides another outcome there how if at all does that impact your startup of operations.
Speaker Change: You know, Mike I really don't know enough I saw the announcement just like you did but I don't know enough about what they're doing to make any comment there.
Speaker Change: Starter is a site that has been really challenged for us in our portfolio and.
Speaker Change: And we've been able to work through that without to get to an agreement that that at least helps to improve the viability of that site for for Olin.
Speaker Change: That really doesn't kick in until 2026.
Speaker Change: As you can imagine we're constantly talking to Dow because we've got such.
Our strong relationship with them in terms of of inter dependency and we'll continue to have discussions with them, but I don't have anything that I can comment on I, just don't know enough about what theyre doing.
Speaker Change: Fair enough. Thank you.
Speaker Change: Mike.
Speaker Change: The next question is from <unk> <unk> with BMO capital markets. Please go ahead.
Speaker Change: Yes.
Speaker Change: Hi, good morning, Ken.
Speaker Change: Maybe first on the <unk>.
On the <unk> side of things you mentioned, the Destocking impact to end calendar.
Speaker Change: First quarter <unk>.
Speaker Change: So expecting some easing of the higher propylene costs, given some of the weaker demand from the commercial side of the industry right now and I guess.
Speaker Change: The broader question is do you expect margins to go back to the 19, 20%.
Speaker Change: After the first quarter.
Speaker Change: Thanks, Bob.
Speaker Change: And it hasn't been very challenging in terms of propellants.
Speaker Change: In terms of the cost one of the nice things is from an availability standpoint.
Speaker Change: As as large of a buyer as we are we've been able to do a good job of securing volume, but again, it's a headwind in terms of cost.
Speaker Change: But the the increased demand and people trying to catch up with additional production capability around propellants and the materials that go into the propellants.
We're still seeing that.
Speaker Change: Well into the future. If you just look at at the <unk>.
Speaker Change: The requirements on propellant that are going to be needed.
Speaker Change: Just to restock things.
Speaker Change: Even if piece were to break out immediately.
The restocking is going to go on for quite some time and that's that's going to continue to keep pressure on propellants until you see new capacity coming online.
Speaker Change: Which is going to be you know a year.
Speaker Change: Year or two out in the future.
Speaker Change: Got it and then maybe circling back to the drilling of alkali.
Speaker Change: If we add back the barrel impact you highlighted during the quarter that would suggest EBITDA would have been up sequentially around 10%.
Speaker Change: That seems to contrast with your <unk>.
Speaker Change: <unk> index on slide 10, which we've actually moved down during the quarter.
Speaker Change: So it was it was it stronger volumes that you saw maybe stronger exports or some other dynamic that you can ship and maybe how those are trending in the current quarter.
Speaker Change #100: Yes, sure, but yes.
Speaker Change: Yes.
Speaker Change: We've seen again, what you see in that PCI is more mix related.
Speaker Change: And it's an average that includes the entire portfolio.
Speaker Change: What we saw primarily.
Speaker Change: Played out about like what we thought in Q3, which was.
Stable coring prices strengthening caustic prices and.
Speaker Change: In terms of margins some continued improvement, although gradual and not enough in terms of the epoxy pricing.
Speaker Change: Possibly volumes were down if you think about taking out the barrel impact and when we look at the market and what's happening there, but we saw continued strength in caustic and stable chlorine. So that all added up net net if you take out barrel.
Speaker Change: Two a slight.
Speaker Change: Improvement versus what we had expected.
Speaker Change #101: Thank you.
Speaker Change #102: Thanks Vivek.
Speaker Change #103: The next question is from John Roberts with UBS.
Speaker Change #103: Please go ahead.
John Roberts: Thank you.
John Roberts: Are the Vista outdoors activities, having any impact on the competitor or customer dynamics at Winchester.
Speaker Change #106: Good morning, John.
Speaker Change #107: It's very hard it's very hard to say.
Speaker Change #108: We're not seeing any different behavior than normal.
They're a they're a competitor in the marketplace.
Speaker Change #108: And that's all that I can tell you I don't know if its impacting how their behavior or not.
John Roberts: What we see them doing is.
Speaker Change #108: No.
Speaker Change #108: Participating in the market that is difficult with retailers.
Speaker Change #108: Destocking and.
Speaker Change #108: That's all I can say I don't know if theyre changing their behavior based on what's happening around that sale process or not.
Speaker Change #109: Okay, and then why do you think the higher glycerin cost in China, arent, having any impact on pricing.
John Roberts: I'm sorry, John can you repeat that.
Speaker Change #109: We have.
Higher glycerin costs with the Chinese.
Speaker Change #109: <unk> borders.
Speaker Change #109: Doesn't seem to be having any impact on pricing.
Speaker Change #110: Well I think thats exactly supporting our case for the tariffs.
They continue to.
They continue to produce below cost and push that volume into the market.
Speaker Change #110: Which is then allowing other oxy resin producers.
Speaker Change #110: Two X four below cost.
Speaker Change #110: And that's exactly the case that we're making to the.
The U S ITC and to the EU.
Why don't you think the pricing is even lower than that.
With glycerin costs don't don't matter.
Speaker Change #111: I think it's related to the amount of supply that they brought on so they want to operate their assets.
Speaker Change #111: They've added a lot of capacity.
Speaker Change #111: And they want to run those assets and they're willing to do it at a loss. That's all I can tell you.
Speaker Change #112: Thank you.
Speaker Change #113: Yes, Thanks John.
Speaker Change #114: The next question is from global blood glucose.
Deutsche Bank. Please go ahead.
Ken Layne: Thank you Ken.
Speaker Change #115: Staying on Epocrates, how do imports in 'twenty four into the U S compare versus 'twenty three.
Speaker Change #116: Good morning, Dave.
Speaker Change #117: We're still seeing.
Significantly higher.
Speaker Change #118: Import volumes and that's that has really been unabated. So we're not seeing any stem that tide. It's.
Speaker Change #118: It's continued to grow and as I just mentioned to John.
Speaker Change #118: As they add capacity, they're going to continue to push that volume into the market, we're not seeing that slowdown at all.
Speaker Change #119: Got it.
Speaker Change #120: But do you have a number for the increase year over year.
Speaker Change #120: I don't Dave, but I know that it has increased but I don't have a percentage on it.
Speaker Change #122: And just some chlor alkali once everything is back up and running where do you expect or you want your operates to be and how would that compare to where they were at the beginning of the year.
Speaker Change #123: Well, Dave we're not changing our strategy, we're going to continue to focus on placing the volume in the market at the value that we like we did have a lot of downtime in Q3, we've pulled inventories quite significantly we're not going to go crazy.
Speaker Change #122: Are you trying to.
Speaker Change #124: Run the assets harder to make up for lost time.
Speaker Change #124: Just does it makes sense, we're going to continue to be disciplined and stay focused on operating in a way that that creates the highest value for olin.
Speaker Change #125: Thank you.
Speaker Change #125: Thanks, Dave.
The next question is from Mike Sison with Wells Fargo. Please go ahead.
Speaker Change #126: Hey, guys.
Speaker Change #126: So.
Certainly Williams has mentioned that they felt the first half of 'twenty high would mirror the second half of 'twenty four and I guess, maybe they are decent gains for housing so far.
Speaker Change #126: So that's the case for you.
Speaker Change #127: Give me the longest trough out of our bodies.
Speaker Change #127: Do you think EBITDA sort of improves or does it improve sequentially, obviously, the add back barrel, but what.
Speaker Change #128: Other things can you do in the first half of 'twenty five to show improvement, yes. The environment is unfortunately, not as not much better.
Speaker Change #129: Thanks for the question Mike.
Speaker Change #130: Listen we've got to stay focused on cost discipline as well.
The teams have done a very good job.
Speaker Change #130: Adjusting to the environment that we're in and doing what we can to help ourselves.
Speaker Change #130: So where we can take costs out where we can reduce capital spending which we've shown we've taken another step there in the fourth quarter. We will continue to do those things to maximize the cash flow.
Speaker Change #130: <unk>.
Speaker Change #130: You know that.
Speaker Change #130: That combined with our commercial strategy around staying focused on value and not pushing volume.
Speaker Change #130: That's the equation for success in the trough and that's that's where we've got to continue to stay very disciplined with that.
Speaker Change #131: Got it and then one quick follow up.
Speaker Change #131: Yeah, a lot of companies using our analyst days to make some sort of pivot or change their strategy you've been there.
Speaker Change #131: Quite some time now.
Speaker Change #131: Any thoughts there.
Speaker Change #133: Major changes or pivot do you think you might have in our strategy or are we going to hear a little bit more just like tweaks here or there are highlights.
Speaker Change #131: You want to do.
Speaker Change #134: Well, Mike I hope I'm going to see you there because then you'll find out.
Speaker Change #134: It depends on the giveaway.
Speaker Change #134: Yeah.
It should be a good one it should be a good one now listen I like I said, we've spent a lot of time really.
Speaker Change #134: Reviewing the portfolio and where we're at and where we see growth opportunities. So you will hear more about that.
Speaker Change #134: I don't want to start qualifying things and get ahead of of what we're going to talk about there.
Speaker Change #134: But I'll just tell you that I'm very optimistic about the future of the company and where we're headed.
Speaker Change #135: Thank you.
Speaker Change #135: Thank you.
Speaker Change #136: The next question is from Frank Mitsch Fermium.
Speaker Change #136: Berrien Research. Please go ahead.
Frank Mitsch: Thank you and good morning.
Frank Mitsch: Want to come back to the to the PCI on slide 10.
Can you you said that the decline was largely due to mix and so forth I was wondering if you could add a few more details on it what specifically led to that decline and you know we're at levels now.
Frank Mitsch: Back to 2021.
Frank Mitsch: If it is mix and so forth what would that be.
Frank Mitsch: Normally be what are your expectations for <unk>.
Speaker Change #139: Hi, Frank Thanks for the question listen I Wonder if you if you.
Frank Mitsch: If you have.
We had split out barrel, which that PCI includes the impact of barrel, we didn't do any standardization of that.
I would have expected it to be relatively flat to where we were in Q2.
But again, that's a portfolio of all customers all products. So there are a lot of moving parts. The biggest impact though was the was the downtime around hurricane barrel.
Speaker Change #140: Okay terrific. So flattish is is where it would have been in and that's probably not too far off from where do you think <unk> might be.
Speaker Change #141: Yes, that's correct.
Speaker Change #142: Alright terrific.
Speaker Change #143: Given given where the share prices today, just curious as to how we should think about the pace of buybacks.
And in <unk>.
Speaker Change #144: Yes, so Frank I think what youre going to see is probably a similar level, we adjusted mid year as we saw.
Speaker Change #143: You know the earnings outlook decline.
Speaker Change #143: Declining obviously, we were not anticipating hurricane barrel, but we did adjust to a lower level.
Speaker Change #143: As as we saw that happening and so I would expect Q4 to look probably similar to Q3, but.
Speaker Change #143: We will continue to be to be watching that carefully as we go into next year.
And seeing where the earnings are going into Q1, but that's how I would think think about Q4.
Speaker Change #145: Alright, thanks, so much very helpful. Yes.
Frank Mitsch: Yes, Thank you Frank.
Speaker Change #145: Okay.
Speaker Change #146: This concludes our question and answer session I would like to hand, the conference back over to Ken Lang for any closing remarks.
Ken Layne: Thank you Caylin, so listen I want to say, thank you everybody for joining us.
Ken Lang: Just a reminder, we do have the Investor day coming up in December I look forward to seeing you all there in person and wish you all a great weekend and stay safe and healthy.
Speaker Change #148: Thank you for attending today's presentation you may now disconnect.
Speaker Change #148: Okay.
Speaker Change #148: [music].
Speaker Change #148: [music].