Q4 2024 Olin Corp Earnings Call
Speaker Change: Good morning and welcome to Olin Corporation's 4th Quarter 2024 Earnings Conference Call.
All participants will be in listen-only mode.
Speaker Change: Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.
Speaker Change: Following today's brief opening comments, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your touchtone phone.
To withdraw your question, please press star then 2.
Please note, this event is being recorded.
Steve Keenan: I would now like to turn the conference over to Steve Keenan.
Owens, 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 fourth 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,
We'll include statements regarding estimates or expectations of future performance.
Steve Keenan: Please note that these are forward-looking statements and that Olin's results could differ materially from those projected.
Steve Keenan: 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 and in yesterday's fourth quarter earnings press release.
Steve Keenan: A copy of today's transcript and slides will be available on our website in the investor section under past events.
Steve Keenan: Our earnings press release and other financial data and information are available under Press Releases.
Steve Keenan: With me this morning are Ken Lane, Olin's President and CEO, and Todd Slater, Olin CFO.
Steve Keenan: We'll start with our prepared remarks, then we look forward to taking your questions.
Speaker Change: I'll note, though, that in order to give each analyst an opportunity, we will limit participants to one question with no follow-ups.
Speaker Change: I'll now turn the call over to Ken Lane and kick us off.
Thanks, Steve, and thank you all for joining us today.
Ken Lane: Starting with slide three, I hope everyone was able to participate in our December Investor Day, whether in person or virtually.
Ken Lane: We laid out our value creation strategy that optimizes our core businesses by maintaining our focus on a value first commercial approach and streamlining our assets to achieve greater than 250 million dollars in cost reductions by 2028.
Ken Lane: We expect to achieve 20 to 30 million dollars of these savings in 2025.
Ken Lane: We also explained how we will grow our core by focusing on adjacent high return options all while being disciplined with our capital allocation framework.
Ken Lane: Olin has a great legacy, a leading set of businesses and assets, and a bright future.
Ken Lane: During our investor day, we guided the fourth quarter adjusted EBITDA at the low end of our range.
Ken Lane: However, as we closed the quarter, the downward pressure on our share price created an unexpected benefit to adjusted EBITDA, and hurricane barrel costs came in lower than we expected.
Ken Lane: In Epoxy, seasonally lower demand was a headwind during the fourth quarter, however this was partially offset by continued price improvement.
Ken Lane: In Winchester, domestic and international military demand remains strong. However, near-term commercial headwinds persist as commercial retailers continue to trim inventories and consumer disposable income remains challenged.
Ken Lane: Now let's take a closer look at our chloralkali products and vinyls results on slide four.
Ken Lane: BAPV sales were up 9% sequentially on higher volume in the absence of hurricane barrel and improved pricing.
Ken Lane: Our CAPB results also benefited as final hurricane barrel spending came in approximately eight million dollars below expectation during the quarter.
Ken Lane: Although we are in the midst of a prolonged industry trough, Olin continues to realize higher value than experienced previously.
Ken Lane: We continue to be disciplined with our operating rates as we navigate this challenging environment.
Ken Lane: Global caustic soda remains tight as European variable costs rise, Asian demand shows improvement, and we are coming up on the turnaround season.
Ken Lane: Combined with seasonally lower merchant chlorine demand, we expect tightness to continue through the first quarter.
Ken Lane: At Investor Day, we announce our intention to enter the USPBC market via a tolling partnership.
Ken Lane: This has key strategic benefits including upgrading a portion of our significant EDC capacity and unlocking incremental caustic soda volume.
Ken Lane: Longer term, this will facilitate our strategic assessment of the PBC market and how we would employ our industry-leading cost position to create higher value.
Ken Lane: We have received initial shipments and will realize first sales in the first quarter.
Ken Lane: Our Gulf Coast plants recently weathered winter storm Enzo with no material interruptions.
Ken Lane: However, many of our customers were not as fortunate, which will present a slight headwind in the first quarter.
Ken Lane: Moving to slide five, we'll take a look at our fourth quarter and full year epoxy results.
Ken Lane: Olin's epoxy sales were roughly flat sequentially, with improved resin pricing offset by seasonally weaker demand in both the U.S. and Europe, seeing weaker demand from the building and construction, automotive, and consumer electronics markets.
Ken Lane: Notably, during the third and fourth quarters, our team successfully completed the planned turnaround at our Stade Germany facility. It was completed safely on time and on budget.
Ken Lane: Fourth quarter epoxy adjusted EBITDA increased by more than 50% sequentially, largely in the absence of hurricane barrel impacts.
Ken Lane: During the first quarter we expect improving demand as limited restocking begins and we see some seasonal improvement in our formulated solutions business.
Ken Lane: U.S. hydrocarbon feedstock costs remain favorable versus rest of the world.
Ken Lane: However, Asian epoxy producers facing higher feedstock and freight costs continue to increase the flow of unfairly subsidized epoxy resin into the U.S. and Europe.
Ken Lane: We expect both a final U.S. and provisional EU anti-dumping decision during the first half of the year.
Slide six provides an update on our Winchester business.
Ken Lane: Fourth quarter Winchester sales were flat sequentially as the growth of lower margin domestic and international military demand and military project spending was offset by lower commercial ammunition sales.
Ken Lane: Commercial ammunition demand continues to be weak as retailers continue destocking.
Ken Lane: As a reminder, U.S. ammunition retailers built significant inventories during the first half of 2024, ahead of looming propellant shortages and the U.S. presidential election.
Ken Lane: Retailers continued reducing their inventories as consumer spending slowed, resulting in lower Winchester sales.
Ken Lane: We expect this trend to continue in the first half of 2025.
Ken Lane: The weak near-term commercial demand has been partially offset by strong domestic and international military demand.
Ken Lane: Demand for white flyer clay targets is robust and will soon benefit from the launch of our EcoFlyer line, the next evolution of clay targets. After one year since closing, we're excited to see the continued exceedance of our expectations of this acquisition.
Ken Lane: And now let's take a look at Winchester's announced acquisition of Ammo, Inc.'s assets on slide 7.
Ken Lane: As we announced on January 21st, Winchester entered into a definitive agreement with Ammo, Inc. to acquire its small-caliber ammunition manufacturing assets.
Ken Lane: This bolt-on acquisition should be immediately accretive to adjusted EBITDA, which is directly in line with our acquisition strategy for Winchester that we discussed during our December Investor Day.
Ken Lane: The acquisition includes a state-of-the-art production facility in Manitowoc, Wisconsin with a talented group of skilled employees which will enable greater specialization and participation across high margin specialty calibers.
Ken Lane: At the same time, Winchester's near-full integration across the ammunition value chain will provide economy of scale and synergies across safety, manufacturing, and procurement.
Ken Lane: Our plans will immediately share best practices and rebalance our system to optimize the new assets.
Ken Lane: We anticipate a fully realized synergy benefit of $40 million within three years after closing. As a result, we expect to achieve a multiple of less than two times once the assets are fully integrated, which meets our criteria that any investment must offer better returns than buying back a shareable in stock.
We expect to close the transaction during the second quarter.
Ken Lane: Let me now turn the call over to Todd Slater to walk us through some financial highlights.
Thanks, Ken.
Speaker Change: On slide 8, we've added a sequential quarterly adjusted EPTA bridge.
Speaker Change: The comparison from 3rd quarter to 4th quarter 2024 is highlighted by business.
Speaker Change: At a high level, we experienced an approximately $93 million overall sequential benefit from the lower hurricane barrel impact.
Our chemical businesses experience favorable pricing momentum.
Speaker Change: But we're offset by higher raw material costs and higher expenses, including penalties from unabsorbed fixed manufacturing costs related to our planned Freeport, Texas, chlorinated organics plant maintenance turnaround.
Speaker Change: As expected, Winchester experienced lower commercial demand as retailers continued their inventory destocking efforts.
at Corporate.
Speaker Change: We benefited from lower stock-based compensation, primarily due to mark-to-market adjustments.
Speaker Change: partially offset by higher environmental remediation expenses and legal and illegal related costs.
Now let's turn to slide 9, quarterly and full-year highlights.
Speaker Change: The continued challenging industry environment reinforces the importance of Olin's investment-grade balance sheet and our strong cash flow generation.
Speaker Change: We have minimal bond maturities in the next few years with opportunities to refinance our long-term debt.
Speaker Change: such as the expansion and refinancing of our 500 million dollar accounts receivable securitization facility completed during the fourth quarter.
from the previous $425 million facility.
Speaker Change: With this refinancing, we had approximately $63 million of off-balance sheet accounts receivable factoring return to balance sheet debt as our factoring program was discontinued.
The End.
Speaker Change: Our strong financial foundation enables Olin to continue running our value-first commercial approach while maintaining our disciplined capital allocation priorities.
Speaker Change: During 2024, Olin returned approximately 78% of operating cash flow to shareholders through quarterly dividends and share repurchases.
Speaker Change: As a result, we repurchased approximately 5% of our outstanding shares.
Speaker Change: Our net debt has increased by approximately $167 million from year-end 2023, while remaining approximately flat during the fourth quarter.
After taking into consideration the impact of Hurricane Beryl
Speaker Change: Our year-end net debt to adjusted EBITDA ratio was approximately 2.7 times.
Speaker Change: We ended the year with $175.6 million of cash and approximately $1.2 billion of available liquidity.
Speaker Change: Let's take a moment and discuss our outlook for expected uses of cash generated in 2025, which is very consistent with our disciplined capital allocation approach we reviewed at our December Investor Day.
First.
Speaker Change: Cash taxes in 2025 should be higher than our normalized 25 to 30 percent rate.
Speaker Change: as our previously discussed international tax payment of approximately $80 million.
That's been deferred for the last two years.
should be paid in the first half of 2025.
Speaker Change: We expect our capital spending in 2025 to be in the range of 225 to 250 million dollars.
Speaker Change: As we begin to spend capital toward our Optimize the Core Asset Strategy, which is designed to achieve greater than $250 million of structural cost reductions by 2028.
Speaker Change: We expect to continue our nearly 100-year history of uninterrupted quarterly dividend payments.
Speaker Change: We expect to fund our acquisition of the ammunition assets of Ammo, Inc. from operating cash flows during 2025.
Speaker Change: which is consistent with our strategy to utilize excess cash flow to fund growth initiatives that offer a higher return than share repurchases.
Speaker Change: Any remaining excess cash flow after the preceding capital allocation priorities would be available for share repurchases or incremental high return growth initiatives.
The End.
Speaker Change: We expect net debt to increase during the first part of 2025 due to normal seasonality of working capital and the timing of cash requirements we just discussed.
however
Speaker Change: By year-end 2025, we are targeting net debt to be flat with year-end 2024 levels.
Speaker Change: Our teams continue to focus on cash generation, maintaining cost discipline, and exploring additional cost savings opportunities.
Speaker Change: We remain committed to a prudent capital structure with a strong balance sheet and investment grade credit ratings.
Now I'll hand the call back to you, Ken.
Ken Lane: Thanks, Todd. Let's turn to slide 10 and our outlook for the first quarter.
Ken Lane: In general, we don't see significant short-term improvement in the macro-demand environment, and we will maintain our disciplined operating rates.
Ken Lane: As a result of our value-first strategy, we expect our first quarter 2025 ECU values to be comparable with the fourth quarter. At the same time, and aligned with our optimizing the core strategy, we are staying focused on productivity, cost improvements, and the variables within our control.
Ken Lane: With near-term lower planned CAPV volumes and pricing headwinds in EDC, combined with continued customer destocking and lower consumer demand in the Winchester commercial business,
Ken Lane: We expect our first quarter 2025 adjusted EBITDA to be in the range of $150 to $170 million.
Ken Lane: As we continue leading through this challenging market environment, we will stay focused on our value creation strategy and the capital allocation framework we laid out during our Investor Day in December.
Ken Lane: We are committed to maintaining our investment grade balance sheet, ample liquidity, and superior cash flow generation.
Ken Lane: As all cycles do, this extended industrial trough will end, and we look forward to demonstrating our significant leverage into that recovery.
Operator, we're now ready to take questions.
For more information, visit www.FEMA.gov
Thank you. Bye.
Michael Sison, John Roberts, John Roberts, John Roberts, John Roberts
David Cunningham, David Cunningham, David Cunningham,
Speaker Change: The first question comes from Alexey Efremov with KeyBank Capital Markets. Please go ahead.
Speaker Change: Thank you and good morning everyone. Ken, can you provide as much detail as possible about your volume outlook for chlorovinyls in the first quarter and and also if you could comment whether you've lost any
chlorine or other chlor-alkalite business.
Speaker Change: in Kewan for the rest of the year on a contract basis where that step down in volume is more temporary and tactical and we should expect volumes to the rebound in coming quarters in 2025.
Speaker Change: Good morning, Alexi. Appreciate you joining us. So listen, on the volume side of things, Q4 we saw very good volume. Some of that was rebound volume, of course, from.
Speaker Change: Hurricane Beryl, and then coming into the beginning of the year, obviously, we've got very low inventories as we were pulling inventory towards the end of the year.
you know, just working on working capital and...
Speaker Change: The inventory to offset some of that. We've also had some of our customers in the first quarter while we weathered The winter storm Enzo Enzo very well with our assets some of our customers did not So that's going to have some impact on on volumes
Speaker Change: and then we're going to continue to be disciplined with our operating rates.
Speaker Change: and meet the demand at the value that we like. So, you know, in the first quarter, we will see lower volumes, but most of that is related to things that are not, let's say, overall market in terms of demand. We do see good.
Demand for caustic
Speaker Change: We think caustic demand is going to continue to be strong.
Speaker Change: Relatively strong relative to the rest of the portfolio We see good demand in pulp and paper in the export markets. We see good demand for alumina and aluminum still
Speaker Change: So, that's going to continue, and as long as we see continued...
Speaker Change: Weak demand on the vinyl side or the chlorine side of the chain that's going to make caustic tighter So we expect that to be supportive for for pricing as well. But in general
Speaker Change: You know, there's a lot of uncertainty out there. We still expect to see strength in caustic, more weakness on the chlorine side of the ECU. But overall, like I said in my comments, ECU values should be relatively flat in the first quarter versus fourth quarter.
Speaker Change: The next question comes from Mike Lighthead with Barclays. Please go ahead.
Mike Lighthead: Great, thanks and good morning guys. Just two around around guidance first
Mike Lighthead: 20 million higher. So, what happened the last two weeks of the year? And then, second, as we look through 2025 beyond the first quarter, appreciate there's limited demand visibility, but are there Olin-specific earnings contributors we should think about as the year goes on to sort of build a bridge off of that one view? Thank you.
Mike Lighthead: Thank you, Mike. Good morning. Yeah, so listen, things changed pretty quickly there after the investor day. You know, we didn't of course expect the benefit from the lower share price, which was not a good thing.
Mike Lighthead: That was a 10 million dollar tailwind for us And then we did have a little bit of a surprise that hurricane barrel spin came in about 8 million less So that makes up almost all of that 20 million Otherwise, we would have been you know, right in line with where we had expected, you know As I said before I think that
Mike Lighthead: We don't want to fall in the trap that that that we have many people have in the industry over the past couple of years
of giving some
Mike Lighthead: view that the second half of the year is going to be a lot better than the first half of the year. There's just still a lot of uncertainty and
and visibility is not very good.
Mike Lighthead: You know, a lot of that destocking should be finished. Hopefully, we start to see the consumer come back.
Mike Lighthead: and see a little more strength in consumer demand. But certainly working down that inventory is taking a little bit longer than what our commercial customers had expected.
Mike Lighthead: In Winchester, we're also going to see stronger military demand as we go through the year. Right now, the project at Lake City...
Mike Lighthead: is running a little bit slower only because of the weather. As you know, it's been very cold, so that has slowed some of the progress around construction. That's going to pick up in the spring, so we should see Winchester improving.
in the back half of the year.
Mike Lighthead: For the rest of the business, I think we're going to see a more normal.
Mike Lighthead: The chlorine demand pick up as we see bleach demand increase and
Mike Lighthead: That's going to be positive for Olin. That's more of a differential position for us. I think in Epoxy, you're going to continue to see
Mike Lighthead: some seasonal improvement with construction improving Automotive still is fairly weak over in Europe. So hopefully that that is going to turn and start to improve
Mike Lighthead: Now, there is a little bit of a bogey out there around the anti-dumping duties, and you know, we're not going to build any of that into our forecast at the moment because we need to wait for those things to be finalized, but obviously those could be a bit of a tailwind here for epoxy.
Speaker Change: The next question comes from Hassan Ahmed with Alembic Global. Please go ahead.
Hassan Ahmed: Morning, Ken and Todd. You know, a quick question around supply, you know, and I brought this up at the end of this day as well.
Hassan Ahmed: I mean, look, one of the virtues, obviously, of the chloralkali story historically had been the dearth of capacity additions. But it just seems that, you know, between certain TiO2 producers sort of announcing, you know, chlorine capacity additions...
Hassan Ahmed: you know, certain polyurethane producers out there, you know, sort of investing in infrastructure to potentially sort of, you know, source
Hassan Ahmed: You know, there seems to be a creep in terms of...
Speaker Change: Hi, good morning, Hassan. So, look, on supply-demand, you know, we've talked about this at the Investor Day.
Our view is this, that you do see...
Speaker Change: Capacity coming out as well as being added in the future and in fact the capacity is coming out is coming out
sooner than the capacity that's being added.
level of supply addition and capacity that's coming out.
Speaker Change: With less competitive assets and less competitive regions, so we think that net it's going to be relatively balanced in the midterm
Speaker Change: There's not anything there that we see that's concerning for our outlook and what we laid out at the Investor Day. But I will tell you, you know, when we look at it.
Speaker Change: to make an investment pencil where we are today, and we're very far away from that. There's a lot of risk in building these assets, so people are going to do what they want to do, but that doesn't mean that it's going to happen in the time that is stated.
Speaker Change: and doesn't mean that it's going to happen at all necessarily. Let's see. But even if everything happens as it's been announced.
Speaker Change: We think NetNet is going to be fairly neutral on the supply side.
Speaker Change: The next question comes from Jeff Zekoskis with JPMorgan. Please go ahead.
Jeff Zekoskis: Thanks very much. So, Ken, you've been CEO of Olin now for almost a year.
When you look back on the
on the year
and you compare your actions or your...
leadership direction to Scott Sutton.
Jeff Zekoskis: Have there been any changes or do you see your tenure over the past year as a continuation of what Scott did?
Jeff Zekoskis: Good morning, Jeff. Thanks for the question. Listen, we laid out our vision for the company at the Investor Day and as we look forward what we see is that our leading position in both, you know, our CAPV business
Jeff Zekoskis: The Epoxy business and the Winchester business We've got a lot of opportunity to do things that are well within our control to optimize that You know, we've talked about reducing our costs by 250 million dollars and you know A lot of that is related to us
Jeff Zekoskis: Cleaning up the asset footprint that we've got to remove some of the assets and optimize Some of the sites that we've got to make them more efficient and to reduce our fixed and variable costs at those sites
Jeff Zekoskis: those are things that we're going to be able to control and deliver on and I'm convinced that we will and then you look at the the business model that we operate you know we're going to continue to stay focused on being a leader in the industry and what that means is that we're going to continue to be disciplined
We're going to continue to watch our operating rates.
and we're going to be focused on value.
Jeff Zekoskis: You know, we don't see the need to get overly aggressive in terms of volume. I said it just a minute ago. We don't think that where we are today, there are opportunities for reinvestment economics.
Jeff Zekoskis: We think that we're far away from that, so we believe that as long as we continue to be disciplined, we can hold value relatively flat versus where we were last year. And as the market comes back, we have the coiled spring.
Jeff Zekoskis: And we've got a lot of value ahead of us. And as we see the trough, you know, as we come out of the trough, we're very well positioned to realize the tremendous amount of value of the company from that.
Jeff Zekoskis: So, you know, we've got a bright future just around optimizing our core. And then you think about some of the options that we described around growing the core.
Jeff Zekoskis: So we're entering the PVC resin market here in the first quarter. That's a way for us to begin to test and learn more about that market.
Jeff Zekoskis: to be able to position the future of a very strong set of assets that we have to make vinyls down at Freeport.
and so that creates a great opportunity for us.
Jeff Zekoskis: We talked about building on our bleach position and we talked about building on our Winchester position and leveraging off of our chemical expertise into some very attractive markets that we think have got strong growth and strong returns for the long term.
Jeff Zekoskis: You know, that's our vision for the future is to stay focused on optimizing and growing and I'm really excited about getting after that and continuing to deliver on that strategy.
The End
Speaker Change: The next question comes from Bhavesh Ladaia with BMO Capital Markets. Please go ahead.
Speaker Change: and Steve Keenan. Thanks for watching. We'll see you next time.
Hi, good morning, Ken.
Ken Lane: The question on your chloralkali strategy, so industry consultants are expecting higher operating rates sequentially in the first quarter. Now expectations were that when the market improves, when operating rates increase industry-wide, Olin gets a higher share of those volumes.
Speaker Change: It appears that you are not seeing that sort of a market or that sort of margins and are actually restricting your participation because you expect lower volumes in the first quarter. So I guess the question is what needs to change for this trend to not continue as we go ahead into the year?
Speaker Change: Good morning, Bhavesh. Listen, you know, I think in the short term, in the first quarter, if you go back to what I had said earlier...
Speaker Change: What we see in terms of the lower volumes in Q1 is more related to
and Steve Keenan. Thank you.
Speaker Change: The bounce-back that we saw in volumes in Q4, we don't see that repeating in Q1. And that bounce-back was our bounce-back from Hurricane Beryl. We also have got a turnaround occurring here in the first quarter. And we've got, like I said before, some of our customers were impacted from the winter freeze.
Winter Storm Enzo. So, you know, it's more related to
Speaker Change: transient things. I hate to use that word but that's the way that we see it. We do continue to see strength and caustic in the caustic market. A little more challenging in the vinyls.
Speaker Change: You know as construction returns that's going to change but right now as you know housing is still Is still challenged. Hopefully that's going to start to change in the coming months, but we don't have visibility of that just yet But I don't see anything where
Speaker Change: You know where we're differential in the marketplace But what we will do is continue to be disciplined that we're not going to push volume Into weak markets just to get the volume
Speaker Change: So, we're going to stay focused on holding our position until we see the values that we like, and then we'll start to operate harder, but right now, the focus is on being disciplined.
Patrick Cunningham: The next question comes from Patrick Cunningham with Citi. Please go ahead.
Patrick Cunningham: Hi, good morning. Just on the recent ammo acquisition, can you provide some more comment on the $40 million and synergies that you expect to achieve through economy scale, and if there's anything from a commercial standpoint that's baked into that number? Thank you.
Patrick Cunningham: Yeah, good morning Patrick. Listen, on those synergies, part of the synergies is SG&A obviously. That's going to be a smaller part. The bigger part is going to be
Patrick Cunningham: You know, as we talked about at the Investor Day, Winchester is the largest small caliber ammunition producer, so we're a very big buyer in the market for
Patrick Cunningham: for raw materials and different components for ammunition, that's gonna be a big lever for us with these assets relative to the past.
Patrick Cunningham: So, that is going to be a very positive thing for us.
Patrick Cunningham: Right off the bat, those are things that are going to be able to be leveraged from day one. The other part of this is more unique to Winchester in that, you know, we've got these already three sites.
Patrick Cunningham: that we have and they're very large scale sites that produce very large scale volumes.
Patrick Cunningham: and what we're going to get with this asset is the ability to produce
Patrick Cunningham: niche, high-margin caliber products that we currently have to make in these larger-scale assets.
Patrick Cunningham: which is less efficient, we have more changeovers, you know, that's the sort of thing that we can move into this asset. We can make more of those...
Patrick Cunningham: Calibers, and we can make them more efficiently. So those three things are really going to drive that 40 million dollars of synergies. So I have a very high level of confidence that we're going to get those.
Patrick Cunningham: and the procurement and the SG&A we're going to get very quickly.
The next question comes from Duffy Fisher with Goldman Sachs.
Please go ahead.
Duffy Fisher: Yeah, good morning guys. Just a question around the potential change in trade flows from the tariffs and anti-dumpings around epoxy. What have you seen so far? Obviously some of your customers are calling out higher epoxy prices already.
Duffy Fisher: But what do you think is going to happen if the ask that you guys have put forward happens? What do you think that will do to trade flows? And what do you think that will do from incremental pricing from here forward?
Good morning, Duffy.
Duffy Fisher: Great question. You know, listen, it's a little bit different for epoxy. Europe is a very large epoxy market, so once the duties go up there, that's going to be...
Duffy Fisher: That's going to be a good a good thing for the European market and and our position in Europe It's not it's not like some other markets that you may think about where there there are other large sinks of volume I I do think that
Duffy Fisher: Between Europe and the U.S., once you put duties there, it is going to drive prices higher in the short term. And when you look at the cost structure around Chinese producers,
Duffy Fisher: You know, they were already dumping product and frankly not making money. The situation is getting worse there So if their costs continue to rise you may actually just see the production slow down or even or even shut down You know, I
Duffy Fisher: Not predicting anything is going to happen for sure, but certainly the economics are not favorable for them to continue to operate Where they are and they've added a lot of capacity. So so I don't know that it's as much about
Duffy Fisher: product just shifting around and flowing into different regions because the largest consuming regions are really US and Europe. I think it's going to be more about
Duffy Fisher: rationalization over the midterm of capacity that's not competitive and you've already seen seen some of that.
Duffy Fisher: in Asia. So you saw some capacity announced being shut down just in the past couple of weeks. So that's how the cycle works. You know, the strong are going to survive and the weak aren't. I think it's going to be more that story than it is going to be just things are going to move to different regions in epoxy.
Speaker Change: The next question comes from Mike Sison with Wells Fargo. Please go ahead.
Mike Sison: Hey, good morning. You know, most companies sort of have said that the outlook or the demand outlook for 25 doesn't look much better than 24. So if you think, so if you think about if that does unfortunately unfold, how does your
Mike Sison: How do you improve EBITDA, and I know you don't give annual guidance, but how do you improve EBITDA this year, year over year, and when you think about the first quarter kind of low point.
Speaker Change: Hi, Mike. Thanks for the question. Listen, we're going to focus, as you always have to do in the trough, on what we can control. So we're going to focus on our costs, controlling our costs.
Mike Sison: making sure that our cash flow is strong. You know, financially, we are in very good shape as a company in a very deep and long trough that we've been in now for a while. So...
Mike Sison: continuing to focus on the things that we can control, being disciplined around our operating rates, those are the things that are going to help us really hold.
Mike Sison: the value that we see in in in our positions that we've got. But we do expect to see some improvement, as I had said earlier, as we go through the year, we do expect to see some improvement with the Winchester business.
Mike Sison: We're going to see some recovery as we get the seasonality with Warmer temperatures coming and the bleach business is going to come back
Mike Sison: We should see continued momentum with epoxy pricing. Now, epoxy is in a pretty deep hole. So, in terms of material improvements, I don't know that we're going to get there this year, but we certainly expect to see some improvement in epoxy as we go through the year.
Speaker Change: The next question comes from Steve Byrne with Bank of America. Please go ahead.
Steve Byrne: How would you compare the variable margins that you make on your current sales of EDC versus what you expect to get on this PVC post the tolling and shipping costs?
and I'm curious...
Steve Byrne: Who are you going to be selling to? Are you developing, you know, new customers with a new commercial organization, such as selling direct to, you know, pipe producers? Or are you selling to your existing, say, EDC customers?
Steve Byrne: who then would use their own commercial organization. Just curious on your outlook for this business.
Steve Byrne: Good morning, Steve. Listen, this is a really important part of our strategy as we think longer term. This is not a short-term move for us, so the idea here is for us to get into selling PVC resin directly to customers.
Steve Byrne: and doing it ourselves. That's how we're going to, you know, learn who the customers are, learn more about, you know, creating higher value from our market position that we think we can build over time. And this is obviously, when you look at the economics,
Steve Byrne: over the mid to long term. This is an upgrade for us.
Steve Byrne: of our EDC compared to selling EDC. So it is higher value for us.
Steve Byrne: You know, as we go through developing the market, it's going to be smaller scale, so the economics are not going to be great, but relative to selling EDC, I can tell you it's not any worse. So, you know, this is going to be a benefit for us.
Steve Byrne: not just in terms of moving volume, it's going to be benefiting us when we think about, you know, potentially a million tons of PVC resin that we could be looking at bringing into the market in the next few years. That really is why we're doing this.
Speaker Change: The next question comes from Arun Viswanathan with RBC Capital Markets. Please go ahead.
Thank you.
Thanks for taking my question.
Speaker Change: Good morning. So, I guess I wanted to get your thoughts, if I could, on maybe some preliminary thoughts on 25. So, obviously, you're guiding to that 150 to 170 for...
Speaker Change: you know, for Q1, and if we look at 24 without the hurricane barrel impacts are in the billion or so range, assuming some synergies and growth in Winchester and maybe some recovery in the other segments,
Speaker Change: Should you be above that billion range, maybe in the billion one to billion two range for the full year, or how should we think about what you see in the cards for 25 EBITDA?
Thank you. Bye.
Speaker Change: Good morning room. Yeah, listen, so when we think about the first quarter and that that guide that we've given, if you even just think about first quarter versus prior year, obviously one of the big changes versus 24 is Winchester. So Winchester is
Speaker Change: significantly below where it was in the first quarter of last year. What I think is maybe being lost, though, is that we do see
stable CAPV
Speaker Change: performance, which really is a very good thing to see. We see a firm business environment around CAPV. We saw that last year. Hurricane Beryl, yeah, it was a headwind, but for CAPV...
Speaker Change: We see things continuing to be kind of where they were, and they will start to improve as we come out of the trough. We've talked about epoxy. The biggest thing that's going to help us there is going to be rationalization of capacity and growth coming back into the market.
Speaker Change: Of course, duties will help, but we're not going to bank on duties being our savior here. But that is something that certainly will be a tailwind for us.
Speaker Change: But ultimately, I think you're going to see Winchester being the headwind in the first quarter, and as I said before, we won't see that really recover until the back half of the year until the inventory that's in the system gets worked out.
The next question comes from David Begleiter with Deutsche Bank.
Please go ahead.
Speaker Change: Thank you. Good morning. Ken, just on natural gas, can you discuss your hedging strategies for this year and how you're treating about the impact from higher natural gas prices on your earnings for the year? Thank you.
Thank you.
Todd, you want to take that one?
Todd Slater: Thanks, Ken. Thanks for the question on natural gas. As you know, we do have a very disciplined approach on edging our natural gas.
If you think about Q1 vs. Q4
Todd Slater: Directionally, we would think about our natural gas and power costs being relatively flattish sequentially in Q1 versus Q4, and probably not nearly as big a headwind as you might see at the spot market.
Speaker Change: The next question comes from Peter Osterlin with Truist Securities. Please go ahead.
Good morning, thanks for taking the questions
Speaker Change: Within Winchester, is there an extensive pipeline of opportunities out there that you are considering or would consider for additional bolt-on M&A? And at the current valuation, how do you weigh that option as a priority versus share repurchases? Thank you.
Speaker Change: Hi. Good morning, Peter. Thank you for joining us and welcome. Listen, we talked about this at the Investor Day. You know, we are going to be focused on highly accretive, high-return, bolt-on investments around Winchester. You know, obviously, we're not going to talk about anything specific at this point, but with the scale that we've got in the industry,
Speaker Change: There could be other options, but they will be small. We're not looking for something transformational at this point.
Speaker Change: But when you can do deals like the White Flyer deal that we did at the end of 2023, the deal that's proposed here for the Ammo, Inc. assets and hopefully closing here in the second quarter, as those things come up...
Speaker Change: You know if you can buy assets or businesses at a multiple like two times you know obviously we're going to look really hard at that and
Speaker Change: We're going to watch that marketplace to see if other things come on, but at this point I don't have any more specifics to share with you than that.
Speaker Change: into the Radford facility that would be bid here in the next couple of years.
Speaker Change: That's the only other thing that we've talked about publicly So we'll keep watching the space and and as we see things
Speaker Change: We will be disciplined, and we're going to watch value relative to us buying back a share of Olin stock. Looking at the share of Olin stock today, as you can tell, it's a very good value, so it's got to be a high hurdle.
Speaker Change: The next question comes from Kevin McCarthy with Vertical Research. Please go ahead.
Kevin Mccarthy: Thank you and good morning. Ken, I'd appreciate your updated thoughts on the dynamics in the caustic soda.
Kevin Mccarthy: market coming out of the U.S. Gulf Coast. I think you made a comment earlier on the call that you expect ECU values to trend flat sequentially into the first quarter. And I'm just wondering in that context,
Kevin Mccarthy: What you're thinking about directionally for spot export prices for caustic soda? Do you think we're at...
Kevin Mccarthy: here, and do we need any sequential improvement over the next couple of months to achieve that flat level? Maybe you could just provide a little bit of context for us in that regard. Thanks.
Thank you very much.
Good morning, Kevin.
Kevin Mccarthy: Appreciate the question. Listen what what I said earlier stands, you know, we see firm demand The other thing that we see is the Asian market pricing is improving So I do think that we've hit we've hit a bottom here in terms of the export pricing
Kevin Mccarthy: which overall will lend to a floor for domestic pricing as well.
As we see the headwinds in the EDC market,
Kevin Mccarthy: We do see people having to cut back because they're not making any money on EDC at the price level that you see in the market today. That's going to add to the tightness in the caustic market. So that just gives me that confidence that we're going to see firmness.
Kevin Mccarthy: and the ECU values out there, including in the export market.
John Roberts: The next question comes from John Roberts, Mizzou. Please go ahead.
Thank you.
John Roberts: Sometimes in the past Olin has idled EDC because the margin was too low and I don't think you're allowed to resell the ethylene. Will the new PVC strategy require you to keep EDC running even if margins on the rest of the merchant EDC market are unacceptable?
Speaker Change: Good morning, John. Listen, we're not going to treat EDC any differently than anything else. We're going to be optimizing the operating rate based on the value that we see to, you know, or the demand that we see at the value that we want in the marketplace.
Speaker Change: I don't see us being the industry leader in terms of cost positions.
Speaker Change: I don't see us being in a position where we would be idling the capacity. Obviously we're not running it at full rates, but we will operate it at the rate that we think creates the highest value for Olin.
The next question comes from Frank Mitch with Virmium Research.
Please go ahead.
Frank Mitch: Hey Todd, I was wondering if you could talk about the plans to tackle the $110 million that's due in June.
Frank Mitch: You know, so we're coming up on close to 200 million. You know, what is your plan of attack?
Ken Lane: will be refinancing involved, et cetera. And then just a clarification, Ken.
Ken Lane: You indicated that the ECU value is expected to be flat in the first quarter relative to the fourth quarter. So, is that, you know, should we read that the PCI index is going to be essentially flat 1Q to 4Q? Thank you.
Frank Mitch: Okay, I'll start. Hi, Frank. Yeah, the cash taxes and the $80 million international tax payment that we've deferred for the last couple years, we really are going to make it. It'll be made in the first half of, excuse me, of 2025.
Ken Lane: And regarding the, you know, roughly $100 million of debt that comes due, we would expect just to, you know,
Ken Lane: pay that with our revolver and it will be neutral from a debt perspective on our balance sheet.
Ken Lane: And, Frank, with respect to your second question, you know, the PCI, remember, is an amalgamation of a lot of things. It's not just the ECU. It includes derivatives as well. So you can't say that if ECU values are flat that the PCI is going to be flat. So...
Ken Lane: Frank, as we commented, we do see headwinds on pricing of EDC, so that would be a little bit of a negative on the PCI.
Ken Lane: The next question comes from Matthew Blair with TPH. Please go ahead.
Matthew Blair: Thank you and good morning. Is there any update regarding your thinking on potential growth projects? I think at the Investor Day you talked about some opportunities with a bleach plant in California, the Radford ammo bid.
Matthew Blair: and the expansion of the Quebec CAPEZ plant. As you stand today, could you rank those projects? What's most attractive and what would be least attractive? Thanks.
Speaker Change: Good morning, Matthew. Well, listen, I would say that, you know, obviously the the Radford opportunity is one that's going to come in a couple of years Doesn't really require any capital. So I I'd say that that is a priority for us
We see that as a very good
Speaker Change: That is one that would be a priority for us. I think between the other two, it's going to come down really to economics and timing. So we're we're studying both of those very hard at the moment. But we will, given the current environment that we're in.
Speaker Change: We're going to stay true to what we've talked about around our capital allocation priorities.
Speaker Change: and we will have to phase those projects accordingly, but they're both attractive projects and we want to keep them.
Speaker Change: keep them on the books and we'll make a decision at the right time based on our
Speaker Change: based on our cash flow availability and when it meets the hurdle that
that we laid out in December at the Investor Day.
Speaker Change: If we can achieve those two things, which is meeting the commitments around capital allocation and meeting the return criteria that we laid out, then we'll move forward. But we're not in a position here today to really give you any clear view on those two projects in terms of priority. They both are attractive.
Speaker Change: The next question comes from Josh Spector with UBS. Please go ahead.
Hi, good morning. It's Chris Perala on for Josh.
Speaker Change: Sequentially weaker in the first quarter here, you have higher input costs on propellant and the metal. When do you think you
Speaker Change: outpace those costs with price increases. And does the second half for Winchester, does that look like the first half of 2024 or does it have to build up over a longer time frame?
Dr. J.
Good morning, Chris.
Speaker Change: You know, obviously, we've talked a lot in the last year about the cost of propellant and metals and different materials going into ammunition as being a headwind.
Speaker Change: And we've been working to move that through in pricing in the market. But obviously that's difficult to do when our customers have built a tremendous amount of inventory and they're working that off. So, you know, that's going to take a little bit more time to be able to work down and pass through into the marketplace.
Speaker Change: Like I said before, I expect to see Winchester's performance improve in the back half of the year.
so
Speaker Change: You know, that's going to be a combination of improved demand and, you know, not just from our commercial customers buying more to refill their inventory, but, you know, we're hoping to see improved consumer demand out the door at our commercial customers.
The next question comes from Vincent Andrews with Morgan Stanley.
Please go ahead.
Vincent Andrews: Thank you. Ken, I actually have a follow-up to your last point, which is, do you have any data on retail sales versus your sell into retail? I'm just trying to see if you have a really good sense of, you know, what, you know, obviously your customers are de-stocking, but have your customers' customers been de-stocking, and are there any bends in those trends that are giving you the confidence about the back half of the year?
Ken Lane: Yeah, good morning Vincent, thank you. And yeah, listen, we do collect different data and it's from a number of different sources where we look at things that are reported, whether it's gun registrations, gun sales and those sorts of things.
Ken Lane: But you know the point-of-sale data that we look at gives us an idea, but obviously we are very close with our customers
Ken Lane: continuing into the first half of the year, not just the first quarter.
[inaudible]
Speaker Change: As there are no further questions, this concludes our question and answer session. I would like to turn the conference back over to Ken Lane for any closing remarks.
Thank you for attending today's presentation.
You may now disconnect.