Olin Corporation (NYSE:OLN) Q2 2023 Earnings Call Transcript

Olin Corporation (NYSE:OLN) Q2 2023 Earnings Call Transcript July 28, 2023

Operator: Good morning, and welcome to Olin Corporation’s Second Quarter 2023 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Following today’s brief opening comments, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I now will turn the conference over to Steve Keenan, Olin’s Director of Investor Relations. Please go ahead, Steve.

Steve Keenan: Thank you, Keith. Good morning, everyone, and thank you for joining us today. Before we begin, let me remind you that this discussion, along with the associated slides and the question-and-answer session that follows, will include statements regarding estimates or expectations of future performance. Please note, these are forward-looking statements and that 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 and in yesterday’s second quarter earnings press release. A copy of today’s transcript and slides will be available on our website under the Investors section under Past Events.

Our earnings press release and other financial data and information are available under press releases. With me this morning are Scott Sutton, Olin’s CEO; and Todd Slater, Olin’s CFO. I’ll now turn the call over to Scott Sutton to make some brief remarks, after which, we’ll be happy to take your questions.

Scott Sutton: Thanks, Steve, and good morning, everybody. Global market conditions continue to be quite poor. Additionally, our performance in the second quarter was not up to expectations, partially due to the previously announced Freeport vinyl chloride monomer plant operating issues, but also due to excessive Asian Epoxy resin exports and our associated Epoxy asset right sizing activities. These factors will result in a lower trough expectation for 2023 adjusted EBITDA. The bright spot in the second quarter was our purchase of 2.5% of our outstanding shares while simultaneously reducing net debt compared to the first quarter. Since January 1, 2022, we have purchased 21% of our outstanding shares. In the third quarter, we expect Epoxy resins and system sales volumes to slightly improve relative to the second quarter.

However, inventory reduction efforts will lead the business in negative EBITDA territory. While Winchester’s performance is expected to slightly improve in the third quarter, mainly due to international and domestic military growth, our Chlor Alkali and Vinyls business is expected to be slightly down, mainly due to execution of our leadership model as we see bottoming of ECU values in some geographies likely a positive sign for 2024. This is our time to be testing, and I am confident that the Olin team is up to that test. It should be clear from Slide number 4 that Olin believes running a value strategy with lots of built-in free options, delivers more total cash for shareholders versus any alternative strategy. Looking forward, we are working on numerous initiatives to make sure both future peaks and troughs from that value strategy are higher than our previous results.

Those initiatives are spelled out on Slide number 5. Keith, that concludes my opening remarks, and we can now proceed to questions.

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Q&A Session

Operator: Yes, thank you. At this time we will begin the question-and-answer session. [Operator Instructions] And this morning’s first question comes from Hassan Ahmed with Alembic Capital.

Hassan Ahmed: Good morning, Scott and Todd. Question, well, two-part question. One on the implied sort of trough earnings number and the other one on sort of the peak number that you put up on your presentation. So first on the trough number. I mean, if I take a look at your implied Q4 2023 guidance, it’s around $300 million, right? And I annualize that, that’s obviously $1.2 billion. And obviously, you guys talked about the VCM Freeport, Texas facility being sort of one of the cause agents, Epoxy being, call it, below trough being another cause agent of this sort of perceived below trough guidance. So is the delta between the $1.5 billion to $2 billion sort of trough range that you gave versus the annualized $300 million Q4 2023 guidance that you gave, primarily because of the VCM side of things and the Epoxy side of things?

Scott Sutton: Yes. Thanks, Hassan. Yes. Look, I mean, first of all, I would say that 2024 has a lot more positives than negatives. And we’re calling a trough at $1.4 billion, not $1.2 billion. Now the difference between $1.4 billion and what we’ve called out is our previous trough there. Yes, I mean we’ve got a $100 million problem VCM. But on top of that, it really is the mass of material that’s come out of Asia, in Epoxy. And you heard me say that we’re going to run one quarter probably here at negative EBITDA territory. I mean, Hassan, I would also add that we have had to run our model a little bit deeper. I mean, demand declined so fast relative to supply. But if you look at rates, we’re way below 50% epoxy, and we’re not all that far above 50% across our CAPV portfolio right now. So it’s those things that make up the difference.

Hassan Ahmed: Understood. And sorry, it’s – the peak side of it, I also wanted to sort of touch base on. You guys sort of flagged over $3 billion in the next peak, right? And if I take a look at what you guys on a quarterly basis were run rating in Q1 2022 and Q2 2022, it was over $850 million. And clearly, utilization rates weren’t as tight as they potentially could be in the next peak, right? And you hadn’t sort of restructured the Epoxy business as you are right now, right? So, I mean, from the sounds of it, $3 billion in the next peak actually sounds pretty bare bone, is that fair?

Scott Sutton: I mean – yes. I mean, Hassan, look, our outlook certainly says that the structure of Chlor Alkali only gets better over, over time. And it’s true that we’ve done some restructuring in our Epoxy business. But I will say that in order for Epoxy to get back to the levels it was that – that’s probably a couple of years out. So you’re going to see the next peak in Chlor Alkali while Epoxy is still recovering. And that’s why we put the next peak at somewhere just about $3 billion.

Hassan Ahmed: Understood. And one last one, if I may. On Dow’s earnings call, they basically talked about how their contract with you was renewed through 2035. Is there any sort of commentary you can give about? I know historically, sort of Olin’s talked about not really making any money on that contract. But is there any commentary you guys can give us about that renewed contract?

Scott Sutton: Yes. I would just agree that we did reach an agreement, and I think that’s going to be good for everybody in the future.

Hassan Ahmed: Fair enough. Thank you so much.

Scott Sutton: Sure.

Operator: Thank you. And the next question comes from Steve Byrne with Bank of America.