August 1, 2022

LyondellBasell Propylene Oxide Update

LyondellBasell Industries Q2 2022 Earnings Call Transcript

Fri., July 29, 2022 | AlphaStreet Share (Ad)
Listen to Conference CallView Latest SEC 10-Q Filing

Participants

Corporate Executives

• David KinneyHead of Investor Relations
• Peter VanackerChief Executive Officer
• Michael McMurrayChief Financial Officer
• Kenneth (Ken) LaneExecutive Vice President, Global Olefins & Polyolefins (O&P)
• Torkel RhenmanExecutive Vice President, Intermediates and Derivatives, and Refining
• James GuilfoyleExecutive Vice President, Advanced Polymer Solutions & Global Supply Chain

Torkel Rhenman

Executive Vice President, Intermediates and Derivatives, and Refining at LyondellBasell Industries

Thank you, Ken. Please turn to Slide 14 as we take a look at our Intermediates & Derivatives segment. Exceptional Oxyfuels margins resulted in record second quarter segment EBITDA of $675 million. During the quarter styrene results benefited from tight market supply. We are beginning to see that softer demand for durable goods is leading to moderation in propylene oxide margins.

In the third quarter we expect margin compression across most product lines. Oxyfuels margins are also moderating but expected to remain elevated at levels well above historical averages. The steady success of our Intermediates & Derivatives Segments is rooted in the advantaged technologies, underpinning our propylene oxide business.

On Slide 15, let me highlight the cost advantages of LyondellBasell’s propylene oxide production. The chart on the right depicts the global cost curve for producing propylene oxide by asset. The lower an asset is positioned on the curve, the greater the cost advantage. As you can see, LyondellBasell’s assets that produce propylene oxide with a tertiarybutyl alcohol co product are on the lowest or most favorable part of the cost curve. PO/TBA assets represent roughly 50% of global capacity and derive their advantage from favorable cost for butane, raw materials and strong pricing for the clean burning high octane Oxyfuels products produced from tertiarybutyl alcohol.

LyondellBasell’s plants that produce propylene oxide with the styrene monomer co products are the next lowest cost technology and represent 35% share of global capacity. Much of the industry produces propylene oxide using older, higher cost technologies such as the chlorohydrin process. With the recent escalation in chlorine prices, the cost chlorohydrin based propylene oxide has only steepened, creating hardships for producers using this technology.

LyondellBasell’s advantage PO/TBA technology provides an excellent platform to address increasing global demand for propylene oxide and Oxyfuels. Propylene oxide is used in the production of polyurethanes, versatile materials that saves energy by producing insulation and reducing weight in a wide range of applications. Oxyfuels are clean burning, high-octane gasoline blending components that increase fuel efficiencies and improves air quality by reducing harmful emissions.

Let’s continue with Slide 16 with an update on our PO/TBA project that we are completing here in Houston. This is the largest greenfield investment in LyondellBasell’s history and will deliver much needed capacity to serve growing demand for these products that provide sustainable solutions for our planet. We are thrilled to have nearly completed construction and we have already begun commissioning the Oxyfuels assets depicted in the photo on the right.

The PO/TBA plant commissioning will begin during the fourth quarter and we expect the integrated facility to start up in the first quarter of 2023. Our ramp up during 2023 will not provide for full year of production, but continued market strength is likely to support stronger margins than the mid-cycle economics depicted on this line. With LyondellBasell’s advantaged technology and affordable shale advantaged butane feedstocks, our new capacity’s starting up with the support of favorable markets.

Now, let’s turn to Slide 17 and discuss the results for our Refining segment. Second quarter EBITDA was $418 million with improved margins driven by increased demand for gasoline, diesel and jet fuel. In the second quarter, the Maya 2-1-1 spread expanded significantly to about $56 per barrel. We operated the refinery at 94% of capacity, with an average crude throughput of 52,000 barrels per day. In the near term, the Maya 2-1-1 spread is moderating from second quarter levels. We plan to run the refinery above 87% of capacity during the third quarter to perform a limited scope of planned maintenance.

Stephen Byrne Analyst at Bank of America Merrill Lynch

Okay. Yes, thank you. I appreciate the Slide 15 on your outlook for PO. And Torkel, maybe you could comment on what do you think that slide would have looked like historically? Clearly, now you have some reasons for it to be shaped like that with a lower butane and higher ethyl benzene and certainly higher chlorine, but is part of this just because TBA is so valuable right now and is this — is the shape of this your outlook in the years to come, is that part of your EBITDA forecast?

Torkel Rhenman Executive Vice President, Intermediates and Derivatives, and Refining at LyondellBasell Industries

So, hi, thank you for the question. I think as we looked at this, we’ve — and if you compare it to historical averages, it’s actually widened in terms of the differential in terms of our competitive advantage. And that’s primarily driven — right now the value of the co products, and of course that will fluctuate over the cycle, but fundamentally we see for the next — where we are right now and in the coming next two years, we are in a very favorable cycle situation.

Then as you drive — if you look at energy cost going up, that will also favor our technology. So I think fundamentally, where we are and looking at it right now, I think our technology is very advantaged.

Kevin McCarthy Analyst at Vertical Research Partners

Yes, good morning. Question for Ken, perhaps, I was wondering if you could comment on the U.S. propylene market. It seems to have gotten a bit sloppy here in recent months. I believe the U.S. July contract price declined another $0.04 earlier this week, and it makes four consecutive monthly declines of 35% negative or so. Can you comment on both sides, supply/demand, what you’re seeing there and whether we might expect that pattern to reverse in coming months?Kenneth (Ken) LaneExecutive Vice President, Global Olefins & Polyolefins (O&P) at LyondellBasell Industries

Sure. Kevin, thank you for the question. Yes, I do see — expect to see that trend in propylene reverse in the U.S. In fact, I would — I think we’re going to see that in August, already. We’re starting to see spot prices move up again for propylene. And I’ll go back to the answer that I gave earlier, there’s been a lot of downtime for polypropylene assets in the U.S. and that’s put some length into the propylene market. What’s happening now is you’re starting to see those assets run again and you’re going to start to see people refilling inventory levels because of all the downtime that we’ve had with polypropylene. And that’s going to start to bring the propylene price back up a little bit here in the back-half of the year.

John Roberts Analyst at Credit Suisse

Thank you. In the presentation, you talked about continued strength in propylene oxide, but I think the release discussed some slowing in polyurethane markets, which I guess we’d expect with auto and appliances and construction. As you begin commissioning the new PO plant, do you plan to take downtime in other plants to kind of keep the market balanced if we are facing a slowdown there?Torkel RhenmanExecutive Vice President, Intermediates and Derivatives, and Refining at LyondellBasell Industries

As part of our start-up plan, we have other outages scheduled for other plants that we have delayed in terms of managing our supply on the PO. But we also expect that the plan to ramp up during the year. And we expect that for next year, we will produce about 50% of the annualized capacity from the plant.Peter VanackerChief Executive Officer at LyondellBasell Industries

Yes, John, start-up is scheduled towards the end of Q1, 2023. And I said by Torkel then, you’ll gradually move into the nameplate capacity volumes. So therefore, if you average it out over the year 2023, then it would be approximately, we expect, 50% of the nameplate capacity.

https://www.marketbeat.com/earnings/transcripts/77941/

August 1, 2022

LyondellBasell Propylene Oxide Update

LyondellBasell Industries Q2 2022 Earnings Call Transcript

Fri., July 29, 2022 | AlphaStreet Share (Ad)
Listen to Conference CallView Latest SEC 10-Q Filing

Participants

Corporate Executives

• David KinneyHead of Investor Relations
• Peter VanackerChief Executive Officer
• Michael McMurrayChief Financial Officer
• Kenneth (Ken) LaneExecutive Vice President, Global Olefins & Polyolefins (O&P)
• Torkel RhenmanExecutive Vice President, Intermediates and Derivatives, and Refining
• James GuilfoyleExecutive Vice President, Advanced Polymer Solutions & Global Supply Chain

Torkel Rhenman

Executive Vice President, Intermediates and Derivatives, and Refining at LyondellBasell Industries

Thank you, Ken. Please turn to Slide 14 as we take a look at our Intermediates & Derivatives segment. Exceptional Oxyfuels margins resulted in record second quarter segment EBITDA of $675 million. During the quarter styrene results benefited from tight market supply. We are beginning to see that softer demand for durable goods is leading to moderation in propylene oxide margins.

In the third quarter we expect margin compression across most product lines. Oxyfuels margins are also moderating but expected to remain elevated at levels well above historical averages. The steady success of our Intermediates & Derivatives Segments is rooted in the advantaged technologies, underpinning our propylene oxide business.

On Slide 15, let me highlight the cost advantages of LyondellBasell’s propylene oxide production. The chart on the right depicts the global cost curve for producing propylene oxide by asset. The lower an asset is positioned on the curve, the greater the cost advantage. As you can see, LyondellBasell’s assets that produce propylene oxide with a tertiarybutyl alcohol co product are on the lowest or most favorable part of the cost curve. PO/TBA assets represent roughly 50% of global capacity and derive their advantage from favorable cost for butane, raw materials and strong pricing for the clean burning high octane Oxyfuels products produced from tertiarybutyl alcohol.

LyondellBasell’s plants that produce propylene oxide with the styrene monomer co products are the next lowest cost technology and represent 35% share of global capacity. Much of the industry produces propylene oxide using older, higher cost technologies such as the chlorohydrin process. With the recent escalation in chlorine prices, the cost chlorohydrin based propylene oxide has only steepened, creating hardships for producers using this technology.

LyondellBasell’s advantage PO/TBA technology provides an excellent platform to address increasing global demand for propylene oxide and Oxyfuels. Propylene oxide is used in the production of polyurethanes, versatile materials that saves energy by producing insulation and reducing weight in a wide range of applications. Oxyfuels are clean burning, high-octane gasoline blending components that increase fuel efficiencies and improves air quality by reducing harmful emissions.

Let’s continue with Slide 16 with an update on our PO/TBA project that we are completing here in Houston. This is the largest greenfield investment in LyondellBasell’s history and will deliver much needed capacity to serve growing demand for these products that provide sustainable solutions for our planet. We are thrilled to have nearly completed construction and we have already begun commissioning the Oxyfuels assets depicted in the photo on the right.

The PO/TBA plant commissioning will begin during the fourth quarter and we expect the integrated facility to start up in the first quarter of 2023. Our ramp up during 2023 will not provide for full year of production, but continued market strength is likely to support stronger margins than the mid-cycle economics depicted on this line. With LyondellBasell’s advantaged technology and affordable shale advantaged butane feedstocks, our new capacity’s starting up with the support of favorable markets.

Now, let’s turn to Slide 17 and discuss the results for our Refining segment. Second quarter EBITDA was $418 million with improved margins driven by increased demand for gasoline, diesel and jet fuel. In the second quarter, the Maya 2-1-1 spread expanded significantly to about $56 per barrel. We operated the refinery at 94% of capacity, with an average crude throughput of 52,000 barrels per day. In the near term, the Maya 2-1-1 spread is moderating from second quarter levels. We plan to run the refinery above 87% of capacity during the third quarter to perform a limited scope of planned maintenance.

Stephen Byrne Analyst at Bank of America Merrill Lynch

Okay. Yes, thank you. I appreciate the Slide 15 on your outlook for PO. And Torkel, maybe you could comment on what do you think that slide would have looked like historically? Clearly, now you have some reasons for it to be shaped like that with a lower butane and higher ethyl benzene and certainly higher chlorine, but is part of this just because TBA is so valuable right now and is this — is the shape of this your outlook in the years to come, is that part of your EBITDA forecast?

Torkel Rhenman Executive Vice President, Intermediates and Derivatives, and Refining at LyondellBasell Industries

So, hi, thank you for the question. I think as we looked at this, we’ve — and if you compare it to historical averages, it’s actually widened in terms of the differential in terms of our competitive advantage. And that’s primarily driven — right now the value of the co products, and of course that will fluctuate over the cycle, but fundamentally we see for the next — where we are right now and in the coming next two years, we are in a very favorable cycle situation.

Then as you drive — if you look at energy cost going up, that will also favor our technology. So I think fundamentally, where we are and looking at it right now, I think our technology is very advantaged.

Kevin McCarthy Analyst at Vertical Research Partners

Yes, good morning. Question for Ken, perhaps, I was wondering if you could comment on the U.S. propylene market. It seems to have gotten a bit sloppy here in recent months. I believe the U.S. July contract price declined another $0.04 earlier this week, and it makes four consecutive monthly declines of 35% negative or so. Can you comment on both sides, supply/demand, what you’re seeing there and whether we might expect that pattern to reverse in coming months?Kenneth (Ken) LaneExecutive Vice President, Global Olefins & Polyolefins (O&P) at LyondellBasell Industries

Sure. Kevin, thank you for the question. Yes, I do see — expect to see that trend in propylene reverse in the U.S. In fact, I would — I think we’re going to see that in August, already. We’re starting to see spot prices move up again for propylene. And I’ll go back to the answer that I gave earlier, there’s been a lot of downtime for polypropylene assets in the U.S. and that’s put some length into the propylene market. What’s happening now is you’re starting to see those assets run again and you’re going to start to see people refilling inventory levels because of all the downtime that we’ve had with polypropylene. And that’s going to start to bring the propylene price back up a little bit here in the back-half of the year.

John Roberts Analyst at Credit Suisse

Thank you. In the presentation, you talked about continued strength in propylene oxide, but I think the release discussed some slowing in polyurethane markets, which I guess we’d expect with auto and appliances and construction. As you begin commissioning the new PO plant, do you plan to take downtime in other plants to kind of keep the market balanced if we are facing a slowdown there?Torkel RhenmanExecutive Vice President, Intermediates and Derivatives, and Refining at LyondellBasell Industries

As part of our start-up plan, we have other outages scheduled for other plants that we have delayed in terms of managing our supply on the PO. But we also expect that the plan to ramp up during the year. And we expect that for next year, we will produce about 50% of the annualized capacity from the plant.Peter VanackerChief Executive Officer at LyondellBasell Industries

Yes, John, start-up is scheduled towards the end of Q1, 2023. And I said by Torkel then, you’ll gradually move into the nameplate capacity volumes. So therefore, if you average it out over the year 2023, then it would be approximately, we expect, 50% of the nameplate capacity.

https://www.marketbeat.com/earnings/transcripts/77941/

July 29, 2022

Olin Epoxy Comments from Investors Call

Olin Corporation (OLN) CEO Scott Sutton on Q2 2022 Results – Earnings Call Transcript

Jul. 29, 2022 12:15 PM ETOlin Corporation (OLN)

Q2: 2022-07-28 Earnings Summary

EPS of $2.78 beats by $0.25 | Revenue of $2.62B (17.77% Y/Y) misses by $41.49M

Olin Corporation (NYSE:OLN) Q2 2022 Earnings Conference Call July 29, 2022 9:00 AM ET

Company Participants

Steve Keenan – Director-Investor Relations

Scott Sutton – Chief Executive Officer

Todd Slater – Chief Financial Officer

Scott Sutton — President and Chief Executive Officer

Yeah. Thanks, Steve, and good morning to everybody. The Olin team did a great job delivering the highest quarterly EBITDA in our history, and delivering the fourth quarter in a row where EBITDA was $700 million, plus or minus, even though global economic conditions declined. We did what we said we would do.

We ran our model of leadership and accelerated our reduction of Olin share count without adding debt to our investment grade balance sheet. Still many imagine us all the way down in the earnings and free cash flow gutter in the imminent recession. So I will solely focus my remarks on what Olin looks like in a recession, and then on why Olin is a good investment in any event. So let’s go back and revisit the recession, EBITDA and free cash flow slide from our first quarter earnings call shown here as slide number 4.

Starting on the left-hand side of the slide, from our $2.8 billion EBITDA 12-month run rate, it is certainly not impossible that the CAPV business experiences lower, longer-term operating rate reductions as we focus on maintaining the value of our products through a recession. The associated percent drop in CAPV EBITDA could be like what our Epoxy business is experiencing. The combination of the two business performance reductions result in a $1 billion EBITDA drop. The right-hand side of the slide seems to be more interesting to most Olin followers.

Starting from the 2020 EBITDA result of $636 million, the three line items that we don’t expect to repeat in a recession under the new model are low core in pricing, selling cash-negative EDC and Winchester operating in a significantly smaller demand structure. All three line items seem to be well accepted. The fourth upside line item called other structural change needs some clarification though. Included in that upside line item, are the materialized fixed cost reductions for the closure of 865,000 ECU tons of chlor alkali production, an updated epichlorohydrin positioning, maintaining part of the improved epoxy pricing under our new model of value, an improved VCM contract arrangement in gains from multiple alliances.

In this recession scenario, Olin still generates $7 per share or more of levered free cash flow. In fact, we welcome the opportunity to further reduce our share count right through the middle of a recession. Obviously, we’re bullish on Olin. Slide No.

5 shows why. We’re the leader in every one of our businesses, and we run a model that looks around corners so we can position for the future today. So said differently, we take difficult actions early in the cycle. Part of that positioning is to temporarily reduce participation in markets with poor future quality indicators.

Our curtailments in Epoxy and associated upstreams at Freeport and Brazil, as well as an EDC and Freeport continue today. Both Epoxy and EDC represent weakness on the chlorine side of the ECU. Accordingly, we match our market participation to the weak side of the ECU. This is a fundamental change to our positioning from prior periods.

Additionally, we expect to curtail epoxy and associated upstreams again stated Germany late in the third quarter, in part due to the European energy situation. Our complete company strategy changed from heavy volume to nimble value along with the currently understated equity valuation positions us to buy up to 20% of our outstanding shares in a year even in a weak economic cycle. Our new $2 billion share repurchase program reflects our board’s confidence in Olin’s future earnings and cash flow generation. With our solid balance sheet and strong cash flow, the company is well positioned to execute on this attractive opportunity to invest in Olin.

Jeff Zekauskas — J.P. Morgan — Analyst

Thanks very much. Can you talk about the state of the Epoxy market and what your Epoxy volumes were like in the second quarter relative to the first?

Scott Sutton — President and Chief Executive Officer

Yes. Hey, Jeff. Yes. I mean in epoxy, our volumes in the second quarter actually declined from the first quarter.

In fact, we ran the lowest volume quarter in the history of the business. The big driver there, Jeff, is China. I mean China is at least 50% of the world’s consumption of epoxy, consumption has declined much more than supply decline. And essentially, China has flipped its trade flows has effectively become a net exporter of epoxy and epichlorohydrin and a lot of that material is moving into Asia.

And consequently, all of that material that is already produced in other parts of Asia, is moving into Europe and into North America. Now we all know this is a temporary situation, but it is incredibly dramatic and effectively, we’re running that business. You can think of it 50% sort of asset utilization and we’re taking those difficult choices and making those asset and market moves to make sure we preserve value through this time. It just really doesn’t get much worse than this.

This is sort of beyond what you would expect out of a recession when you combine the European situation as well.

Arun Viswanathan — RBC Capital Markets — Analyst

Great. Thanks. So you also mentioned, I guess, in the release that you’d likely see a reduction in rates at start as well. And so does that mean that you kind of flip back and increase the rates at Freeport? Could you just update on how you’re thinking about managing through this higher energy cost environment, and some of those demand trends that you’re seeing there?

Scott Sutton — President and Chief Executive Officer

Yes. Sure. I mean, when and if we take that action later here in the third quarter, I mean, we’ll balance some of that with ramping up production at our other sites. But still, in this time period, this third quarter and moving into fourth quarter, I mean you’re going to see us run our overall system in Epoxy still at very, very low rates as we reduce our participation.

Lots of areas of that market are still pretty poor quality.

Arun Viswanathan — RBC Capital Markets — Analyst

Thanks. And as a quick follow-up, you mentioned that China has flipped their trade flows in the Epoxy, I think. And just curious, if you’re concerned at all about that as it relates to caustic or other chlorine products just because — if your outlook does call for potentially increased caustic margins, or ECU margins, because of reductions in operating rates due to chlorine weakness, what — do you expect more exports to wind up on the West Coast or the East Coast here because the returns are so great? And — or is that unlikely? And then, I guess, just on that note, are you satisfied, I guess, with the 865,000 tons of closures. Does that kind of take care of all of your high-cost capacity, or would you expect to take more action on that side? Thanks.

Scott Sutton — President and Chief Executive Officer

Yeah. Sure. I mean, look, what you described has already been happening. I mean, with the slowdown generally in China demand relative to production, we’ve already seen additional caustic exports out of China, just like there’s been a lot of extra PVC exports as well.

So that has been going on. And our model is already adapted to offset that exposure. And we’ve seen those flows come in, and we’re working around flows. And still, we go out in certain cases and purchase some liquidity out of the global market space and maybe move it to a different area.

I mean, look, with regard to the 865,000 ECU tons, and just as a reminder, that 865,000 ECU tons included shutting down the remaining 200,000 tons of ECU capacity that is diaphragm based in McIntosh, Alabama. And we have already accomplished that. In fact, we pulled it forward, so all of the diaphragm capacity is down in McIntosh, Alabama. We’ll have to see we’re satisfied with that.

I mean, certainly, that’s made a difference in our ability to be nimble and drive for value. But that number has taken us to a reasonable point for now. There’s always other options.

Steve Byrne — Bank of America Merrill Lynch — Analyst

Thank you. Just a couple questions regarding the statement about you’re running — you could run your assets at 50% rates for a year. Where would you estimate your operating rates are likely to be in the third quarter? And can you comment on the significance of the one-year phase? Is that — is there something implicit in running at rate that is really unsustainable beyond just the financial impacts?

Scott Sutton — President and Chief Executive Officer

Yes. Sure. I mean the only business that we really provided indications on where we’re running is our Epoxy business. And we’ve said we’re running that business pretty close to 50% operating rates.

I would just say in our CAPB business that we’re well above that level and have plenty of room there. The only significance in the one year is we were trying to demonstrate what is the lowest full-year EBITDA that Olin might have in its future. So we picked a pretty long recession scenario. In other words, one year where the global economy declined so much that we had to run at that rate every day for a full year.

We’re trying to be a bit conservative here because clearly Olin’s equity value is driven by the view that under that kind of scenario, our EBITDA must be much lower than where we believe it is. So we’re just trying to present a compelling case that says we are good in a recession. And in fact we can create value via a really good capital allocation right through the middle of that recession. So that’s the idea that’s behind that 12-month window.

Mike Leithead — Barclays — Analyst

Got it. Makes sense. And then maybe just a second, I want to circle back to I think your answer to Jeff’s question about Epoxy and China turning to a net exporter. And just – when you look at other chemical products or cycles when you see that happen, things do tend to get a bit sloppy for a bit of time.

So can you just walk through your comfort that that’s not the case for Epoxy or EPI right now and try as you say?

Scott Sutton — President and Chief Executive Officer

Well, no, I would just say that it is already it takes for EPI and Epoxy. There is so much material that used to be imported into China that now because of the mismatch of China’s internal consumption versus their production. Now that material that used to move into China does not anymore. Most of that material came from other Asian countries.

Consequently those other Asian countries have been exporting that material to North America and to Europe. And that’s been going on for a number of months. And that is why our Epoxy earnings came down. We’ve elected not to participate in that have our value remain where it is.

And when that reverses, which it will reverse, we’re left where our volumes return but the return at the pricing level that we had notched it up to.

https://www.nasdaq.com/articles/olin-corporation-oln-q2-2022-earnings-call-transcript

July 29, 2022

Olin Epoxy Comments from Investors Call

Olin Corporation (OLN) CEO Scott Sutton on Q2 2022 Results – Earnings Call Transcript

Jul. 29, 2022 12:15 PM ETOlin Corporation (OLN)

Q2: 2022-07-28 Earnings Summary

EPS of $2.78 beats by $0.25 | Revenue of $2.62B (17.77% Y/Y) misses by $41.49M

Olin Corporation (NYSE:OLN) Q2 2022 Earnings Conference Call July 29, 2022 9:00 AM ET

Company Participants

Steve Keenan – Director-Investor Relations

Scott Sutton – Chief Executive Officer

Todd Slater – Chief Financial Officer

Scott Sutton — President and Chief Executive Officer

Yeah. Thanks, Steve, and good morning to everybody. The Olin team did a great job delivering the highest quarterly EBITDA in our history, and delivering the fourth quarter in a row where EBITDA was $700 million, plus or minus, even though global economic conditions declined. We did what we said we would do.

We ran our model of leadership and accelerated our reduction of Olin share count without adding debt to our investment grade balance sheet. Still many imagine us all the way down in the earnings and free cash flow gutter in the imminent recession. So I will solely focus my remarks on what Olin looks like in a recession, and then on why Olin is a good investment in any event. So let’s go back and revisit the recession, EBITDA and free cash flow slide from our first quarter earnings call shown here as slide number 4.

Starting on the left-hand side of the slide, from our $2.8 billion EBITDA 12-month run rate, it is certainly not impossible that the CAPV business experiences lower, longer-term operating rate reductions as we focus on maintaining the value of our products through a recession. The associated percent drop in CAPV EBITDA could be like what our Epoxy business is experiencing. The combination of the two business performance reductions result in a $1 billion EBITDA drop. The right-hand side of the slide seems to be more interesting to most Olin followers.

Starting from the 2020 EBITDA result of $636 million, the three line items that we don’t expect to repeat in a recession under the new model are low core in pricing, selling cash-negative EDC and Winchester operating in a significantly smaller demand structure. All three line items seem to be well accepted. The fourth upside line item called other structural change needs some clarification though. Included in that upside line item, are the materialized fixed cost reductions for the closure of 865,000 ECU tons of chlor alkali production, an updated epichlorohydrin positioning, maintaining part of the improved epoxy pricing under our new model of value, an improved VCM contract arrangement in gains from multiple alliances.

In this recession scenario, Olin still generates $7 per share or more of levered free cash flow. In fact, we welcome the opportunity to further reduce our share count right through the middle of a recession. Obviously, we’re bullish on Olin. Slide No.

5 shows why. We’re the leader in every one of our businesses, and we run a model that looks around corners so we can position for the future today. So said differently, we take difficult actions early in the cycle. Part of that positioning is to temporarily reduce participation in markets with poor future quality indicators.

Our curtailments in Epoxy and associated upstreams at Freeport and Brazil, as well as an EDC and Freeport continue today. Both Epoxy and EDC represent weakness on the chlorine side of the ECU. Accordingly, we match our market participation to the weak side of the ECU. This is a fundamental change to our positioning from prior periods.

Additionally, we expect to curtail epoxy and associated upstreams again stated Germany late in the third quarter, in part due to the European energy situation. Our complete company strategy changed from heavy volume to nimble value along with the currently understated equity valuation positions us to buy up to 20% of our outstanding shares in a year even in a weak economic cycle. Our new $2 billion share repurchase program reflects our board’s confidence in Olin’s future earnings and cash flow generation. With our solid balance sheet and strong cash flow, the company is well positioned to execute on this attractive opportunity to invest in Olin.

Jeff Zekauskas — J.P. Morgan — Analyst

Thanks very much. Can you talk about the state of the Epoxy market and what your Epoxy volumes were like in the second quarter relative to the first?

Scott Sutton — President and Chief Executive Officer

Yes. Hey, Jeff. Yes. I mean in epoxy, our volumes in the second quarter actually declined from the first quarter.

In fact, we ran the lowest volume quarter in the history of the business. The big driver there, Jeff, is China. I mean China is at least 50% of the world’s consumption of epoxy, consumption has declined much more than supply decline. And essentially, China has flipped its trade flows has effectively become a net exporter of epoxy and epichlorohydrin and a lot of that material is moving into Asia.

And consequently, all of that material that is already produced in other parts of Asia, is moving into Europe and into North America. Now we all know this is a temporary situation, but it is incredibly dramatic and effectively, we’re running that business. You can think of it 50% sort of asset utilization and we’re taking those difficult choices and making those asset and market moves to make sure we preserve value through this time. It just really doesn’t get much worse than this.

This is sort of beyond what you would expect out of a recession when you combine the European situation as well.

Arun Viswanathan — RBC Capital Markets — Analyst

Great. Thanks. So you also mentioned, I guess, in the release that you’d likely see a reduction in rates at start as well. And so does that mean that you kind of flip back and increase the rates at Freeport? Could you just update on how you’re thinking about managing through this higher energy cost environment, and some of those demand trends that you’re seeing there?

Scott Sutton — President and Chief Executive Officer

Yes. Sure. I mean, when and if we take that action later here in the third quarter, I mean, we’ll balance some of that with ramping up production at our other sites. But still, in this time period, this third quarter and moving into fourth quarter, I mean you’re going to see us run our overall system in Epoxy still at very, very low rates as we reduce our participation.

Lots of areas of that market are still pretty poor quality.

Arun Viswanathan — RBC Capital Markets — Analyst

Thanks. And as a quick follow-up, you mentioned that China has flipped their trade flows in the Epoxy, I think. And just curious, if you’re concerned at all about that as it relates to caustic or other chlorine products just because — if your outlook does call for potentially increased caustic margins, or ECU margins, because of reductions in operating rates due to chlorine weakness, what — do you expect more exports to wind up on the West Coast or the East Coast here because the returns are so great? And — or is that unlikely? And then, I guess, just on that note, are you satisfied, I guess, with the 865,000 tons of closures. Does that kind of take care of all of your high-cost capacity, or would you expect to take more action on that side? Thanks.

Scott Sutton — President and Chief Executive Officer

Yeah. Sure. I mean, look, what you described has already been happening. I mean, with the slowdown generally in China demand relative to production, we’ve already seen additional caustic exports out of China, just like there’s been a lot of extra PVC exports as well.

So that has been going on. And our model is already adapted to offset that exposure. And we’ve seen those flows come in, and we’re working around flows. And still, we go out in certain cases and purchase some liquidity out of the global market space and maybe move it to a different area.

I mean, look, with regard to the 865,000 ECU tons, and just as a reminder, that 865,000 ECU tons included shutting down the remaining 200,000 tons of ECU capacity that is diaphragm based in McIntosh, Alabama. And we have already accomplished that. In fact, we pulled it forward, so all of the diaphragm capacity is down in McIntosh, Alabama. We’ll have to see we’re satisfied with that.

I mean, certainly, that’s made a difference in our ability to be nimble and drive for value. But that number has taken us to a reasonable point for now. There’s always other options.

Steve Byrne — Bank of America Merrill Lynch — Analyst

Thank you. Just a couple questions regarding the statement about you’re running — you could run your assets at 50% rates for a year. Where would you estimate your operating rates are likely to be in the third quarter? And can you comment on the significance of the one-year phase? Is that — is there something implicit in running at rate that is really unsustainable beyond just the financial impacts?

Scott Sutton — President and Chief Executive Officer

Yes. Sure. I mean the only business that we really provided indications on where we’re running is our Epoxy business. And we’ve said we’re running that business pretty close to 50% operating rates.

I would just say in our CAPB business that we’re well above that level and have plenty of room there. The only significance in the one year is we were trying to demonstrate what is the lowest full-year EBITDA that Olin might have in its future. So we picked a pretty long recession scenario. In other words, one year where the global economy declined so much that we had to run at that rate every day for a full year.

We’re trying to be a bit conservative here because clearly Olin’s equity value is driven by the view that under that kind of scenario, our EBITDA must be much lower than where we believe it is. So we’re just trying to present a compelling case that says we are good in a recession. And in fact we can create value via a really good capital allocation right through the middle of that recession. So that’s the idea that’s behind that 12-month window.

Mike Leithead — Barclays — Analyst

Got it. Makes sense. And then maybe just a second, I want to circle back to I think your answer to Jeff’s question about Epoxy and China turning to a net exporter. And just – when you look at other chemical products or cycles when you see that happen, things do tend to get a bit sloppy for a bit of time.

So can you just walk through your comfort that that’s not the case for Epoxy or EPI right now and try as you say?

Scott Sutton — President and Chief Executive Officer

Well, no, I would just say that it is already it takes for EPI and Epoxy. There is so much material that used to be imported into China that now because of the mismatch of China’s internal consumption versus their production. Now that material that used to move into China does not anymore. Most of that material came from other Asian countries.

Consequently those other Asian countries have been exporting that material to North America and to Europe. And that’s been going on for a number of months. And that is why our Epoxy earnings came down. We’ve elected not to participate in that have our value remain where it is.

And when that reverses, which it will reverse, we’re left where our volumes return but the return at the pricing level that we had notched it up to.

https://www.nasdaq.com/articles/olin-corporation-oln-q2-2022-earnings-call-transcript

July 28, 2022

C.H. Robinson Results

C.H. Robinson surpasses profitability expectations

Earnings per share for 3PL rose 85.4% year over year to $2.67

Tony MulveyWednesday, July 27, 2022 3 minutes read

Listen to this article 0:00 / 5:25 BeyondWords

C.H. Robinson released financial results for the second quarter Wednesday, and North America’s largest pure play 3PL blew past Wall Street’s expectations for profitability.

The company reported diluted earnings per share of $2.67 compared to consensus estimates of $1.99, good for an 85.4% increase on a year-over-year (y/y) basis.

C.H. Robinson’s total revenue came in at $6.8 billion, in line with market expectations and an increase of 22.9% compared to the year-ago period. The company’s adjusted gross profit increased by 37.7% y/y, citing higher adjusted gross profits across all of its segments. 

The company’s profitability benefited from its ability to purchase capacity both domestically and internationally, combined with a complex and volatile freight environment. 

“Our second quarter was another quarter of record profits, as our business model performed as we would expect it to in this part of the cycle,” Bob Biesterfeld, president and CEO of C.H. Robinson, said in the news release.

The company’s North American Surface Transportation (NAST) segment reported revenue growth of 15.7% compared to a year ago, up to $4.1 billion. The company cited higher pricing for both truckload and less-than-truckload customers as well as an increase in truckload volumes. NAST revenues accounted for 61% of C.H. Robinson’s total revenue, down nearly 4 percentage points from last year. 

NAST’s adjusted gross profit increased by 43.1% y/y to $624.6 million, the highest level on record, surpassing even the fourth quarter of 2018. Adjusted gross profit for the truckload segment of NAST increased by 50.8% y/y due to a 48% rise in adjusted gross profit per shipment and a 2% increase in truckload volumes. 

“Our strong results were again driven by significant operating margin expansion in our North American Surface Transportation business, as we further improved the profitability of our truckload and less-than truckload businesses and grew our truckload volume in a declining market,” Biesterfeld said.

The company’s average truckload rate per mile, excluding fuel surcharge, increased by 1.5% compared to the same period a year ago. Conversely, the truckload linehaul costs, or the company’s buy rate, declined by 5%, resulting in a 46.5% increase in adjusted gross profit per mile.

LTL adjusted gross profit increased by 30.2% y/y despite a 5% decline in LTL volumes during Q2.

The segment also experienced inflationary pressures as operating expenses — increased salaries, incentive compensation and technology — increased by 21.9% y/y, according to C.H. Robinson. The company increased NAST headcount by 14.8% y/y during the quarter.

The segment’s adjusted gross margin percentage did expand by 290 basis points y/y to 15.1%, a 280 bps increase sequentially.

Global Forwarding, another segment of C.H. Robinson, took a slight breather in Q2 as revenues increased by 44.3% y/y, compared to the 89.8% growth in Q2, to $2.1 billion. Sequentially, Global Forwarding revenue declined by 4.6%. The segment’s adjusted gross profit increased by 35.9% to $324.4 million.

The company expanded adjusted gross profit on the ocean and in the air. Ocean adjusted gross profit increased by 51.1%, thanks to a 47.5% increase in adjusted gross profit per shipment and a 2.5% rise in shipments. Adjusted gross profit in the air increased by 7.5%, benefiting from a 14% jump in adjusted gross profit per metric ton shipped, offsetting the 6% decline in metric tons shipped.

Global Forwarding followed a similar pattern to NAST when it came to operating expenses. The segment’s operating expense increased by 20.2%, driven by the most of the same factors: increased salaries, incentive compensation, technology and travel expenses. The company continues to hire, growing the Global Forwarding headcount by 17.3% in the quarter.

All other corporate results, which include Robinson Fresh, Managed Services and Other Surface Transportation, experienced revenue growth of 12.4% to $558.2 million. Adjusted gross profit for Robinson Fresh increased 16.8% to $35 million; Managed Services rose 5.3% to $27.6 million, a sequential decline of $500,000; and Other Surface Transportation jumped 13.4% to $20 million.

Biesterfeld noted that amid lingering questions about the global economy, inflationary pressures and consumer spending, C.H. Robinson’s business model puts the company in position to provide continued strong financial results.

https://www.freightwaves.com/news/ch-robinson-surpasses-profitability-expectations?sfmc_id=63552105