Olin Corporation (OLN) Q3 2024 Earnings Call Transcript

Oct. 25, 2024 12:37 PM ETOlin Corporation (OLN) Stock

Q3: 2024-10-24 Earnings Summary

EPS of -$0.15 misses by $0.18 | Revenue of $1.59B (-4.90% Y/Y) beats by $8.64M

Olin Corporation (NYSE:OLN) Q3 2024 Earnings Conference Call October 25, 2024 9:00 AM ET

Company Participants

Steve Keenan – Director of IR
Ken Lane – President and CEO
Todd Slater – CFO

Ken Lane

Thanks, Steve. And good morning, everyone. Olin’s third quarter was significantly impacted by operational disruptions as a result of hurricane Beryl damage. I want to thank our team at the Freeport site for their efforts to restart our assets, which were shut down in early July due to the hurricane. Multiple plants are now returning to normal operations. The Olin team worked through the difficult time safely and expeditiously while facing hurricane related challenges at home and in their communities. Now turning to our third quarter results on Slide 3. The quarter unfolded slightly better than expected for our chemicals businesses, excluding the impact of Hurricane Beryl, which came in at $110 million versus our initial estimate of $100 million during the quarter. We will have some residual hurricane impact in the fourth quarter due to additional downtime and the completion of some less critical infrastructure repairs. Excluding the impacts from Hurricane Beryl, chlor alkali products achieved a solid quarter with sequential improvement. The aftermath of recent hurricanes also drove third quarter demand for bleach and hydrochloric acid higher in support of water treatment and cleaning end uses. During the third quarter, caustic prices increased supported by some demand improvement in export markets as well as continued constraints in supply related to global industry planned and unplanned outages. Epoxy prices and margins continue to slowly improve, though volumes remain weak. We remain focused on delivering cost reductions during a very challenging market environment. Our third quarter epoxy resin volumes were sequentially lower as we started our planned start at Germany turnaround. Third quarter Winchester commercial ammunition volume fell significantly short of our expectations. Due to softness in consumer demand at our customers’ retail outlets, retailers are now slowing their purchases to normalize inventories by year end. This headwind is partially offset by continued strength in defense demand.

Turning to Slide 4. Let’s take a closer look at our chlor alkali and vinyls business. With Hurricane Beryl behind us, our Freeport plants are returning to normal operations. Caustic soda is a strong side of the ECU. And with global industry supplies constrained, Olin will stay focused on our value first commercial model to meet demand. Caustic soda demand continues to be strong with alumina and pulp and paper leading the way. South American demand has been the most robust with two recent world scale pulp and paper plant startups. Index pricing for US Gulf Coast caustic exports finished the third quarter up by over $100 sequentially, a 30% improvement over the second quarter index. North American merchant chlorine demand remains steady with positive trade press outlooks for vinyls and titanium dioxide heading into 2025. We expect agricultural related consumption to pick up seasonally late in fourth quarter. Chlorine into water treatment is expected to slow seasonally and pick up again during the first quarter. Our EDC participation remains disciplined. EDC values are up slightly year-over-year in line with PVC, but we remain diligent to keep our EDC position value driven.

For a look at our epoxy business, let’s turn to Slide 5. During the third quarter, we began our planned Stade, Germany outage, which occurs once every six years and is proceeding on plan and budget for completion in the fourth quarter. As the largest and only integrated producer of epoxy in the European Union, Stade remains an important asset for Olin and that value is expected to increase as we realize contractual cost savings in 2026. Despite improving margins, resin and formulated solution volumes remain challenged in both the US and Europe. The inflow of China subsidized epoxy continues unabated even with local production costs rising in Asia on tightening glycerin feedstocks. In September, the US International Trade Commission announced preliminary countervailing duties for epoxy imports, which only impacted China. We hope the US ITC’s upcoming November antidumping duties will level the playing field across Korea and Taiwan and appropriately value domestic production of these critical materials and stem the flow of unfairly subsidized Asian imports. In parallel, the European Union is also evaluating epoxy antidumping duties with preliminary determinations expected in mid-2025.

Arun Viswanathan

And then if I could just ask a couple of follow-ups on that. So I guess when you think about Epoxy, it sounds like you’re expecting a date in November, where I get maybe an update on the antidumping situation. I guess, what are your expectations for that? And does that maybe drive some optimism about that business for ’25? And I guess when you think about that, if you were to add back some of your impacts, the 135. Is that the only driver that you really see adding back for ’25 or would there be some other potential uplift to ’25 EBITDA?

Ken Lane

Well, obviously, one of the uplifts is going to — we’re not planning on having another Hurricane Beryl, which is certainly a good thing. Yes, we are expecting the US government, the ITC to make an announcement here in early November. It’s the government, I don’t want to get too optimistic or too pessimistic. We’ve done all that we can to make the case that this is unfair trade that’s going on. And hopefully, you had a chance to take a look at the op ed that I had written a week or so ago, but we’re doing all that we can to support the case. We’ll see where the ITC ends up. We have been marginally successful throughout the year of steadily increasing pricing. However, I’ll tell you that it’s still in the face of a very strong volume that’s continuing to come in from Asia and that’s still very concerning. But hopefully, we’re going to get some favorable outcome here in early November. But it’s — right now, I can’t give you a guess whether it’s going to be positive or not.

Aleksey Yefremov

And then in epoxy, you were $200 per ton price increase. Can you tell us how successful it was so far and what do you expect from that in Q4 and Q1?

Ken Lane

So we announced that for October 1st and we are optimistic we are seeing some traction on that price increase in Q4. I mentioned it a minute ago, we’re still seeing the volume coming in from Asia. So I think some people are starting to maybe react a little bit to concerns around what may happen with tariffs. But we have seen some success in implementing that price increase. It’s really too early to say for the quarter. But I do think we’re going to see some price gains in epoxy resins in Q4. But it did not make up anywhere close to where we need to be to get back to a reasonable level of margin there.

Steve Byrne

And maybe just one more portfolio related question, and that is, in a year from now when the contract with Dow and have you given more thought and have a conceptual interest in what to do with that chlorine capacity and low cost ethylene. Do you have some thoughts on that?

Ken Lane

Steve, yes, as you can imagine, when we’re working through the strategy that we’re thinking about for the company longer term and the Investor Day that’s coming up, you can imagine that, that’s going to be a topic that we will talk about is our portfolio, not just in terms of businesses but also assets going forward. So we’ll be able to share more with that — more with you on that at the Investor Day in December.

Mike Leithead

And then second, Dow initiated a strategic review yesterday of some of their European assets, and I believe that includes their Stade data complex. I guess, one, are there any Dow assets there that would be of interest and fit to Olin? And two, if they decide another outcome there, how, if at all, does that impact your Stade operations?

Ken Lane

Mike, I really don’t know enough. I saw the announcement just like you did but I don’t know enough about what they’re doing to make any comment there. Stade is a site that has been really challenged for us in our portfolio and we’ve been able to work through that without to get to an agreement that at least helps to improve the viability of that site for Olin. That really doesn’t kick in until 2026. As you can imagine, we’re constantly talking to Dow because we’ve got such a strong relationship with them in terms of interdependency and we’ll continue to have discussions with them. But I don’t have anything that I can comment on. I just don’t know enough about what they’re doing.

John Roberts

And then why do you think the higher glittering costs in China aren’t having any impact on pricing?

Ken Lane

Can you repeat that?

John Roberts

We have higher glittering costs to the Chinese exporters, it doesn’t seem to be having any impact on pricing…

Ken Lane

Well, I think that’s exactly supporting our case for the tariffs. They continue to they continue to produce the low cost and push that volume into the market, which is then allowing other Epoxy resin producers to export below cost. And that’s exactly the case that we’re making to the US ITC and to the EU.

John Roberts

Why don’t you think the pricing is even lower then if glistering costs don’t matter?

Ken Lane

I think it’s related to the amount of supply that they brought on. So they want to operate their assets. They’ve added a lot of capacity and they want to run those assets and they’re willing to do it at a loss. That’s all I can tell you.

David Begleiter

Staying on epoxy. How do imports in ’24 into the US compare versus ’23?

Ken Lane

Well we’re still seeing significantly higher import volumes and that has really been unabated. So we’re not seeing any in that tide. It’s continued to grow. And as I just mentioned to John, as they add capacity, they’re going to continue to push that volume into the market. We’re not seeing that slow down at all.

David Begleiter

But do you have a number for the increase year-over-year?

Ken Lane

I don’t, Dave, but I know that it has increased, but I don’t have a percentage.

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