Olin Corporation (NYSE:OLN) Q3 2023 Earnings Call Transcript

Olin Corporation (NYSE:OLN) Q3 2023 Earnings Call Transcript October 27, 2023

Operator: Good morning and welcome to Olin Corporation’s Third Quarter 2023 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Steve Keenan, Olin’s Director of Investor Relations. Please go ahead, Steve.

Steve Keenan: Thank you, Jason. Good morning everyone and thank you for joining us today. Before we begin, let me remind you 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 that 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 third quarter earnings press release. A copy of today’s transcription slides will be available on our website in 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 will be happy to take your questions.

Scott Sutton: Thanks Steve and good morning to all. In the third quarter, the Olin team delivered what we promised, which was $315 million of adjusted EBITDA, no sequential reduction in chlorine pricing, and prioritization on share repurchases. Additionally, we complemented those confirmed deliveries with the acquisition of the White Flyer Clay Targets Business at forecasted returns substantially better than share repurchase returns. Looking forward, Olin’s strategy continues to be championed by our teammates and our Board of Directors. As such, in the fourth quarter, and potentially beyond the fourth quarter, we are taking a dramatic, but necessary step to change the direction of declining ECU values. It is a challenging market and we’ve already actioned this initiative to force a rebound of our ECU values, which involves idling significant chunks of our assets and slashing our participation in weak markets.

This value accelerator initiative results in a $100 million incremental penalty to adjusted EBITDA in the fourth quarter relative to our previous expectation, but delivers an anticipated improvement in 2024 adjusted EBITDA relative to 2023. We are confident of that improvement. Even though we operate in an environment where bad news creates a negative recency bias, please never forget that in chlor alkali, we believe future demand growth exceeds future supply growth, and that growth may also be unbalanced across the ECU, all favorable for Olin. We are confident in that favorable outlook. So, Jason, that concludes my opening remarks and we can now proceed to questions.

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Q&A Session

Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Aleksey Yefremov from KeyBanc Capital Markets. Please go ahead

Aleksey Yefremov: Thank you. Scott, I believe this is the first earnings call since the news came out. Can you address some of the concerns that are out there about Olin’s strategy, whether — what the Board and you decided reflect how successful or not the strategy is? And any other questions from to it?

Scott Sutton : Okay. Hi, Alex, I think I understood the question. But look, I mean there’s absolutely change in the momentum that Olin has going forward. We absolutely all are pulling the same way in terms of our model, our strategy, how we lift people and our shareholder value allocation scheme as well. So there’s absolutely no dispute in any of that. And we’re running a process there.

Aleksey Yefremov: Thanks, Scott. And then turning to your fourth quarter. Chlor Vinyls segment earned about $280 million EBITDA in 3Q, and you’re estimating about $100 million EBITDA impact from your idling actions in the fourth quarter. Just seems like a very large number relative to what the segment earns in total. So could you maybe talk about how you came up with $100 million and whether you view that number as something we could simply add back and assume that the real run rate is something like $300 million maybe in Q1 of next year or Q2?

Scott Sutton : Well, what I would say is, yes, it’s certainly a big number, but this is a very big activation as well. And we’ve said probably through the previous six quarterly earnings calls that there could very well be order where we have to take a significant action to make sure that our cash delivery over any longer period, say, four to six quarters is maximized. And that’s what this is intended to do, right? It consists of significant actions. We are idling major assets not participating in a lot of weak markets and additionally going out there and parlaying a bit and managing some of that liquidity to a more favorable place for Olin. So, yes, it’s significant.

Aleksey Yefremov: Thanks, Scott.

Scott Sutton : Thanks.

Operator: The next question comes from Kevin McCarthy from Vertical Research Partners. Please go ahead.

Kevin McCarthy : Good morning. Scott, having shut down St. Gabriel and I think, at least a large unit at Freeport, what are you looking for or what should we look for as outsiders to gauge whether or not you may restart those assets? And do you have a preliminary idea of how long the outage might take?

Scott Sutton : Yes. I mean, hi, Kevin, look, I mean this is a fourth quarter activation, but it doesn’t mean that it absolutely finishes in the fourth quarter. If we need to continue to get the desired result that we need to deliver the most shareholder value, then we’re going to continue it, right? I think it’s going to be challenging for the outside world to see when we might change or reduce this value acceleration initiative. But we have many internal signs that we can see and we know when it’s effective because, we watch excess liquidity out there in the world. We watch if the strong side of the ECU is being chased by others at the detriment of both sides of the ECU. We watch very carefully how much material is entering trade flows out of China.

And there’s already less material entering trade flows. We watch that increasing price that you see in caustic and the attempts to increase price in Europe and China. And those things are happening, but may be fluttering. Already, there are some requests for merchant chlorine volume that we can’t supply. Already, there are some requests for EDC volumes that we can’t supply. Already HCL price is increasing, and there are requests for volumes that we can’t supply. So those are the kind of things that we’ll watch. Harder for the outside world to see that. Those indications will be more apparent in the first quarter, and they’ll appear in our results more than likely in the second quarter.