Market Overview

Olin Announces Third Quarter 2019 Results

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CLAYTON, Mo., Oct. 31, 2019 /PRNewswire/ --

Third Quarter 2019 Highlights

  • Net income of $44.2 million and adjusted EBITDA of $292.9 million
  • Full year 2019 net income forecast of $30 million to $59 million
  • Adjusted EBITDA 2019 forecast of $930 million to $980 million

Olin Corporation (NYSE:OLN) announced financial results for the third quarter ended September 30, 2019.

Olin logo (PRNewsfoto/Olin Corporation)

Third quarter 2019 reported net income was $44.2 million, or $0.27 per diluted share, which compares to third quarter 2018 reported net income of $195.1 million, or $1.16 per diluted share.  Third quarter 2018 results included a pretax gain of $110.0 million of insurance recoveries for environmental costs incurred and expensed in prior periods.  Third quarter 2019 adjusted EBITDA of $292.9 million excludes depreciation and amortization expense of $156.0 million, restructuring charges of $4.9 million, and information technology integration costs of $24.5 million.  Third quarter 2018 adjusted EBITDA was $398.3 million.  Sales in the third quarter of 2019 were $1,576.6 million compared to $1,872.4 million in the third quarter of 2018.

John E. Fischer, Chairman, President and Chief Executive Officer, said, "During the third quarter, the Chlor Alkali Products and Vinyls and the Epoxy businesses have experienced weakness in demand across several product areas, which negatively impacted both volumes and pricing.  We expect further weakness in both volume and price in the fourth quarter.  In the third quarter of 2019, adjusted EBITDA in the Winchester business improved from the third quarter of 2018 levels.  This represents the first quarter since 2016 that the business has realized a year-over-year quarterly improvement in adjusted EBITDA.

"The previously disclosed award by the U.S. Army to Olin's Winchester business to operate the government-owned Lake City ammunition facility in Independence, Missouri is a significant event for Winchester.  We expect this multi-year contract to increase Winchester's annual revenue by approximately $450 million to $550 million with a corresponding improvement in adjusted EBITDA of approximately $40 million to $50 million annually.  The contract becomes effective in the fourth quarter of next year."

OUTLOOK

Olin believes the challenging demand and price environment that the Chlor Alkali Products and Vinyls and the Epoxy businesses have been facing will continue through the fourth quarter of 2019.  As a result, Olin now expects full year 2019 net income of $30 million to $59 million, with corresponding adjusted EBITDA of $930 million to $980 million.

The Chlor Alkali Products and Vinyls business expects to continue to experience lower demand from urethane, agricultural, refrigerant, alumina, and pulp and paper customers.  Third quarter 2019 caustic soda prices declined slightly in Olin's system compared to second quarter 2019.  Caustic soda prices are expected to decline further in the fourth quarter.  The fourth quarter decline is forecast to occur primarily in the export market. 

The Epoxy business has faced weaker product demand from automotive, electrical laminate, and industrial coatings customers throughout 2019, which has put pressure on epoxy resin prices.  During the first nine months of 2019, epoxy resin prices have declined approximately 15% globally.  Additional epoxy resin price declines are forecast in fourth quarter 2019.  During the early part of the year, these price declines were partially offset by lower raw material costs, primarily benzene and propylene costs.  The third quarter actual and the fourth quarter forecast for raw material costs are similar to the second quarter levels.

SEGMENT REPORTING

Olin defines segment earnings as income (loss) before interest expense, interest income, other operating income (expense), non-operating pension income, other income, and income taxes and includes the (losses) earnings of non-consolidated affiliates in segment results consistent with management's monitoring of the operating segments.

CHLOR ALKALI PRODUCTS AND VINYLS

Chlor Alkali Products and Vinyls sales for the third quarter 2019 were $876.3 million compared to $1,051.1 million in the third quarter 2018.  Third quarter 2019 segment earnings were $112.7 million compared to $210.8 million in the third quarter 2018.  The decreases in the third quarter sales and segment earnings compared to the third quarter of 2018 were primarily due to decreased caustic soda pricing and volumes.  The lower segment earnings compared to prior year also reflected lower raw material and lower operating costs.  Chlor Alkali Products and Vinyls third quarter 2019 results included depreciation and amortization expense of $122.2 million compared to $122.3 million in the third quarter 2018.

EPOXY

Epoxy sales for the third quarter 2019 were $511.6 million compared to $647.3 million in the third quarter 2018.  The decrease in Epoxy sales was primarily due to lower product prices and lower volumes.  The third quarter 2019 segment income was $24.2 million compared to $31.1 million in the third quarter 2018.  The decrease in Epoxy segment earnings was primarily due to lower product prices, partially offset by lower raw material costs, primarily benzene and propylene, and lower operating costs.  Epoxy third quarter 2019 results included depreciation and amortization expense of $26.9 million compared to $25.2 million in the third quarter 2018.

WINCHESTER

Winchester sales for the third quarter 2019 were $188.7 million compared to $174.0 million in the third quarter 2018.  The increase in sales was primarily due to higher commercial sales.  Third quarter 2019 segment earnings were $13.9 million compared to $10.3 million in the third quarter 2018.  The increase in segment earnings was primarily due to higher commercial ammunition volumes and lower commodity and other material costs, partially offset by lower selling prices.  Winchester third quarter 2019 results included depreciation and amortization expense of $5.2 million compared to $4.9 million in the third quarter 2018.

CORPORATE AND OTHER COSTS

Third quarter 2019 credits to income for environmental investigatory and remedial activities were $0.8 million compared to $110.8 million in the third quarter 2018.  The credits for the third quarter 2018 included a gain of $110.0 million from an environmental insurance-related settlement.  Without the settlement, credits to income for environmental investigatory and remedial activities would have been $0.8 million in the third quarter 2019 compared to $0.8 million in the third quarter 2018.

Other corporate and unallocated costs in the third quarter of 2019 increased by $0.7 million compared to the third quarter 2018, primarily due to higher costs associated with the implementation of new enterprise resource planning, manufacturing, and engineering systems, and the related infrastructure costs, partially offset by lower legal fees associated with the environmental recovery actions in 2018.

DIVIDEND AND SHARE REPURCHASES

On October 23, 2019, Olin's Board of Directors declared a dividend of $0.20 on each share of Olin common stock.  The dividend is payable on December 10, 2019, to shareholders of record at the close of business on November 12, 2019.  This will be the 372nd consecutive quarterly dividend to be paid by the Company.

On August 5, 2019, Olin entered into an accelerated share repurchase (ASR) agreement with Goldman Sachs & Co. LLC to repurchase $100.0 million of Olin's common stock.  Under this agreement, Olin paid $100.0 million to Goldman Sachs and received an initial delivery of 4.3 million shares in August 2019.  The transaction had not settled as of September 30, 2019; however, in October 2019, we received approximately 1.4 million additional shares as settlement of the transaction, which resulted in a total of approximately 5.7 million shares repurchased under this ASR agreement.  During 2019, approximately 7.4 million shares of common stock have been repurchased at a cost of $135.6 million.  As of September 30, 2019, Olin had approximately $314 million available under its share repurchase authorization.

CONFERENCE CALL INFORMATION

Olin senior management will host a conference call to discuss third quarter 2019 financial results at 10:00 a.m. Eastern time on Friday, November 1, 2019.  Associated slides, which will be available one hour prior to the call, and the conference call will be accessible via webcast through Olin's website, www.olin.com.  An archived replay of the webcast will also be available in the Investor Relations section of Olin's website beginning at 12:00 p.m. Eastern time.  A final transcript of the call will be posted the day following the event.

COMPANY DESCRIPTION

Olin Corporation is a leading vertically-integrated global manufacturer and distributor of chemical products and a leading U.S. manufacturer of ammunition.  The chemical products produced include chlorine and caustic soda, vinyls, epoxies, chlorinated organics, bleach and hydrochloric acid.  Winchester's principal manufacturing facilities produce and distribute sporting ammunition, law enforcement ammunition, reloading components, small caliber military ammunition and components, and industrial cartridges.

Visit www.olin.com for more information on Olin.

FORWARD-LOOKING STATEMENTS

This communication includes forward-looking statements.  These statements relate to analyses and other information that are based on management's beliefs, certain assumptions made by management, forecasts of future results, and current expectations, estimates and projections about the markets and economy in which we and our various segments operate.  The statements contained in this communication that are not statements of historical fact may include forward-looking statements that involve a number of risks and uncertainties.

We have used the words "anticipate," "intend," "may," "expect," "believe," "should," "plan," "project," "estimate," "forecast," "optimistic," and variations of such words and similar expressions in this communication to identify such forward-looking statements.  These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions, which are difficult to predict and many of which are beyond our control.  Therefore, actual outcomes and results may differ materially from those matters expressed or implied in such forward-looking statements.  We undertake no obligation to update publicly any forward-looking statements, whether as a result of future events, new information or otherwise.  The payment of cash dividends is subject to the discretion of our board of directors and will be determined in light of then-current conditions, including our earnings, our operations, our financial conditions, our capital requirements and other factors deemed relevant by our board of directors.  In the future, our board of directors may change our dividend policy, including the frequency or amount of any dividend, in light of then-existing conditions.

The risks, uncertainties and assumptions involved in our forward-looking statements, many of which are discussed in more detail in our filings with the SEC, including without limitation the "Risk Factors" section of our Annual Report on Form 10-K for the year ended December 31, 2018, include, but are not limited to, the following:

  • sensitivity to economic, business and market conditions in the United States and overseas, including economic instability or a downturn in the sectors served by us, such as ammunition, vinyls, urethanes, and pulp and paper, and the migration by United States customers to foreign locations;
  • the cyclical nature of our operating results, particularly declines in average selling prices in the chlor alkali industry and the supply/demand balance for our products, including the impact of excess industry capacity or an imbalance in demand for our chlor alkali products;
  • our reliance on a limited number of suppliers for specified feedstock and services and our reliance on third-party transportation;
  • higher-than-expected raw material, energy, transportation, and/or logistics costs;
  • failure to control costs or to achieve targeted cost reductions;
  • new regulations or public policy changes regarding the transportation of hazardous chemicals and the security of chemical manufacturing facilities;
  • the occurrence of unexpected manufacturing interruptions and outages, including those occurring as a result of labor disruptions and production hazards;
  • complications resulting from our multiple enterprise resource planning systems and the conversion to a new system;
  • changes in, or failure to comply with, legislation or government regulations or policies;
  • the failure or an interruption of our information technology systems;
  • economic and industry downturns that result in diminished product demand and excess manufacturing capacity in any of our segments and that, in many cases, result in lower selling prices and profits;
  • the effects of any declines in global equity markets on asset values and any declines in interest rates used to value the liabilities in our pension plan;
  • unexpected litigation outcomes;
  • adverse changes in international markets, including economic, political or regulatory changes;
  • weak industry conditions affecting our ability to comply with the financial maintenance covenants in our senior credit facility;
  • failure to attract, retain and motivate key employees;
  • our substantial amount of indebtedness and significant debt service obligations;
  • costs and other expenditures in excess of those projected for environmental investigation and remediation or other legal proceedings;
  • our long range plan assumptions not being realized causing a non-cash impairment charge of long-lived assets; and
  • adverse conditions in the credit and capital markets, limiting or preventing our ability to borrow or raise capital.

All of our forward-looking statements should be considered in light of these factors.  In addition, other risks and uncertainties not presently known to us or that we consider immaterial could affect the accuracy of our forward-looking statements.

2019-22

 

Olin Corporation

Consolidated Statements of Operations(a)


Three Months


Nine Months


Ended September 30,


Ended September 30,

(In millions, except per share amounts)

2019

2018


2019

2018







Sales

$  1,576.6

$  1,872.4


$  4,722.9

$  5,311.1

Operating Expenses:







Cost of Goods Sold (b)

1,357.6

1,441.7


4,168.6

4,431.1


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