Olin Corporation (OLN)

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Olin (OLN)

Q4 2012 Earnings Call

January 29, 2013 10:00 am ET

Executives

Joseph D. Rupp - Chairman, Chief Executive Officer, President and Chairman of Executive Committee

John E. Fischer - Chief Financial Officer and Senior Vice President

Analysts

Sabina Chatterjee - Wells Fargo Securities, LLC, Research Division

Edward H. Yang - Oppenheimer & Co. Inc., Research Division

Christopher W. Butler - Sidoti & Company, LLC

Donald Carson - Susquehanna Financial Group, LLLP, Research Division

Herbert Hardt - Monness, Crespi, Hardt & Co., Inc., Research Division

Bill Carroll - UBS Investment Bank, Research Division

Dmitry Silversteyn - Longbow Research LLC

Aleksey V. Yefremov - BofA Merrill Lynch, Research Division

Jason Freuchtel

Richard O'Reilly

Presentation

Operator

Good morning, everyone and welcome to the Olin Corporation Fourth Quarter Earnings Conference Call. [Operator Instructions] Please also note today's event is being recorded. At this time, I'd like to turn the conference call over to your moderator, Mr. Joseph Rupp, Chairman, President and CEO. Mr. Rupp, please go ahead.

Joseph D. Rupp

Good morning, and thank you for joining us today. With me this morning are John Fischer, our Senior Vice President, Chief Financial Officer; John McIntosh, our Senior Vice President of Operations; and Larry Kromidas, our Assistant Treasurer and Director of Investor Relations.

Last night, we announced that net income in the fourth quarter of 2012 was $34.6 million or $0.43 per diluted share, which compares to $18.7 million or $0.23 per diluted share in the fourth quarter of 2011. Sales in the fourth quarter of 2012 were $587.6 million compared to $445.8 million in the fourth quarter of 2011. During 2012, Olin achieved $373 million of adjusted EBITDA, which is the highest in the history of the company. The record EBITDA was driven by strong results in the Winchester business, improved contributions from bleach and hydrochloric acid in the Chlor Alkali business, contributions from K.A. Steel, chemical distribution business that we acquired in August.

Fourth quarter 2012 results included pretax restructuring charges, $2.5 million compared to fourth quarter 2011 restructuring charges of $4.1 million. These charges are primarily associated with the conversion of the Charleston, Tennessee Chlor Alkali plant, mercury cell to membrane technology and the ongoing relocation of the Winchester centerfire ammunition manufacturing operations in East Alton, Illinois to Oxford, Mississippi.

Fourth quarter 2012 results also included a $4.9 million insurance recovery related to an unplanned first and second quarter 2012 Chlor Alkali customer outage, the $3 million favorable settlement of property tax dispute. In the fourth quarter of 2012, Chlor Alkali business experienced seasonally weak demand, which improved late in the quarter. This demand profile is reflected by the operating rate to a 76% in the quarter that increased 81% in the month of December.

ECU netbacks in the quarter declined 2% compared to the fourth quarter of 2011, but increased 4% compared to the third quarter of 2012. Winchester business began to experience increased demand around the time of the election when the elevated level of demand continued to the balance of the year. Fourth quarter 2012 commercial volumes increased in excess of 20% into the fourth quarter of 2011.

First quarter 2013 net income is forecast to be in the $0.40 to $0.45 per diluted share range. The first quarter earnings per share forecast equates to a $95 million to $100 million adjusted EBITDA forecast. [indiscernible] first quarter 2013 earnings are expected to decline compared to the first quarter of 2012 due to lower volumes and pricing. Commercial volumes in Winchester is expected to remain at elevated levels as a result of first quarter 2013 earnings were forecast to significantly exceed first quarter 2012 earnings.

First quarter 2013 results were expected to include approximately $3.5 million of restructuring charges.

2012 was a significant year for Olin, and we achieved a number of strategic milestones. During October, Olin successfully exited all Chlor Alkali manufacturing using mercury cell technology. The Charleston, Tennessee facility, the sodium hydroxide mercury cell room was shut down in September and the new membrane cell room began operation appearing the same month, and is currently operating at design rate. Charleston potassium hydroxide mercury cell room was shut down in October and the new membrane cell room began operation in November, and it too, is operating at the design rate. And finally, the mercury cell room at the Augusta, Georgia facility discontinued production in September. As a company, Olin is extremely pleased to have completed these actions and the associated capital -- having to have the associated capital spending behind us.

In August, we completed the acquisition of K.A. Steel, and in the 4 plus months we've owned it, it generated approximately $10 million of EBITDA. And excluding Olin's one-time transaction costs, was accretive to both earnings and cash flow in 2012. We continue to believe this uniquely focused chemical distributor will enhance our Chemical business, increasing the amount of our Chlor Alkali capacity that can be sold as value-added products.

During 2012, we also continued to grow our Bleach business. Bleach shipments in 2012 increased 11% compared to 2011. And with 2 of the 3 planned HyPure bleach plants in operation and running at plant rates, we expect to increase bleach shipments in additional 10% to 15% in 2013. We also expect the third HyPure plant that will be located in Henderson, Nevada to be operational in the first quarter of 2013. Finally, the ongoing Winchester center relocation project began to generate positive profit contributions in the third quarter of 2012, which continued into the fourth quarter. This has been accomplished less than 18 months after the new building was completed and the project remains on schedule for the expected completion in 2016.

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