Olin Corporation (OLN)

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Olin Corporation (OLN)

Q3 2009 Earnings Call Transcript

October 27, 2009 10:00 am ET

Executives

Joseph Rupp – Chairman, President and CEO

John Fischer – VP and CFO

John McIntosh – VP and President, Chlor Alkali Products Division

Analysts

Sabina Chatterjee – BB&T Capital Markets

Ed Yang – Oppenheimer & Co.

Christopher Butler – Sidoti & Co.

Don Carson – UBS

Philip [ph] – Royal Bank of Scotland

Kristen McDuffy – Goldman Sachs

Lavon Von Redden – Hocky

Richard O'Reilly – Standard & Poor's

Arun Viswanathan – UBS

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Q3 2009 Olin Corporation Earnings Conference Call. My name is Kiana and I will be your operator for today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator instructions).

I would now like to turn the call over to Mr. Joseph Rupp, Chairman, President and CEO. Please proceed.

Joseph Rupp

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

Last night, we announced that net income in the third quarter of 2009 was $39.4 million or $0.50 per diluted share compared to $37.7 million or $0.49 per diluted share in the third quarter of 2008. For the third consecutive quarter, Winchester achieved the highest level of earnings in its history reflecting the combination of seasonally strong sales, the continuation of a stronger-than-normal demand that began in the fourth quarter of 2008, and lower costs.

Winchester earnings more than doubled in the third quarter of 2009 compared to the third quarter of 2008 driven by commercial sales which increased 22% year-over-year and improved costs.

While Alkali segment earnings of $3.9 million exceeded our expectations of a loss in the quarter due to improved pricing and higher volumes. As expected, Chlor Alkali earnings were significantly lower than last year due to lower ECU netbacks and lower volumes while Alkali sales declined 37% in the third quarter of 2009, compared to the third quarter 2008. This decline reflects both lower shipment volumes and lower prices.

Chlorine and Caustic soda shipment volumes declined 20% year-over-year, while ECU netbacks in the third quarter of 2009 declined 43% compared to the third quarter of 2008. Third quarter 2009 earnings included $44.3 million of pre-tax recoveries from third parties for environmental cost incurred and expensed in prior periods. And a $4.6 million pre-tax reduction in Selling and Administration expenses associated with the favorable resolution of a capital tax matter in Canada.

Fourth quarter earnings are forecast to be in the $0.15 per diluted share range, which includes an expected $35 million of additional recoveries of environmental costs incurred and expense in prior periods.

Fourth quarter 2009 Chlor Alkali earnings are expected to be similar to the third quarter of 2009 as higher ECU netbacks are expected to offset seasonally weaker demand. Earnings in the Winchester segment are expected to decline significantly from the third quarter due to normal, seasonally weaker demand, but are expected to exceed fourth quarter 2008 earnings. Winchester does expect fourth quarter 2009 demand to be stronger than historic fourth quarter levels.

Our third quarter earnings of $0.50 per diluted share exceeded our forecast of $0.20 per diluted share due to better than expected performance across our businesses. Chlor Alkali which we have forecast to lose money in the quarter, benefited from better than expected ECU netbacks and better than forecast cost performance.

A Winchester benefited from better than expected volumes and favorable cost performance. In addition to the favorable resolution of capital tax matter in Canada earnings are also benefited from a lower income tax rate than included approximately $4 million of favorable adjustments. I believe is especially noteworthy that in spite of the lowest ECU netbacks that we have seen since the third quarter of 2004 and continued weak volumes driven by general economic conditions, our Chlor Alkali business was profitable in the third quarter and furthermore we’re forecasting that Chlor Alkali business to be profitable in the fourth quarter.

Now let me discuss both segments in more detail. First I am going to talk about Chlor Alkali. In the third quarter 2009 our Chlor Alkali business continue to experience chlorine and caustic soda demand is well above historic levels, and these lower demand levels have been a significant driver of the reduced profitability that we’ve experienced this year.

During the first nine months of 2009, Chlor Alkali segment earnings have declined $121.6 million, 77% of which was attributable to lower volumes. Demand for chlorine and caustic soda remains a major challenge facing the business. While overall demand remained weak, chlorine and caustic soda volumes improved in the third quarter of 2009 compared to the second quarter of 2009, but remained well below historic levels.

The third quarter of 2009 improvement volume was 18% compared to the second quarter, but the third quarter 2009 volumes were 20% lower than the third quarter of 2008 volumes. On a nine-month basis 2009 chlorine and caustic volumes were 27% lower than the first nine months of 2008. Our Chlor Alkali business continued to experience weakness across our customer base.

Third quarter 2009 chlorine shipments to vinyls, urethanes, and titanium dioxide customers declined 18%, 43% and 1% respectively compared to the third quarter of 2008 levels. We also experienced 11% decline in shipments of potassium hydroxide and a 39% decline in shipments of hydrochloric acid during the third quarter of 2009 when compared to the third quarter of 2008.

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