Olin Corporation (OLN)

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Olin Corporation (OLN)

Q4 2009 Earnings Call

January 26, 2010 10:00 am ET


Joseph Rupp – Chairman, President and CEO

John Fischer – VP and CFO

John McIntosh – VP and President, Chlor Alkali Products Division

Larry Kromidas – Assistant Treasurer and Director of Investor Relations


Sabina Chatterjee – BB&T Capital Markets

Edward Yang – Oppenheimer

Christopher Butler – Sidoti & Company

Sergey Vasnetsov – Barclays Capital

Don Carson – UBS



Good day, ladies and gentlemen, and welcome to Olin’s fourth quarter 2009 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 like to turn the call over to Mr. Joseph Rupp, Chairman, President and Chief Executive Officer. 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 fourth quarter of 2009 was $21.8 million or $0.28 per diluted share compared to $47.2 million or $0.61 per diluted share in the fourth quarter of 2008. Winchester achieved the highest level of fourth quarter segment earnings in its history reflecting the continuation of the stronger-than-normal demand that began in the fourth quarter of 2008.

Segment earnings more than doubled in the fourth quarter of 2009 compared to the fourth quarter of 2008 driven by better military sales, which increased 22% year-over-year and improved costs. Throughout by fourth quarter of 2009 segment earnings of $5.2 million exceeded our expectation and reflected seasonally weak demand.

ECU netbacks improved approximately $50 or 13% in the fourth quarter of 2009 compared to the third quarter of 2009. While chlorine and caustic soda volumes declined 8% in the fourth quarter of 2009 compared to the third quarter of 2009. The fourth quarter 2009 Chlor Alkali operating rate was 70%.

Our fourth quarter 2009 earnings include $37 million of pretax recoveries of environmental costs incurred and expensed in prior periods and a $1.2 million pretax gain associated with the sale of a former manufacturing facility

Net income in 2009 was $135.7 million, or $1.73 per diluted share, compared to $157.7 million, or $2.07 per diluted share in 2008. Earnings in 2009 included pretax recoveries of environmental costs incurred and expensed in prior periods of $82.1 million, a $4.6 million pretax reduction in selling and administration expense associated with the favorable resolution of a capital tax matter in Canada, and $4.9 million of pretax gains associated with sales of real estate. Sales in 2009 were $1.53 billion compared to $1.76 billion in 2008.

First quarter 2010 earnings are forecast to be in the $0.10 per diluted share range. First quarter 2010 Chlor Alkali segment earnings are expected to improve slightly compared to the fourth quarter of 2009 reflecting some anticipated improvement in demand. Earnings in the Winchester segment are expected to improve from fourth quarter levels due to seasonally stronger demand and are expected to be similar to first quarter 2009 levels.

Now let met discuss Chlor Alkali and Winchester segments in more detail. First I’ll begin with Chlor Alkali. Our fourth quarter 2009 volumes which were inline with the fourth quarter of 2008 volumes reflect the combination seasonally weaker volumes and in continuation of demand levels well below historic norms.

From a full year perspective with combination of a reduced demand than lower prices cause the profitability of our Chlor Alkali business to decline from the record level of segment earnings in 2008 of $328.3 million. Chlorine and caustic soda volumes decline 22% in 2009 compared to 2008 and full year ECU pricing decline from approximately $635 in 2008 the $520 in 2009.

Fourth quarter 2009 ECU netbacks were $425, which is an improvement from the $375 experienced in the third quarter of 2009. We believe that ECU netbacks in our system bottomed out in the third quarter of 2009. The full year decline of Chlorine demand is evidenced by lower shipment levels to customers in major product areas, shipments to vinyls customers declined 18% in 2009 when compared 2008. Our shipments to urethanes customers declined 18% and shipments to titanium dioxide customers declined 3%.

In addition to the volume declines experienced in chlorine and caustic soda we also experience volume declines for potassium hydroxide and hydrochloric acid. The bright spark for the business continues to bleach sales, which increased 17% during 2009 and remaining product of emphasis in our system.

In the fourth quarter of 2009 approximately 28,000 ECU’s were sold in the form of bleach for the full year 2009 bleach volumes, total 114,000 ECU’s up from the 97,000 ECU’s sold into bleach in 2008.

As I mentioned earlier fourth quarter Chlor Alkali segment earnings $5.2 million exceed our expectations due to a better than expected ECU in netback 425. Systems was what we have experienced throughout 2009 electricity cost per ECU produced in the fourth quarter were approximately 14% lower than the fourth quarter of 2008, this reduction reflects our ongoing efforts to optimize electricity usage by manufacturing at the most by producing product at the most cost efficient facilities at during the times of day and weak that are the least cost.

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