Olin Corporation (OLN)

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Olin Corporation (OLN)

Q1 2010 Earnings Call Transcript

April 27, 2010 11:00 am ET

Executives

Joseph Rupp – Chairman, President and CEO

John Fischer – VP and CFO

John McIntosh – VP and President, Chlor Alkali Products Business

Analysts

Frank Mitsch – BB&T Capital Markets

Christopher Butler – Sidoti & Company

Edward Yang – Oppenheimer

Sergey Vasnetsov – Barclays Capital

Don Carson – UBS

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Q1 2010 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. Later we will conduct a question-and-answer session. (Operator instructions) As a reminder, this conference is being recorded for replay purposes.

I would like to turn the conference over to your host for today, Mr. Joseph Rupp, Chairman, President and Chief Executive Officer. You may proceed.

Joseph Rupp

Good morning. 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 first quarter of 2010 was $14.1 million or $0.18 per diluted share compared to $46.7 million or $0.60 per diluted share in the first quarter of 2009.

Winchester achieved the highest level of first quarter earnings in its history and the second best quarterly results ever, reflecting the continuation of the stronger than normal demand that began in the fourth quarter of 2008.

Winchester’s record level of quarterly earnings occurred in the third quarter of 2009. In the first quarter of 2010, Winchester benefited from lower commodity costs and reduced bad debt related expenses when compared to the first quarter of 2009, which more than offset lower sales volumes.

First quarter 2010 Winchester volumes remain well above 2008 levels. Winchester’s first quarter 2010 segment earnings were $19.5 million compared to $17 million in the first quarter of 2009.

Chlor Alkali 2010 segment earnings of $10.6 million reflected a sequential improvement from the fourth quarter 2009 earnings of $5.2 million. Both ECU net backs of product volumes improved during the fourth quarter of 2009. First quarter 2010 Chlor Alkali segment earnings include approximately $1.4 million of costs directly associated with the first quarter force majeure event at the McIntosh, Alabama facility.

The first quarter 2010 Chlor Alkali operating rate was 75% compared to the fourth quarter 2009 rate of 70%. First quarter 2010 earnings included $2.6 million of pretax recoveries from third parties of environmental costs incurred and expense in prior periods. A $1.3 million pretax charge associated with an agreement to withdraw from a multi-employer defined benefit pension plan and a $3.8 million favorable adjustment of the income tax expense.

In second quarter 2010 net income is forecasted to be in the $0.15 to $0.20 per diluted share range. Second quarter 2010 Chlor Alkali segment earnings are expected to more than double compared to the first quarter of 2010, reflecting both improved pricing and improved demand. Segment earnings for Winchester projected to decline from first quarter levels, primarily due to higher commodity costs.

Charges to income for environmental and remedial activities were forecast to increase to the $6 million to $8 million range in the second quarter of 2010. The second quarter 2010 forecast for environmental and remedial costs does not include any recovery of costs incurred in expense in prior periods. The second quarter 2010 forecast includes approximately $2 million of favorable tax adjustments to income tax expense.

Now let me discuss the segments in more detail. First, Chlor Alkali. During the month of March Chlor Alkali business experienced its highest level of chlorine demand since the third quarter of 2008. And this level demand has continued into April.

Our operating rate during the month of March was 80% which represents a significant improvement over the 70% in January, 75% in February operating rates. The overall first quarter 2010 operating rate of 75% represents a meaningful improvement over the first quarter of 2009 rate of 65%.

During the first quarter of 2010 we experienced an unplanned seven day outage at our McIntosh Alabama facility that resulted in a force majeure to a declaration on January 15. We are able to satisfy our customers with shipments from other locations. It did result in approximately $1.4 million of additional first quarter expenses. The force majeure declaration was lifted by January 28.

First quarter 2010 chlorine and caustic soda demand increased 20% from first quarter 2009 levels. During the first quarter of 2010, we also experienced a significant increase in potassium hydroxide shipments which more than tripled over first quarter 2009 levels.

First quarter 2009 shipment levels were adversely impacted by a raw material availability issue which was associated with the labor stoppage at a supplier. First quarter 2010 shipments of hydrochloric acid declined 23% compared to the first quarter of 2009, reflecting the combination of lower levels of domestic oil and natural gas growing, and an increasing amount of bi-product acid available in the market.

Bleach sales which I will discuss I more detail in a minute increased 12% in the first quarter of 2010 compared to the first quarter of 2009. This represents a ninth consecutive quarter where we have experienced year-over-year increases in bleach shipments.

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