Olin Corporation (OLN)

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Olin Corporation (OLN)

Q3 2010 Earnings Conference Call

October 26, 2010 10 AM ET

Executives

Joseph Rupp – President, Chairman and CEO

John Fischer – VP and CFO

John McIntosh – VP and President, Chlor Alkali Products Division

Analysts

Frank Mitsch – BB&T Capital

Ed Yang – Oppenheimer

Christopher Butler – Sidoti & Company

Don Carson – Susquehanna

Herb Hardt – Monness

Eugene Fedotoff – Longbow Research

Scott Blumenthal – Emerald Advisers

Richard O’Reilly – Standard & Poor’s

Jeff Gates – Gates Capital

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the third quarter Olin Corporation earnings conference call. My name is [Crystal], and I will be your operator for today. At this time, all participants are in 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 now like to turn the conference over to your host for today, 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, Senior Vice President and Chief Financial Officer; John McIntosh, Senior Vice President of Chemicals, and Larry Kromidas, our Assistant Treasurer and Director of Investor Relations.

Last night, we announced that net income in the third quarter of 2010 was $31.8 million or $0.40 per diluted share, compared to $39.4 million or $0.50 per diluted share in the third quarter of 2009. Chlor Alkali third quarter 2010 segment earnings of $44 million increased 69%, compared to the second quarter of 2010, and represented the fourth consecutive quarter of sequential earnings improvement. The improvement reflects increased product volumes compared to the second quarter of 2010.

The third quarter 2010 Chlor Alkali operating rate was 91%, which was the highest level since the third quarter of 2007 and higher than both the second quarter 2010 rate of 83% and the third quarter 2009 rate of 74%. The third quarter 2010 Chlor Alkali results included a record level of bleach sales, which were 21% higher than the third quarter of 2009.

Winchester’s third quarter earnings of $18.8 million are lower than the record earnings of $23 million achieved in the third quarter of 2009. The decline reflects the combination of lower commercial volumes and higher commodity costs.

Third quarter 2010 charges for environmental investigatory and remedial activities after giving consideration to recoveries of costs incurred and expensed in prior periods were $8.6 million, an increase of $3.1 million compared to the third quarter of 2009.

Third quarter 2010 earnings included $200,000 of pre-tax recoveries of environmental costs incurred and expensed in prior periods. Now, that’s compared to $44.3 million of recoveries in the third quarter of 2009. Third quarter 2010 results also include approximately $7 million of favorable income tax adjustments.

Fourth quarter 2010 net income is forecast to be in the breakeven to $0.05 per diluted share range. Chlor Alkali expects to see improved pricing in the fourth quarter reflecting the positive impact of several recent price increase announcements. However, fourth quarter 2010 Chlor Alkali segment earnings are expected to decline compared to the third quarter of 2010, as weaker seasonal demand is expected to more than offset the improved pricing, but are expected to be significantly higher than the fourth quarter of 2009 segment earnings.

Fourth quarter forecasted Chlor Alkali earnings also reflect the cost associated with planned outages at four manufacturing plants, Olin manufacturing plants.

Earnings in the Winchester segment are expected to be in the breakeven range, reflecting typical weak fourth quarter demand. Charges to income for environmental and remedial activities in the fourth quarter of 2010 are expected to decline compared to the third quarter of 2010. Fourth quarter earnings were also expected to include approximately $2 million of pre-tax recoveries of environmental costs incurred and expensed in prior periods.

Now let me discuss Chlor Alkali and Winchester segments in more detail. First, Chlor Alkali. During the third quarter of 2010, the operating rate for Chlor Alkali business was 91%, which is the higher rate we’ve experienced since the third quarter of 2007. The improvement in the operating rate in the second quarter was driven by the bleach business. Bleach volumes, which increased 26% compared to the second quarter of 2010, and 21% from the third quarter of 2009, were a quarterly record. During the quarter, approximately 43,000 tons of chlorine or 10% of our available capacity was sold as bleach.

The higher operating rate also reflects a slight improvement demand for chlorine and an improvement in demand for hydrochloric acid. Third quarter chlorine demand in our system was negatively impacted by a full 90-day average at a major customer. We expect a 30-day outage from this customer in the fourth quarter and a two-week outage for another major chlorine customer in the fourth quarter as well.

Hydrochloric acid volumes increased 5% from the second quarter and 32% from the third quarter 2009 levels. Hydrochloric acid sales represented approximately 8% of our available third quarter 2010 capacity. During the third quarter of 2010, there was one seven-day outage at one of our Chlor Alkali facilities. During the fourth quarter, there are planned outages at four of our manufacturing locations. We expect these fourth quarter outages to negatively impact Chlor Alkali earnings for the quarter to the tune of $4 million to $6 million.

We also experienced a significant increase in the sales of potassium hydroxide in the third quarter of 2010. Sales of potassium hydroxide increased 25% compared to the third quarter of 2009, and during the third quarter of 2010, the combination of potassium hydroxide, bleach, and hydrochloric acid accounted for approximately 25% of the Chlor Alkali division sales.

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