Olin Corporation (OLN)

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Olin (OLN)

Q4 2011 Earnings Call

January 31, 2012 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

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

Dmitry Silversteyn - Longbow Research LLC

Donald Carson - Susquehanna Financial Group, LLLP, Research Division

Aleksey V. Yefremov - BofA Merrill Lynch, Research Division

Gregg A. Goodnight - UBS Investment Bank, Research Division

James Finnerty

Jeffrey Linn Gates - Gates Capital Management, Inc.

Presentation

Operator

Good morning and welcome to the Olin Corporation Fourth Quarter 2011 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Joseph Rupp, Chairman, President and CEO. Please go ahead.

Joseph D. Rupp

Thank you. Good morning, and thanks for joining us today. With me this morning are John Fischer, Senior Vice President and Chief Financial Officer; John McIntosh, 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 2011 was $18.7 million or $0.23 per diluted share, compared to $2 million or $0.02 per diluted share in the fourth quarter of 2010. Sales in the fourth quarter of 2011 were $445.8 million compared to $385.4 million in the fourth quarter of 2010.

2011 was a successful year for Olin. Earnings in our Chlor Alkali business more than doubled compared to 2010, driven by improved pricing and by a higher level of co-product sales. The Chlor Alkali business also was strengthened by the acquisition of PolyOne's 50% interest in SunBelt facility in the first quarter.

Winchester's earnings, while declining from the surge levels of 2009 and 2010, still represented the third most profitable year in its history. And as a result of these performances, Olin generated the second highest level of EBITDA in our history.

In the fourth quarter of 2011, the Chlor Alkali segment did experience weaker demand compared to both the third quarter of 2011 and the fourth quarter of 2010 levels. We experienced weaker demand in most end-use market segments and it resulted in a fourth quarter operating rate of 70%. Fourth quarter 2011 ECU netbacks of $580 per ton, excluding SunBelt, improved approximately 13% when compared to the fourth quarter of 2010. These factors resulted in year-over-year improvement in fourth quarter Chlor Alkali segment earnings of 38%.

Winchester's fourth quarter 2011 results declined compared to the fourth quarter of 2010, reflecting higher commodity and manufacturing costs. Fourth quarter 2011 restructuring charges exceeded our estimate due to an acceleration of the Winchester centerfire ammunition relocation project.

First quarter 2012 net income is forecast to be in the $0.35 to $0.40 per diluted share range, reflecting some seasonal strengthening in both Chlor Alkali and Winchester and approximately $2.5 million of pretax restructuring charges. Chlor Alkali's earnings are forecast to improve compared to the first quarter of 2011, reflecting higher selling prices and the full quarter 100% ownership of SunBelt. Chlorine and caustic soda shipments are forecast to be similar to the first quarter of 2011 levels. In the first quarter of 2012, Winchester's results are forecast to be in line with the first quarter of 2011 levels as lower commercial volumes and higher commodity costs offset improved pricing.

Let me talk about the divisions. First, Chlor Alkali. The Chlor Alkali business experienced a weakening in chlorine demand in the fourth quarter. The fourth quarter operating rate of 70% was the lowest that we've experienced since the fourth quarter of 2009. Fourth quarter of 2011 chlorine shipments declined 20% from the third quarter of 2011 and the fourth quarter of 2010 levels. This decline was evident across all large chlorine-consuming groups. Fourth quarter 2011 chlorine shipments to vinyls declined 13% compared to fourth quarter 2010, chlorine shipments to titanium dioxide customers declined 20%, and Chlorine shipments to European customers declined 28%.

On a positive note, first quarter 2012 chlorine shipments have improved from fourth quarter levels, as reflected in the January operating rate of approximately 80% in the first quarter 2012 estimated operating rate of 80%. In a much more positive note, shipments of both hydrochloric acid and bleach increased in the fourth quarter and in the full year of 2011 when compared to the fourth quarter and full year of 2010. Hydrochloric acid shipments increased 13% at the fourth quarter and 12% for the year. The increase reflects increased -- increasing demand from oil and gas drilling customers. Strong demand for hydrochloric acid also resulted in an improved year-over-year pricing and an increase to the value-added premium realized on hydrochloric acid sales when compared to chlorine sales. We expect strong demand for hydrochloric acid to continue through the first quarter of 2012.

Shipments of bleach increased 2% in the fourth quarter of 2011 compared to the fourth quarter of 2010. We have now experienced year-over-year quarterly growth in the volume of bleach sold in every quarter since the first quarter of 2007. Fourth quarter is typically a seasonally weak quarter for bleach, but the full year of 2011 bleach shipments increased 15% when compared to 2010.

During 2012, we expect to continue to experience growth in the bleach business. The first quarter of 2012, we expect to begin shipping low-salt, high-strength bleach for our new facility in McIntosh, Alabama. This facility will increase our bleach manufacturing capacity by approximately 15%. In addition, late in 2012, we expect to begin shipments from 2 additional low-salt, high-strength bleach facilities currently under construction at Niagara Falls, New York and Henderson, Nevada. When completed, these 3 new plants will increase total bleach manufacturing capacity by approximately 50% over our current capacity. These low-salt, high-strength bleach facilities are capable of producing bleach at approximately twice the strength of a conventional bleach manufacturing process.

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