Yahoo Finance Olin Corporation (NYSE:OLN) Q1 2024 Earnings Call Transcript
Olin Corporation (NYSE:OLN) Q1 2024 Earnings Call Transcript April 26, 2024
Olin Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning, everyone and welcome to Olin Corporation’s First Quarter 2024 Earnings Conference Call. [Operator Instructions] Please also note today’s event is being recorded. At this time, I’d like to turn the floor over to Steve Keenan, Olin’s Director of Investor Relations. Please go ahead, Steve.
Steve Keenan: Thank you, operator. Good morning, everyone and thank you for joining us today. Before we begin, let me remind you that this discussion, along with the associated slides and the question-and-answer session that follows, will include statements regarding estimates or expectations of future performance. Please note that these are forward-looking statements and that actual results could differ materially from those projected. Some of the factors that could cause actual results to differ from our projections are described without limitations in the Risk Factors section of our most recent Form 10-K and in yesterday’s first quarter earnings press release. A copy of today’s transcript and slides will be available in our website in the Investors section under Past Events.
Our earnings press release and other financial data and information are available under press releases. With me this morning are Ken Lane, Olin’s CEO; and Todd Slater, Olin’s CFO. We’ll begin with our prepared remarks and thereafter, we’ll be happy to take your questions. I’ll now turn the call over to Ken Lane. Ken?
Ken Lane: Thank you, Steve and good morning everyone. Let me start by saying I am delighted to be part of Team Olin. Olin has a long and rich history with leading positions across this portfolio and I am looking forward to leading the company as we define the next phase of value creation for our shareholders and employees. Today, Olin is in great shape with an investment-grade balance sheet and a strong team. This company has incredible potential and I look forward together with our 7,000 Olin team members to start building upon this foundation and writing the next chapter in Olin’s success story. I do want to thank Scott Sutton for his leadership of the company, which resulted in a step change of record results. Scott has been very gracious with his time and support during our transition.
I am a firm believer in our operating model and I am absolutely committed to continuing Olin’s value-focused commercial approach. The entire Olin team embraces the winning model and that support runs deep from senior leadership to frontline manufacturing. Now, I want to talk about my near-term priorities. First and foremost is always operating safely. Keeping our people and our communities safe, while running our assets efficiently and reliably. It is not a coincidence that the safest operators are the most reliable. We are focused on being a leader with respect to our safety performance. Next, Olin is a coiled spring. And as our market demand recovers and customers seek to pull more volume, we will be ready to capture that significant value opportunity.
I’ll provide whatever support is needed to defend the gains we have achieved and continue our value generation as the industry leader that we are. Also, it’s clear to me that investors appreciate Olin’s consistently strong cash flow and share buybacks across the cycle. Delivering on our commitments is an imperative. We will continue our disciplined capital allocation strategy and will be a steady buyer of our shares, focused on delivering above average shareholder returns. Finally, I am committed to providing Olin stakeholders with strategic transparency and a long-term roadmap for growth, that we will share during a Capital Markets Day around year end. More will be communicated on that in the near future. Now, let’s take a quick look at our chlor alkali business and turn to Slide 5.
Olin took decisive actions during the fourth quarter to curb price erosion across our system. Early in the first quarter, our value accelerator initiatives continue to tighten Olin supply, successfully advancing the inflection point and effectively stopping the value drop. During the first quarter, we saw improved chlorine volume being pulled by Olin customers at our value level across several key end uses, including agriculture, urethanes, titanium dioxide and water treatment. As we look beyond the first quarter, we are seeing some seasonal demand increases for chlorine and caustic soda. In the United States, planned and unplanned outages and low supplier inventories have kept caustic availability tighter than expected. Trade publications confirm that domestic caustic is climbing up from a cycle bottom.
Now, let’s turn to our Epoxy business on Slide 6. During the first quarter, our Epoxy business continued to realize the benefits of our 2023 restructuring actions. Our streamlined asset base will support the growth of our higher margin epoxy systems demand while also reducing Olin’s downside commodity exposure across the cycle. Our recently announced U.S. anti-dumping initiative seeks to level the playing field. The first quarter marks the beginning of the recovery for epoxy and the start of a gradual climb out of a very deep trough. As that building momentum continues into the second quarter, we will realize continued benefits from our restructuring and stronger focus on higher margin formulated systems. Please turn to Slide 7 for a Winchester recap.
First quarter commercial ammunition demand was good and our military segment continues to be strong, delivering sequential adjusted EBITDA growth for the fourth quarter. We are concerned that propellant shortages could limit commercial ammunition supply this year and we are actively working on mitigations. Our integration of the wildfire business has exceeded expectation and is a great addition to our Winchester business, the leading brand in the industry and a strong cash flow generator for Olin. During the second quarter, Olin expects to break ground on the Army’s next-generation squad weapon ammunition plant. This will be the world’s most transformational small caliber ammunition plant ever built. This project will be designed, built and operated by Winchester, but funded and owned by the U.S. Army.
Before I pass it to Todd to review our financials, I’ll sum up by saying this, Olin’s future is bright, but we must remain disciplined and dedicated to extending our leadership position. Olin has led through the trough, seeding volume to maintain value. As demand recovers, we are well positioned to profitably capture the market recovery. We have reset the cycle and we will continue to lead with discipline to ensure that this new normal remains durable. The Olin assets and operating model provide an extraordinary foundation to build upon. I have had the opportunity over the last month to visit many of our sites and meet with many of our team members. Olin is well run, well funded and with a highly engaged and committed team, we will continue to generate differential shareholder value.
I’ll now pass it over to Todd for a few financial highlights.
Todd Slater: Thanks, Ken. Olin was in great financial shape headed into this manufacturing recessionary environment we have been experiencing over the last 1.5 years. Our rock solid financial foundation is a key pillar of Olin’s winning model. We remain committed to maintaining our investment grade balance sheet and achieving additional investment-grade credit ratings. On March 31, 2024, we ended the first quarter with $150.9 million of cash and cash equivalents and approximately $1.2 billion of available liquidity. As we expected, our net debt increased by approximately $115 million from year end, primarily due to the typical seasonal increase in working capital. Our quarter end net debt to adjusted EBITDA ratio was 2.3x, which we expect to return to the 2x range by later this year.
Our 2024 cash flow projection anticipates a couple of unusual cash usage items totaling approximately $130 million. Our 2024 cash tax rate is forecast to be higher than normal due to deferred international tax payments of approximately $80 million that are forecast to be paid later this year. Also, we are expecting the final payments under long-term energy supply contracts of approximately $50 million. Excluding these one-time items, our 2024 levered free cash flow yield currently would equate to approximately 10%. Finally, our investment grade balance sheet and cash flow should enable Olin to continue to deploy a substantial portion of our 2024 levered free cash flow towards share repurchases. Operator, we are now ready to take questions.
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