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Olin (OLN) Up 10.9% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Olin (OLN). Shares have added about 10.9% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Olin due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Olin's Earnings Surpass Estimates in Q3, Sales Lag

Olin posted a profit of $315.2 million or $2.18 per share in third-quarter 2022, down from $390.7 million or $2.38 per share in the year-ago quarter. The figure beat the Zacks Consensus Estimate of $1.86.

The company's revenues fell roughly 0.8% year over year to $2,321.7 million in the quarter. It missed the Zacks Consensus Estimate of $2,384.7 million. The company’s chemical businesses faced headwinds from European and North American epoxy and vinyls intermediate demand slowdown and higher Asian exports. However, it benefited from higher pricing in the quarter.

Segment Review

Chlor Alkali Products and Vinyls: Revenues in the division rose roughly 19% year over year to $1,263.5 million in the reported quarter. The upside can be attributed to higher pricing, partly offset by lower volumes.

Epoxy: Revenues in the division went down around 27% year over year to $644.1 million on lower volumes, partly offset by higher pricing.

Winchester: Revenues increased around 4% year over year to $414.1 million on higher commercial ammunition pricing.

Financials

Olin ended the third quarter with cash and cash equivalents of $163.6 million, down roughly 47% year over year. Long-term debt was $2,580.4 million at the end of the quarter, down around 9% year over year.

The company repurchased roughly 8.2 million shares of common stock worth $410.9 million during the quarter.

Outlook

The company expects results in its Chlor Alkali Products and Vinyls unit in the fourth quarter of 2022 to be modestly lower than third-quarter levels as it expects vinyls intermediates pricing to remain under pressure offset by continued improvement in chlorine and caustic soda pricing.

The results in the Epoxy segment are forecast to decline from third-quarter levels due to increased Chinese exports caused by continuing weak domestic demand in China.  

Olin expects fourth-quarter results in Winchester to be seasonally lower than third-quarter levels due to its holiday shutdowns. Overall, it expects fourth-quarter adjusted EBITDA to decline roughly 15-20% from third-quarter 2022 levels.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

The consensus estimate has shifted -9.46% due to these changes.

VGM Scores

At this time, Olin has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Olin has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Olin belongs to the Zacks Chemical - Diversified industry. Another stock from the same industry, PPG Industries (PPG), has gained 18.4% over the past month. More than a month has passed since the company reported results for the quarter ended September 2022.

PPG Industries reported revenues of $4.47 billion in the last reported quarter, representing a year-over-year change of +2.2%. EPS of $1.66 for the same period compares with $1.69 a year ago.

PPG Industries is expected to post earnings of $1.14 per share for the current quarter, representing a year-over-year change of -9.5%. Over the last 30 days, the Zacks Consensus Estimate remained unchanged.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #5 (Strong Sell) for PPG Industries. Also, the stock has a VGM Score of F.

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