Olin Corporation (NYSE:OLN) Q4 2022 Earnings Call Transcript
Olin Corporation (NYSE:OLN) Q4 2022 Earnings Call Transcript January 27, 2023
Operator: Good morning and welcome to the Olin Corporation Fourth Quarter 2022 Results Conference Call. Please note that this will be recorded. I would now like to turn the conference over to Steve Keenan, Olin’s Director of Investor Relations. Please continue Steve.
Steve Keenan: Thank you Anton Good morning everyone and thank you for being with us again today. Before we begin, I would like to remind you that this discussion, along with the accompanying slides and the question-and-answer session that follows, will contain statements of estimates or expectations of future performance. Please note that these are forward-looking statements and actual results could differ materially from those projected. Some of the factors that could cause actual results to differ from our projections are described fully in the Risk Factors section of our most recent Form 10-K and in yesterday’s fourth-quarter results news release. A copy of today’s transcript and slides will be available on our website in the Investors section under Past Events.
Our news release on the results and other financial data and information are available under News Releases. With me this morning are Scott Sutton, CEO of Olin; Damian Gumpel, President, Epoxy; Patrick Schumacher, President, Chloralkali; Brett Flaugher, President, Winchester; and Todd Slater, Chief Financial Officer of Olin. The management team will make a few brief comments, after which we will be happy to answer your questions. I’ll transfer the call to Scott Sutton now.
Scott Sutton: Yes. Thanks Steve and good morning everyone. In 2022, Olin generated leveraged free cash flow of $12 per share, repurchased more than 25 million shares and reduced our net debt by $200 million. It was a tremendous team effort after we generated $9 in leveraged free cash flow per share in 2021. Heading into 2023, our markets aren’t healthy, but our focus on leveraged free cash flow remains the same and we expect to generate about a $7 per share share of leveraged free cash flow this recession year. From an EBITDA perspective, we’ve been operating in the $2.4 billion to $2.5 billion range for the last two years, and we expect to generate at least 2/3 of that average in the 2023 bottom. For Olin, the key features of early 2023 are: Continue to shut down our entire global epoxy resin business due to suspended demand in the major consumer regions of China and Europe, Correct a temporary grease supply channel in commercial ammunition with a lower Olin participation rate, Blue water operations underway to put …
Operator: Please wait while we try to connect to the main speaker line. Thank you.
Photo by Robin Sommer on Unsplash
A – Scott Sutton: I understand that we fell. I won’t repeat the first part of my comments, but I’ll pick up where I think we left off. Therefore, key features of Olin for early 2023 include the continued shutdown of our entire global epoxy resin business due to suspended demand in the top consumption regions of China and Europe, correcting a temporary commercial ammunition grease supply channel through a lower Olin ownership rate, kicking the Bluewater operations -Alliance with Mitsui to much better manage global liquidity in chlor-alkali and recognition of another solid price increase in our commercial chlorine business. While some of these characteristics of the first quarter of 2023 are already slightly negative, it is still possible that in a subsequent quarter we may need to take more drastic action to continue to retaliate and preserve product values for the recovery towards the latter part of the year.
In 2023, expect us to maintain our current net debt, continue to buy equities throughout the year, maintain an investment grade rating, finalize our asset balance sheet adjustment decisions, and prepare for a quality growth story in 2024. We have also updated our 2022 ESG Scorecard Progress on page 10 of the presentation. This is a growing topic for Olin and we look forward to showing the results of our focus on this area. Now Damian, Patrick and Brett will each provide some brief comments on the situation and our initiatives across all three businesses, and then Todd will follow with additional comments on our achievements for 2022 and our outlook for 2023.
Damian Gumpel: Thanks Scott and good morning. On slide 4, Epoxy Q4 results reflect in part seasonal demand, but mainly our disciplined approach to watering the most challenging landscape in 14 years, which led us to sharply scale back resin production that would otherwise have harmed the landscape. While we expect improvement in the second half of 23, today our focus is on productivity, optimizing our asset base, improving our sustainability profile and positioning for value-based growth. Regarding that last point, we supercharged the business in the fourth quarter of 2022. We have placed our differentiated system product portfolio under experienced leadership in the commercialization of new products. I look forward to sharing Olin Epoxy’s role in addressing global energy, mobility and infrastructure challenges in a sustainable manner and how this translates into increasing shareholder value in future tenders. I now hand it to Patrick Schumacher for Chloralkali.
Patrick Schumacher: Thanks Damien Although 2022 was an all-time record year, the second half of 2022 brought significant challenges that we will likely continue into the first half of 2023. Vinyl chain pricing remains weak and continues to require lower Olin operating rates. On the plus side, our standard chlorine ratchet still only rotates in one direction. Chlorine prices are expected to rise through 2023 as old contracts end. Bleach is another success story and we expect both products to show significant revenue growth again in 2023. Our Blue Water Alliance is now one of the world’s largest distributors of EDC and caustics and will be an important part of the Olin value chain for years to come. I’ll turn it over to Brett for an update on Winchester now.
Brett Flaugher: Thank you Patrick The Winchester team maximized value throughout 2022. However, in the second half of the year, we saw a transition in our commercial ammunition business from replenishing depleted stocks to replenishing stocks in line with our customers’ sales rate. And in some cases, especially small-caliber rifles, stocks became high. So we have chosen to produce and sell less to preserve value for both Olin and our customers. With nearly 15 million new participants entering the recreational shooting sport in recent years, we believe demand for our leading Winchester ammunition products will remain above historical levels. We continue to see opportunity in our military segment with increased demand from current and new international military customers and increased government funding to modernize the Army Lake City facility.
As we navigate this transition to commercial ammunition, our focus will be on increasing and maintaining the value of the #1 brand in the ammunition industry. I’m handing it to you, Todd.
Todd Slater: thanks board Over the past 2 years, Olin has generated $3.1 billion in leveraged free cash flow. Our capital allocation initially focused on the balance sheet, reducing outstanding debt by $1.3 billion over the 2 year period. With our investment grade balance sheet, we have used our remaining leveraged free cash flow primarily for share buybacks totaling $1.6 billion over the past two years. In fact, over the course of 2022, we reduced our outstanding shares by about 16%, all from cash flow. In 2023, despite challenging global economic conditions, we forecast leveraged free cash flow at a recessionary low of about $1 billion, for a free cash flow yield of about 13%.
Our 2023 cash flow includes some unusual items. Our cash tax rate is expected to be higher than normal due to approximately $80 million of deferred international tax payments expected to be paid this year. In addition, we anticipate peak payment levels of approximately $75 million under our long-term energy supply contracts. Finally, our investment-grade balance sheet and cash flow should allow Olin to continue to allocate a significant portion of our leveraged free cash flow to share buybacks in 2023. With this we conclude our prepared remarks. And Anthony, we’re now ready to answer questions.
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