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Olin on the Flop

30 April 2020 by jbchevrel

Olin Corporation (OLN) manufactures chemicals and ammunition products. The Company manufactures and sells chlorine, caustic soda, sodium hydrosulfite, hydrochloric acid, hydrogen, sodium chlorate, bleach products, and potassium hydroxide. Olin also manufactures products that include sporting ammunition, reloading components, small caliber military ammunition and industrial cartridges. Caustic soda is a key feedstock for both alumina and pulp and paper industries. US export caustic soda prices have hovered at $200/mt FOB USG, the lowest level since February 2010, when prices were crawling back from the global financial crisis. OLN 5y CDS burst wider +85bp and stocks dropped ~-20%, after Q1 earnings missed estimates. Q1 net loss came -$80.0m and adjusted EBITDA came +$122.8m. In the Q1 of 2019 the co had made +$41.7m. Sales were $1.43b, down from $1.55b a year earlier but higher than FactSet consensus of $1.37b. OLN said that miss was due to weaker customer demand and a high level of maintenance turnaround activity, it expects Q2 Chlor Alkali Products and Vinyls volumes to be meaningfully lower compared to Q1, despite higher bleach volumes. The company said it expects volumes in H2 to improve due to lower maintenance turnaround activity. Chlor Alkali Products and Vinyls sales were $759.9m, down from $872.2m a year earlier. Epoxy sales were $477.2m, down from $524m. Analysts flagged a decline in the price of caustic soda and operational issues at the company’s chlor-alkali business. According to BBG, Citi analyst said the company’s adjusted Ebitda was below estimates, and better earnings in Epoxy and Winchester businesses were more than offset by a miss in Chlor alkali Products & Vinyls. Also noted that the miss in chlor alkali is negative for WLK’s Vinyls segment. According to BBG, Stifel analyst said OLN faced a few operational challenges during the quarter, owing to railroad transportation issues in Canada, a phenol shortage in Europe and a forced shutdown in China due to Covid.