Olin says third-quarter earnings down year to year
From Illinois Business Journal news services
CLAYTON, Mo. — Olin Corp. says its third quarter 2015 income from continuing operations was $5.9 million, or $0.08 per diluted share. The third quarter of 2014 income from continuing operations was $26.1 million, or $0.33 per diluted share. Sales in the third quarter of 2015 were $533.6 million compared to $593.6 million in the third quarter of 2014. Third quarter 2015 results included pretax acquisition-related financing and other costs of $22.2 million.
Joseph D. Rupp, chairman and chief executive officer said, “On Oct. 5, 2015, we completed the acquisition of Dow’s chlorine products businesses. Olin is now the world’s largest integrated chlor-alkali, epoxy and chlorinated organics producer with top-tier, low-cost facilities. The acquisition has significantly diversified our product and geographic base, which will enable us to be less cyclical. With the integration work we have accomplished since the closing, we remain convinced that the New Olin can generate $1 billion of annual adjusted EBITDA, without synergies. Our synergy-capture teams are aggressively working on implementing numerous projects. I am optimistic that these efforts will generate a minimum $200 million in annual cost synergies within three years after closing.”
Key business and outlook considerations:
Olin is evaluating idling or permanently closing approximately 250,000 tons to 450,000 tons of its chlor alkali capacity. It expects to provide more specifics in the first quarter of 2016.
The fourth quarter 2015 outlook assumes a slight improvement in caustic soda prices from third quarter 2015 levels. The full implementation of the $30 per ton caustic soda price increase now reflected in the price indices would increase future quarterly EBITDA by approximately $20 million.
The company said it began to realize synergies in October associated with the shipment of chlorine by rail from one of the newly acquired facilities. It has begun the process of installing bleach production capacity in Freeport, Texas, and expects to be able to deliver bleach from that site in 2016.
Fourth quarter 2015 forecasted results:
– $185 million to $205 million of adjusted EBITDA, which excludes acquisition-related costs;
– A reported net loss in the $0.25 to $0.30 per diluted share range, including approximately $0.50 per share of acquisition-related costs, acquisition financing expenses and estimated acquisition step-up depreciation and amortization;
– Pretax acquisition-related costs of approximately $75 million (includes approximately $45 million of expense related to change of control acceleration of non-qualified pension benefits, approximately $17 million of investment banking and legal costs, and approximately $13 million of integration and other costs);
– Acquisition-related one-time financing expenses of approximately $11 million;
– One-time income tax expense of approximately $10 million, as a portion of the acquisition-related costs are not deductible; and
– Estimated step-up acquisition depreciation and amortization of approximately $30 million.
Winchester fourth quarter 2015 earnings are expected to be higher than fourth quarter 2014 levels, primarily due to improved sales volumes and cost savings.
The fourth quarter 2015 outlook includes the normal seasonal weakness in EBITDA totaling approximately $40 million to $50 million, from ammunition sales, bleach sales, chlorine sales to agriculture and pool chemical customers, chlorinated organics sales to support refrigerants, and epoxy sales.
Since 2008, Olin has historically generated 20 percent of its full year adjusted EBITDA in the fourth quarter.
Capital spending for fourth quarter 2015 is expected to be approximately $60 million.
CHLOR ALKALI PRODUCTS
Chlor Alkali Products sales for the third quarter of 2015 were $299.7 million compared to $329.2 million in the third quarter of 2014. Third quarter 2015 chlorine and caustic soda volumes decreased 4 percent compared to third quarter 2014 levels, and ECU netbacks declined approximately 3 percent in the third quarter of 2015 compared to the third quarter of 2014. Third quarter 2015 potassium hydroxide volumes decreased 20 percent compared to the third quarter of 2014 and hydrochloric acid volumes decreased 14 percent during the third quarter of 2015 compared to the third quarter of 2014. Third quarter 2015 bleach volumes were comparable to the third quarter of 2014. Third quarter 2015 Chlor Alkali segment earnings of $14.1 million decreased compared to $26.2 million in the third quarter of 2014, primarily due to lower ECU netbacks and lower volumes. These decreases were partially offset by lower operating costs.
CHEMICAL DISTRIBUTION
Chemical Distribution sales in the third quarter of 2015 were $72.6 million compared to $76.6 million in the third quarter of 2014. The year-over-year decrease in Chemical Distribution sales reflects lower caustic soda selling prices and volumes, partially offset by higher shipments of hydrochloric acid, potassium hydroxide and bleach. Chemical Distribution segment earnings of $3.3 million in the third quarter of 2015 increased compared to $0.8 million in the third quarter of 2014, primarily due to higher shipments of potassium hydroxide, hydrochloric acid and bleach and increased caustic soda margins. Chemical Distribution third quarter 2015 and 2014 results both included depreciation and amortization expense of $4.0 million.
WINCHESTER
Winchester third quarter of 2015 sales were $181.8 million compared to $209.6 million in the third quarter of 2014. The decrease in Winchester segment sales primarily reflects decreased shipments to commercial and law enforcement customers. Winchester’s third quarter 2015 segment earnings were $30.1 million compared to $38.5 million in the third quarter of 2014. The decrease in segment earnings reflects the impact of lower commercial and law enforcement shipments partially offset by lower commodity and material costs.
CORPORATE AND OTHER COSTS
Pension income included in the third quarter 2015 Corporate and Other segment was $7.3 million compared to $8.8 million in the third quarter of 2014. The decrease in pension income was primarily due to the impact of the newly mandated mortality tables issued in the fourth quarter of 2014.
Third quarter 2015 charges to income for environmental investigatory and remedial activities were $7.3 million compared to $1.6 million in the third quarter of 2014. These charges relate primarily to remedial and investigatory activities associated with former waste sites and past operations.
Other corporate and unallocated costs in the third quarter of 2015 decreased $3.5 million compared to the third quarter of 2014, primarily due to lower stock-based compensation expense, including mark-to-market adjustments.
ACQUISITION
On October 5, 2015, Olin and The Dow Chemical Company consummated the previously announced transaction, with Olin acquiring certain chlor alkali and downstream derivatives businesses from Dow. Third quarter 2015 results included acquisition-related costs of $14.5 million and acquisition financing expenses included in interest expense of $7.7 million related to this transaction.
The aggregate purchase price for the acquired business of approximately $5.1 billion, subject to certain post-closing adjustments, consisted of $2,568 million of cash and debt securities transferred to Dow, shares of Olin common stock received by Dow shareholders valued at approximately $1,527 million, plus the assumption of pension liabilities of approximately $418 million and long-term debt of $556 million. Dow has retained liabilities relating to litigation, releases of hazardous materials and violations of environmental law to the extent arising prior to the closing date.
In connection with the acquisition and effective Oct. 1, 2015, Olin filed a Certificate of Amendment to its Articles of Incorporation to increase the number of authorized shares of Olin common stock from 120.0 million shares to 240.0 million shares. Olin issued approximately 87.5 million shares on the closing date, which represented approximately 53% of the outstanding shares of Olin’s common stock.
DIVIDEND
On Oct. 29, Olin’s board of directors declared a dividend of 20 cents on each share of Olin common stock. The dividend is payable on December 10, 2015 to shareholders of record at the close of business on Nov. 10, 2015. This will be the 356th consecutive quarterly dividend to be paid by the company.
