Olin Corporation

Good morning and welcome to Olin Corporation's second quarter 2022 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. Following today's brief opening comments, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your touch-tone phone. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Steve Keenan, Olin's Director of Investor Relations. Please go ahead, Steve.

Thank you, Andrew. 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 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 second quarter earnings press release. A copy of today's transcript and slides will be available on 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 Scott Sutton, Olin's CEO, and Todd Slater, Olin's CFO. Scott will begin with some brief remarks, after which we will be happy to take your questions. I'll now turn the call over to Scott Sutton.

Thanks, Steve, and good morning to everybody. The Olin team did a great job delivering the highest quarterly EBITDA in our history and delivering the fourth quarter in a row where EBITDA was $700 million plus or minus, even though global economic conditions declined. We did what we said we would do. We ran our model of leadership and accelerated our reduction of Olin's share count without adding debt to our investment-grade balance sheet. Still, many imagine us all the way down in the earnings and free cash flow gutter in the imminent recession. So I will solely focus my remarks on what Olin looks like in a recession and then on why Olin is a good investment in any event. So let's go back and revisit the recession, EBITDA, and free cash flow slide from our first quarter earnings call shown here as slide number four. Starting on the left-hand side of the slide from our $2.8 billion EBITDA 12-month run rate, it is certainly not impossible that the CAPV business experiences lower, longer-term operating rate reductions as we focus on maintaining the value of our products through a recession. The associated percent drop in CAPV EBITDA could be like what our epoxy business is experiencing. The combination of the two business performance reductions results in a $1 billion EBITDA drop. The right-hand side of the slide seems to be more interesting to most Olin followers. Starting from the 2020 EBITDA result of $636 million, the three line items that we don't expect to repeat in a recession under the new model are low chlorine pricing, selling cash negative EDC, and Winchester operating in a significantly smaller demand structure. All three line items seem to be well accepted. The fourth upside line item called other structural change needs some clarification though. Included in that upside line item are the materialized fixed cost reductions for the closure of 865,000 ECU tons of chloralkali production, an updated epiclorohydrin positioning, maintaining part of the improved epoxy pricing under our new model of value, and improved VCM contract arrangement and gains from multiple alliances. In this recession scenario, Olin still generates $7 per share or more of levered free cash flow. In fact, we welcome the opportunity to further reduce our share count right through the middle of a recession. Obviously, we're bullish on Olin. Slide number five shows why. We're the leader in every one of our businesses, and we run a model that looks around corners so we can position for the future today. So said differently, we take difficult actions early in the cycle. Part of that positioning is to temporarily reduce participation in markets with poor future quality indicators. Our curtailments in epoxy and associated upstreams at Freeport and Brazil, as well as in EDC at Freeport, continue today. Both epoxy and EDC represent weakness on the chlorine side of the ECU. Accordingly, we match our market participation to the weak side of the ECU. This is a fundamental change to our positioning from prior periods. Additionally, we expect to curtail epoxy and associated upstreams again in Stade, Germany late in the third quarter. in part due to the European energy situation. Our complete company strategy change from heavy volume to nimble value, along with the currently understated equity valuation, positions us to buy up to 20% of our outstanding shares in a year, even in a weak economic cycle. Our new $2 billion share repurchase program reflects our board's confidence in Olin's future earnings and cash flow generation. With our solid balance sheet and strong cash flow, the company is well positioned to execute on this attractive opportunity to invest in Olin. So that concludes my opening remarks. And Andrew, we're now ready to take questions.