Olin Corporation

Good morning, and welcome to Olin's Corporation's second quarter 2026 earnings conference call. All participants will be in a 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 one on your touch-tone phone. To withdraw your question, please press star, then two. 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, operator. Good morning, everyone. We appreciate you joining us today to review Olin's second quarter 2026 results. Please keep in mind that today's discussion, together with the associated slides, as well as 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 Olin's 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 investor section under past events. Our earnings press release and related financial data and information are available under press releases. With me this morning are Ken Lane, Olin's President and CEO, and Todd Slater, Olin's CFO. We'll start with some prepared remarks, then we'll look forward to taking your questions. Let me now turn the call over to Olin's President and CEO, Ken Lane.

Thank you, Steve, and thanks to everyone for joining us today. We appreciate your interest in Olin and taking the time to join us on such a busy morning. Let's begin with some highlights from the second quarter on slide three. On June 16th, we were very pleased to announce our planned merger with Huntsman, bringing together two highly complementary businesses to create a world-scale, vertically integrated, North American-focused chemical leader with more than $12 billion in sales. The second quarter also saw the conflict involving Iran disrupt chemical supply chains and increase prices. Markets rebalanced as the quarter progressed, although significant uncertainty remains. Acoustic soda and EDC export pricing were the second quarter bright spot, reflecting the supply chain disruptions at the beginning of the quarter. This was partially offset by an unplanned VCM shutdown at our Freeport, Texas facility. Epoxy also achieved higher pricing across all products during the second quarter as hydrocarbon feedstock costs rose and availability tightened. Epoxy demand remained weak in Europe, but the U.S. saw moderate seasonal demand improvement in the quarter. Winchester's commercial ammunition recovery continues as year-over-year demand improves and our pricing initiatives to offset rising metals costs start to gain traction. Domestic and international military sales continue to show strength. Against a backdrop of weak demand and volatile global events, Olin's self-help efforts remain top of mind. Our value-first commercial approach continues to preserve ECU values while our Beyond 250 initiative is delivering structural cost reductions. Now let's turn to slide four for an update on our recently announced merger with Huntsman, which creates a $12 billion vertically integrated, cost-advantaged North American chemicals leader. Since announcing the transaction, We've made significant progress in a short period of time. We filed our definitive proxy on July 13th, and Olin shareholders have already begun casting their votes as we approach the August 25th special shareholder meeting. Todd and I have spent recent weeks on the road with the Huntsman management team, meeting with both Olin and Huntsman shareholders, listening to feedback and discussing our value creation thesis. The response has been very supportive and reinforces our excitement about the deal. In the third quarter, we'll begin pre-closing integration planning led by Todd. This is a very important first step toward realizing the $400 million of synergies quickly following the close, which we continue to expect in the first half of 2027. Now let's turn to slide five for a closer look at our chloralkali products and vinyl second quarter performance. Early in the quarter, the Iran conflict drove supply chain interruptions and dramatically higher feedstock and energy costs, resulting in higher prices for many products. As supply chains rebalanced during the quarter, export pricing for both EDC and caustic soda trended lower but remained above pre-conflict levels. These export price trends will offset stronger domestic caustic pricing in the third quarter. We expect product availability to tighten in the fourth quarter, driven by persistently higher feedstock and energy costs, as well as several planned industry shutdowns. As discussed on our Q1 earnings call, we had an unplanned outage in early May at our Freeport, Texas, BCM plant. While the outage was disappointing, it was an isolated equipment issue that we've addressed. We were able to restart the plant by mid-May, but BCM will be running at reduced operating rates through the third quarter while we complete final repairs. This outage resulted in a $40 million penalty to second quarter adjusted EBITDA and will have an estimated $20 million impact on the third quarter. Second quarter merchant chlorine sales improved seasonally, supported by stronger water treatment, refrigerant, and other derivative demand. During the third quarter, several planned chlorine customer shutdowns will reduce volumes, but chlorine pricing remains stable. Finally, we continue to make very good progress on our Beyond 250 structural cost savings initiatives, and we're on track to deliver on our commitments. Turning to slide six, let's review our epoxy results. During the second quarter, our epoxy business posted its best results in more than three years. As the Iran conflict unfolded, our epoxy team implemented price increases to offset rising raw material and transportation costs. Security of supply became paramount to customers, supporting Olin's strategy to grow our epoxy participation in both the U.S. and Europe. During the second quarter, U.S. epoxy resident demand experienced moderate seasonal improvement, while European demand remained flat. Our epoxy cost initiatives continue to pay off. Between our new Stade Germany supply agreements and our Guarujá Brazil plant closure, we've reduced epoxy structural costs by more than $50 million per year. These actions, in combination with our commercial strategy for increased participation, have returned this business to positive earnings. Now let's take a look at Winchester on slide number seven. Monthly out-the-door commercial ammunition sales have improved year over year as consumer demand strengthens. Winchester continues to increase prices to offset rising raw material costs, particularly copper and brass. Both of these have resulted in year-over-year improvement to adjusted EBITDA. Winchester is continuing its disciplined approach to working capital and inventory management as we see our commercial backlog grow. The third quarter is typically our strongest for commercial ammunition demand due to the fall hunting season. and we expect that to drive sequential earnings improvement. Domestic and international military ammunition and project sales continue to be strong. I'll now turn the call over to Todd for a look at our financial highlights.

Thanks, Ken. I'll now walk through our cash flow liquidity position and overall financial foundation. Our top priority remains generating strong cash flow Preserving Liquidity, and Maintaining Flexibility Through the Cycle. We ended the quarter with $1.2 billion of available liquidity, including the undrawn capacity under our evolving credit facility. Our debt profile remains well structured, with no bond maturities before 2029. During the first half of 2026, Working capital increased by $183 million, reflecting our normal seasonal build, which we expect to liquidate in the second half of the year. The increase also included $93 million of payments against previously accrued reserves related to the resolution of the legacy Shintech litigation matters. We expect to pay the remaining $100 million during the second half of 2026. As a result of these litigation-related cash payments, we expect to end the year with year-over-year increase in outstanding debt and a leverage ratio of approximately 4.5 times. As we further strengthen our financial resilience, Any excess cash flow will be used to reduce our outstanding debt. Our capital allocation priorities also remain consistent and disciplined. First, we continue to target 2026 capital spending of approximately $200 million with investments focused on the safe, reliable, and efficient operation of our assets. Second, we expect to continue our long history of uninterrupted quarterly dividend payments. Third, excluding approximately $195 million of cash payments to resolve legacy litigation matters I just discussed, we expect working capital to be essentially flat for the full year 2026. And finally, we continue to expect 2026 to be a cash-free tax year, plus or minus approximately $20 million. Within Beyond 250, we are expanding our focus on people and process improvements and remain on track to deliver more than $100 million of incremental structural cost savings in 2026. In addition, based on the progress we're seeing across the organization, We are increasingly confident we will exceed our $250 million target by 2028. In summary, our teams remain focused on cash generation, cost discipline, and execution of beyond 250. Our strong financial foundation enables Olin to continue executing our value-first commercial approach while maintaining disciplined capital allocation, a prudent capital structure, and resilient cash flows. With that, Ken, I'll turn the call back to you.

Thank you, Todd. I'll finish up with slide nine and our outlook for the third quarter. We expect stronger domestic caustic soda pricing. Export volumes for both caustic soda and EDC should improve but will largely be offset by lower export pricing. In epoxy, stable volumes and an improved mix are expected to benefit third quarter results. However, this will be more than offset by higher European FIFO costs. Winchester third quarter results are expected to improve, driven by higher commercial volumes and pricing, partially offset by higher metals costs. We'll continue to remain focused on working capital discipline. Against the backdrop of continued global uncertainty, We expect chemicals adjusted EBITDA to be relatively flat in the third quarter. We do expect a modest earnings improvement at Winchester, although corporate costs are expected to be a sequential headwind. Overall, adjusted EBITDA should again be in the range of $160 to $200 million. Stepping back, we remain confident in the long-term outlook for our business. Clore Alkali continues to benefit from an attractive supply-demand outlook relative to other commodity chemical value chains, supported by recent industry capacity closures and limited new capacity additions globally. As the industry leader in Clore Alkali, we are very well positioned to benefit from these favorable dynamics. Our epoxy business has returned to profitability and continues to improve. At Winchester, Self-help actions taken in late 2025, disciplined cost and working capital management, and a recovering commercial ammunition market continue to support improved performance. Across Olin, we're making good progress on our priorities, delivering record safety performance in 2026, streamlining work processes, creating new reliability roadmaps, and adding resources to support execution. Leveraging digital tools and AI across our plants to quickly identify inefficiencies, reduce costs, and improve asset reliability. Finally, we're reinforcing accountability by aligning our short-term incentive program with site-level safety, reliability, and cost performance targets, further strengthening our performance-driven culture. Operator, we're now ready to begin Q&A.

Thank you. We will now begin the question and answer session. To ask a question, you may press star, then one on your touch tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star and then two. Please limit yourself to one question. At this time, we'll pause momentarily to assemble the roster. The first question will come from Frank Mitch with Fermium Research. Please go ahead.

Hi, guys. Good morning. It's Aziza on for Frank. My first question was around the Iran war and, you know, where would you say this has been the biggest impact within Olin? And if the war were to drag on for a few more months, what are the implications for the company?

Good morning, Aziza. Good to hear your voice. Well, listen, the biggest impact really we felt in the second quarter, that's when we saw prices and concern around supply disruptions really ramp up early in the quarter. But as we said in the prepared comments, we saw that abate as we went through the quarter. Going forward, as markets have rebalanced, what we do expect is just globally costs have risen for folks especially producing outside of the U.S. That is going to put maybe a higher floor under prices as we go forward. We recognize that there is some softness in some of the export pricing for EDC and caustic today. A lot of that is just digesting the volume that was produced when everybody saw that peak in pricing All of a sudden, even the producers that were not making any money, some that were even cash negative before prices ran up, saw an opportunity to be able to produce and move some product. That's going to be digested here in the third quarter. And then, as I said, I think things will start to tighten up more in the fourth quarter. There's a lot of capacity that's going to be down. Demand continues to be stable. We're not seeing any erosion in demand. So I think We saw the run-up in Q2. We're going to see things kind of normalize in Q3 at a higher cost level, and that should benefit us in the fourth quarter.

The next question will come from Hassan Ahmed with Alembic Global. Please go ahead.

Morning, Ken and Todd. I wanted to sort of revisit the same question a little differently, trying to get a clearer view on Naritam, Supply Demand Dynamics for ChloroVinyls. First of all, would love to hear your views about the return of capacity across the Middle East as and when the conflict does end. And then above and beyond that, obviously, we've seen a re-escalation in the price of natural gas in Europe. So would love to hear your views around rationalization out there. And then on the demand side of things, you know, across a variety of chemical chains, it seems that particularly in Asia, we saw a fair amount of inventory destocking. So, you know, could we potentially over the next couple of quarters expect on the demand side of things a restocking cycle as well?

Good morning, Hassan. Well, that's a lot of questions you put in there. I tried to take some notes, and I will try to get to all of them. So listen, again, in terms of short-term supply-demand implications, we saw a run-up in Q2. So looking backwards, we did see a run-up in chlorophyll-I and PVC operating rates in Q2. Yes, you did see a lot of the Asian ethylene-based producers cut back. Carbide ramped up. Even Europe ramped up and had a spike in operating rates in Q2. But we have seen those reverse. So like I said, there's a bit of a, you know, we had this lump in Q2 of production. Now people have cut back on operating rates and that's going to start to filter through into the market as we go through the third and the fourth quarter. I'm not as much worried about what's happening in terms of the return of capacity in the Middle East. That is much less of a concern for me, I think. The reality of it is it is hard to put this genie back in the bottle, and I'm not sure exactly when things are going to settle down there. So that's less of a concern. I think the thing that we're going to watch is going to continue to be around what's happening primarily in China and what are they doing with their assets. We have seen operating rates in China already reduce in the third quarter. And again, it takes a little bit of time for that to filter through into the supply-demand balances, but it will. and that combined with some outages that we see particularly coming up here in North America should be constructive for supply-demand as we finish out the year. Going back to Europe, Europe, again, we did see a run-up in operating rates there, but you saw that come back as prices began to normalize and the fear of not being able to get product sort of waned, I would say. And your final point there around destocking is one that's going to be really important to watch because I do think that the buying pattern that we have seen from customers is initially, yes, they were trying to buy to be ahead of any disruptions. But now I think what you see is the behavior is they're going to consume their inventory because they're hoping that prices or costs will come down in the future. So, yes, that is certainly a situation that could change here, that all of a sudden people do need to restock and demand, the apparent demand may improve. But I just want to reiterate, you know, underlying housing, underlying automotive demand is still, it's stable, but it is not recovering yet. So all of these dynamics are very volatile. They're hard to predict. and frankly, that's why we gave a pretty wide range for the third quarter outlook that we did.

The next question will come from Gabe Haged with Wells Fargo. Please go ahead.

Good morning, Ken, Steve, Todd. Thanks for taking the question. I wanted to ask about kind of the four and a half times levers target at the end of the year. and you kind of given us some building blocks, Todd. I think about the normal, when I look at the model, $200 million, give or take on working capital release and $100 million payment. So I'm kind of getting that debt maybe at 2750 by the end of the year, which would kind of imply a full year EBITDA of 610. and then I'm trying to kind of juxtapose that I guess with some comments that you're making, Ken, about improved dynamics in the fourth quarter for the chloroalkali business. Thank you.

Good morning, Gabe. Thanks for joining. I'll start then I'll let Todd add to it. You know, first I just want to emphasize that, you know, as we have been saying over the course of the second quarter and as we talked about our merger with Huntsman, Even for Olin, deleveraging is going to be a priority. And that is something that we'll be very focused on. The teams here are extremely focused on cash generation and reducing working capital and managing that very carefully. You know, I think you've got to realize that there is a lot of volatility in the world around things that are going on with the geopolitical environment that we're in. And that is not going to change. anytime soon, as I just mentioned. So we saw the run-up in Q2, which was very beneficial for us. You saw that in our results. We're going to see a little bit of give-back here in the third quarter as prices, especially in the export markets, reflect some of the pullback in terms of the costs and the results of customers, again, maybe trying to buy ahead a little bit of a lot of uncertainty. I think people are getting more comfortable living in an uncertain world for what that's worth. But what won't change is that there is going to be outages that are occurring. And if you think back to the end of last year, we were already in an environment where industry rationalization of capacity, relatively good demand. Yes, it's not It's not growing right now, but it is stable. So in the face of all of that, we were seeing things begin to improve already. And I think that's what I'm saying is you're going to get back to a more stable environment that reflects what we saw kind of late Q1 and even in the latter part of Q2. But that spike that we saw in Q2 is going to be an anomaly here. as things try to find a more balanced way forward in a very uncertain world. But Todd, I'll let you talk to the balance sheet.

No problem. Gabe, thanks for the question. We obviously do not provide annual EBITDA outlook, but we do expect net debt to increase year over year from year-end 25 to year-end 26. As I said, driven by the roughly $195 million of legacy litigation payments that we're going to be obligated to make during 2026. And so we would expect to end the year in that four and a half times range on leverage. I just want to remind everyone on the call about cash flows. When you think about our trailing 12-month adjusted EBITDA here in the end of June is roughly 570. And when you look at that number, Olin generated roughly $100 million of levered free cash flow in the last trailing four quarters, even at those levels of adjusted EBITDA. Cash flow has really been utilized to repay legacy litigation matters. And that when I talk about leverage-free cash flow, that's after paying the dividend, that's funding all of our capital spending, paying all our interest, all our capital allocation priorities. So Olin does generate cash flow at very low levels of earnings. which is, I think, a distinction among many of our commodity chemical peers.

The next question will come from Josh Spector with UBS. Please go ahead.

Good morning. It's Chris Perel on for Josh. Ken, for the TAV business, with the VCM fix in place, do you expect to get that $20 million back in the fourth quarter? And then for epoxy, How large is that FIFO headwind in the third quarter? And is pricing elevated enough to offset increasing raw materials? Or do you need another round to, you know, kind of keep things where they are?

Hi, good morning, Chris. Yes, so listen, as we get the VCM asset back to full capacity at the end of the quarter here, we do expect to see recovery of that in the fourth quarter. All that is going well at this point. So, Todd, do you want to take the second part of that question?

Yeah, sure, no problem. You know, epoxy has announced price increases here in the third quarter, you know, commensurate with increased hydrocarbon and raw material costs that they've seen most recently by, you know, the most recent, you know, escalation of the conflict in the Middle East. and we would expect it net to be a headwind on FIFO between Q2 and Q3, but we clearly expect epoxy to continue to generate positive EBITDA for the third quarter.

The next question will come from Matthew Deyo with Bank of America. Please go ahead.

Good morning, guys. This is Hakeem Safwan from Matthew Dio. You guys mentioned that U.S. epoxy resin demand experienced seasonal improvement. What was the main driver? Do you expect it to continue to Q3? And then in Europe, what needs to happen for demand to improve? Is it just more construction and industrial demand? Thank you.

Hi, Hakeem. Good morning. Yeah, listen, we did see some – and I would say moderate was purposeful, because we didn't see the normal level of seasonal improvement, even in the US. But you still do have a construction season in the US that drives things like coatings and that sort of thing. In Europe, we have not seen that improvement. We've seen really a flattish market in Q2. And normally, you would see some seasonal improvement. Yes, you're going to need to see some improvement in housing and industrial demand in Europe before you see that. But I think you're going to continue to see headwinds there because you've got higher energy costs that are now starting to impact, you know, not just the cost of our production, but the cost of everyone else that are producing things in Europe. And I don't see anything in the short term that is going to sort that out. You know, there are Their policies in Europe continue to be ones that are going to constrain economic growth and expansion. And so the things that we are doing, like reducing our cost structure, is going to continue to be extremely important. We're not counting on the market to help us in Europe anytime soon.

The next question will come from Arun Vithwanathan with RBC Capital Markets. Please go ahead.

Hi, this is Adam Feroon. Good morning. Thanks for taking my question. Have you guys broken out how much the FIFO benefit was that you called out for epoxy? You know, I know it's improving, but, you know, given that kind of reversal of that benefit next quarter, do you expect overall segment earnings to improve, or should they kind of be more in line with where they were this quarter?

Yeah, great. Thanks. I appreciate the question. you know we as maybe I'll start with the second part as we think about chemicals earnings we would expect chemicals earnings you know to be sequentially similar between Q3 and Q2 we would expect epoxy to be slightly lower in the third quarter compared to Q2 with chloralkali better you know because obviously the you know so as we think about that Epoxy being slightly lower will be driven by the lower benefit from FIFO and, in effect, a higher raw material cost running through the epoxy P&L. We've not quantified a specific number associated with that, but that's how you should think about sequentially Q3 versus Q2.

The next question will come from Matthew Blair with TPH. Please go ahead.

Thanks, and good morning. Slide 15 shows that chlorine prices fell in Q2, even though most of the chlorine derivatives moved up in price, you know, things like PVC and EDC. I think you also mentioned that your merchant chlorine sales were pretty strong in Q2. So could you just help us understand this dynamic and, you know, what caused chlorine to come down? Was it, I guess, mostly a supply-driven thing? And then finally, I just wanted to confirm, I think you said you expect chlorine prices to be relatively stable, relatively flat in the third quarter. Thank you.

Good morning, Matthew. Yes, you're correct. We do expect that to be the case. And you realize that for the chlorine pricing, you're talking about very small movements on an illiquid market. So it is It is frankly not very material to look just at the chlorine price by itself. That's why we published that PCI. It's more important to look at what the ECU with the derivatives is doing across the portfolio. I'll just be honest with you. The chlorine price by itself is not something to look at and pay a whole lot of attention to. It is just a reflection of what you see printed in the publications, which have got a lot of I would say they don't have a lot of transparency with them. But going forward, we expect to see that stable.

The next question will come from John Roberts with Mizuho. Please go ahead.

Hi, good morning. This is Saurabh Deer on for John Roberts.

Thanks for taking my question.

I think I just want to start with the Winchester. You said there's less import competition on the commercial side. Is that related to the wars outside the U.S. or metal costs or something else that is reducing the competition?

Thank you for your question. Good morning. Yeah, so the lower imports are related to tariffs. So if you look at the tariffs that have been placed on imported ammunition, you know, it has fluctuated a little bit, but it's now 20%. in some cases a little bit higher than that. So we continue to see that being a tailwind for the commercial business for Winchester. We have faced a lot of headwinds related to the tariffs around copper and brass. And so we've been having to fight that with our price increases. But it's now good to see that the imports are getting tariffs that are going to help give us a little bit of support here.

The next question will come from Pete Osterlund with Truist Securities. Please go ahead.

Hi, this is Alec on for Pete. Going forward, what have you guys achieved so far regarding the 30 million of cost outs in Winchester? and what remaining buckets are you targeting? If military and commercial are improving, does the cost outlook change?

Good morning, Alex. So, you know, we are doing very well in Winchester with our cost out. We've already recognized a pretty significant part of that 30 million that we've committed to through efficiency improvements, We've heard us talk about in the fourth quarter of last year, we were doing things to right-size our ships and make sure that we were operating as efficiently as we could at all of our sites. And we've made a lot of very good progress there. We've also just kicked off here in the third quarter our Beyond 250 efforts. We're bringing in some outside expertise to help us further improve the efficiencies, particularly at the Lake City facility in Missouri. And we're confident in the $30 million that we have out there. In fact, I would even say that for Winchester, we're likely to exceed that number once we get a little bit further down the road with assessing where we're at in Lake City.

The next question will come from Roger Spitz with Bank of America. Please go ahead.

Thanks very much. The Shintex $100 million payment, is that on that slide 14 or is that addition? I just wasn't clear on that.

Good morning, Roger. Todd, do you want to take that?

Yeah, Roger, you know, the $100 million payment on slide 14, we have the $100 million is on On slide 14, slide 14 is your full year modeling assumptions. However, in our outlook expectations for net debt to increase for the full year, year over year, that does include $100 million payment in the back half of 2026.

As there are no further questions, this concludes our question and answer session. I would like to turn the conference back over to Ken Lane for closing comments.

Thank you, Nick. I just want to thank everyone for joining us today, and thank you for your interest in Olin. I wish you all a very safe and relaxing weekend.

Thank you for attending today's presentation. You may now disconnect.