Olin Corp. 2026 Q3 Earnings Call

Please go ahead, Steve. Thank you, operator.

Good morning, everyone. We appreciate you joining us today to review Olin's Third 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 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 third 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 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 look forward to taking your questions. Let me now turn the call over to Olin's President and CEO, Ken Lane.

Thanks, Steve, and thank you to everyone joining us today. We appreciate your interest in Olin. Let's start on slide 3 with a high-level review of the third quarter. The quarter reflected much of what we discussed on our last call. Each business remained focused on serving customers, maintaining commercial discipline, reducing structural costs, and generating cash in what continues to be a very dynamic environment. During the quarter, our team made progress in several important areas. We completed our work at the Freeport site, returning our VCM assets to normal operations in mid-September as planned. Caustic soda market remained resilient, and Olin's commercial team maximized our third quarter caustic value against a turbulent export market. Our epoxy business continues to benefit from our self-help actions, our formulated solutions growth, and our commitment to support local customers seeking secure and reliable supply in both the U.S. and Europe.

Commercial ammunition demand at Winchester has improved year-over-year, and our military business continues to gain momentum with new contract awards, recognizing our strong performance as an essential supplier to the U.S. war fighter. Finally, we have stepped up our integration planning for the Olin-Huntsman merger as regulatory approvals accelerate. Our day-to-day focus remains unchanged as we prioritize safe, reliable, and consistent execution across the company. Turning to slide 4, let me share an update on our planned merger with Huntsman. Our August shareholder meeting returned overwhelming support for this transaction, providing a clear mandate while also passing a threshold of support to preserve the low-interest Huntsman bonds. We continue to make good progress toward closing. We have cleared the Hart-Scott-Rodino waiting period here in the United States, and we have received regulatory approval in several other key jurisdictions.

Reviews continue in the remaining regions, including Europe and China, and with the progress we have seen so far, we now expect to close in the first quarter of 2027. Our immediate priority is being ready to execute on day one. Under Todd's leadership, we have accelerated our pre-closing integration planning to align with the first quarter 2027 closing. We remain confident in our ability to deliver more than $400 million of cost synergies and integration benefits, and the planning we are doing now will help us make a fast start after closing. I think it is important to understand how we are approaching integration. We are building a new company with an industry-leading, globally advantaged asset base and a highly talented team. We are designing our organization based on industry-leading benchmarks, building a lean and efficient company focused on the essential operations that create value for our customers, shareholders, and team members.

Our organizational design will be data-driven with clear lines of accountability and incentive programs that drive results. We will be sharing more about Olin-Huntsman in the coming weeks. In the meantime, we are announcing today that the ticker symbol for Olin-Huntsman will be OHN following closing. Now let us turn to slide 5 for a closer look at our Chlor Alkali Products and Vinyls third quarter performance. As expected, we resumed normal operations at our Freeport VCM facility. Reduced operating rates resulted in approximately $30 million of negative impact. While we sold more EDC during the quarter, EDC values have moderated from second quarter, but remain above pre-conflict levels. Domestic caustic soda prices improved slightly on similar volumes to second quarter. Export pricing was significantly pressured by excess Chinese production. Chlorine volume was lower due to customer maintenance activity, while water treatment was seasonally strong.

With industry shutdowns, seasonally slower vinyls demand, and increasing global costs of energy, feedstocks, and freight, caustic markets are tightening as we come to the end of the year. We have announced price increases and expect to realize those in the first quarter of 2027. Turning to slide 6, let us review our epoxy results. Olin's epoxy business continues to improve, supported by our self-help actions and margin management that is critical as we see significant increases in feedstock costs. Remaining focused on what we can control, we have materially improved the cost structure of the business, and we continue to leverage Olin's position as a reliable, vertically integrated local supplier to customers in both the U.S. and Europe. We also continue to grow our higher value formulated solutions portfolio, particularly in applications across electronics, composites, and coatings. Lower price volatility has caused dramatic swings in benzene and propylene prices.

Our epoxy team has acted quickly to offset that with announced price increases. Fuel surcharges have also been implemented across all regions and shipping modes to mitigate rising diesel and transportation costs. Europe is now considering safeguard protections to shield its composites value chain from subsidized Asian overcapacity. If successful, this initiative will benefit a broad group of composite input materials, including epoxy resins and related systems, which are all essential to critical industries, including automotive, wind energy, aerospace, and defense. It is critical that the European Union act decisively to seize this momentum and swiftly establish provisional measures. Olin has provided support throughout this process and will continue to do so. We are building a more resilient business by focusing on structural cost actions, commercial discipline, reliable supply, and increased participation in high-value end uses. Our upcoming merger with Huntsman will accelerate all of these.

Now let's take a look at Winchester on slide 7. Outdoor commercial ammunition demand continued to improve on a year-over-year basis during the third quarter. Year-to-date, September NICS background checks for firearm purchases were up year over year for the first time since 2020. Our commercial order backlog continues to grow year over year as we remain very disciplined around value chain inventories, continuing our make-to-demand approach. As a result of the Winchester team's actions, the balance between channel inventories, consumer takeaway, and our own production is much healthier today than it was this time last year. Our military business continues to perform well. Winchester was awarded more than $1 billion in contracts during the quarter, approximately $600 million of which will be used to equip the new Lake City 6.8mm ammunition facility.

This month, Winchester delivered its first shipment of Lake City-produced 6.8mm rounds to the U.S. military. Our interim production capacity is expected to scale by a factor of 10 by the completion of the project as the new manufacturing facility is built out. These are the first rounds produced on U.S. government-owned assets that meet the full requirements of the new 6.8mm rounds, demonstrating the industry-leading design, engineering, and manufacturing capabilities of our Winchester team. The Army also renewed our five-year second source supply contract with an initial delivery valued at $50 million over the next 12 months. This contract covers ammunition we produce for the military from our Oxford, Mississippi, and East Alton, Illinois plants. These actions reinforce the U.S. military's strong confidence in Winchester. I will now turn the call over to Todd for a look at our financial highlights.

Thanks, Ken. Turning to slide 8, I will review our working capital, liquidity, and financial position. Earlier this week, Olin executed a new credit agreement to support the combined company following our merger with Huntsman. Backed by strong commitments from our combined relationship bank group, the agreement will expand liquidity and financial flexibility for Olin-Huntsman at closing. Working capital increased during the first nine months of 2026, reflecting our normal seasonal build and payments against previously accrued legacy litigation reserves. During 2026, Olin paid approximately $114 million to Shintech related to legacy litigation obligations. We do not expect further payments this year. We expect a seasonal reduction in working capital in the fourth quarter, supported by continued inventory and receivables management, resulting in year-end working capital approximately in line with 2025 levels, excluding the impact of legacy litigation payments.

We expect year-end net debt to be higher than year-end 2025, reflecting legacy litigation payments and merger-related costs. We expect year-end leverage to be approximately 5 times or slightly higher. The end of the quarter with $1.3 billion of available liquidity, with no restrictions on the undrawn portion of our revolving credit facility. Our capital allocation priorities remain unchanged. We continue to target 2026 capital spending of approximately $200 million, with investments focused on safe, reliable, and efficient operation of our assets. We expect to continue our long history of uninterrupted quarterly dividend payments, with our next dividend marking 100 years of consecutive quarterly dividend payments. Finally, we remain committed to preserving liquidity and maintaining financial flexibility, with excess cash flow to be used to reduce our outstanding debt.