Olin 2026 Q2 Earnings Call

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 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'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. 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. Caustic soda and EDC export pricing was a 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 Chlor-Alkali 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 VCM 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 VCM 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 demands. 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 resin demand experienced moderate seasonal improvements, 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. 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 revolving 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, a leverage ratio of approximately 4.5 times. 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. Finally, we continue to expect 2026 to be a cash-free tax year, ±$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 a 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.