D.R. Horton Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
January 31, 2025

There are 15 speakers on the call.

Operator

Good morning, and welcome to Olin Corporation's 4th Quarter 2024 Earnings Conference Call. All participants will be in listen only mode. Following today's brief opening comments, there will be an opportunity to ask questions. 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.

Operator

Please go ahead, Steve.

Speaker 1

Thank you, operator. Good morning, everyone. We appreciate you joining us today to review Olin's 4th quarter results. Before we begin, I'll remind you that this discussion, together with the associated slides and the question and answer session that follows, will include statements regarding estimates or expectations of future performance. Please note that these are forward looking statements and that Olin's results could differ materially from those projected.

Speaker 1

Some of the factors that could cause actual results to differ from our projections are described without limitations in the described without limitations in the Risk Factors section of our most recent Form 10 ks and in yesterday's Q4 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 Ken Lane, Olin's President and CEO and Todd Slater, Olin's CFO. We'll start with our prepared remarks, then we look forward to taking your questions.

Speaker 2

I'll note though that in order to give each analyst an opportunity, we will limit participants to one question with no follow ups. I'll now turn the call over to Ken Lane and kick us off. Thanks, Steve, and thank you all for joining us today. Starting with Slide 3, I hope everyone was able to participate in our December Investor Day, whether in person or virtually. We laid out our value creation strategy that optimizes our core businesses by maintaining our focus on a value first commercial approach and streamlining our assets to achieve greater than $250,000,000 in cost reductions by 2028.

Speaker 2

We expect to achieve $20,000,000 to $30,000,000 of these savings in 2025. We also explained how we will grow our core by focusing on adjacent high return options, all while being disciplined with our capital allocation framework. Olin has a great legacy, a leading set of businesses and assets and a bright future. During our Investor Day, we guided the 4th quarter adjusted EBITDA at the low end of our range. However, as we closed the quarter, the downward pressure on our share price created an unexpected benefit to adjusted EBITDA and hurricane barrel costs came in lower than we expected.

Speaker 2

In epoxy, seasonally lower demand was a headwind during the Q4. However, this was partially offset by continued price improvement. In Winchester, domestic and international military demand remains strong. However, near term commercial headwinds persist as commercial retailers continue to trim inventories and consumer disposable income remains challenged. Now let's take a closer look at our chlor alkali products and vinyls results on Slide 4.

Speaker 2

CAPV sales were up 9% sequentially on higher volume in the absence of Hurricane Barrel and improved pricing. Our CAPV results also benefited as final Hurricane Barrel spending came in approximately $8,000,000 below expectation during the quarter. Although we are in the midst of a prolonged industry trough, Olin continues to realize higher value than experienced previously. We continue to be disciplined with our operating rates as we navigate this challenging environment. Global caustic soda remains tight as European variable costs rise, Asian demand shows improvement and we are coming up on the turnaround season.

Speaker 2

Combined with seasonally lower merchant chlorine demand, we expect tightness to continue through the Q1. At Investor Day, we announced our intention to enter the U. S. PVC market via a tolling partnership. This has key strategic benefits, including upgrading a portion of our significant EDC capacity and unlocking incremental caustic soda volume.

Speaker 2

Longer term, this will facilitate our strategic assessment of the PBC market and how we would deploy our industry leading cost position to create higher value. We have received initial shipments and will realize first sales in the Q1. Our Gulf Coast plants recently weathered winter storm Enzo with no material interruptions. However, many of our customers were not as fortunate, which will present a slight headwind in the Q1. Moving to Slide 5, we'll take a look at our Q4 and full year Epoxy results.

Speaker 2

Owens Epoxy sales were roughly flat sequentially with improved resin pricing offset by seasonally weaker demand in both the U. S. And Europe seeing weaker demand from the building and construction, automotive and consumer electronics markets. Notably, during the 3rd and 4th quarters, our team successfully completed the planned turnaround at our Stade, Germany facility. It was completed safely on time and on budget.

Speaker 2

4th quarter epoxy adjusted EBITDA increased by more than 50% sequentially, largely in the absence of hurricane barrel impacts. During the Q1, we expect improving demand as limited restocking begins and we see some seasonal improvement in our Formulated Solutions business. U. S. Hydrocarbon feedstock costs remain favorable versus rest of world.

Speaker 2

However, Asian epoxy producers facing higher feedstock and freight costs continue to increase the flow of unfairly subsidized epoxy resin into the U. S. And Europe. We expect both a final U. S.

Speaker 2

And provisional EU antidumping decision during the first half of the year. Slide 6 provides an update on our Winchester business. 4th quarter Winchester sales were flat sequentially as the growth of lower margin domestic and international military demand and military project spending was offset by lower commercial ammunition sales. Commercial ammunition demand continues to be weak as retailers continue destocking. As a reminder, U.

Speaker 2

S. Ammunition retailers build significant inventories during the first half of twenty twenty four ahead of looming propellant shortages and the U. S. Presidential election. Retailers continued reducing their inventories as consumer spending slowed, resulting in lower Winchester sales.

Speaker 2

We expect this trend to continue in the first half of twenty twenty five. The weak near term commercial demand has been partially offset by strong domestic and international military demand. Demand for White Flyer clay targets is robust and will soon benefit from the launch of our EcoFlyer line, the next evolution of clay targets. After 1 year since closing, we're excited to see the continued exceedance of our expectations of this acquisition. And now let's take a look at Winchester's announced acquisition of ammo Inc.

Speaker 2

Assets on Slide 7. As we announced on January 21, Winchester entered into a definitive agreement with ammo Inc. To acquire its small caliber ammunition manufacturing manufacturing assets. This bolt on acquisition should be immediately accretive to adjusted EBITDA, which is directly in line with our acquisition strategy for Winchester that we discussed during our December Investor Day. The acquisition includes a state of the art production facility in Manitowoc, Wisconsin with a talented group of skilled employees, which will enable greater specialization and participation across high margin specialty calibers.

Speaker 2

At the same time, Winchester's near full integration across the ammunition value chain will provide economy of scale and synergies across safety, manufacturing and procurement. Our plants will immediately share best practices and rebalance our system to optimize the new assets. We anticipate a fully realized synergy benefit of $40,000,000 within 3 years after closing. As a result, we expect to achieve a multiple of less than 2 times once the assets are fully integrated, which meets our criteria that any investment must offer better returns than buying back a share of Olin stock. We expect to close the transaction during the Q2.

Speaker 2

Let me now turn the call over to Todd Slater to walk us through some financial highlights.

Speaker 1

Thanks, Ken. On Slide 8, we've added a sequential quarterly adjusted EBITDA bridge. The comparison from Q3 to Q4 2024 is highlighted by business. At a high level, we experienced an approximately $93,000,000 overall sequential benefit from the lower hurricane barrel impact. Our chemical businesses experienced favorable pricing momentum, but were offset by higher raw material costs and higher expenses, including penalties from unabsorbed fixed manufacturing costs related to our planned Freeport, Texas chlorinator organics plant maintenance turnaround.

Speaker 1

As expected, Winchester experienced lower commercial demand as retailers continued their inventory destocking efforts. At corporate, we benefited from lower stock based compensation, primarily due to mark to market adjustments, partially offset by higher environmental remediation expenses and legal and legal related costs. Now let's turn to Slide 9, quarterly and full year highlights. The continued challenging industry environment reinforces the importance of Olin's investment grade balance sheet and our strong cash flow generation. We have minimal bond maturities in the next few years with opportunities to refinance our long term debt, such as the expansion and refinancing of our $500,000,000 accounts receivable securitization facility completed during the Q4, but from the previous $425,000,000 facility.

Speaker 1

With this refinancing, we had approximately $63,000,000 of off balance sheet accounts receivable factoring return to balance sheet debt as our factoring program was discontinued. Our strong financial foundation enables Olin to continue running our value first commercial approach while maintaining our disciplined capital allocation priorities. During 2024, Olin returned approximately 78% of operating cash flow to shareholders through quarterly dividends and share repurchases. As a result, we repurchased approximately 5% of our outstanding shares. Our net debt has increased by approximately $167,000,000 from year end 2023, while remaining approximately flat during the Q4.

Speaker 1

After taking into consideration the impact of Hurricane Barril, our year end net debt to adjusted EBITDA ratio was approximately 2.7 times. We ended the year with $175,600,000 of cash and approximately $1,200,000,000 of available liquidity. Let's take a moment and discuss our outlook for expected uses of cash generated in 2025, which is very consistent with our disciplined capital allocation approach we reviewed at our December Investor Day. First, cash taxes in 2025 should be higher than our normalized 25% to 30% rate. As our previously discussed international tax payment of approximately $80,000,000 that's been deferred for the last 2 years should be paid in the first half of twenty twenty five.

Speaker 1

We expect our capital spending in 2025 to be in the range of 2.25 dollars to $250,000,000 as we begin to spend capital toward our optimize the core asset strategy, which is designed to achieve greater than $250,000,000 of structural cost reductions by 2028. We expect to continue our nearly 100 year history of uninterrupted quarterly dividend payments. We expect to fund our acquisition of the ammunition assets of ammo Inc. From operating cash flows during 2025, which is consistent with our strategy to utilize excess cash flow to fund growth initiatives that offer a higher return than share repurchases. Any remaining excess cash flow after the preceding capital allocation priorities would be available for share repurchases or incremental high return growth initiatives.

Speaker 1

We expect net debt to increase during the 1st part of 2025 due to normal seasonality of working capital and the timing of cash requirements we just discussed. However, by year end 2025, we are targeting net debt to be flat with year end 2024 levels. Our teams continue to focus on cash generation, maintaining cost discipline and exploring additional cost savings opportunities. We remain committed to a prudent capital structure with a strong balance sheet and investment grade credit ratings. Now I'll hand the call back to you, Ken.

Speaker 2

Thanks, Todd. Let's turn to Slide 10 and our outlook for the Q1. In general, we don't see significant short term improvement in the macro demand environment, and we will maintain our disciplined operating rates. As a result of our value first strategy, we expect our Q1 2025 ECU values to be comparable with the Q4. At the same time and aligned with our optimizing the core strategy, we are staying focused on productivity, cost improvements and the variables within our control.

Speaker 2

With near term lower planned CAPV volumes and pricing headwinds in EDC, combined with continued customer destocking and lower consumer demand in the Winchester commercial business, we expect our Q1 2025 adjusted EBITDA to be in the range of $150,000,000 to $170,000,000 As we continue leading through this challenging market environment, we will stay focused on our value creation strategy and the capital allocation framework we laid out during our Investor Day in December. We are committed to maintaining our investment grade balance sheet, ample liquidity and superior cash flow generation. As all cycles do, this extended industrial trough will end and we look forward to demonstrating our significant leverage into that recovery. Operator, we're now ready to take questions.

Operator

We will now begin the question and answer session. The first question comes from Aleksey Yefremov with KeyBanc Capital Markets. Please go ahead.

Speaker 3

Thank you and good morning everyone. Ken, can you provide as much detail as possible about your volume outlook for chlorovinos in the first quarter? And also, if you could comment whether you've lost any chlorine or other chlor alkali business in Q1 for the rest of the year on a contract basis where that step down in volume is more temporary and tactical and we should expect volumes to rebound in coming quarters in 2020 5?

Speaker 2

Good morning, Alexi. Appreciate you joining us. So listen, on the volume side of things, Q4, we saw very good volume. Some of that was rebound volume, of course, from Hurricane Beryl. And then coming into the beginning of the year, obviously, we've got very low inventories as we were pulling inventory towards the end of the year, just working on working capital and as that rebound volume was very strong in Q4.

Speaker 2

What we see happening in the Q1, we do have a turnaround going on, so that's impacting volume because we don't have the inventory to offset some of that. We've also had some of our customers in the Q1, while we weathered the winter storm Enzo very well with our assets, some of our customers did not. That's going to have some impact on volumes. And then we're going to continue to be disciplined with our operating rates and meet the demand at the value that we like. So in the Q1, we will see lower volumes, but most of that is related to things that are not, let's say, overall market in terms of demand.

Speaker 2

We do see good demand for caustic. We think caustic demand is going to continue to be strong, relatively strong relative to the rest of the portfolio. We see good demand in pulp and paper in the export markets. We see good demand for alumina and aluminum still. So that's going to continue.

Speaker 2

And as long as we see continued weak demand on the vinyl side or the chlorine side of the chain, that's going to make caustic tighter. So we expect that to be supportive for pricing as well. But in general, there's a lot of uncertainty out there. We still expect to see strength in caustic, more weakness on the chlorine side of the ECU. But overall, like I said in my comments, ECU values should be relatively flat in the Q1 versus Q4.

Operator

The next question comes from Mike Leithead with Barclays. Please go ahead.

Speaker 4

Great. Thanks and good morning guys. Just 2 around guidance. First, on the Q4, I think in mid December, you said you'd be closer to $170,000,000 and then you ended up about $20,000,000 higher. So what happened in the last 2 weeks of the year?

Speaker 4

And then second, as we look through 2025 beyond the Q1, appreciate there's limited demand visibility, but are there all in specific earnings contributors we should think about as the year goes on to sort of build a bridge off of that 1Q? Thank you.

Speaker 2

Thank you, Mike. Good morning. Yes, so listen, things change pretty quickly there after the Investor Day. We didn't of course expect the benefit from the lower share price, which was not a good thing. That was a $10,000,000 tailwind for us.

Speaker 2

And then we did have a little bit of a surprise that hurricane barrel spend came in about $8,000,000 less. So that makes up almost all of that $20,000,000 Otherwise we would have been right in line with where we had expected. As I said before, I think that we don't want to fall in the trap that we have many people have in the industry over the past couple of years of giving some view that the second half of the year is going to be a lot better than the first half of the year. There's just still a

Speaker 1

lot of

Speaker 2

uncertainty and visibility is not very good. However, we do think that as we get into the back half of the year, we should see for Winchester, a lot of that destocking should be finished. Hopefully, we start to see the consumer come back and see a little more strength in consumer demand. But certainly working down that inventory is taking a little bit longer than what our commercial customers had expected. In Winchester, we're also going to see stronger military demand as we go through the year.

Speaker 2

Right now, the project at Lake City is running a little bit slower only because of the weather. As you know, it's been very cold, so that has slowed some of the progress around construction. That's going to pick up in the spring. So we should see Winchester improving in the back half of the year. For the rest of the business, I think we're going to see a more normal seasonality.

Speaker 2

So as we get into Q2 in the warmer months, you're going to start to see the chlorine demand pick up as we see bleach demand increase and that's going to be positive for Olin. That's more of a differential position for us. I think in Epoxy, you're going to continue to see some seasonal improvement with construction improving. Automotive still is fairly weak over in Europe. So hopefully that is going to turn and start to improve.

Speaker 2

Now there is a little bit of a bogey out there around the antidumping duties. And we're not going to build any of that into our forecast at the moment because we need to wait for those things to be finalized. But obviously, those could be a bit of a tailwind here for epoxy.

Operator

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

Speaker 5

Good morning, Ken and Todd. A quick question around supply and I brought this up at the Analyst Day as well. I mean look, one of the virtues obviously of the chlor alkali story historically had been the dearth of capacity additions. But it just seems that between certain TiO2 producers sort of announcing chlorine capacity additions, certain polyurethane producers out there sort of investing in infrastructure to potentially sort of source chlorine from other vendors. There seems to be a creep in terms of supply.

Speaker 5

So could you sort of give us your near and medium term sort of outlook on maybe even numerically of what you think the supply picture looks like for chlor alkali?

Speaker 2

Hi, good morning, Hassan. So look, on supply demand, we talked about this at the Investor Day. And our view is this, that you do see capacity coming out as well as being added in the future. And in fact, the capacity is coming out is coming out sooner than the capacity that's being added. So we don't think that that is anything more than a normal level of supply addition and capacity that's coming out with less competitive assets and less competitive regions.

Speaker 2

So we think net net it's going to be relatively balanced in the midterm. There's not anything there that we see that's concerning for our outlook and what we laid out at the Investor Day. But I will tell you, when we look at it, we do not see the economics to make an investment pencil where we are today and we're very far away from that. There's a lot of risk in building these assets. So people are going to do what they want to do, but that doesn't mean that it's going to happen in the time that is stated and doesn't mean that it's going to happen at all necessarily.

Speaker 2

Let's see. But even if everything happens, as it's been announced, we think net net is going to be fairly neutral on the supply side.

Operator

The next question comes from Jeff Zekauskas with JPMorgan. Please go ahead.

Speaker 6

Thanks very much. So Ken, you've been CEO of Olin now for almost a year. When you look back on the year and you compare your actions or your leadership direction to Scott Sutton, have there been any changes? Where do you see your tenure over the past year as a continuation of what Scott did?

Speaker 2

Good morning, Jeff. Thanks for the question. Listen, we laid out our vision for the company at the Investor Day. And as we look forward, what we see is that our leading position in both our CAPV business, the epoxy business and the Winchester business, we've got a lot of opportunity to do things that are well within our control to optimize that. We've talked about reducing our costs by $250,000,000 and a lot of that is related to us cleaning up the asset footprint that we've got to remove some of the assets and optimize some of the sites that we've got to make them more efficient and to reduce our fixed and variable costs at those sites.

Speaker 2

Those are things that we're going to be able to control and deliver on and I'm convinced that we will. And then you look at the business model that we operate. We're going to continue to stay focused on being a leader in the industry. And what that means is that we're going to continue to be disciplined. We're going to continue to watch our operating rates and we're going to be focused on value.

Speaker 2

We don't see the need to get overly aggressive in terms of volume. I said it just a minute ago. We don't think that where we are today, there are opportunities for reinvestment economics. We think that we're far away from that. So we believe that as long as we continue to be disciplined, we can hold value relatively flat versus where we were last year.

Speaker 2

And as the market comes back, we have the coiled spring. And we've got a lot of value ahead of us. And as we see the trough as we come out of the trough, we're very well positioned to realize a tremendous amount of value as a company from that. So we've got a bright future just around optimizing our core. And then you think about some of the options that we described around growing the core.

Speaker 2

So we're entering the PVC resin market here in the Q1. That's a way for us to begin to test and learn more about that market to be able to position the future of a very strong set of assets that we have to make vinyls down at Freeport. And so that creates a great opportunity for us. We talked about building on our bleach position and we talked about building on our Winchester position and leveraging off of our chemical expertise into some very attractive markets that we think have got strong growth and strong returns for the long term. So that's our vision for the future is to stay focused on optimizing and growing.

Speaker 2

And I'm really excited about getting after that and continuing to deliver on that strategy.

Operator

The next question comes from vivesh Lodaya with BMO Capital Markets. Please go ahead.

Speaker 7

Hi, good morning, Ken. So question on your chlor alkali strategy. So industry consultants are expecting higher operating rates sequentially in the Q1. Now expectations were that when the market improves, when operating rates increase industry wide, OEM gets a higher share of those volumes. It appears that you are not seeing that sort of a market or that sort of margins and are actually restricting your participation because you expect lower volumes in the Q1.

Speaker 7

So I guess the question is what needs to change for this trend to not continue as we go ahead into the year?

Speaker 2

Good morning, Bhavesh. Listen, I think in the short term, in the Q1, if you go back to what I had said earlier, what we see in terms of the lower volumes in Q1 is more related to the bounce back that we saw in volumes in Q4, which we don't see that repeating in Q1 and that bounce back was our bounce back from Hurricane Beryl. We also have got a turnaround occurring here in the Q1. And we've got like I said before, some of our customers were impacted from the winter freeze or winter storm Enzo. So it's more related to transient things.

Speaker 2

I hate to use that word, but that's the way that we see it. We do continue to see strength in caustic in the caustic market, a little more challenging in the vinyls. As construction returns, that's going to change. But right now, as you know, housing is still challenged. Hopefully, that's going to start to change in the coming months, but we don't have visibility of that just yet.

Speaker 2

But I don't see anything where we're differential in the marketplace. But what we will do is continue to be disciplined that we're not going to push volume into weak markets just to get the volume. So we're going to stay focused on holding our position until we see the values that we like and then we'll start to operate harder. But right now, the focus is on being disciplined.

Operator

The next question comes from Patrick Cunningham with Citi. Please go ahead.

Speaker 8

Hi, good morning. Just on the recent ammo acquisition, can you provide some more color on the $40,000,000 in synergies that you expect to achieve through economy scale and if there's anything from a commercial standpoint that stays into that number? Thank you.

Speaker 2

Yes. Good morning, Patrick. Listen, on those synergies, part of the synergies is SG and A, obviously. That's going to be a smaller part. The bigger part is going to be, as we talked about at the Investor Day, Winchester is the largest small caliber ammunition producer.

Speaker 2

So we're a very big buyer in the market for raw materials and different components for ammunition. That's going to be a big lever for us with these assets relative to the past. So that is going to be a very positive thing for us. Just right off the bat, those are things that are going to be able to deleveraged from day 1. The other part of this is more unique to Winchester and that we've got these already 3 sites that we have and they're very large scale sites that produce very large scale volumes.

Speaker 2

And what we're going to get with this asset is the ability to produce niche high margin caliber products that we currently have to make in these larger scale assets, which is less efficient. We have more changeovers. That's the sort of thing that we can move into this asset. We can make more of those, calibers and we can make them more efficiently. So those three things are really going to drive that $40,000,000 of synergies.

Speaker 2

So I have a very high level of confidence that we're going to get those. And the procurement and the SG and A, we're going to get very quickly.

Operator

The next question comes from Duffy Fischer with Goldman Sachs. Please go ahead.

Speaker 9

Yes, good morning guys. Just a question around the potential change in trade flows from the tariffs and anti dumpings around epoxy. What have you seen so far? Obviously, some of your customers are calling out higher epoxy prices already. But what do you think is going to happen if the ask that you guys have put forward happens?

Speaker 9

What do you think that will do to trade flows? And what do you think that will do from incremental pricing from here forward?

Speaker 2

Good morning, Duffy. Great question. Listen, it's a little bit different for epoxy. Europe is a very large epoxy market. So once the duties go up there, that's going to be a good thing for the European market and our position in Europe.

Speaker 2

It's not like some other markets that you may think about where there are other large things of volume. I do think that between Europe and the U. S, once you put duties there, it is going to drive prices higher in the short term. And when you look at the cost structure around Chinese producers, they were already dumping product and frankly not making money. The situation is getting worse there.

Speaker 2

So if their costs continue to rise, you may actually just see the production slow down or even shut down. I'm not predicting anything is going to happen for sure, but certainly the economics are not favorable for them to continue to operate where they are and they've added a lot of capacity. So I don't know that it's as much about product just shifting around and flowing into different regions because the largest consuming regions are really U. S. And Europe.

Speaker 2

I think it's going to be more about rationalization over the midterm of capacity that's not competitive. And you've already seen some of that in Asia. So you saw some capacity announced being shut down just in the past couple of weeks. So that's how the cycle works. The strong are going to survive and the weak aren't.

Speaker 2

I think it's going to be more of that story than it is going to be just things are going to move to different regions in epoxy.

Operator

The next question comes from Mike Sison with Wells Fargo. Please go

Speaker 10

ahead. Hey, good morning. Most companies sort of have said that the outlook or the demand outlook for 2025 doesn't look much better than 2024. So if you think about if that does unfortunately unfold, how does your how do you improve EBITDA? And I know you don't give annual guidance, but how do you improve EBITDA this year, year over year?

Speaker 10

And when you think about the Q1 kind of low point, what sort of drives the improvement potentially sequentially into

Operator

the later quarters?

Speaker 2

Hi, Mike. Thanks for the question. Listen, we're going to focus as you always have to do in the trough on what we can control. So we're going to focus on our costs, controlling our costs, making sure that our cash flow is strong. Financially, we are in very good shape as a company in a very deep and long trough that we've been in now for a while.

Speaker 2

So continuing to focus on the things that we can control, being disciplined around our operating rates, those are the things that are going to help us really hold the value that we see in our positions that we've got. But we do expect to see some improvement as I had said earlier as we go through the year, we do expect to see some improvement with the Winchester business. We're going to see some recovery as we get the seasonality with warmer temperatures coming and the bleach business is going to come back. We should see continued momentum with epoxy pricing. Now epoxy is in a pretty deep hole.

Speaker 2

So in terms of material improvements, I don't know that we're going to get there this year, but we certainly expect to see some improvement in epoxy as we go through the year.

Operator

The next question comes from Steve Byrne with Bank of America. Please go ahead.

Speaker 11

Yes, thank you. Just a little bit about your new tolling agreement to convert some EDC into PVC. How would you compare the variable margins that you make on your current sales of EDC versus what you expect to get on this PVC post the tolling and shipping costs. And I'm curious, who are you going to be selling to? Are you developing new customers with the new commercial organization, such as selling direct to pipe producers?

Speaker 11

Or are you selling to your existing, say, EDC customers who then would use their own commercial organization? Just curious on your outlook for this business.

Speaker 2

Good morning, Steve. Listen, this is a really important part of our strategy as we think longer term. This is not a short term move for us. So the idea here is for us to get into selling PVC resin directly to customers and doing it ourselves. That's how we're going to learn who the customers are, learn more about creating higher value from our market position that we think we can build over time.

Speaker 2

And this is obviously when you look at the economics over the mid to long term, this is an upgrade for us of our EDC compared to selling EDC. So it is higher value for us. As we go through developing the market, it's going to be smaller scale, so the economics are not going to be great. But relative to selling EDC, I can tell you it's not any worse. So this is going to be a benefit for us, not just in terms of moving volume, it's going to be benefiting us when we think about potentially 1,000,000 tons of PVC resin that we could be looking at bringing into the market in the next few years.

Speaker 2

That really is why we're doing this.

Operator

The next question comes from Arun Viswanathan with RBC Capital Markets. Please go ahead.

Speaker 12

Thanks for taking my question. Good morning. So I guess I wanted to get your thoughts, if I could, on maybe some preliminary thoughts on 25. So obviously, you're guiding to that $150,000,000 to $170,000,000 for Q1. And if we look at 2024 without the hurricane barrel impacts are in the $1,000,000,000 or so range, assuming some synergies and growth in Winchester and maybe some recovery in the other segments.

Speaker 12

Should you be above that $1,000,000,000 range, maybe in the $1,100,000,000 to $1,200,000,000 range for the full year? Or how should we think about what you see in the cards for 20 25 EBITDA?

Speaker 2

Good morning, Arun. Yes, listen, so when we think about the Q1 and that guide that we've given, if you even just think about Q1 versus prior year, obviously, one of the big changes versus 2024 is Winchester. So Winchester is significantly below where it was in the Q1 of last year. What I think is maybe being lost though is that we do see stable CAPV performance, which really is a very good thing to see. We see a firm business environment around CAPV.

Speaker 2

We saw that last year. Hurricane Beryl, yes, it was a headwind. But for CAPV, we see things continuing to be kind of where they were and they will start to improve as we come out of the trough. We've talked about epoxy. The biggest thing that's going to help us there is going to be rationalization of capacity and growth coming back into the market.

Speaker 2

Of course, duties will help, but to bank on duties being our savior here. But that is something that certainly will be a tailwind for us. But ultimately, I think you're going to see Winchester being the headwind in the Q1. And as I said before, we won't see that really recover until the back half of the year until the inventory that's in the system gets worked out.

Operator

The next question comes from David Begleiter with Deutsche Bank. Please go ahead.

Speaker 12

Thank you. Good morning. Ken, just on natural gas, can you discuss your hedging strategies for this year? And how should we think about the impact from higher natural gas prices on your earnings for the year? Thank you.

Speaker 2

Todd, do you want to take that one?

Speaker 1

Yes. Thanks, Ken. Thanks for the question on natural gas. As you know, we do have a very disciplined approach on hedging our natural gas. We generally use a rolling 4 quarter basis where we are heavily hedged from a quarter out and the sliding scale the remaining quarters.

Speaker 1

As you think about Q1 versus Q4, directionally, we would think about our natural gas and power costs being relatively flattish sequentially in Q1 versus Q4, and probably not nearly as big a headwind as you might see at the spot

Speaker 12

market.

Operator

The next question comes from Peter Osterline with Truist Securities. Please go ahead.

Speaker 13

Good morning. Thanks for taking the questions. Within Winchester, is there an extensive pipeline of opportunities out there that you are considering or would consider for additional bolt on M and A? And at the current valuation, how do you weigh that option as a priority versus share repurchases? Thank you.

Speaker 2

Hi. Good morning, Peter. Thank you for joining us and welcome. Listen, we talked about this at the Investor Day. We are going to be focused on highly accretive, high return bolt on investments around Winchester.

Speaker 2

Obviously, we're not going to talk about anything specific at this point. But with the scale that we've got in the industry, there could be other options, but they will be small. We're not looking for something transformational at this point. But when you can do deals like the White Flyer deal that we did at the end of 2023, the deal that's proposed here for the Ammo Inc. Assets and hopefully closing here in the Q2.

Speaker 2

As those things come up, if you can buy assets or businesses at a multiple like two times, obviously, we're going to look really hard at that. And we're going to watch that marketplace to see if other things come on. But at this point, I don't have any more specifics to share with you than that. We did talk a little bit though about the potential to backward integrate with Winchester into the Radford facility that would be bid here in the next couple of years. That's the only other thing that we've talked about publicly.

Speaker 2

So we'll keep watching the space. And as we see things, we will be disciplined and we're going to watch value relative to us buying back a share of Olin stock. And looking at the share of Olin stock today, as you can tell, it's a very good value. So it's got to be a high hurdle.

Operator

The next question comes from Kevin McCarthy with Vertical Research. Please go ahead.

Speaker 9

Yes. Thank you and good morning. Ken, I'd appreciate your updated thoughts on the dynamics in the caustic soda export market coming out of the U. S. Gulf Coast.

Speaker 7

I think you made

Speaker 9

a comment earlier on the call that you expect ECU values to trend flat sequentially into the Q1. And I'm just wondering in that context, what you're thinking about directionally for spot export prices for caustic soda? Do you think we're at a bottom here? And do we need any sequential improvement over the next couple of months to achieve that flat level? Maybe you could just provide a little bit of context for us in that regard.

Speaker 9

Thanks.

Speaker 2

Good morning, Kevin. Appreciate the question. Listen, what I said earlier stands, we see firm demand. The other thing that we see is the Asian market pricing is improving. So I do think that we've hit a bottom here in terms of the export pricing, which overall will lend to a floor for domestic pricing as well.

Speaker 2

So as we see the headwinds in the EDC market, we do see people having to cut back because they're not making any money on EDC at the price level that you see in the market today. That's going to add to the tightness in the caustic market. So that just gives me that confidence that we're going to see firmness in the ECU values out there, including in the export market.

Operator

The next question comes from John Roberts, Mizuho. Please go ahead.

Speaker 1

Thank you. Sometimes in the past, Olin has idled EDC because the margin was too low and I don't think you're allowed to resell the ethylene. Will the new PVC strategy require you to keep EDC running even if margins on the rest of the merchant EDC market are unacceptable?

Speaker 2

Good morning, John. Listen, we're not going to treat EDC any differently than anything else. We're going to be optimizing the operating rate based on the value that we see to or the demand that we see at the value that we want in the marketplace. So I don't see us being the industry leader in terms of cost positions. I don't see us being in a position where we would be idling the capacity.

Speaker 2

Obviously, we're not running it at full rates, but we will operate it at the rate that we think creates the highest value for Olin.

Operator

The next question comes from Frank Mitsch with Fermium Research. Please go ahead.

Speaker 14

Hey, good morning. Hey, Todd, I was wondering if you could talk about the plans to tackle the $110,000,000 that's due in June and when and the $80,000,000 deferred international tax payment, so we're coming up on close to $200,000,000 What is your plan of attack? Will it be refinancing involved, etcetera? And then just a clarification, Ken, you indicated that the ECU value is expected to be flat in the Q1 relative to the Q4. So is that should we read that the PCI index is going to be essentially flat 1Q to 4Q?

Speaker 14

Thank you.

Speaker 1

Okay. I'll start. Hi, Frank. Yes, the cash taxes and the $80,000,000 international tax payment that we've preferred for the last couple of years. We really are going to make it.

Speaker 1

It will be made in the first half of, excuse me, of 2025. And regarding the roughly $100,000,000 of debt that comes due, we would expect just to pay that with our revolver and it will be neutral from a debt perspective on our balance sheet.

Speaker 2

And Frank, with respect to your second question, the PCI remember is an amalgamation of a lot of things. It's not just the ECU, it includes derivatives as well. So you can't say that if ECU values are flat that the PCI is going to be flat.

Speaker 1

Frank, as we commented, we do see headwinds on pricing of EDC. So that would be a little bit of a negative on the PCI.

Operator

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

Speaker 13

Thank you and good morning. Is there any update regarding your thinking on potential growth projects? I think at the Investor Day, you talked about some opportunities with the bleach plant in California, the Radford ammo bid and the expansion of the Quebec Capes plant. As you stand today, could you rank those projects and what's most attractive and what would be least attractive? Thanks.

Speaker 2

Good morning, Matthew. Well, listen, I would say that, obviously, the Radford opportunity is one that's going to come in a couple of years, doesn't really require any capital. So I'd say that that is a priority for us. We see that as a very good move for Olin, for Winchester and that is one that would be a priority for us. I think between the other two, it's going to come down really to economics and timing.

Speaker 2

So we are studying both of those very hard at the moment. But we will given the current environment that we're in, we're going to stay true to what we've talked about around our capital allocation priorities and we will have to phase those projects accordingly. But they're both attractive projects and we want to keep them on the books and we'll make a decision at the right time based on our cash flow availability and when it meets the hurdle that we laid out in December at the Investor Day. If we can achieve those two things, which is meeting the commitments around capital allocation and meeting the return criteria that we laid out, then we'll move forward. But we're not in a position here today to really give you any clear view on those 2 projects in terms of priority that both are attractive.

Operator

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

Speaker 11

Hi, good morning. It's Chris Perrella on for Josh. As I think about the Winchester business over the course of the year, I know sequentially weaker in the Q1 here, you have higher input costs on propellant and the metal. When do you think you outpace those costs with price increases? And does the second half for Winchester, does that look like the first half of twenty twenty four?

Speaker 11

Or does it have to build up over a longer timeframe?

Speaker 2

Good morning, Chris. Obviously, we've talked a lot in the last year about the cost of propellant and metals and different materials going into ammunition as being a headwind. And we've been working to move that through in pricing in the market. But obviously, that's difficult to do when our customers have built a tremendous amount of inventory and they're working that off. So that's going to take a little bit more time to be able to work down and pass through into the marketplace.

Speaker 2

So like I said before, I expect to see Winchester's performance improve in the back half of the year. So that's going to be a combination of improved demand and not just from our commercial customers buying more to refill their inventory, but we're hoping to see improved consumer demand out the door at our commercial customers.

Operator

The next question comes from Vincent Andrews with Morgan Stanley. Please go ahead.

Speaker 4

Thank you. Ken, I actually just follow-up to your last point, which is, do you have any data on retail sales versus your selling to retail? I'm just trying to see if you have a really good sense of what obviously, your customers are destocking, but have your customers' customers been destocking? And are there any bends in those trends that are giving you the confidence about the back half of the year?

Speaker 2

Yes. Good morning, Vincent. Thank you. And yes, listen, we do collect different data, and it's from a number of different sources where we look at things that are reported, whether it's gun registrations, gun sales and those sorts of things. But the point of sale data that we look at gives us an idea, but obviously we are very close with our customers.

Speaker 2

And so we get some nice intelligence from them in terms of what their sales are looking like and we're able to estimate inventories. And so we factor all of that into our outlook. And that's why we see the challenging environment here around the inventory continuing into the first half of the year, not just the first quarter.

Operator

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 any closing remarks.

Speaker 2

Thank you, Michael. And listen, we appreciate all of you joining us today. We appreciate your interest in Olin and we look forward to discussing our Q1 earnings with you here in a few months. We wish you all a great weekend. Stay safe and be healthy.

Operator

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

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Earnings Conference Call
D.R. Horton Q4 2024
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