Olin Plunges as Outlook Is Cut Amid Weaker-Than-Expected Profitby
Results hurt by caustic-soda sales, higher ingredient costs
Demand from refrigerant, packaging, agriculture also blamed
Olin Corp., the world’s biggest chlorine producer, fell the most in six years after reducing its 2016 forecast and reporting preliminary second-quarter earnings that missed analysts’ estimates.
Adjusted earnings are expected to be about $180 million, Clayton, Missouri-based Olin said in a statement Thursday after the close of regular trading. That trailed the $237.1 million average of eight estimates in a Bloomberg survey. The company cut its full-year forecast for adjusted earnings to a range of $840 million to $900 million, from $915 million to $985 million. Analysts on average had estimated $973.3 million.
The disappointing quarterly earnings were due in part to weaker-than-expected U.S. demand for caustic soda, prompting the company to export more product at a reduced profit, Chief Executive Officer John Fischer said on a conference call Friday. Caustic soda is produced in tandem with chlorine, known collectively as chlor-alkali. The chemicals are used in the production of everything from siding, pipes and insulation to furniture and paper.
Higher costs for ethylene and natural gas also damped results. And weak demand from refrigerant, packaging and agriculture markets hurt sales of chlorinated organics, Olin said. Those products include gases used in air-conditioning systems, polyvinyl chloride plastic known as PVC, and pesticides.
“We are surprised by the soft domestic caustic demand Olin experienced,” Jason Freuchtel and James Sheehan, analysts at Suntrust Robinson Humphrey Inc. who recommend buying the shares, said in a note Thursday. “We expected capacity shutdowns by Olin as well as less capacity coming from Europe would help improve demand for domestic chlor-alkali producers during the quarter.”
Olin fell 21 percent to $20.97 as of 11:05 a.m. in New York after dropping as much as 22 percent, the most since May 2010. Still, the shares have gained 20 percent this year.
In the second half, caustic-soda prices should increase 5 percent to 7 percent domestically with export prices climbing 20 percent to 25 percent, Fischer said. Earnings in the epoxy business should improve in the second half, and full-year Winchester ammunition results should be better than last year, Olin said.