Olin (OLN) Revises Q2 Outlook, Implements Restructuring
Olin Corporation OLN has provided an updated guidance for the second quarter of 2023. The company expects its adjusted EBITDA to be in the range of $350-$360 million, reflecting a downward revision from previous expectations. Olin attributes this revision primarily to an extended vinyl chloride monomer plant turnaround and a lower market participation rate in the face of challenging market conditions.
One of the key factors affecting Olin's second-quarter performance is the extended maintenance turnaround at its vinyl chloride monomer plant in Freeport, TX. This planned maintenance activity required an additional seven weeks, resulting in several adverse effects. Higher unabsorbed fixed manufacturing costs, reduced profits from lost sales and increased expenses associated with the turnaround have collectively impacted Olin's adjusted EBITDA by around $50 million. Despite these challenges, the vinyl chloride monomer plant has now returned to operations, albeit at a reduced rate.
In addition to the extended plant turnaround, Olin faced a lower market participation rate due to deteriorating market conditions. The company's decision to reduce its involvement in the market reflects a prudent approach in the current economic climate.
To address the prevailing market challenges and enhance profitability, Olin has made strategic decisions regarding its operations. These include the cessation of all activities at its Gumi facility in South Korea and the reduction of epoxy resin and upstream capacity at its Freeport, TX facility. Furthermore, the company plans to reduce sales and support staff across Asia.
While these restructuring initiatives will incur around $12 million in charges for the second quarter of 2023, Olin anticipates significant benefits in the future. It expects an improved annual EBITDA of $50 million, starting from the fourth quarter of 2023, from these new measures and those announced earlier in March 2023. These measures aim to strengthen the profitability of Olin's Epoxy business and establish a more sustainable earnings trajectory, even during periods of economic downturn.
The company emphasized that the restructuring actions would complete the rightsizing of the Epoxy business and position it for improved annual EBITDA. The company acknowledges the challenging market conditions faced by its chemical businesses but remains committed to achieving higher adjusted EBITDA compared to its past performance. These strategic measures aim to enhance financial resilience and adaptability in a volatile market environment.
The company has gained 6.7% in the past year, compared with the industry’s 12.4% rise in the same period.
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Zacks Rank & Key Picks
Olin currently carries a Zacks Rank #3 (Hold).
Better-ranked stocks in the basic materials space include L.B. Foster Company FSTR and Gold Fields Limited GFI, carrying a Zacks Rank #1 (Strong Buy) each, and Linde Plc LIN, carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for L.B. Foster’s current-year earnings is pegged at 53 cents per share, indicating year-over-year growth of 112.5%. The company’s shares have gained around 6.1% over the past year. FSTR beat the Zacks Consensus Estimate in all the last four quarters. It delivered a trailing four-quarter earnings surprise of 140.5%, on average.
Gold Fields currently carries a Zacks Rank #1. The Zacks Consensus Estimate for GFI’s current-year earnings has been revised 4% upward in the past 60 days. The consensus estimate for current-year earnings for GFI is currently pegged at $1.05, implying year-over-year growth of 8.3%. Gold Fields’shares have rallied roughly 51.8% in the past year.
The Zacks Consensus Estimate for Linde’s current-year earnings has been revised 4.4% upward in the past 60 days. LIN beat the Zacks Consensus Estimate in all the last four quarters, with the average earnings surprise being 6.9%. The company’s shares have gained 24.2% in the past year.
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