Olin's Q3 2025: Contradictions Emerge on EDC Pricing, Winchester Margins, Inventory Adjustments, and EDC Supply Agreements

Guidance:

• Q4 2025 adjusted EBITDA expected $110M–$130M (includes $40M inventory-related EBITDA penalty).
• Taking $40M EBITDA penalty in Q4 to reduce ~ $150M of inventory and free cash.
• Section 45V clean hydrogen tax credit: ~$15M–$20M annual adjusted EBITDA benefit in 2026–2028.
• Expect working capital to generate at least $100M cash in 2025; net debt to be flat vs. 2024 by year-end.
• Beyond250 cost savings run rate of $70M–$90M expected entering 2026.
• Stade supply agreement to yield ~ $40M annual adjusted EBITDA starting Jan 2026.

Business Commentary:

* Earnings and Financial Performance: - Olin Corporation reported that its third quarter 2025 adjusted EBITDA was $190 million, excluding the $32 million tax credit benefit, marking an 8% sequential improvement. - The improvement was driven by higher operating results in the Chlor Alkali Products and Vinyls business, offset by continued weakness in the Epoxy and Winchester segments.

• Clean Hydrogen Tax Credit:
• Olin received a provisional carbon dioxide emissions rate, marking a significant milestone towards securing their Section 45V clean hydrogen production tax credit.

• This is expected to provide an annual benefit of $15 million to $20 million in adjusted EBITDA for the years 2026 through 2028.

• Chlor Alkali Products and Vinyls:

• Global caustic soda demand remained stable, with strong performance in the Chlor Alkali Products and Vinyls business, driven by improved operating performance and lower costs.

• The company announced the dissolution of the Blue Water Alliance joint venture with Mitsui, aiming to manage participation in the EDC market independently.

• Epoxy Segment Challenges:

• The Epoxy segment faced persistent headwinds from subsidized Asian imports, impacting both the U.S. and European markets.
• However, Olin's new supply agreement and rationalization of capacity in Europe are expected to provide opportunities for growth in 2026.

Sentiment Analysis:

Overall Tone: Neutral

• Management said they 'delivered robust results, reflecting strong performance in our Chlor Alkali products and Vinyls business, partially offset by ongoing weakness in our Epoxy and Winchester commercial ammunition businesses.' They guided Q4 adjusted EBITDA $110M–$130M, noted a $40M Q4 inventory penalty, and said net debt expected flat vs. 2024.

Q&A:

• Question from Hassan Ahmed (Alembic Global Advisors): How much incremental EBITDA could be achieved in 2026 from self-help actions, the Dow/Stade agreement, absence of Epoxy turnaround, and cost cuts?
  Response: Management: Expect a $70M–$90M run-rate benefit entering 2026 (includes Stade/Dow impacts) with potential upside; more detail at the Q4 call.

• Question from Joshua Spector (UBS Investment Bank, Research Division): Was the $32M 45V tax credit a catch-up and what ongoing benefit should be modeled going forward?
  Response: Management: Q3's $32M was a catch-up; model a $15M–$20M annual adjusted EBITDA benefit for 2026–2028.

• Question from Salvator Tiano (BofA Securities, Research Division): Explain the Q3 working capital increase and implications for Q3/Q4 operating rates, particularly in Chlor Alkali.
  Response: Management: Taking a $40M Q4 EBITDA hit to free ~ $150M cash; Q3 WC rise driven mainly by Winchester inventory and turnaround preparation (plus some government payment timing).

• Question from Frank Mitsch (Fermium Research, LLC): Is the $40M Q4 inventory charge an Olin-specific issue or industry-wide, how confident are you in the number, and will operating return to normal in 1Q'26?
  Response: Management: Winchester is a company-specific retail-channel inventory issue; chemicals don't show broad chain over-inventory; the $40M is intended to rightsize Olin inventories via reduced rates—company will not carry excess chain inventory.

• Question from Aleksey Yefremov (KeyBanc Capital Markets Inc., Research Division): Do you have term EDC supply agreements or is volume spot; any deals close to completion?
  Response: Management: Have contracted volumes (largely via JV), are unwinding the JV to pursue more structural term EDC contracts, will reduce but not eliminate spot exposure, and expect updates in coming weeks.

• Question from John Ezekiel Roberts (Mizuho Securities USA LLC, Research Division): Update on propellants contract bidding timeline and metals hedging expectations?
  Response: Management: Propellants RFP process is slow (government delay/shutdown); likely no decision until late 2026 with potential transition in 2027; metals hedging runs on a rolling 4‑quarter program and metals are expected to be a headwind into 2026.

• Question from Patrick Cunningham (Citigroup Inc., Research Division): How should we think about Epoxy earnings into next year given Stade savings, capacity rationalization and tariff impacts?
  Response: Management: Optimistic—expect significant improvement in Epoxy in 2026 from low levels driven by cost/capacity rationalization, Stade agreement savings and U.S. pricing/tariff tailwinds.

• Question from David Begleiter (Deutsche Bank AG, Research Division): Why was ECU profit index down in Q3 vs Q2 while Chlor Alkali EBITDA rose?
  Response: Management: The variance is mix-driven; ECU values are expected to be stable into Q4 with quarter-to-quarter mix movements causing the index shifts.

• Question from Peter Osterland (Truist Securities, Inc., Research Division): Are you shifting Winchester production toward international defense permanently and what medium-term revenue mix do you expect between commercial and defense?
  Response: Management: Intentional shift to grow defense—international military backlog is rising; Winchester is ~62% military today and that share is expected to increase; international military margins are attractive.

• Question from Michael Sison (Wells Fargo Securities, LLC, Research Division): Do you see signs for a chemicals recovery in 2026 and how much system volume could recover?
  Response: Management: Recovery requires stronger US housing demand and growth in Asia; no clear signs yet; company will keep lower operating rates and avoid carrying excess inventory until demand improves.

• Question from Kevin McCarthy (Vertical Research Partners, LLC): How much of the Q4 caustic price improvement is seasonal vs. cyclical/structural?
  Response: Management: Expect Q4 support from stable demand (notably alumina) and reduced fourth‑quarter supply/turnarounds—largely seasonal/supportive rather than indicating structural uplift.

• Question from Jeffrey Zekauskas (JPMorgan Chase & Co, Research Division): Could VCM turnaround costs rise materially in 2026 (e.g., from $125M to ~$175M)?
  Response: Management: Turnaround schedule and costs for 2026 are still being finalized; no definitive number today—updated 2026 guidance will be provided at the Q4 earnings call.

• Question from Vincent Andrews (Morgan Stanley, Research Division): With trailing leverage near 4x, will buybacks continue or will you prioritize deleveraging to maintain investment-grade ratings?
  Response: Management: Priority is to reduce net debt in Q4 to be flat vs. 2024; share repurchases have been curtailed and any repurchases going forward will be modest with debt reduction prioritized.

• Question from Arun Viswanathan (RBC Capital Markets, Research Division): What is needed to reach ~$1B EBITDA (breakdown by Epoxy, Winchester, Chlor Alkali)?
  Response: Management: Biggest gap has been Winchester; Chlor Alkali has held up and offers leverage as ECU recovers; Epoxy and Winchester recoveries plus ECU improvement drive toward $1B, but timing depends on global demand and self-help execution.

• Question from Matthew Blair (Tudor, Pickering, Holt & Co. Securities, LLC, Research Division): Status of the AMMO acquisition and is the prior ~$5M EBITDA back-half contribution still realistic given slower Winchester production?
  Response: Management: AMMO integration and synergies are performing at or above expectations; confident in delivering the stated synergies (including ~$40M in 3 years) and view the acquisition positively.

• Question from Roger Spitz (BofA Securities, Research Division): How will the clean hydrogen (45V) benefit be reported—quarterly as it accrues or as periodic larger items?
  Response: Management: Now that emissions data is finalized, the 45V tax credit will be included quarterly as a reduction to cost of goods sold (the $15M–$20M annual benefit will flow through quarterly).

Contradiction Point 1

EDC Pricing and Market Stability

It involves differing perspectives on the stability of EDC pricing and the market conditions, which directly impact the company's revenue and cost management strategies.

What is the status of EDC supply agreements, and are any nearing finalization? - Aleksey Yefremov (KeyBanc Capital Markets Inc., Research Division)

2025Q3: EDC prices have moved from a negative to a positive and we've seen some stability there. - Kenneth Lane(CEO)

Have you seen signs of support in EDC pricing, or what gives you confidence in a pricing floor? - Patrick David Cunningham (Citigroup Inc.)

2025Q2: Prices have dipped lower than expected due to a drop in oil prices, providing a lifeline to higher-cost Asian producers. We're seeing stability now, and our advantaged cost structure allows us to maintain operations. - Kenneth Lane(CEO)

Contradiction Point 2

Winchester EBITDA Margin Recovery

It pertains to the expected timeline and conditions for Winchester's EBITDA margin recovery, which affects investor expectations and strategic planning.

Can you clarify Q3 working capital and if it signals higher-than-expected Q3 operating rates? - Joshua Spector (UBS Investment Bank, Research Division)

2025Q3: The price of propellants has increased and we expect it to continue to increase. I think it's fair to say that we will not be at historical levels just yet. - Kenneth Lane(CEO)

How much have prices decreased in Winchester's commercial segment, and is this decrease fully passed on to consumers? - Patrick Duffy Fischer (Goldman Sachs Group, Inc.)

2025Q2: We expect demand to improve in the second half of the year, both in the consumer and commercial markets. - Kenneth Lane(CEO)

Contradiction Point 3

Winchester Inventory Adjustments

It involves differing expectations regarding Winchester's inventory adjustments, which impacts operational efficiency and cost management.

Is the $40 million inventory-related impact industry-wide or company-specific? - Frank Mitsch (Fermium Research, LLC)

2025Q3: The $40 million penalty is mainly due to Winchester's high inventories. - Kenneth Lane(CEO)

On Winchester's commercial side, what is the approximate price decline, and has it passed through to consumers? - Patrick Duffy Fischer (Goldman Sachs Group, Inc.)

2025Q2: Half of the decline is due to volume, and the rest is split between higher costs and lower pricing. - Kenneth Lane(CEO)

Contradiction Point 4

EDC Supply Agreements and Pricing Expectations

It relates to the strategic direction and market expectations for EDC supply agreements and pricing, which are crucial for revenue forecasting and competitive positioning.

What is the status of EDC supply agreements, and are any close to finalization? - Aleksey Yefremov (KeyBanc Capital Markets Inc., Research Division)

2025Q3: We are working on more structural term agreements for EDC. The complexity of a joint venture with BWA was not beneficial, so we are shifting to more long-term contracts. - Kenneth Lane(CEO)

Can you provide an update on the volume and price outlook for Chlor Vinyls and EDC? - Patrick Cunningham (Citi)

2025Q1: We are continuing to see weakness in EDC pricing, but it is not expected to worsen significantly. Price levels have reached a point where even Asian producers are underwater, which provides a floor for EDC pricing. - Kenneth Lane(CEO)