Why Is Olin (OLN) Down 5% Since Last Earnings Report?

A month has gone by since the last earnings report for Olin (OLN). Shares have lost about 5% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Olin due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Olin's Earnings and Revenues Beat Estimates in Q4

Olin slipped to a loss of $77.2 million or 49 cents per share in fourth-quarter 2019 from a profit of $53.3 million or 32 cents per share a year ago.

The bottom line in the reported quarter was hurt by restructuring charges, mainly related to the company's earlier announced plan to permanently shut down a chlor alkali plant and a vinylidene chloride (“VDC”) production facility in Freeport, TX.

Excluding one-time items, adjusted loss for the quarter was 8 cents per share, which was narrower than the Zacks Consensus Estimate of a loss of 10 cents.

The chemical maker’s revenues fell roughly 15% year over year to $1,387.1 million in the quarter. However, it topped the Zacks Consensus Estimate of $1,330.7 million.

The company witnessed continued weakness in caustic soda pricing in the quarter. Lower product prices also hurt its Epoxy unit.

Full-Year Results

For 2019, loss was $11.3 million or 7 cents per share, compared with a profit of $327.9 million or $1.95 per share a year ago.

Revenues were $ $6,110 million for the full year, down around 12% year over year.

Segment Review

Chlor Alkali Products and Vinyls: Revenues at the division fell around 22% year over year to $762.4 million in the reported quarter on lower caustic soda and ethylene dichloride pricing.

Epoxy: Revenues at the division dropped around 8% year over year to $470 million on lower product prices that more than offset increased resin volumes.

Winchester: Revenues rose around 6% year over year to $154.7 million on higher commercial sales.

Financials

Olin ended 2019 with cash and cash equivalents of $220.9 million, up around 23% year over year. Long-term debt was $3,338.7 million at the end of the year, up around 7% year over year.

The company repurchased roughly 7.9 million shares worth $145.9 million during 2019.

Outlook

Moving ahead, Olin expects to continue witnessing a challenging pricing environment this year. The company envisions its cost control and productivity actions from 2019 along with ongoing initiatives in 2020 to partly offset the weak product pricing environment.

The company anticipates the closures of the chlor alkali plant and the VDC facility to complete before the end of this year. It expects these actions, when completed, to reduce its annual operating costs by around $35 million.

Olin also expects its capital spending for this year to be $250-$300 million, compared with $386 million in 2019.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -535% due to these changes.

VGM Scores

Currently, Olin has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Olin has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.