Outages, Input Costs Hurt Olin's 1Q

Olin's OLN first-quarter performance was hurt by a series of unplanned outages in its chlor-alkali operations and rising electricity and freight costs. The chlor-alkali's operating rate for the quarter was a low 82%, as severe winter weather in the eastern U.S. caused power outages and interruptions in rail traffic that hindered the company's ability to produce and move its product. Rising electricity costs are also providing a head wind as coal and natural-gas-fired utilities are pushing the burden of higher costs onto customers like Olin. Finally, the firm saw a 35% year-over-year increase in freight expenses. Each of Olin's production sites is captive to a single rail provider, giving the firm little choice but to choke down higher shipping costs. These obstacles combined to shave 4.6 percentage points off the chlor-alkali segment's operating margin, which landed at 23.2%. The company's ability to stave off further deterioration in its operating performance will be contingent upon its ability to push through price increases at a rate in advance of cost escalation. Given the rate at which rail and power prices are rising, and the pending startup of new chlor-alkali capacity in the U.S., we think Olin might see more pressure on its profits in coming quarters.