Olin Corporation: The Case for Buying the Trough
A uniquely compelling entry point for long-term investors: A temporary outage, three franchises earning far below normal, strong normalized free cash flow, and Huntsman merger upside.
Olin shares sold off after the recent Q2 report, on a quarter whose weakness traces almost entirely to a single unplanned outage. The vinyl chloride monomer unit at Freeport, Texas went down unexpectedly. Management has sized the cost, it spans two quarters, and the plant returns to full rates by the end of this one. Excluding it, underlying earnings improved by roughly a third year over year, in a market that has not yet turned.
Earlie this year Berkshire Hathaway showed us what similar assets are worth to a shrewd, long term-oriented private buyer. It paid $9.7 billion in cash for OxyChem, a top-three US producer of chlor-alkali and PVC, with Occidental retaining the legacy environmental liabilities. Against a normal year’s earnings that is ~7x EBITDA, and it was Berkshire’s largest commitment to chemicals since Lubrizol. Olin is the number one chlor-alkali producer in the world.
The supply side of this industry is closing, not expanding. No Western producer intends to add chlor-alkali capacity and several have shut plants outright, in North America and across Europe. Chinese overproduction is depressing prices today, but as Bob Robotti put it at Latticework 2025, China is not going to overproduce permanently. What sits on the other side of that is a consolidated Western industry with a durable natural gas cost advantage over its European and Asian competitors.
Winchester is earning trough margins on record revenue. The ammunition franchise generated all-time high sales last year at a margin near six percent, against a normal level in the mid-teens. It earns less today than it did a decade ago, when revenue was substantially lower. The demand backdrop, from sustained Western defense procurement to allied stockpile replenishment, is the most supportive in years.
Epoxy has already returned to profit without any help from the market. The recovery came from structural cost removal in Europe and Brazil rather than price, which has not moved. Any eventual normalization in epoxy pricing, or a European anti-dumping duty, would arrive on top of a cost base that has already been reset.
Financial leverage is cycle-driven and manageable. Net debt sits near five times trailing EBITDA because the denominator is at a cyclical low. On mid-cycle earnings the same balance sheet is closer to two and a half times, without the company repaying a dollar. Bob Robotti’s formulation is the right one: balance sheets and enterprise values are transitory. Olin retired roughly thirty percent of its shares in five years when it had the capacity to do so, and it will have that capacity again.
The pending merger with Huntsman closes the loop on the value chain. It places captive downstream MDI demand behind Olin’s chlorine, the structurally disadvantaged half of the electrochemical unit, and brings more than $300 million of identified cost synergies with a credible path to materially lower leverage. Both effects point the same way: a more integrated franchise and an earlier return of capital to shareholders.
Chris Bloomstran and Bob Robotti each discussed Olin at Latticework 2025, arriving at the same conclusion from different directions. Both sessions deserve revisiting: Bloomstran on Navigating a Secular Peak and Robotti on Finding Exceptional Value in Neglected Industrials.
Our in-depth research report on Olin follows.