Exploring Innovation in Commodity Businesses

This is Matt Reustle and today we are breaking down Olin Corporation. Olin is a key player in industrial chemicals but many of those chemicals are used in products that we encounter on a day-to-day basis. To break down Olin, I'm joined by Yinan Zhao from Pzena Investment Management. Together we cover the chlor-alkali market, what it means to be the lowest-cost producer of a given commodity, and how Olin has shifted its business model and its operational model to help sustain earnings through cycles. Please enjoy this breakdown of Olin Corp.

Interested in hiring from the Colossus Community? Click here.

Subscribe to Colossus's New Show: Art of Investing

For the full show notes, transcript, and links to the best content to learn more, check out the episode page here.

-----

This episode is brought to you by Tegus. Tegus is the modern research platform for leading investors, and provider of Canalyst. Tired of calculating fully-diluted shares outstanding? Access every publicly-reported datapoint and industry-specific KPI through their database of over 4,000 driveable global models handbuilt by a team of sector-focused analysts, 35+ industry comp sheets, and Excel add-ins that let you use their industry-leading data in your own spreadsheets. Tegus’ models automatically update each quarter, including hard to calculate KPIs like stock-based compensation and organic growth rates, empowering investors to bypass the friction of sourcing, building and updating models. Make efficiency your competitive advantage and take back your time today. As a listener, you can trial Canalyst by Tegus for free by visiting tegus.co/patrick.

-----

Business Breakdowns is a property of Colossus, LLC. For more episodes of Business Breakdowns, visit joincolossus.com/episodes.

Stay up to date on all our podcasts by signing up to Colossus Weekly, our quick dive every Sunday highlighting the top business and investing concepts from our podcasts and the best of what we read that week. Sign up here.

Follow us on Twitter: @JoinColossus | @patrick_oshag | @jspujji | @zbfuss | @ReustleMatt | @domcooke

Show Notes

(00:01:33) - (First question) - An elevator pitch for Olin

(00:02:56) - Investors looking at DuPont also look at Olin from a subsector perspective 

(00:03:55) - A brief history of Olin’s business

(00:07:40) - The process of creating Chloralkali and its uses

(00:11:25) - The similarities and differences when comparing the crude oil refining process and the creation of Chloralkali

(00:12:21) - The use of Olin’s chlorine in residential public pools 

(00:12:48) - The breakdown of manufacturing operations of Olin, control versus outsourcing

(00:18:14) - A snapshot of the revenue percentages of Olin’s businesses

(00:19:13) - The percentage range of Olin’s cyclical commodities 

(00:20:06) - The end markets that Olin integrates itself in

(00:22:47) - A background on CEO Scott Sutton and the shift in operating philosophy

(00:29:09) - Olin’s confidence in its new optimization strategies

(00:33:49) - The downside risk to Olin’s new business model

(00:35:53) - A breakdown of Olin’s CapEx spending 

(00:37:17) - The margin profile and EBITDA growth, historically and how it looks now

(00:38:20) - The difficulties in forecasting and similarities with oil refinery volatility

(00:40:02) - Market futures activity and hedging

(00:41:49) - The Winchester business and its position within the overall Olin pie

(00:43:49) - The announcement to the departure of Scott Sutton and the risks posed

(00:48:11) - Other potential risks to Olin’s business moving forward

(00:49:11) - A look at Olin’s ESG ranking 

(00:51:35) - Valuing the business and what investors might think about Olin

(00:53:12) - Lessons learned from researching Olin