Earnings Call: Q4 2018

Feb 5, 2019

Good morning, and welcome to the Olin Corporation Fourth Quarter and Full Year 2018 Earnings Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity Please note this event is being recorded. Now like to turn the conference over to Larry Cornelius, Olin's Director of Investor Relations. Please go ahead, sir. Thank you, Cole. Good morning, everyone, and thank you for joining us on our fourth quarter full year 2018 earnings call. Before we begin this morning, I want to remind everyone that this presentation, along with the associated slides and the question and answer session, following our prepared remarks, will include statements regarding estimates of future actual results to differ materially from those projected. Some of the factors that could cause actual results to differ from our projections I described without limitations in the Risk Factors section of our most recent Form 10 K and in yesterday's 4th quarter earnings press release. A copy of today's transcript and slides will be available on our website in the Investors section under calendar of Events. The earnings press release and other financial data and information are available under press releases. With me this morning are John Fisher, Olin Chairman, President and Chief Executive Officer Pat Dawson, Executive Vice President And President of Oxy And International Jim Barilek, Executive Vice President And President, chlor alkali Products And Vinyls And Services and Todd Slater, Vice President And Chief Financial Officer. Now, I'd like to turn the call over to John Fisher. John? Thank you, Larry. Good morning, and thank you for joining us today. During this morning's call, I will begin by highlighting the key takeaways from a successful 2018 review all on solid performance in the fourth quarter and our forecast for 2019. I will finish with a more detailed discussion of each of our business segments and market dynamics. Now let's turn to Slide 3. As I mentioned, 2018 was a successful year for Olin. The company generated a record full year adjusted EBITDA of $1,265,000,000, which represents a 34% increase over 2017 adjusted EBITDA. Adjusted EBITDA has grown 50% over the past 2 years. Driving the 2018 growth was 35 percent improvement Both businesses benefited from double digit revenue growth during 2018. During fourth quarter of 2018, we generated adjusted EBITDA of $301,000,000 as we closed the year with strong December performances in our Chemical businesses. Utilizing the cash flow generated by the businesses. We acquired 1,600,000 shares of stock during the quarter raising the total shares repurchased to pay down $122,000,000 of debt during the quarter bringing our total debt repayments for the year to $376,000,000 which put the to capital allocation, which includes ongoing deleveraging, investing in our businesses and returning cash to our shareholders. Now let's turn to Slide 4 and discuss our outlook for 2019. Comparable to our record 2018 results. Looking at the forecast in more detail, during the fourth quarter through January 2019, caustic soda prices have declined as a result of softer consumer demand, likely destocking by customers and short term demand disruptions in the export market. We experienced an approximate 10% decline in our caustic soda prices in the fourth quarter from third quarter levels and are expecting an additional 5% sequential decline in the first quarter. We expect these lower caustic soda prices to a headwind as we progress through the first quarter of the year. As a result, we expect that the first quarter of 2019 will be the lowest adjusted EBITDA quarter during 2019. Looking forward, we are confident that caustic soda pricing will reverse course. This will be driven by strong global demand for caustic soda, the resolution of the short term demand related issues and the elevated level of late 1st quarter and 2nd quarter planned industry maintenance turnarounds in North America. Our 2019 adjusted EBITDA forecast is based on the full year 2019 caustic soda prices being similar to those we experienced in the fourth quarter of 2018. Offsetting the lower caustic soda pricing is a forecast for improved pricing in chlorine, ethylene dichloride and other chlorine derivatives. Also, the year end chlorine and caustic soda contract renegotiations should add approximately 40,000,000 dollars to annual adjusted EBITDA in 2019. We expect the epoxy business will continue to improve in 2019 as compared to 2018 with higher sales volumes and lower hydrocarbon costs. Finally, we expect maintenance turnaround costs in 2019 to be lower than 2018 levels. Now turning to the business segments, beginning with chlor alkali products and vinyls, which is on Slide 5. The chlor alkali products and vinyls business continued to grow both top line revenue and adjusted EBITDA during the fourth quarter and for the full year. 4th quarter adjusted EBITDA $64,000,000 improved approximately 6% over 4th quarter 2017 results and increased 35 higher pricing on the majority of our products. During the fourth quarter, we experienced higher ethylene costs as a result of higher ethane prices ethane, which averaged approximately $0.27 per gallon during the first half of the year, averaged $0.35 per gallon during the fourth quarter. However, this was an $0.08 per gallon decrease from 3rd quarter prices. As a reminder, a $0.01 change in the price of a gallon of ethane impacts our adjusted EBITDA by approximately for the full year continued to be a challenge with railroad rates increasing in the 10% range and truck freight rates increasing almost twice as fast. Now turning to caustic soda pricing, which is on Slide 6. Caustic soda prices have declined over the past two quarters and in January of this year. We believe that this was due to softer customer demand. The demand softness is particularly attributable to short term one off events and to year end inventory destocking. We are confident that as we move through 2019, caustic soda supply and demand will tighten with the significant announced planned industry maintenance outages in the first half of the year and resolution to some of the one off events. As a result, we expect that caustic soda will and pricing will improve over the course of the year. As we look forward into 2019, there are opportunities that can provide offsets to the earlier challenge that caustic soda pricing presents. We expect pricing in our chlorine derivative portfolio including merchant chlorine, bleach, hydrochloric acid ethylene dichloride and chlorinated organics to improve during 2019 based on current supply and demand fundamentals. Limited chlor alkali capacity additions are not keeping pace with global demand growth. While we expect our ethylene costs to be higher in 20 compared to 2018 due to higher ethane pricing. We anticipate higher ethylene dichloride pricing in 2019 to more than compensate for higher ethylene costs. Let's move on to the performance of our Epoxy business, which is on Slide 7. Epasi Business finished its best year as a part of Olin with 4th quarter adjusted EBITDA of 44,000,000 This level of earnings represents a nearly 86% improvement over the fourth quarter of 2017. The year over year increase reflects improved pricing for epoxy resins, which more than offset lower sales volumes and modestly higher raw material costs. Fourth quarter 2018 proxy adjusted EBITDA declined $12,000,000 from the seasonally strong 3rd quarter. This sequential decline was primarily driven by lower sales volume as a result of seasonally lower end use demand and higher than normal customer destocking activities during the period. Epoxy resin prices declined during the quarter, consistent with lower benzene and propylene loss. Looking ahead to the first quarter of 2019, we expect sales volumes to be higher sequentially and similar to the first quarter of 2018 levels. We also expect some further price erosion as raw material costs continued to decline. These factors coupled with a significantly lower maintenance turnaround costs should result a meaningful improvement in year over year first quarter results. This provides a solid starting point for another year of improved epoxy adjusted EBITDA in 2019. The chart on Slide 8 displays liquid epoxy resin pricing in the United States, Europe, in Asia. During the fourth quarter, pricing for liquid epoxy resins declined modestly as a result of significant declines in raw material input. Costs, primarily in benzene and propylene. While global liquid epoxy resin prices have declined recently, they remain well above the lows experienced in all geographies during early 2016. We believe that the supportive supply and demand fundamentals that prevailed in 2018 will persist in 2019 and lead to favorable market conditions moving ahead. Our view of the chlor alkali and epoxy markets is on Slide 9. Olin remains positive about the long term prospects for both its chemical businesses and sees increasing evidence that the structural supply and demand change in global for alkaline markets is occurring. Demand growth is likely to outpace supply and keep products areas such as caustic soda, chlorine derivatives, epoxy resins, and epoxy resin precursors. There are minimal chlor alkali capacity additions expected in the near term. We do not believe that current economics justify additional greenfield investment required to fill this demand gap. At global operating rates of 88% to 90%, the chlor alkali industry would be effectively sold out by 2021. And as a result, supply and demand balances will continue to tighten creating additional upward pricing momentum. We also remain encouraged by the overall supply and demand dynamics developing the epoxy market. And similar to the dynamics in the chlor alkali sector, steady demand growth coupled with minimal capacity additions support a favorable business outlook. Moving on to the Winchester business on Slide 10. Winchester concluded 2018 with fourth quarter adjusted EBITDA of $9,400,000, a decrease of $7,000,000 from the fourth quarter of 2017. The year over year decrease is primarily attributed to lower shipments to commercial customers, higher commodity and other material costs of $2,000,000, a less and a less favorable product mix, and lower pricing. These were partially offset by lower operating costs. For full year 2018, commercial sales declined approximately 10% compared to full year 2017, a trend that is expected to continue into early 2019. For the full year 2018, commodity and other material costs increased approximately $20,000,000 as compared to the full year 2017. Looking ahead, we expect military and other government sales to be consistent with 2018 levels, Our commercial demand is anticipated to decline further in the first quarter as elevated consumer inventory continually continued, excuse me, to negatively impact the commercial market. While we believe that ammunition usages at the ultimate consumer level has remained steady, there is still an excess of personal inventory levels. Of note, the large majority of Winchester's 2019 expected military and other government sales is already under there will be a normal sequential improvement in first quarter 2019 results as compared with the fourth quarter of 2018. For full year 2019, we expect Winchester results to be similar to full year 2018 levels. Before I turn the call over to Todd, who will review some financial items, I would like to take a moment here to summarize a few points. First, 2018 was a very good year for the company. We achieved record earnings and considerable EBITDA growth. Additionally, due to the investments in plants, we were able to run hard and reliably during the year. We were also successful in paying down debt to to a 2.4 times ratio of net debt to adjusted EBITDA and returned approximately $185,000,000 to shareholders through share repurchases and our dividend. Looking ahead, we expect to continue this momentum in 2019 generating significant cash flow which enables us to invest client demand changes that are taking place in our chlor alkali and epoxy businesses will drive growth and value creation for Olin. Lastly, I want to remind everyone that next week on February 12, we will be hosting an Investors Day at 1 pm at the New York Stock Exchange where we will provide a detailed analysis of our industry views and outlook. Now I would like to turn the call over to Todd Slater, Olin's Chief Financial Officer. Thanks, John. Let's turn to our 2019 cash flow forecast, which is on Slide 11. We expect to generate approximately $475,000,000 of free cash flow in 2019. With the combination of debt reduction and EBITDA growth over the last 12 months, as of year end, our net debt to adjusted EBITDA leverage ratio has been reduced to 2.4 times. We are targeting $250,000,000 to $300,000,000 of additional debt prepayment in 2019. 2018 levels on the far left of the waterfall chart. We deduct $90,000,000 in estimated cash tax payments. We are forecasting that our cash tax rate will be in the 25% range for the year. Cash taxes in 2019 are expected to be tax credit carryforwards that were created with the 2015 acquisition during 2018. Column 3 reflects the midpoint of our current forecast for capital spending of $400,000,000, which includes annual maintenance capital spending of between $225,000,000 $275,000,000. The investment associated with our multiyear information Technology integration project of approximately $80,000,000. As we've previously discussed in 2017, we began a multi year project to implement new enterprise resource planning, manufacturing and engineering systems across the heritage Olin, and the acquired Dow chlorine products businesses. The project includes the required information technology infrastructure. Now turning to column 4, we are expecting working capital to be neither a use nor source of cash in 2019. And the next column one time items include information technology integration costs and cash restructuring costs of approximately $80,000,000. This includes approximately $40,000,000 for the IP integration project that I spoke I just spoke about and approximately $25,000,000 of duplicate IT costs that are being incurred during the transition. The next column represents an estimate of cash interest expense. We currently have approximately 30% of our debt at variable interest rates, and we're forecasting 2019 interest rates will be slightly higher than those we experienced in 2018. On the far right column, we are forecasting $475,000,000 of free cash flow. We are committed which includes ongoing deleveraging, investing in our businesses and returning cash to our shareholders. Turning to my last slide, I will discuss 2019 forecast assumptions. On Slide 12, we provide some annual modeling and corporate assumptions in our 2019 forecast. We're forecasting depreciation and amortization expense in 2019. To be in the $590,000,000 to $610,000,000 range, which is comparable to 2018 levels. We are forecasting full year 2019 defined benefit pension income will be approximately $15,000,000 to $20,000,000 which is slightly lower than 2018, primarily due to increased amortization of deferred pension actuarial losses. In 2018, we made $2,600,000 in pension contributions to international defined benefit pension plans. We expect 2019 contributions to these plans to be less than $5,000,000. We are forecasting full year 2019 expenses for environmental, investigatory and remedial activities to return to the historical level of 15 were $7,300,000, excluding the $111,000,000 of environmental insurance recoveries. Full year 2019 corporate and other costs are forecast to increase due to higher stock based compensation. In 2018, corporate and other costs were approximately reactions and costs related to the information technology integration project. For 2019, we believe that both book effective tax rate and the cash tax rate will be approximately 25%. Finally, On Friday, January 25, Olin's Board of Directors declared a dividend of $0.20 on each share of Olin common stock. The dividend is payable on March 11, 2019 to shareholders of record at the close of business on February 11, 2019. This is the 369th consecutive quarterly dividend to be paid by sir. And the first question comes from Neil Kumar with Morgan Stanley. Please go ahead with your question. Morning. As a point of clarification, you mentioned using 4th quarter caustic prices in your guidance. Is that inclusive of the recent $20 decline in the domestic index in January? No, it's not. I see. Okay. And do you know what roughly the impact that would have on terms of EBITDA for 2019? Neil, this is Todd. What, when you look at the fourth quarter, caustic soda pricing. And you annualize that for all of 2019, that's between 120 $50,000,000 year over year headwind to Olin. We've also said that the first quarter caustic soda pricing in our system will be down about 5% from the 4th quarter. That's very helpful. And then in terms of epoxy, it seems that pricing has come down, but raw material costs seems that have been coming down even further. So would it be accurate to say that you would expect some margin expansion in 2019, assuming current pricing for resins and feedstock costs? I would say that's true if the relationship stays the same. And as we've seen over the last couple of years, raw material costs moved very dramatically and quickly. But I think if we were able to freeze everything where it is today, we would get some margin expansion. And our next question comes from Don Carson with Susquehanna. Please go ahead with your question. Thank you. John, you've given your been pretty specific on your caustic outlook. Can you talk a bit about what you expect DDC pricing to be and also what your assumptions are for for ethane costs? In terms of our EDC pricing assumption, we're assuming that it will be better throughout 2019 than it was in 2018. And we've assumed that ethane prices as we move forward are going to be in the $0.30 to $0.35 range. And then on the caustic export market, volumes were pretty low in, as you noted, in Q4. Do you expect that weakness in offshore exports continue. I guess, 2 offsetting factors here. Obviously, when Alunorte comes back online, that'll be positive. But are you anticipating some softness, somewhat projected in, in demand out of Australia this year for US Gulf Coast exports. Hi, Don. This is John Bartlett. As far as the export volumes go, you're right that the fourth quarter was impacted in quite honestly, exports have been impacted somewhat by the Alunorte outage, if that was a direct export out of the U. S. We do expect, obviously, if that gets solved, as that gets solved, we'll have an increase in exports. Out of Australia, The alumina business as it continues to, settle and improve. I think the end use demand, I think we'll see pretty steady demand And it's just a matter of out of Australia, and it's just a matter of where it's sourced. I think that's the, that's the issue. But we would expect exports to continue to improve and we'll see a stronger export year this year than last year. And just one final question. You give a lot of clarity in terms of the earnings leverage with everything, but the exception of epoxy margins. Is that something you're going to provide us more detail on next week? Not specifically. No. And our next question comes from Eric Petrie with Citi. Please go ahead with your question. Hi, good morning. Good morning. Todd, as you noted, leverage has improved to the point four times. What is your target there and priorities for cash flow going forward? In 2019, we expect to repay or prepay another $250,000,000 to $300,000,000 of debt As you know, we have a big payment, at the end of 2020 associated with the ethylene of 450,000,000 if our forecast of the 1.26 ish 1,000,000,000 for 2019 is ultimately the final answer. That puts you at 2.2 net debt to adjusted EBITDA at the end of 2019. Thanks. My second question is you noted that the $1,500,000,000 target was achievable, you know, in the near term. Now you're guiding to roughly flat year over year compared to 2018. So how do you see the bridge of reaching that 1,500,000,000 and what are the puts and takes us? I would say it really represents 2 things. It represents the combination of volume growth and it represents some pricing growth. But I would say we see that that is achievable. It can be done with the assets that we have on hand. And I would also just point out in a different pricing environment, which we had in the third quarter of 2018, we generated almost 400,000,000 dollars of EBITDA in 1 quarter, which obviously puts us on the would put us on a path to generate $1,500,000,000. Great, thanks. And our next question comes from Kevin McCarthy with Vertical Research Partners. Yes, good morning. Thank you. A few questions on epoxy. First, can you comment on how much you think global demand for epoxies grew in 2018 and, any regional color related thereto And then second, on slide number 8, you show some of the price changes. Very high numbers in North America and Asia, about half that amount in Europe. And so could you comment on what is driving those regional differences in price? Yes, Kevin, this is Pat. First of all, from a from a demand standpoint, Asia in China has been, you know, very lackluster. I don't know that China really grew hardly at all. It's pretty flat year over year. And I would say that's true for most of Asia. He saw a lot of, reports coming out of out of China specifically on automotive being down 30%. So, that part of the world was pretty depressed. I think Europe did not grow as much in 18 as it did in 17. Think Europe was relatively flat. North America, was probably one of the better regions in 2018, and a lot of that fueled by oil and gas, you know, being better. But overall, globally, Kevin, I would say the demand was pretty flat year over year. We are encouraged by what we're seeing here early in the first quarter. You know, with a a big destock in Q4, but we are seeing demand levels, around the globe come back to pretty much where they were in Q1. Of last year. From a pricing standpoint, on that question, Europe had very good gains. The European market was much tighter in 'seventeen than the way it evolved in the second half of 'eighteen. So Europe simply started out at higher prices than 17 and cooled off as, 18 progressed. So, that's part of the reason on that percent different. North America, obviously, was very consistent with the pricing improvements that we saw coming out of Asia Pacific and a lot of Asian exports that find their way into North America and Europe. So we had very good pricing momentum, quite frankly, though, throughout the whole year and all all regions of the world. And that last question, if I may. You made a comment in your prepared remarks if I heard it correctly, the core alkali could be sold out by 2021. Perhaps we'll hear more next week, but I was wondering if you could comment on the rates of demand and supply growth, that you're basing that on? I would prefer to leave that for next week. We're going to have a third party talk about that. And our next question comes from Jeff Zekauskas with JP Morgan. Please go ahead with your question. Thanks very much. Your chlor alkali segment EBITDA was up, I think, $294,000,000 in 2018. Is is 90 per 90 percent of the EBITDA increased caustic soda? Can can you do some kind of bridge as to the different parts of the chlor alkali segment and how you got that 2.94 increase? The big driver of the just under $300,000,000, Jeff is pricing. And it's really pricing across virtually every product we had. Obviously, caustic soda was a big driver, but chlorine EDC, chlorinated organics, HCL, bleach, all those prices were up year over year. And so it, you know, caustic is the one that gets a lot of the headlines but in fairness, all contributed significantly to that just under $300,000,000 earnings growth. Volume year over year was more flattish. So you had it divided up into percents. What percent came from cost So, what percent came from chlorine derivatives in rough terms of the increase? The 90% would be too high. We have not broken out those numbers specifically publicly. Okay. And then I guess you don't find it. Alright. In terms of the tax rate for 2020, is it much different than tax rate in 2019 on a cash basis? This is Todd again. 25% is still a good number. That has a lot to do with the NOLs being utilized by the end of 2018. So 25 is still a good number. Okay. And then lastly, on your CapEx of 400,000,000 includes 80,000,000 of information technology costs, but I thought some of that passes through the income stake. So shouldn't the net number for CapEx as to what would would be on the funds flow statement be lower than 400? 80,000,000 goes through capital. There's another 40 associated with the project that runs through expense through those other one time items. Oh, so in other words, there's okay. There's in there's 80 it goes through the cash flow statement and then an additional 40 that goes through the income statement. Yes. We we tried we tried to help folks out with that. And the investors, if you look, on the slide deck today on pay on slide 25, we've tried to identify all those costs expense and capital through the end of the project through 2020. And our next question comes from Jim Sheehan with SunTrust. Please go ahead with your question. Good morning. Gentlemen, if you could give us your best guess as to, when the Alunorte, operating rates will start to ramp up and they'll, and they they'll start ordering more caustic soda from the U. S. Gulf? Yes, Jim, this is Jim. I don't have a real good answer for you, but what I can say is that there's progress that's being that are being made. The, the equivalent of the EPA has lifted embargo, to basically saying that the plant is safe to operate, and we're just waiting for a national embargo to be lifted. Before the restart. So, it could be weeks, but we are dealing with government, but it still could longer than that, we're hopeful that happens in the first quarter. Thank you. And then on working capital, your outlook for flat working capital changes in 2019. Can you just provide your assumptions underlying that? Yes, this is Todd. We obviously, we are saying caustic soda pricing will obviously improve over the year in order to get to the 1018 fourth quarter average. So there could be a little bit of headwind in receivables. Having said that, we've also assumed hydrocarbon costs are lower. So you'll see a little bit of benefit on the other side. Net net, we're expecting working capital to be flat. And our next question comes from Matthew Blair with Tudor, Pickering, Holt. Please go ahead with your question. Of the $400,000,000 in CapEx for 2019, how much of that is growth versus maintenance and Are there any, upcoming organic projects, you know, such as, like, another bleach plant, that that you like to highlight? I think when you add in the IT project that Todd just talked about and another project related to integration and add that to growth or add that to maintenance, the majority of the spending is in maintenance. I would also say that there are smaller growth projects like bleach plants and bleach plant expansions, hydrochloric acid plants, that are ongoing all the time. And I would tell you we will provide more guidance around what our objectives are around that next week. Okay. Thanks. And then, with the rig count coming down, it looks like HCL prices have come off in January. I think on Slide 16, you highlighted HCL is up pretty strong in fourth quarter. Is there any way that you could ballpark either volumes or EBITDA contribution from this area? What I would say is that prices have come down from fourth quarter to 1st quarter, but not dramatically. And I would also tell you that our volume forecast for hydrochloric acid in 2019 are very similar to what we saw in And our next question comes from Mike Eisen with KeyBanc. Please go ahead with your question. Hey, guys. Nice quarter. Thank you. In terms of caustic, aside Alunorte, is there any other end markets that you need to see improvement as, as the year unfolds to tighten up supply to, to kind of, get that pricing improvement? Mike, this is Jim. I think generally what we need to see is to take some of the uncertainty out of the climate. We saw in the fourth quarter economic uncertainty, it wasn't just in chemicals, but across all of the industry. And, so, I think that's something that we, that we need to see diminishing. We are. It's quite honestly, we are seeing things as we go into January. We are seeing things pick up both here in the U. S. And also around the world. Another thing that will impact us in terms of the pricing is that there are a number of maintenance turnarounds and so forth that are scheduled in the first quarter. So the combination of improving demand and, limited supply provide a better pricing environment as we go through the quarter. Got it. And then you think about longer term and chlor alkali capacity, you know, doesn't is minimum the next 2 to 3 years. The demand, you know, is is is generally good. I don't wanna say you're thunder from next week, but where do you think profitability for the segment would be couple of years from now. And then at what point would it make sense for Olin to think about adding some capacity? Well, I'll go back to one of the earlier questions that asked about the $1,500,000,005 and say, I think with the assets we have, the combination of improved volumes, which would mean higher operating rates rolling and some improved pricing, we can see clear to making a $1,500,000,000 on that. Got it. Thank you. And our next question comes from Vincent Anderson with Stifel. Please go ahead with your question. Yeah. Thank you. I want to talk about the spot market a bit. How comfortable are you right now with with the depth of the spot market, given, you know, one where we are in the chlor alkali cycle and also given the volatility that we observed over the last few months. I mean, would you expect to shift more of your contracts, towards shorter duration volume commitments or maybe take your lumps now by allocating more to spot to firm up data spreads in your larger volume contracts that you're negotiating right now. Just trying to get a sense of how you're managing your book in this environment. This is Jim. As far as contracts go, the percentage of contracts this year is not going to be any different than last year. So we're not putting more or less into the spot market. The spot market has been trading in pretty thin quantities. Over the last, actually, the last 6 or 7 months. I think that stems from the early part of last year where supply was actually very, very tight. And so many of the customers contracted for high volumes and it made the spot market thin. And we saw that throughout the latter part of last year. And we're seeing that again this year, in January, for example, there was one spot barge domestic and 2, parcels on an export basis, which is a very thin export market. So, it would indicate to me there's still a lot of contracts out there. And supply demand fundamentals are intact. Great. Thanks. And then, how do you think about your acquisition pipeline right now along chloride value chain. Are there any areas where procurement, for instance, might offer some low hanging synergies in this improving price environment for commodity chlorine? I would say that we are not thinking about acquisition as it relates to our existing chlor alkali Infrastructure, if you look at our position in North America from an antitrust perspective, I don't believe there's anything out there that we could buy from a chlor alkali perspective. Okay. Thank you. And then if I could just ask one more clarification on Alanorte, without guessing as to the exact date of the restart, they've said publicly that the ramp up would take some months. But when you think about its impact on the caustic market, Would you expect to see caustic benefits sooner as a rebuilding raw material working capital or, you know, is your intelligence kinda point to, you know, they had enough inventory still sitting around when they were shut down, that you would really have to wait for a full return to, 100% utilization before it actually impacted caustic? Yes, I think that this is Jim. I think that you'll see advanced shipments of their restart, obviously, with lead times. And, and that's an it's importing, material, then you'll know in advance of their startup. So it'll be positive before they actually start up and then then building some inventory to be able to restart the plant. All right. Thanks so much. And our next question comes from Mike Leadhead with Barclays. Please go ahead with your question. Good morning, guys. Just one on capital deployment. So you're guiding to roughly $4.75 of free cash 275,000,000 of that sounds to be going at debt pay down and roughly 130 going a dividend, which leaves maybe only 70,000,000 or so for buybacks. So I guess with net leverage now below your 2 and a half times target EBITDA growing, can you just talk about why further debt reduction is the top priority versus maybe a more aggressive share repurchase program here? We would we will continue a balanced approach to capital allocation, and we will continue to delever the balance sheet. We had talked about two and a half two point five times was a target for the end of 2018. We have ultimately talked that we want to be at two times or under, by the time we get to mid cycle. So we still need a little bit of debt repurchase repayment to get there. Fair enough. And then just a quick housekeeping item. What was the EBITDA tailwind from stock based comp in the quarter? We will have to get back to you on the answer to that question. Thank you. And our next question comes from Frank Mitsch with Fermium Research. Please go ahead with your question. Good morning, folks. And, John, I really appreciate the teaser, for the, for the, investor day next week in terms of the 3rd party speaker. I, I gonna start a betting pool as to who that might be. When you guys put out your 2018 guidance, you bracketed, plus or minus 5%. If I were to take that number for for 2019, that would get you to 1.2000000000to1.33000000000 Is your thought that that is too broad of a range? How should we think about the range of outcomes around that, the 1.265 guidance? I think the reason we said it was balanced is because the majority of the upside and the downside has to do with cost six soda. And that is obviously the product to which we have the most leverage. And we didn't really feel comfortable given where we are at this moment of actually trying to bracket it. Fair enough. Fair enough. And I, you know, just taking your just taking your commentary, I guess, I guess the way the math would work out is at least looking at the 1st quarter, You're looking at something that would be up year over year, but probably down a little bit sequentially. Is that a fair read of, the puts and takes Yes, it would be. And our next question comes from John Roberts with UBS. Please go ahead with your question. It's not as big a business as it used to be, but are there more restructuring opportunities you could have in Winchester to, elevate it along the bottom here? In one might you expect your 1st, up year over year quarter in earnings for that business? The answer to your first question is, yes, there's always things we can do in the business to make it better. And I think we're continuing to do those things I would expect that we will see enough quarter in the second half of twenty nineteen. And then I'm kind of surprised. It sounded like you expect your contract versus spot sales in 2019 to be roughly the same volume mix that you had in 2018. Why wouldn't customers be letting contracts just expire, given we've got this really large premium they're paying over spot prices. And then they could come back and recontract next year and just, you know, just let wire customers going more into the spot market to take advantage of the gap here. Yes, John. What I meant, the comment that I made earlier with the market is actually pretty thin. So to go out there in large quantities and with large volumes to get product is also fairly difficult. And I believe that our customers understand the market pretty well, and they see the fundamentals that we've been talking about for quite some time. So, their job number 1 is to get security of supply. Number 2, to get it at the best pricing. So I think, they're voting with their feet in terms of how they want to go about contract and so forth. And our next question comes from Steve Byrne with Bank of America. Please go ahead with your question. What portion of your chlorine production is allocated to the VCM tolling agreement with Dow for their Shintech contract? We will provide guidance next week on much more guidance on where our chlorine capacity goes next week. Can you comment on your interest in locking that up longer term versus finding other other molecules to move that chlorine into? I think we announced about a year ago, that we had already locked up the renewal of that contract. So beginning in 2021, that contract moves from a tolling arrangement with Olin supplying the chlorine to Dow. Again, under a tolling arrangement, Olin selling DCM directly to Dow's current 3rd party customer. Okay. And how would you characterize the the demand for caustic over the last year, any any changes in that demand that you know, your customers may have sourced different feedstocks, such as bauxite for alumina that may have reduced global demand for caustic versus, say, 2017 levels before the run up in price. Yes. This is Jim. What I would say is that there's always ups and downs in quarter to quarter variation in demand. What we looked at is the long term trend lines. And the cost of demand moving more with consumables and so forth is going to be a steady drumbeat over a longer period of time. You do have the disruptions that we've already talked about between Bureau's industry standards or Alunorte and so forth. But as GDP clicks on industrial and moves along and consumables continue to grow, and that's the way the caustic market is going to go. And so that's what we would expect over the next several years to continue. And our next question comes from Arun Viswanathan with RBC Capital Market. Please go ahead with your question. Hey, thanks. Good morning, guys. Just a couple of clarifications on, the pricing, and 2019 expectations. So Looks like you're expecting cost of prices to be down 5% in Q1 and then sequentially. And then you also made the statement then on Aflac nineteen pricing would be similar to 'eighteen. So are you saying that you expect both spot export and contract pricing on caustic to be similar to 19 verses 18. And and if so, is the assumption that you've got the 5% declined, in Q1 back in 222224. And then you can just highlight, you know, the cadence of that, recover of that price recovery. Let me clarify. We said that the 2000 our assumption was the 2019 price equivalent to the fourth quarter of 2018 pricing. And the 5 and that relates to domestic contract export spot the whole shebang. Our 5% decline in Q1 versus Q4 was on our entire portfolio. And our statement that we expected to recover throughout 2019 is also as it relates to our entire portfolio. Okay. That's helpful. And then on the bridge to kind of so on the bridge to flat EBITDA, you know, I guess you did mention that epoxy could be higher on on volume and potential hydrocarbon relief. I guess, what are you assuming for for the other 2? I guess Winchester, would you expect that, conditions would be still relatively challenged and potentially worse or or better in 'nineteen. And then, similarly, is is caustic, you know, given that the pricing would be similar to q 4, would that be a little bit worse in, in 19? And and and maybe you can just tie in the comments on turnaround and, anything else that's relevant there? There are essentially four big points to our full year guide We expect caustic soda year over year to be lower. We expect the impact of that to be partially offset by improved pricing across chlorine and the chlorine derivatives. We expect epoxy to improve with better slightly better volumes, lower hydrocarbon costs, and lower turnaround costs, because that's where the benefit of the turnaround costs will show up. And we will have higher corporate costs. We have essentially assumed Winchester is Perfect. Thank you. And then lastly, if I may, on the, the mid cycle bridge to 15, I think you had noted in the past that, that included epoxy of about 2 50 Winchester at 1 25. You know, and the rest being chlor alkali. Is that still how you think about, getting to that 15, or has that changed given given the the the differences in the Winchester business and and even, you know, prostate and epoxy, maybe you can just bucket, you know, how you're looking at that one five Thanks. As we sit today, I would tell you that that 15 would not include $125,000,000 from when that there will be increased profitability from the chemical side and lesser profitability from the Winchester side. And our next question comes from Alexei Yefremov with Nomura Instinet. Please go ahead with your question. Good morning. Thank you for providing a lot of details around your guidance. Does the 5% quarter quarter over quarter decline in caustic realization include, the benefit of contract renegotiations. So should we think of contract renegotiations offset in that 5% in Q1? It includes the benefit of contract negotiations. And just as a follow-up, the timing of the benefit of contract renegotiations, does it pretty much kick in January 1? So we can assume you'll get sort of $10,000,000 quarter over quarter pickup from that or that that's more ratably over the course of the year? No, I think for modeling purposes, you can assume it's pretty much even across the quarters of the year. And last quick one, if I may, on chlorine, you're assuming some pickup in pricing in both Q1 and 2019 on average. I think so far, January, you're calling contracts have been flat. Are you assuming that the contract itself will go up or would you have better discounts similar to what you're experiencing in caustic? Well, we did say in the remarks that the contract renegotiation benefit covered chlorine and caustic soda. So that's one point. 2nd, we've talked about better pricing across the chlorine derivative portfolio. So we've seen better pricing on, for example, on bleach Right now, we're experiencing better year over year pricing on EDC. And that all factors into what our comments were, Alexis. Understood. Thank you, John. And this concludes our question and answer session. I would like to turn the conference back over to John Fisher for any closing remarks. Yes. I'd like to thank you all for joining us today. And I hope to see you all next week in New York. So thank you very much. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your line.