Monday, July 27, 2009

Olin's After-Hours Disappointment (Updated)

Olin Corporation disseminated its earnings report after the bell, which announced second-quarter EPS of 36 cents. That's down 23.4% from 2Q '08's 47 cents, but it's a result that also beat the Street consensus by three cents. Revenues for 2Q '09 were in line with expectations. Its upcoming dividend, declared Thursday, was the same as the one for the previous quarter.

And yet, Olin's stock has plummeted 7.08% in after-hours trading. It had gained 1.64% in regular trading, before the results went out.

The most likely reason for the plummet was its third-quarter guidance, found in this report. Management expects the third quarter to be worse, with an estimate of 20 cents. The reason given is that its primary market, chlor alkali products, is still bad and is getting worse. Olin's earnings have been saved from being gutted much further by its Winchester division, which makes small arms. In part becuase of fears of further gun control, small arms have been selling quite well in the U.S. this year. The stock of Winchester's competitor, Smith and Wesson, has shown it over the past several months. Olin, however, only has Winchester as a division. Management expects its more central chlor alkali division to show an operational segment loss in the third quarter.

If management's goal was to talk down expectations, they certainly succeeded with respect to Olin's stock. Its after-hours spill makes Olin similar to General Electric, another Bin stock that plummeted after 2Q earnings were released. In GE's case, the plunge resulted from disappointment over revenues. Olin's revenues met the consensus, so the most plausible reason for the latter's plunge was guidance disappointment.

Except for this other candidate: Olin's had quite a run since its dividend was declared. Its price at the end of today's after-hours trading, $13.25, is only seventy-five cents above its close on the day before the company declared its dividend. Dividend season hast given, earning season hast taken away.

Update: It would be somewhat of an understatement to say that Olin had a bad day once regular trading began. It dropped quickly to $12.71, recovered to about $13.30 as of 1 PM ET, and drifted downwards for the rest of the day. It closed regular trading at $12.98 for a drop of 8.98%. After-hours trading pushed it down a further 1.39%, to $12.80.

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