3 Reasons to Love Olin's Great Numbers

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I find companies that operate in segments that are poles apart really interesting. Olin (NYS: OLN) is one of them. It has two segments, but while its chemical division did exceedingly well in its third quarter, its ammunition business stumbled.

Despite this, I reaffirm my views that Olin is looking great as an investment.

Some numbers for you
Sales in Olin's chlor alkali products, its largest segment, shot up by an amazing 40% from the year-ago quarter to $386.1 million as selling prices went up. Thus, despite outage costs, the segment reported a whopping 70% surge in its net income.

Olin has been aggressively hiking caustic soda prices since the beginning of this year, in line with its peers. The largest chemical maker, Dow Chemical (NYS: DOW) , had double-digit global price increases that were the primary factor behind higher third-quarter sales in its chlor alkali business.

Peer PPG Industries' (NYS: PPG) third-quarter revenues also climbed 11% from the year-ago quarter to $3.8 billion, largely because of high selling prices. Likewise, Georgia Gulf's (NYS: GGC) largest segment, chlorovinyls, saw sales up 9.6% in its third quarter as high prices offset lower volumes.

Sales in Olin's second division, Winchester, which makes ammunition, went up by around 4% from the year-ago period to $164.1 million on the back of higher shipments and prices. But because of high metal costs and some restructuring expenses, the segment's bottom line failed to hold up, and slipped 30% from last year.

Overall, strong top-line growth helped Olin post an astounding 48% jump in its bottom line to $47.2 million.

Wise moves
A lot of restructuring is under way at Olin. The company is currently converting its mercury cell technology in its chlor alkali manufacturing process to a membrane capacity by the end of 2012. With this, Olin will be able to make more products at lower costs.

Olin's focus on the membrane technology became evident when it acquired a chlor alkali plant with Sunbelt by buying a 100% stake from PolyOne (NYS: POL) . This acquisition contributed around $12 million of incremental profits in the third quarter.

Olin is also building two new bleach plants that are expected to be operational by the end of next year.

These moves make sense, especially when volumes for chemicals such as bleach and hydrochloric acid are going up. Apart from driving up revenues, these two products are also cheaper to ship. This will ease some of the high freight cost burden. In the third quarter, Olin's freight costs were 15% higher than last year.

A better shot
Olin is relocating its ammunition operations with the intention of reducing manufacturing costs. Related relocation costs put some pressure on the segment's earnings in the last quarter, and this trend is expected to continue throughout next year.

Meanwhile, the Winchester segment is growing. It has recently bagged a five-year contract from the U.S. Army that could generate revenue of $300 million over the next five years. What's noteworthy is the timing of this contract when budget cut concerns are looming large.

The Foolish bottom line
Higher product prices will continue to boost Olin's revenues in the future. Overall, Olin's performance has been great, and the restructuring and growth plans should add significant value to its business. What's more, the company has a superb dividend yield of 4.4%.

Aren't these reasons enough to keep a close eye on this stock that has also bagged a coveted five-star ranking in Motley Fool CAPS, the Fool's free investing community? I am sure you would love to know all about Olin's progress. You can easily do it by adding the stock to our free and personalized My Watchlist service that keeps you updated on all your favorite companies.

At the time this article was published Neha Chamaria does not own shares of any of the companies mentioned in this article. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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