We are going into what stock analysts call earnings season. This is when public companies announce their earnings for the quarter and either meet or surpass expectations or fail to meet the projections of analysts.
Olin Corporation announced their earnings yesterday. In addition to their chlor alkali and other chemical businesses, Olin owns Winchester ammunition. Olin lost $37.9 million or 23 cents per share mostly due to restructuring costs for their chlor alkali business. This loss was considered an $80 million miss on expectations.
However, for what concerns us, the Winchester division had improved results.
Winchester sales for the first quarter 2016 were $183.7 million compared to $156.7 million in the seasonally weaker fourth quarter 2015, with growth driven primarily by increased shipments to commercial customers. First quarter 2016 segment earnings were $28.7 million compared to $21.8 million in the fourth quarter 2015. The increase in segment earnings reflects higher commercial shipments and lower commodity and material costs. Winchester first quarter 2016 results included depreciation and amortization expense of $4.6 million compared to $4.9 million in fourth quarter 2015.
Olin stock closed up 33 cents for the day with a final closing price of $22.17. This is up about $10 from the low earlier this year.
I’d like now to turn to the performance of our Winchester segment, which we summarize on slide eight. Winchester sales in the first quarter were $183.7 million, a 17.2% increase over the seasonally weaker fourth quarter of 2015. This growth was driven primarily by increased shipments to commercial customers. We’ve seen improvement in commercial demand in selected handgun calibers and steady strength in rimfire demand.
First quarter 2016 adjusted EBITDA was $33.3 million, a 24.7% increase over the fourth quarter of 2015. The improved results reflect higher commercial shipments and lower commodity and material costs. We are forecasting sequential adjusted EBITDA improvement in the second quarter for Winchester with continued strong commercial demand, especially in pistol and rimfire ammunition, and lower operating cost.
Winchester continues to focus on cost reduction and we remain on track to complete the final equipment relocation during the second quarter of 2016. We anticipate that the annual cost savings from this project will reach $40 million.
As a result, we believe full year 2016 Winchester earnings will improve compared to 2015, primarily because of incremental savings from the Oxford relocation, lower commodity and material costs, and improvement in volumes, partially offset by lower prices.
Improved commercial demand for handgun and rimfire ammo sounds like Gun Culture version 2.0 is making an impact. An editorial today by Jim Shepherd in The Outdoor Wire speculates version 2.0 may be giving way to version 3.0. Either way, the improved sales of ammo by the Winchester Division certainly benefits from it.
Note: In full disclosure, I own shares in Olin Corporation. Nothing here should be taken as investment advice to either buy or sell the stock.