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Annual Report

Obama bullet boom could ignite Olin profits

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Olin's Winchester shotgun shells

Winchester shotgun shells.  Company handout

Not many firms have a stake in the presidential election as direct as Olin Corp. President Barack Obama's reelection could trigger a sales surge in the company's bullets.

Perhaps it already has. When Obama won office four years ago, Olin's Winchester unit saw ammunition sales on fears of tightened gun controls. As the election heats up this year, the Clayton-based company is seeing ammo sales rise again -- up 8 percent in the first quarter, including a 13 percent rise in sales to civilians.

That's good news for an odd-duck company that makes both bullets and bleach. The jump in sales and profits, and a high return on equity also earned Olin first place in the Post-Dispatch's annual ranking of St. Louis-based companies.

“There's just been a pick up, which may be related to the election,” Olin Chief Executive Joseph Rupp said to analysts during an April conference call. The CEO has led the company since 2002.

But Olin's drive for profits isn't particularly good these days for East Alton, where it operates a big ammo plant. Lured in part by about $32 million in incentives from the state of Mississippi, Olin is in the process of moving most production from the Metro East city and 1,000 jobs south.

Olin, which employs 35 people at its Clayton headquarters, is both an ammunition company and a chemical maker. The combination gives it a balance in good times and bad.

A sick economy is bad for the chemical business. Olin, for instance, makes, chlorine. In good times, a lot of chlorine goes into making PCV pipe. When the construction business tanked in 2007, so did the plastic pipe business, and Olin suffered in consequence.

On the other hand, ammo makers thrive in war and recession, and America has had plenty of both over the past five years.

Economic and political anxiety makes some people pay focus more on crime and personal safety, analysts say. “Due to the economic recession, more civilians are embracing their right to bear arms and insure self protection,” says Frank Mitsch, senior analyst at Wells Fargo Securities.

They also hunt more for meat, notes Larry Kromidas, Olin's director of investor relations.

Ammo production peaked in 2009, but remains well above pre-Obama levels. Stronger civilian sales are helping make up for shakier police and military sales of late as America's wars wind down, notes analyst Mitsch.

Olin plans to take advantage of that by pushing through a 2 to 6 percent price increase this month.

BALANCING ACT

Now, the economy is slowly improving, which helps industrial chemical makers like Olin.

The company's chemical operation, born in Saltville, Va., is still based on salt. Through electrolysis, the company turns salt into chlorine, caustic soda and hydrogen, all products it sells and uses to make bleach and hydrochloric acid. Olin reduces the chemicals at 11 plants in North America, though none in St. Louis.

The products have uses in industry, as well as the backyard pool and home washing machine. Chlorine and caustic soda, for instance, are used to make paper, chemicals and plastics.

Olin even has also found a rapidly growing market in “fracking,” which uses hydrochloric acid in the process of coaxing oil and gas out of rock.

Overall, Olin seems to be on a profit rebound following a slump in 2010. The company reported pre-tax earnings of $370 million last year, up from a mere $47 million in 2010. But $181 million of that was a paper gain recorded after Olin bought out a partner in a chemical joint venture, and took the current value of the enterprise onto its own books.

Still, Olin's results appears to have momentum. First quarter earnings, before interest and taxes, were up 60 percent this year.

Olin stock's stock returned 30 percent over the past five years and 76 percent over three years, far outperforming the broad stock market. But it slipped over the past 12 months, with a total return of minus 2 percent. That tied with the S&P 400 Materials Index, but fell below the 7 percent return of the S&P 500 Index of big-company stocks, which is considered the bellwether of equity performance.

Those results include the company's 4 percent dividend yield.

Analysts think the stock has had its run for now. They are neutral on the Olin, with six rating the stock a hold, two with buys and one with a sell recommendation.

BINGE AND PURGE

Olin's strange sales mix – 71 percent chemicals and 29 percent ammunition – stems from a century's worth of corporate binges and purges.

It began in 1892, with two entrepreneurs who didn't know each other. In East Alton, Frank Olin founded a company to make blasting powder for the mining industry. He soon added ammunition, then a brass factory to make shell casings for World War I.

While Olin was beginning work, Thomas Mathieson was helping start a chemical company in Saltville, Virginia.

The companies went their separate ways until merging in 1954. By that time, both had strayed a little from their roots – Mathieson for instance, owned the E.R. Squibb drug company. Olin had bought the Winchester rifle company of Old West fame.

The merged Olin grew into a conglomerate making paper bags, skis, camping equipment, rocket engines and building houses among other things.

As conglomerates often do, Olin grew unwieldy. The 1990 recession hit it hard and sent it on a two-decade slim-down campaign. It sold and spun off business after business. Olin Brass, which also has an East Alton operation, split from the parent company in 2007.

The pursuit of profit also led to Olin's decision to move from East Alton. In 2010, the company wanted to renegotiate an existing labor contract with the ammo plant workers, saying it would keep their jobs in East Alton for seven years if the workers agreed to freeze their pay, give up a fifth week of vacation and end the employer contribution to their retirement plan.

After workers rejected those demands, the company quickly announced plans to move 1,000 jobs to Oxford, Miss., where it had already set up a .22-caliber rimfire ammo facility in 2005.  A shotgun shell line will remain in East Alton.

Olin says the move will save it $30 million a year in operating costs when completed in 2015. The company is spending $80 million on new plant and equipment, with the state of Mississippi picking up 40 percent of the tab.

Olin moved its headquarters to Clayton from Connecticut in 2004 to be close to its East Alton works. Since that operation will be greatly reduced soon, does Olin plan to keep it headquarters around? Olin Spokesman Larry Kromidas says he's heard no talk of moving.

0 Comments
Post-Dispatch ranking Return on equity (percentage) Revenue (millions) Profit (millions) Profit margin
This year Last year Company 2011 5-yr avg 2011 Chg 2011 Chg 2011
126

Olin Corp.

26.614.7$1,96124%$242273%12.3
22

Peabody Energy Corp.

18.919.0$7,97418%$95824%12.0
35

Emerson

24.624.0$24,22215%$2,48015%10.2
421

Monsanto Co.

14.917.1$11,82213%$1,60747%13.6
5NR

Solutia Inc.

31.7N/A$2,0977.5%$262236%12.5
69

Centene Corp.

12.915.9$5,34120%$11117%2.1
77

Panera Bread Co.

21.716.8$1,82218%$13622%7.5
811

Sigma-Aldrich Corp.

21.921.8$2,50510%$45719%18.2
9NR

Enterprise Financial

13.0-0.9$16120%$25356%19.4
1015

FutureFuel Corp.

12.810.1$31041%$3549%11.1
11NR

Belden Inc.

17.20.2$1,98223%$1145.4%5.8
121

Express Scripts Holding Co.

42.052.1$46,1282.6%$1,2768.0%2.8
13NR

Viasystems Group Inc.

10.5N/A$1,05714%$2883%2.7
1420

Ameren Corp.

6.67.0$7,531-1.4%$519273%6.9
1513

Perficient Inc.

5.75.6$26222%$1166%4.1
166

Arch Coal Inc.

4.99.6$4,28635%$142-11%3.3
173

Reinsurance Group of America Inc.

10.710.4$8,8306.9%$6004.4%6.8
184

Energizer Holdings Inc.

12.433.8$4,6469.4%$261-35%5.6
1923

Stifel Financial Corp.

6.67.6$1,4423.3%$844312%5.8
2027

LMI Aerospace Inc.

10.310.8$25414%$1627%6.5
2128

Esco Technologies Inc.

9.19.3$69414%$5317%7.6
2216

Amdocs Ltd.

11.112.4$3,1786.5%$3470.8%10.9
2314

Cass Information Systems Inc.

15.216.3$1137.5%$2313%21.2
2419

Commerce Bancshares Inc.

12.211.9$1,104-3.0%$25616%24.4
2522

Ralcorp Holdings Inc.

-6.96.1$4,74117%-$187-190%-3.9
2625

Laclede Group Inc.

11.512.7$1,603-7.6%$6418%4.0
27NR

MEMC Electronic Materials Inc.

-102.8-6.8$2,71621%-$1,536NM-56.6
2824

Young Innovations Inc.

12.812.0$1063.3%$1610%15.5
298

Brown Shoe Co.

5.90.1$2,5833.1%$25-34%1.0
3017

Synergetics USA Inc.

11.98.1$567.2%$6-1.7%10.1
3133

Pulaski Financial Corp.

6.95.6$73-8.4%$8145%13.4
3210

Aegion Corp.

4.25.4$9392.6%$27-56%2.8
3329

Reliv International Inc.

7.414.4$74-6.2%$1-38%1.4
34NR

Build-A-Bear Workshop Inc.

-11.9-1.1$394-1.8%-$17-16506%-4.3
35NR

First Clover Leaf Financial Corp.

2.40.5$26-6.8%$2-50%9.8
NRNR

Charter Communications Inc.

-39.1N/A$7,2042.1%-$369NM-5.1
NR---

Post Holdings Inc.

-20.3N/A$968-2.9%-$361-493%-37.3
NRNR

KV Pharmaceutical Co.

N/AN/A$27200%-$174NM-637.4
NR31

Patriot Coal Corp.

-15.3N/A$2,40318%-$115NM-4.8
NRNR

Furniture Brands International Inc.

-22.3-28.1$1,108-4.5%-$44NM-3.9
NRNR

Stereotaxis Inc.

N/AN/A$42-22%-$32NM-76.3
NR30

Spartech Corp.

-11.5-16.3$1,1027.8%-$21NM-1.9
NRNR

Zoltek Cos.

-1.2-0.7$15218%-$4NM-2.4
NRNR

Allied Healthcare Products Inc.

0.8-8.7$471.6%$0NM0.4
NR34

American Railcar Industries Inc.

1.44.4$51990%$4NM0.8
NR32

Isle of Capri Casinos Inc.

1.7-14.5$1,0050.5%$5NM0.5

Key

N/A - Not available
NM - Not meaningful
NR - Not ranked

Notes

Brown Shoe results are for fiscal 2012.
Post Holdings wasn't public last year.
Eastman Chemical is expected to soon close on its proposed acquisition of Solutia.

SOURCES: Bloomberg, company reports

Employees Liquidity/leverage ratios
Company 2010 Chg Total assets Total liabilities Sharehldrs equity Current ratio Debt/equity

Aegion Corp.

3,000-6%$1,125$476$6492.738.9

Allied Healthcare Products Inc.

3132%$32$5$275.10.0

Amdocs Ltd.

19,8262%$4,637$1,613$3,0232.08.3

Ameren Corp.

9,323-2%$23,645$15,577$8,0681.388.4

American Railcar Industries Inc.

2,41351%$704$394$3105.088.7

Arch Coal Inc.

7,44258%$10,214$6,624$3,5901.2113.0

Belden Inc.

6,8003%$1,788$1,094$6952.479.3

Brown Shoe Co.

15,30014%$1,227$814$4141.696.8

Build-A-Bear Workshop Inc.

1,000-17%$242$112$1291.40.0

Cass Information Systems Inc.

75012%$1,319$1,159$161N/A0.0

Centene Corp.

5,30026%$2,190$1,254$9361.137.6

Charter Communications Inc.

16,8001%$15,605$15,196$4090.33143.3

Commerce Bancshares Inc.

4,237-3%$20,649$18,479$2,170N/A63.2

Emerson

133,2004%$23,861$13,310$10,5511.450.0

Energizer Holdings Inc.

22,2055%$6,663$4,562$2,1012.1112.7

Enterprise Financial

45036%$3,378$3,138$240N/A165.6

Esco Technologies Inc.

2,4808%$1,012$411$6011.620.8

Express Scripts Holding Co.

13,120-0.4%$15,607$13,133$2,4741.5326.5

First Clover Leaf Financial Corp.

8013%$563$485$78N/A87.3

Furniture Brands International Inc.

5,600-10%$614$482$1322.758.2

FutureFuel Corp.

5002%$385$97$2886.80.0

Isle of Capri Casinos Inc.

8,60015%$1,575$1,391$1841.3628.7

KV Pharmaceutical Co.

300-23%$565$939-$3740.8N/A

Laclede Group Inc.

1,624-4%$1,783$1,210$5731.671.6

LMI Aerospace Inc.

1,48011%$205$37$1684.40.0

MEMC Electronic Materials Inc.

6,35013%$4,882$4,097$7851.3261.1

Monsanto Co.

20,600-4%$19,844$8,128$11,7161.919.2

Olin Corp.

3,8003%$2,450$1,464$9862.054.4

Panera Bread Co.

18,00013%$1,027$372$6551.50.0

Patriot Coal Corp.

4,30016%$3,777$3,110$6661.066.4

Peabody Energy Corp.

8,30015%$16,733$11,217$5,5161.6121.4

Perficient Inc.

1,48436%$224$25$1993.20.0

Post Holdings Inc.

N/AN/A$2,793$1,289$1,5051.052.1

Pulaski Financial Corp.

410-10%$1,309$1,189$120N/A54.8

Ralcorp Holdings Inc.

11,0002%$6,333$3,714$2,6191.584.1

Reinsurance Group of America Inc.

1,6558%$32,104$25,967$6,137N/A33.7

Reliv International Inc.

205-17%$24$10$142.224.6

Sigma-Aldrich Corp.

8,3005%$3,281$1,082$2,1993.323.7

Solutia Inc.

3,4003%$3,526$2,599$9271.9145.5

Spartech Corp.

2,5004%$550$377$1731.490.9

Stereotaxis Inc.

171-16%$40$59-$190.8N/A

Stifel Financial Corp.

5,0974%$4,952$3,650$1,302N/A64.9

Synergetics USA Inc.

3410%$81$31$513.52.1

Viasystems Group Inc.

14,099-5%$839$546$2931.578.4

Young Innovations Inc.

371-7%$160$30$1303.80.5

Zoltek Cos.

1,28217%$322$41$2823.53.0

Key

N/A - Not available

SOURCES: Bloomberg, company reports

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Seems like many are quick to point their finger towards the Union and blame Unions for Corporate America's irresponsible, greedy behavior, such as you are seeing with the move of the Olin-Winchester employees at the East Alton facility.

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