欧林 (OLN) 2026年第三季度业绩电话会：亨斯迈合并与EBITDA展望

奥林公司（Olin Corporation，NYSE: OLN）2026财年第三季度业绩说明会的核心内容包括：短期经营环境转弱、烧碱基本面改善、持续推进结构性成本削减，以及为与亨斯迈（Huntsman）的合并做准备。

核心要点

• 管理层预计2026财年第四季度调整后EBITDA为8000万美元至1亿美元，使全年调整后EBITDA达到约5.5亿至5.7亿美元。
• 在获得美国反垄断批准及其他数个司法管辖区的批准后，奥林目前预计与亨斯迈的合并将于2027财年第一季度完成。欧洲和中国的审查仍在进行中。
• 公司对实现超过4亿美元的成本协同效应和整合效益充满信心。其中包括预计将于2030年开始产生的1亿美元与氯气供应相关的效益。
• 奥林预计2026年将新增1.1亿至1.2亿美元的结构性成本削减。2027年的目标是再削减6000万至8000万美元，预计到2028年年度节省金额将超过原定2.5亿美元的目标。
• 温彻斯特（Winchester）在本季度获得了超过10亿美元的军工合同，其中包括约6亿美元用于为莱克城（Lake City）6.8毫米弹药工厂提供设备。
• 截至第三季度末，奥林拥有的可用流动资金为13亿美元。管理层预计年底杠杆率约为5倍或略高，并计划将多余现金流用于偿还债务。

关键财务数据

业务与经营业绩

氯碱产品与乙烯基业务

奥林位于弗里波特（Freeport）的设施于9月中旬恢复正常运营。产能利用率下降给第三季度带来了约3000万美元的负面影响，管理层随后在问答环节中将其精确为约3200万美元。

在销量持平的情况下，国内烧碱价格较第二季度略有改善，但出口定价因中国产量高企而面临压力。管理层表示，亚洲海运成本上升正在扩大美国墨西哥湾沿岸的出口套利空间，并提升北美供应商的竞争地位。

公司已宣布上调烧碱价格，并预计由于合同定价滞后，该财务效益将在2027年第一季度更为明显地显现。管理层预计氯乙烯开工率从第三季度到第四季度不会发生重大变化。

环氧树脂

奥林表示，环氧树脂业务继续通过结构性成本举措、利润率管理以及用于电子、复合材料和涂料的高附加值配方解决方案的增长来实现改善。

原油价格波动导致苯和丙烯成本大幅起伏。奥林已在各个地区和运输方式中宣布提价并加收燃料附加费，以抵消更高的原料、柴油和运输费用。

管理层还强调了欧洲可能对环氧树脂及其他复合材料原材料实施保障措施，不过目前尚未确定最终结果。

温彻斯特

商业弹药需求同比改善，同时温彻斯特的积压订单有所增加。管理层表示，渠道库存、消费者需求与生产之间的平衡状况优于去年同期。

军用需求保持强劲。在第三季度签署的超过10亿美元合同中，约有6亿美元将用于莱克城6.8毫米设施的设备购置。温彻斯特还向美军交付了首批莱克城工厂生产的6.8毫米弹药。

美国陆军续签了温彻斯特为期五年的第二供应源合同，未来12个月的首批交付价值为5000万美元。管理层预计第四季度军工业务业绩将环比改善，但商业弹药仍是近期盈利的主要推动力。

管理层业绩指引

管理层预计第四季度调整后EBITDA为8000万美元至1亿美元。中点值意味着2026年全年调整后EBITDA约为5.5亿至5.7亿美元。

在氯碱产品与乙烯基业务方面，奥林预计检修成本将环比增加约2500万美元、国内烧碱价格走低、水处理及建筑需求受季节性影响转弱，以及客户年底去库存力度高于常态。预计2027年第一季度的检修成本也将维持在较高水平。

预计环氧树脂业务在第四季度将承受3000万美元的环比检修成本增加。这些维护活动中有许多为五年一次。

在温彻斯特业务方面，季节性需求低迷和铜成本上升预计将对第四季度业绩构成压力，但国防业务活跃度增强将抵消部分影响。

奥林预计，除历史诉讼赔偿款外，年底营运资金将与2025年基本持平。受诉讼赔偿款和合并相关成本影响，预计年底净负债将较2025年有所增加。

风险与关注领域

• 合并执行：与亨斯迈的交易仍需获得欧洲和中国等其余司法管辖区的批准。奥林目前预计交易将于2027年第一季度完成。
• 杠杆率与现金流：随着诉讼和合并成本推高净负债，预计年底杠杆率将达到约5倍或略高水平。
• 中国烧碱出口：高企的出口量对全球价格造成压力。管理层对中国出口将在2027年大幅下降持怀疑态度。
• 货运成本通胀：海运费上涨支撑了美国烧碱的竞争力，但也推高了奥林在海运、铁路和卡车运输线路上的物流成本。
• 原材料及金属成本：如果产品提价和附加费不能完全消化成本增加，苯、丙烯、铜、锌和铅的通胀可能会对利润率构成压力。
• 第四季度波动性：管理层认为，第四季度的季节性特征和客户去库存现象比往年更为突出。

分析师问答环节亮点

亨斯迈协同效应潜能：管理层对实现3亿美元的固定成本、日常开支和效率节省表达了高度信心，此外预计自2030年起还将产生1亿美元的氯气供应效益。营收协同效应尚未进行详细评估。

实现协同效应的成本：奥林预计合并前期的成本节省仅需较少的资金投入。资本密集度更高的机会可能会在最初的24至36个月后期出现，并将在回报合理时予以推进。

烧碱前景：现货价格正在企稳，但由于定价滞后，管理层预计大部分国内收益效益将在2027年第一季度显现。亚洲海运成本上升和季节性氯气产量下降可能会使市场供需趋紧。

2030年后的乙烯基业务策略：奥林继续将与Shintech的合作视为首选途径。替代方案包括向其他方出售VCM或拓展PVC产能。管理层预计将在2027年年中前后做出更明确的决定，并在2027年第三季度末前提供更详细的更新。

温彻斯特定价：金属通胀仍是主要阻力。管理层表示，在新的一年里可能会考虑采取进一步的提价举措，特别是为了应对铜成本压力。

军工合同进账时点：与莱克城6.8毫米设施配置设备相关的营收应会在2027年更明显地显现，不过随着其他项目的完成，预计项目总营收将保持相对稳定。

业绩说明会完整文字实录

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完整财报电话会议逐字稿

管理层陈述

Operator

Good morning, and welcome to Olin Corporation's Third Quarter 2026 Earnings Conference Call [Operator Instructions] Following today's brief opening comments, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being rewarded. I would now like to turn the conference over to Steve Keenan, Olin's Director of Investor Relations. Please go ahead, Steve.

Steve Keenan

Thank you, operator. Good morning, everyone. We appreciate you joining us today to review Olin's third quarter 2026 results. Please keep in mind that today's discussion, together with the associated slides as well as the question-and-answer session that follows, will include statements regarding estimates or expectations of future performance. Please note these are forward-looking statements and that actual results could differ materially from those projected.

Some of the factors that could cause actual results to differ from our projections are described without limitations in the Risk Factors section of our most recent Form 10-K and in yesterday's third quarter earnings press release. A copy of today's transcript and slides will be available on our website in the Investors section under past events. Our earnings press release and related financial data and information are available under press releases. With me this morning are Ken Lane, Olin's President and CEO, and and Todd Slater, Olin's CFO. We'll start with some prepared remarks, then we look forward to taking your questions. Let me now turn the call over to Olin's President and CEO, Ken Lane.

Kenneth Lane

Thanks, Steve, and thank you to everyone joining us today. We appreciate your interest in Olin. Let's start on Slide 3 with a high-level review of the third quarter. The quarter reflected much of what we discussed on our last call. Each business remained focused on serving customers, maintaining commercial discipline, reducing structural costs and generating cash and what continues to be a very dynamic environment. During the quarter, our team made progress in several important areas. We completed our work at the Freeport site, returning our BCM assets to normal operations in mid-September as planned. .

Caustic soda market remained resilient and Olin's commercial team maximized our third quarter caustic value against a turbulent export market. Our Epoxy business continues to benefit from our self-help actions. Our formulated solutions growth and our commitment to support local customers seeking secure and reliable supply in both the U.S. and Europe. Commercial ammunition demand at Winchester has improved year-over-year, and our military business continues to gain momentum with new contract awards, recognizing our strong performance as an essential supplier to the U.S. war fighter. Finally, we stepped up our integration planning for the Olin Huntsman merger as regulatory approvals accelerate.

Our day-to-day focus remains unchanged as we prioritize safe, reliable and consistent execution across the company. Turning to Slide 4, let me share an update on our planned merger with Huntsman. Our August shareholder meeting returned overwhelming support for this transaction. providing a clear mandate while also passing a threshold of support to preserve the low-interest Huntsman bonds. We continue to make good progress toward closing. We've cleared the Hart-Scott-Rodino waiting period here in the United States, and we've received regulatory approval in several other key jurisdictions. Reviews continue in the remaining regions, including Europe and China, and with the progress we have seen so far, we now expect to close in the first quarter of 2027.

Our immediate priority is being ready to execute on day one. Under Todd's leadership, we've accelerated our preclosing integration planning to align with the first quarter 2027 closing. We remain confident in our ability to deliver more than $400 million of cost synergies and integration benefits and the planning we're doing now will help us make a fast start after closing. I think it's important to understand how we're approaching integration. We're building a new company with an industry-leading globally advantaged asset base and a highly talented team. We're designing our organization based on industry-leading benchmarks, building a lean and efficient company focused on the essential operations that create value for our customers shareholders and team members.

Our organizational design will be data-driven with clear lines of accountability and incentive programs that drive results. We'll be sharing more about Owen Huntsman in the coming weeks. In the meantime, we're announcing today that the ticker symbol for Olin Huntsman will be OHN following closing. Now let's turn to Slide 5 for a closer look at our chlor-alkali products and Vinyls third quarter performance. As expected, we resumed normal operations at our Freeport BCM facility. Reduced operating rates resulted in approximately $30 million of negative impact. While we sold more EDC during the quarter, EDC values have moderated from second quarter but remain above pre-conflict levels. Domestic caustic soda prices improved slightly on similar volumes in the second quarter. Export pricing was significantly pressured by excess Chinese production.

Boring volume was lower due to customer maintenance activity, while water treatment was seasonally strong. With industry shutdowns, seasonally slower vinyls demand and increasing global cost of energy, feedstocks and freight, caustic markets are tightening as we come to the end of the year. We've announced price increases and expect to realize those in the first quarter of 2027. Turning to Slide 6. Let's review our Epoxy results. Olin's epoxy business continues to improve, supported by our self-help actions and margin management that is critical as we see significant increases in feedstock costs. Remaining focused on what we can control, we materially improved the cost structure of the business and we continue to leverage Olin's position as a reliable, vertically integrated global supplier to customers in both the U.S. and Europe.

We also continue to grow our higher-value formulated solutions portfolio. particularly in applications across electronics, composites and coatings. Oil price volatility has caused dramatic swings in benzene and propylene prices. Our Epoxy team has acted quickly to offset that with announced price increases. Fuel surcharges have also been implemented across all regions and shipping modes to mitigate rising diesel and transportation costs. Europe is now considering safeguard protections to shield its composites value chain from subsidized Asian overcapacity. If successful, this initiative will benefit a broad group of composite input materials including epoxy resins and related systems, which are all essential to critical industries, including automotive, wind energy, aerospace and defense.

It is critical that the European Union act decisively to seize this momentum and swiftly establish provisional measures. Olin has provided support throughout this process, and we'll continue to do so. We're building a more resilient business by focusing on structural cost actions, commercial discipline, reliable supply and increased participation in high-value end uses. Our upcoming merger with Huntsman will accelerate all of these. Now let's take a look at Winchester on Slide 7. Out the door commercial ammunition demand continued to improve on a year-over-year basis during the third quarter. Year-to-date, September Nick's background checks for firearm purchases were up year-over-year for the first time since 2020.

Our commercial order backlog continues to grow year-over-year as we remain very disciplined around value chain inventories, continuing our make-to-demand approach. As a result of the Winchester team's actions, the balance between channel inventories, consumer takeaway and our own production is much healthier today than it was this time last year. Our military business continues to perform well. Winchester was awarded more than $1 billion in contracts during the quarter. Approximately $600 million of which will be used to equip the new Lake City 6.8 millimeter ammunition facility. This month, Winchester delivered its first shipment of Lake City produced 6.8 millimeter rounds to the U.S. military. Our interim production capacity is expected to scale by a factor of 10 by the completion of the project as the new manufacturing facility is built out. These are the first rounds produced on U.S. government-owned assets that meet the full requirements of the new 6.8 millimeter round demonstrating the industry-leading design, engineering and manufacturing capabilities of our Winchester team.

The Army also renewed our 5-year second source supply contract with an initial delivery valued at $50 million over the next 12 months. This contract covers ammunition we produce for the military from our Oxford, Mississippi and East Alton, Illinois plants. These actions reinforce the U.S. military strong confidence in Winchester. I'll now turn the call over to Todd for a look at our financial highlights.

Todd Slater

Thanks, Ken. Turning to Slide 8, I'll review our working capital, liquidity and financial position. Earlier this week, Olin executed a new credit agreement to support the combined company following our merger with Huntsman, backed by strong commitments from our combined relationship bank group, the agreement will expand liquidity and financial flexibility for Olin Huntsman at closing. Working capital increased during the first 9 months of 2026, reflecting our normal seasonal build and payments against previously accrued legacy litigation reserves. During 2026, Olin paid approximately $114 million to Shintech related to legacy litigation obligations. We do not expect further payments this year. We expect a seasonal reduction in working capital in the fourth quarter, supported by continued inventory and receivables management. resulting in year-end working capital approximately in line with 2025 levels, excluding the impact of legacy litigation payments.

We expect year-end net debt to be higher than year-end 2025, reflecting legacy litigation payments and merger-related costs. We expect year-end leverage to be approximately 5x or slightly higher. The end of the quarter with $1.3 billion of available liquidity with no restrictions on the undrawn portion of our revolving credit facility. Our capital allocation priorities remain unchanged. We continue to target 2026 capital spending of approximately $200 million, with investments focused on safe, reliable and efficient operation of our assets. We expect to continue our long history of uninterrupted quarterly dividend payments with our next dividend, marking 100 years of consecutive quarterly dividend payments.

Finally, we remain committed to preserving liquidity and maintaining financial flexibility with excess cash flow to be used to reduce our outstanding debt. Olin 250 continues to generate strong momentum as we remain on track to deliver in the range of $110 million to $120 million of incremental structural cost reductions in 2026. And annual savings expected to surpass our original $250 million target by 2028. This year, you have clearly seen the benefits from structural cost reductions in our Epoxy business. However, in our chlor-alkali business, market and operating headwinds have offset the earnings benefit of these structural cost reductions. Our focus remains on cash generation, structural cost reductions and disciplined capital allocation as we prepare for our merger with Huntsman. With that, Ken, I'll turn the call back to you.

Kenneth Lane

Thanks, Todd. We'll finish with Slide 9 and our outlook for the fourth quarter. We expect adjusted EBITDA to be in the range of $80 million to $100 million for a full year 2026 adjusted EBITDA of approximately $550 million to $570 million. In our CAPV business, we expect sequentially higher maintenance turnaround costs of approximately $25 million with sequentially lower domestic caustic soda pricing and seasonally lower demand for water treatment and construction. In addition, we expect to see year-end customer destocking at higher levels than normal. As we transition to 2027, we're seeing a firming caustic soda market with lower production aligned to seasonal chlorine demand and Asian exporters facing steep increases in freight costs as refined fuel products compete regionally for vessel availability.

This has resulted in freight cost increases of more than $80 to $100 per ton for Asian caustic exports to Europe and Latin America, widening the U.S. Gulf Coast arbitrage and advantaging North American exporters. In Epoxy, we faced a $30 million sequential increase in turnaround costs. Many of these maintenance activities occur once every 5 years. In contrast, 2027 is expected to that have been implemented during 2026. At Winchester, seasonally lower demand and sequentially higher copper costs will impact fourth quarter results, weighing upon otherwise constructive commercial demand. Commercial discipline will continue to be a high priority as we focus on improving margins and cash flow. We expect our defense business to be sequentially higher.

To wrap up, we are highly focused on improving our results in the face of a challenging environment, but we're not standing still. We're operating with discipline, strengthening each of our businesses and moving quickly to capture opportunities. With improved asset reliability beyond 250 structural cost savings building positive momentum at Winchester and our Olin Huntsman integration to come, we are excited about the future. Our priorities are clear. Our team is energized, and we're focused on execution and creating meaningful value for our shareholders. Consistent with these priorities is the 100th year of consecutive quarterly dividends expected to be paid in the fourth quarter. Thank you for your continued interest in Olin. Operator, we're now ready to begin Q&A.

Operator

[Operator Instructions] The first question will come from Frank Mitsch with Fermium Research.

分析师问答

Frank Mitsch

I wanted to drill into caustic soda. I think you indicated in the press release that you saw higher pricing, I believe that was domestic, but you saw lower export pricing. And then as you -- your Slide 15, you indicated that caustic pricing was actually down. Can you tell us what's been going on with caustic soda pricing within your system and what your expectations are? .

Kenneth Lane

For caustic soda, it really is a global story. Domestically, we have seen prices improve slightly versus the second quarter. But you know the challenges in the export market are related to not as much demand as it is related to the high volume of exports that we see coming out of China this year. They really -- for the full year, they've stepped up the amount of caustic exports coming out of China, and that has continued. Now we're starting to see some challenges with that because of freight costs in Asia that are really related to what's going on in the Middle East. So that advantage for U.S. Gulf Coast caustic is really coming back as freight costs remain high. And I think if you sort of track and watch what's going to happen in the freight markets, you'll probably be able to see what's happening around caustic because we're coming into a part of the season that is normally lower production, demand is usually seasonally slower now as well.

So we will see some tightening of markets because the liquidity in the market is not what it typically is based on the freight issues that we're seeing.

Operator

The next question will come from Josh Spector with UBS.

Joshua Spector

I was wondering if you could talk about your latest thoughts around how you deal with the Shintech contract in 2030, just assuming if you might need to build some PVC capacity, you might need to start that in the next year or so or at least get partners lined up. So any latest thoughts there would be appreciated. .

Kenneth Lane

Josh. Listen, our strategy around Vinyls has not changed. We have said all along that we -- we believe that the best path forward is for both Shintech and Olin to continue to work together. If that doesn't turn out to be the case, then we do have other options that we're looking at. That includes selling VCM to other parties. It includes potentially doing something in PVC. But we are not at a point now where we're ready to make any decision or any announcements. I'd say the chess pieces on the table are the same as they were even a year ago. I would expect that we will be making some sort of a more firm decision middle of next year to -- by the end of the third quarter, I think I'll be able to give you a better update on what we're going to be doing. But that fits, that timing fits very well with every option that we're looking at in terms of being able to execute it.

And once we know more, I'll be sure and give you an update.

Operator

Next question will come from Hassan Ahmed with Alembic Global.

Hassan Ahmed

A question around synergies. I know you guys said that you would give more details later on. But I mean it just seems that the $400 million target that you guys gave, I mean, you're talking about increased confidence around that. So I'm just trying to figure out what's driving that? Have you seen more opportunities? Can we actually exceed that $400 million target as well? .

Kenneth Lane

Hassan, yes, as you can imagine, there's only so much that we can do prior to closing. We're able to do a little bit more through clean teams in terms of looking at the cost structures and where we see opportunities for streamlining and making the organization more efficient after closing. But 1 thing we have not really looked at it all still is any opportunities around revenue synergies. So what I can tell you is that what we see is in terms of just the fixed costs and the overhead and the efficiency improvements that we see,

I have a very high level of confidence in the $300 million Remember, there was $100 million that's related to chlorine supply that kicks in, in 2030. So to me, that's going to be there. It's just a matter of time. But the -- we will certainly -- on the first earnings call after closing, being able to give you a little bit more details just in terms of how we see that phasing over time and how long it's going to take to be able to achieve that on a more, let's say, ratable or quarterly basis. We've given you some direction on an annual basis. But I think what I want to be able to do is explain a little bit more about how quickly in the short term, we'll be able to deliver that.

The teams are working extremely well together. And just to give you 1 example, we've done some cultural surveys between Huntsman and Olin. And when you look at the results, what it shows is culturally, we're very similar. That is -- that is encouraging to me that as we bring the companies together, we're going to be able to hit the ground running. Todd, I don't know if you want to add anything to that?

Todd Slater

Ken, every time I talk about the synergies you [indiscernible] the teams candidly in the pre-closing integration phase are working well together, and are really working on planning for day 1 and day 1 readiness and hit the ground running for synergy realization. .

Operator

The next question will come from Alexi Yefremov with Barclays.

Unknown Analyst

Could you provide a year-over-year bridge for your EBITDA in chlorovinyls? It looks like you're profit indexes up your maintenance is a little bit up as well, but are there any other major factors that explain what's happening year-over-year?

Kenneth Lane

Yes. Welcome back. Good to see you or good to hear you, I should say. If you look at chlorovinyl One of the things that we had last year that's not recurring is a 45 benefit in the third quarter of 2025. We don't have that again this year.

Sorry, go ahead, Todd .

Todd Slater

Yes. No problem. I mean Alexi, 45, the change in the hydrogen tax credit was roughly a little over $25 million year-over-year penalty. And you know last year was a cumulative benefit, this year was about $5 million a quarter. We had talked earlier in the year in that $4 million to $5 million range a quarter. So that's what you see. The other thing is you do know we have BCM issue, where we had to reduce rates really during almost all of the third quarter this year. So that was roughly a $32 million headwind year-over-year.

So more of a couple of one-timers that map some of the other things you talked about. .

Operator

The next question will come from Jeff Zekauskas with JPMorgan.

Jeffrey Zekauskas

Do you expect your chlorovinyl utilization rates to change very much from the third quarter to the fourth quarter.

Kenneth Lane

Jeff. I would not expect the operating rates to change significantly. We've got some downtime coming up in the fourth quarter. We continue to operate below the industry what you see reported for industry utilization rates. Part of that is related to the discipline that we're going to continue to show around operating our assets and maintaining values, but it's also related to some planned outages and unplanned outages that are occurring either at the beginning of the quarter, and we've now worked out or turnarounds that have slipped into Q4. But I don't see any significant change in the utilization rate for Chlorovinyls in the fourth quarter.

Operator

The next question will come from Salvator Tiano with KeyBanc Capital Markets.

Salvator Tiano

Yes. Thank you very much. I want to ask a couple of things. Number 1 is as we think about the VCM outage, if I understood correctly, you said that the plan was still out most of Q3 and was still over $30 million impact. So is it fair to assume that this becomes kind of a $30 million tailwind in Q4, perhaps adjusted for seasonality with additional upside in Q1, and secondly, in your outlook, I think you're the only company so far talking about a more intense than usual destocking in Q4. Every other company has gone out of their way to say the expected cultonality. And I wonder, is this conservatism on your end? Or is it simply that you are actually seeing some of your chemical chains, more severely stock you have line of sight to that?

Kenneth Lane

Listen, I'm going to start with the destocking question, and then I'll let Todd take the first part of your question there on the VCM. Our view is what we have seen as we've gone through this trough, and you can really look at some of the data, Q4 seasonality is more accentuated than it has been in the past. So you can call it destocking, and you can call it seasonality, call it whatever you want. I think the reality is that the volatility in the fourth quarter is higher now than it has been in prior years. And we're not going to ignore that. I mean, I think it's prudent to make sure we reflect that in our outlook, and that's what we've done. .

Todd Slater

And Sal, as you think about the VCM, talked about it coming up mid-September. So yes, it was really out at reduced rates for the virtually the whole quarter. So that $32 million, yes, that's a tailwind in Q4. But as we -- as you see through our slides, chlor-alkali does have a roughly $25 million headwind going the other way on higher turnaround costs between Q3 and Q4. And just as a note, we would expect turnaround costs in the first quarter to be high as well in chlor-alkali.

Operator

The next question will come from Patrick Cunningham with Citi.

Patrick Cunningham

Just maybe a couple of questions on Winchester. It seems like you've seen some positive leading indicators. You talked about better channel health and commercial. As we look to the next 12 months, are there any other demand signals you're seeing? Do you expect to have a better platform for price? And if you layer on the continued robust military growth I guess what sort of earnings outlook do you have over the next 12 months or so?

Kenneth Lane

Patrick. Yes, listen, the Winchester team has really done a great job dealing with some really strong headwinds here, mainly things related to costs for this year, mainly in metals, propellents not as much this year, but metals has been a real headwind. And it's not just copper. It's zinc, it's led. It's pretty much every commodity that they buy. And they have been steadily pushing prices through really, we've just been keeping up with those -- with that metals inflation. And we're probably just looking at where copper is going in the fourth quarter. We're going to be looking at doing something as we think about the new year, we've certainly got to respond to the copper prices that we've seen recently.

We don't see anything in the short term that I think would give us pause in terms of thinking that it's going to be reversed. So we've got to stay on top of that, and the team is you've seen the margins for Winchester. They have steadily improved, but they're still pretty significantly behind where they are historically. And so we've got to stay focused on doing everything we can to help ourselves, and that includes operating our assets well. One of the things that Brett and his team are doing is getting really stuck into the Beyond 250 program and looking first at Lake City and understanding how we can become more efficient in operating that facility because every cost that we have, we've got to put under scrutiny.

The military demand is going to continue to be strong, and that's very good to see. But at the end of the day, the commercial business is what really matters for us in terms of short-term earnings and making sure that we can get the margins up there is my priority for right now.

Operator

The next question will come from Kevin McCarthy with Vertical Research.

Kevin McCarthy

Can I welcome your comments on the subject of freight cost inflation and whether that is a net benefit or headwind to Olin as a whole. It sounds like as it relates to caustic maybe it's helpful to the extent that it would insulate you from competition, but I'm not sure about the impact on other parts of the company. So I would certainly welcome your broader view there. .

Kenneth Lane

Great question, Kevin. Thanks. Listen, freight costs definitely helped us in the second quarter because that's what supported pricing, but I think we've now seen that. That is in the market. And I'm really talking more specifically now about international trade related to things like caustic and ABC. Those freight rates are also backing up, and they will start impacting us as well. So it's just a matter of time before those costs start to creep into our freight lanes. If you think about other areas, though, where we're focusing on freight and other modes of transportation like epoxy, I mentioned this in the prepared remarks, with these costs up, if you're shipping anything by rail or by truck your costs are up there as well. So net-net, freight costs and cost of logistics is higher. And we've got to stay on top of being able to pass that through to the market either through direct pricing or through some sort of -- surcharge, that's the word I was looking for. Surcharge or other mechanisms to be able to recover that.

But it is definitely something that is going to continue to be a sort of an inflationary item that we've got to focus on.

Operator

The next question will come from Abigail Ebers with Wells Fargo.

Abigail Eberts

Another 1 on caustic soda, just your assumptions underpinning guidance. You're expecting higher caustic soda prices. It looks like VMA said caustic soda at $5 in October, and they're saying it could go up as much as another $10 in November. Is this realistic? Is this like around what you see underpinning guidance? Or would that imply some incremental upside?

Kenneth Lane

We see the same thing. We do see the market firming and we see spot pricing moving up, and you will see some domestic pricing following that. with the lag that you see in the market, we'll start to see more of that benefit in the first quarter that we're going to see here in the fourth quarter, but that's just how it's going to flow through the P&L. So I think what you're reading would support or we would support that in terms of what we've given as our outlook. .

Operator

The next question will come from Matthew Deo with Bank of America.

Matthew DeYoe

So I want to talk a little bit about cash flow because leverage is obviously ticking up here a bit into the close. And I think there was the prior comments like $150 million to $200 million in cash costs to achieve the synergies. So as you think about like case at which you can do this, and I know, Ken, you kind of made a comment, hopefully you can talk more about this. But would you dip more? And would you dip into the liquidity available to do this and take on a little bit more net debt to get at the synergies? Or is cash flow a governor on pace of synergy capture. And then related, unrelated. I know you made the comment that you paid $100 million to ShinTech this year. Was that in 3Q? Or did that drop in October and would be a 4Q cash flow consideration?

Kenneth Lane

Matt. Listen, we are -- when you think about the synergies and the timing, what we have said when we first announced that the merger is that the spend to get synergies is really going to be more, I shouldn't say back-end loaded, but later in the process of the first 24 to 36 months in terms of the spend for that to get synergies. The synergies that we can get early on are not going to require CapEx or significant amount of spend to be able to achieve that. So I would expect that early on, the spend to achieve synergies is going to be modest, let's say, that way. And then as we get into the process a little bit more as an integrated company, we'll start to see the other opportunities that might require some CapEx or some other expense to be able to realize. And if the business case justifies it and the return is there and the return usually on synergies, the return is usually very fast. It's like months. And if we start to see business cases that have very high returns, then yes, we will go do that.

Todd Slater

Regarding your question on cash flow and the legacy litigation payments of $114 million. $114 million was spent through the end of the third quarter. we had spent through the end of the first half, just under $100 million. And we had talked earlier on prior calls that $190 million, $195 million is going to be spent this year. But what we've communicated on this call and to be clear, we would only expect to spend $114 million this year, and that remaining liability, we do not expect to be paid this year.

Operator

The next question will come from John Roberts with Mizuho.

John Ezekiel Roberts

How much do you think global caustic soda capacity increased in 2026? And how much do you think it might increase in 2027?

Kenneth Lane

John. Listen, we have talked about this before. If you look at the chlor-alkali markets, they are set up structurally very well for the coming years. There's been a little bit of increase in capacity, but net of closures, it may be a few hundred thousand tons in 2026. That's nothing. I mean it really is a rounding error in my mind, especially when you start factoring in unreliability of assets and that sort of thing. So structurally, I think that from a supply side, we are sitting in a very good place. And that's no different than what we have said, even going back to our Investor Day. We're very optimistic about the outlook for the industry. What we need to see is some demand coming back and -- that will be the biggest driver.

As we start to see the global economy recover in Europe seeing better growth options, China is seeing better domestic growth and consumption. Those things are going to really start to show structurally that the market is in better shape than I think a lot of people believe.

Operator

The next question will come from Matthew Blair with TPH.

Matthew Blair

Congrats on the $1 billion in new MO contracts. Do you have any details on the timing of when those contracts will roll through? And then also, is there any update on the application to take over, I believe it's the Radford anaplant? .

Kenneth Lane

Thanks for joining us. Yes, those contracts -- the second source contract, you'll start to see that rolling through almost immediately. We already had that contract. So this is sort of a continuation of supply as the second source for the U.S. military. We're really happy to have that because don't underestimate, I said this in the prepared remarks, Winchester is the industry leader in being able to develop products for the U.S. military. And the award of that contract just goes to show the confidence that they have in us, and we're really happy about that. In terms of the equipping phase for the 6.8 millimeter facility at Lake City, that's going to start to show up really more next year. We've got to place the orders for the equipment now that we've gotten the funding awarded from the government. And as that spend happens, you'll see that revenue come in, but what you're going to see is there are other projects from this year that will start to come off.

So you're not going to see that incrementally higher, it's probably going to be more stable in terms of project revenue next year. As the project this year that was spending to build the plants to actually build the building, that's completed. Now we're going to be doing the equipping phase and that's going to kick in next year. So hopefully, that helps.

Sorry, let me -- so Chris, let me -- I do want to answer 1 more thing on Radford. Sorry, I forgot that. I forgot Matthew asked about Radford. That process has slowed, and that's been a decision by the government to slow that down. I think I had mentioned previously that just looking at that from from what was bid or put in the RFP by the government, frankly, just did not look compelling for us. And that really is, to me right now is going to be on hold. I don't see anything happening on that in the near term. So I just want to make sure I answer that part as well.

Operator

Next question will come from Arun Viswanathan with RBC.

Arun Viswanathan

I guess I just wanted to ask about some of your markets? And if you've experienced increased production out of China in the June through September period and -- did it really pick up and say, maybe some of the coal-based chlorine applications? And is that making -- and caustic soda? And is that resulting in extra supply and that's impacting pricing. And do you expect that to continue? Maybe you can just talk about supply demand and chlor-alkali products.

Kevin McCarthy

What we saw back when the conflict in the Middle East broke out, and prices for PVC spiked, as you saw everybody that was -- that could make PVC was ramping up, and that included the carbide-based PVC in China. And then what has happened since, when that slug of material was produced, there was a lot of caustic that was produced along with it. That has been working its way through the market. We talked about that on the second quarter earnings call. And as oil prices stay high, the ethylene-based PVC was out of the money.

So you couldn't make money on a cash basis on PVC with oil prices. Brent sitting at $105 to $115 is just not in the cards. Goal-based, you could. What we have seen over the past couple of months, though, is with the higher energy prices now beginning to filter through even in China, even the coal-based carbide based PBC and China operating rates have been declining. So I think that you're starting to see things normalize around the high oil, high energy costs. And that will start to tighten up the caustic market. So that fits with what we've given as our guide already.

We think that things will remain fairly stable from what you see today into the first quarter. I think there's going to continue to be a lot of volatility and elevated prices for oil, and that's going to filter through to the energy base. And I think even this morning, there was an announcement about a European producer closing production of chlor-alkali. So it is starting to trickle through into the market, and that's going to help support what we have put out as our guidance, which is things will get tighter as we go into the new year.

Operator

The next question will come from Peter Osterland with Truist.

Unknown Analyst

This is Alex on for Pete. I wanted to ask about sort of what's left as far as cost reductions next year as we get into beyond $250 million and that $60 million to $80 million target. How do you see that as far as being allocated between the segments. .

Kenneth Lane

Alex. So we have done a really good job on Beyond 250. Todd talked about this in his prepared remarks. You can see that coming through in the Epoxy business. Next year, we're going to have another increment, and this is in the appendix slide. $60 million to $80 million is what we would expect for next year. This year, we're going to be $110 million to $120 million. If I look at that year-over-year, even though in the prepared remarks, we had said, you really can't see that yet in the bottom line in CAPV. If you look at our manufacturing costs in CAPV, they are down year-over-year mid-single digits. But you can't see that because of a lot of the other noise that's coming through. That gives me a whole lot of confidence that structurally, those costs are out. And our teams in manufacturing have done a great job adjusting to new processes, new work processes. We've improved things like our time on tools, and our over time, those things we are tracking very closely and the manufacturing facilities are doing a great job at improving those.

Todd Slater

If you think about Beyond 250, and Ken mentioned and I mentioned earlier about Epoxy, that structural cost reduction really underpins 1 of the key pillars of the epoxy change year-over-year, and that structural cost and we had talked about this early on, $40 million to $50 million improvement in that year-over-year in Beyond 250 in Epoxy. [indiscernible] clearly is the remaining big piece for this year in that structural cost improvement. And you heard Ken's comments about our underlying manufacturing costs really being lower. Again, we talked about the VCM issue this year. Between the second and third quarter of operating at lower rates for that time period that's a little over $70 million of headwind that we've incurred this year, but those structural costs are out.

And so that's a temporary headwind that occurred in 2026. But those structural costs are permanently gone.

Operator

The next question will come from David Begleiter with Deutsche Bank.

David Begleiter

Ken, looking at some consultant China caustic export data, is showing a modest increase in exports only last 1 this year from about 4.1 million to 4.2 million tonnes, then a sharp decline next year by about 25%. So -- is that data just either lagging or missing some ingredients? And would you concur that we should see a sharp reduction in China caustic exports next year?

Kenneth Lane

So listen, we -- I think you've got to go back a couple of years, too, to look at that caustic export because if you go back to 2024, it stepped up a lot. And so it has stayed elevated and then we saw another increment in 2026. And that has been disruptive in the market. And I will just say, call it Spade a Spade, they're paying people to take -- they're selling chlorineat negative values to subsidize that. That's what's going on here. And I hope that we see a 25% reduction in caustic exports next year. So I hope that, that report is right, but I will be a skeptic because I think that, that has not been the typical behavior that we have seen.

So what we are focused on right now is what we can control, and that is operating our assets reliably and being able to participate in the markets in the most valuable way that we can. We are doing a great job with that. We've had stable ECU values domestically. We are strengthening our positions in the export markets where we're choosing to play and that will continue into 2027. So I hope that, that report that you're reading is correct because that would be very good for us.

Operator

As there are no further questions, this concludes our question-and-answer session. I would like to turn the conference back over to Ken Lane for closing comments.

Kenneth Lane

Thank you, Nick, and thank you, everyone, for joining us. We do look forward to sharing more with you about Olin Huntsman in the coming weeks and months. It's an exciting time for Olin, and we very much appreciate your interest in our company. Thank you, and have a great weekend.

Operator

Thank you for attending today's presentation. You may now disconnect.