奧林 (OLN) 2026年第三季法說會：亨斯邁合併案與 EBITDA 展望

奧林公司（Olin Corporation，NYSE: OLN）2026 年第三季法說會的核心為近期的營運狀況疲軟、燒鹼基本面改善、持續的結構性成本削減，以及為併購 Huntsman 所做的準備。

重點總覽

• 管理層預計 2026 年第四季調整後 EBITDA 為 8,000 萬美元至 1 億美元，使全年調整後 EBITDA 達到約 5.5 億美元至 5.7 億美元。
• 奧林在獲得美國反壟斷批准及其他多個司法管轄區的核准後，目前預計 Huntsman 併購案將於 2027 年第一季完成。歐洲和中國的審查仍在進行中。
• 公司對超過 4 億美元的成本綜效與整合效益保持信心。這包括預計將於 2030 年開始、與液氯供應相關的 1 億美元效益。
• 奧林預計 2026 年將進一步削減 1.1 億美元至 1.2 億美元的結構性成本。2027 年的目標是再削減 6,000 萬美元至 8,000 萬美元，預計到 2028 年每年節省的成本將超過原本 2.5 億美元的目標。
• 溫徹斯特（Winchester）在本季度獲得了超過 10 億美元的軍購合約，其中包括約 6 億美元用於裝備 Lake City 6.8 釐米彈藥工廠的資金。
• 奧林在第三季結束時擁有 13 億美元的可用流動資金。管理層預計年底槓桿率約為 5 倍或略高，並計劃將剩餘現金流用於償還債務。

關鍵財務數據

業務與營運表現

氯鹼產品與乙烯基事業部

奧林於 9 月中旬恢復其 Freeport 工廠的正常營運。產能利用率下降在第三季帶來約 3,000 萬美元的逆風，管理層隨後在問答環節中說明該影響金額約為 3,200 萬美元。

在銷量相當的情況下，國內燒鹼價格較第二季略有改善，但出口價格受到中國產量增加的壓力。管理層表示，亞洲運費上漲正在擴大美國墨西哥灣沿岸的出口套利空間，並提升北美供應商的競爭優勢。

公司已宣布調漲燒鹼價格，並預計由於合約定價存在滯後性，財務效益將在 2027 年第一季更為明顯。管理層預計氯乙烯的產能利用率在第三季至第四季之間不會有顯著變化。

環氧樹脂事業部

奧林表示，環氧樹脂業務通過結構性成本措施、利潤率管理，以及用於電子、複合材料和塗料的高價值配方解決方案的成長，表現持續改善。

劇烈波動的原油價格導致苯和丙烯成本大幅起伏。奧林已宣布漲價，並在各區域和運輸模式中實施燃料附加費，以抵銷較高的原料、柴油和運輸費用。

管理層還強調了歐洲針對環氧樹脂和其他複合材料原料可能採取的防衛措施，儘管目前尚未做出任何決定。

溫徹斯特事業部

商業彈藥需求同比改善，同時溫徹斯特的在手訂單有所增加。管理層表示，通路庫存、消費者需求和生產情況比一年前更加平衡。

軍用需求依然強勁。在第三季獲得的超過 10 億美元合約中，約有 6 億美元將用於資助 Lake City 6.8 釐米工廠的設備。溫徹斯特還向美軍交付了首批由 Lake City 生產的 6.8 釐米彈藥。

美國陸軍續簽了溫徹斯特為期五年的第二供應源合約，未來 12 個月內的首批交付價值為 5,000 萬美元。管理層預計第四季軍工業務表現將按季改善，但商業彈藥仍是近期獲利更重要的推動力。

管理層業績指引

管理層預計第四季調整後 EBITDA 為 8,000 萬美元至 1 億美元。中位數隱含 2026 年全年調整後 EBITDA 約為 5.5 億美元至 5.7 億美元。

在氯鹼產品與乙烯基事業部方面，奧林預計大修保養成本將按季增加約 2,500 萬美元、國內燒鹼價格下降、水處理與建築需求出現季節性疲軟，以及年底客戶去庫存高於正常水準。預計 2027 年第一季的大修保養成本仍將維持在高水準。

預計環氧樹脂業務在第四季將吸收按季增加 3,000 萬美元的大修保養成本。其中許多維護活動每五年才進行一次。

在溫徹斯特業務方面，季節性較低的需求和較高的銅成本預計將對第四季業績構成壓力，但國防活動的升溫抵銷了部分影響。

扣除歷史訴訟款項後，奧林預計年底營運資金將與 2025 年基本持平。由於訴訟款項和併購相關成本，預計年底淨負債將比 2025 年有所增加。

風險與關注焦點

• 併購執行：Huntsman 交易案仍需獲得其餘司法管轄區（包括歐洲和中國）的批准。奧林目前預計將於 2027 年第一季完成交割。
• 槓桿率與現金流：隨著訴訟與併購成本推升淨負債，預計年底槓桿率將達到約 5 倍或略高水準。
• 中國燒鹼出口：出口量高企對全球價格構成壓力。管理層對中國出口會在 2027 年大幅下降表示懷疑。
• 運費通膨：海運費用上漲支撐了美國燒鹼的競爭力，但也推升了奧林在海運、鐵路和卡車運輸路線上的物流成本。
• 原料與金屬成本：若價格調漲和附加費無法完全吸收成本增幅，苯、丙烯、銅、鋅和鉛的通膨可能會對利潤率造成壓力。
• 第四季波動性：管理層認為第四季的季節性因素和客戶去庫存現象比往年更加明顯。

分析師問答亮點

Huntsman 綜效潛力：除了預計自 2030 年起實現的 1 億美元液氯供應效益外，管理層對實現 3 億美元的固定成本、日常費用及效率節省展現高度信心。營收綜效尚未進行詳細評估。

實現綜效的成本：奧林預計併購早期帶來的成本節省僅需適度支出。資本密集度較高的機會可能在最初的 24 至 36 個月後出現，並將在報酬合理時推進。

燒鹼前景：現貨價格走強，但管理層預計由於定價滯後，大部分國內獲利效益將在 2027 年第一季顯現。亞洲運費偏高以及季節性液氯產量下降可能會使市場趨緊。

2030 年後的乙烯基策略：奧林繼續將與 Shintech 的合作視為首選途徑。其他替代方案包括向其他方出售氯乙烯單體（VCM），或尋求聚氯乙烯（PVC）產能。管理層預計會在 2027 年年中左右做出更明確的決定，並在 2027 年第三季末提供更詳細的更新。

溫徹斯特定價：金屬通膨仍是主要逆風。管理層指出，可能會考慮在新的一年採取進一步的定價行動，特別是針對銅成本的相應調整。

軍購合約時程：裝備 Lake City 6.8 釐米工廠的相關營收應會在 2027 年更顯著地顯現，儘管其他專案的竣工預計將使專案總營收保持相對穩定。

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管理層陳述

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.

分析師問答

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.