By Tatyana Shumsky
It was supposed to be the worst spinoff in the history of spins.
When DuPont Co. cleaved off its performance chemicals business as
Chemours Co. in June 2015, doubts ran high about the company's
future.
Activist investor Nelson Peltz, whose Trian Fund Management
received Chemours shares as a DuPont shareholder, sold off the
stake within six months. A year after its launch, famed
short-seller Andrew Left announced he was betting against the stock
with a report titled "Chemours is a bankruptcy waiting to
happen."
Chemours is a market darling today. Shares of the Teflon maker
have more than tripled, and the company is on track for its second
year of profits, after reporting a loss in 2015. Its turnaround
involved an aggressive plan, a bit of luck in the form of a rebound
in titanium dioxide prices and a legal settlement.
"Thank God I got out fast," said Mr. Left, founder of Citron
Research, in an interview with CFO Journal. "It surprised a lot
more [people] than just me."
Chemours on Thursday reported adjusted third-quarter earnings of
$214 million, or $1.12 a share, up 91% from $112 million, or 61
cents a share, a year ago. The figures beat analysts' earnings
forecasts of $1.04 a share on sales of $1.6 billion.
By contrast, Chemours posted a loss of 10 cents a share for the
second quarter of 2015, sparking concern among investors about the
company's future after it separated from DuPont.
Chemours's transformation plan, announced at the time of the
spin, included slashing the dividend, paying down debt and
targeting cost cuts of $350 million by 2017. The company also
launched a review of its operations with an eye to sell off
nonstrategic business units and grow its refrigerants and cyanides
businesses.
The executive team pursued three objectives: "Be bold, exercise
speed in execution and communicate, communicate, communicate," said
Finance Chief Mark Newman. "We set out with a bold plan to really
double earnings from where they were in 2015 to 2017."
Chemours launched with $3.7 billion in net debt at a time when
its operating profit barely breached $250 million. And more than
98% of that money came from a single division: the titanium dioxide
business that makes paint and ceramics pigments.
Chemours also inherited part of DuPont's legal liabilities
related to perfluorooctanoic acid, or PFOA. DuPont faced lawsuits
over links to potential health problems after the chemical, used to
make Teflon, leached into drinking water near some production
facilities.
Analysts and investors struggled to predict the likely cost of
the lawsuits. "Environmental liabilities can be viewed as
open-ended and it was really hard to estimate from the outside back
then," said John Roberts, chemicals industry analyst at UBS AG.
Chemours sold off three companies during its first year, raising
around $700 million in capital. The company slashed net debt by
$1.2 billion and delivered on $300 million of the $350 million in
promised cost cuts. Other steps followed, including a 7% staff cut
and plant closures.
The stronger business footing translated into higher stock
prices. Chemours shares have more than tripled, to $51.12 a share
by late morning Friday from its 2015 spinout price of $16 a share,
after briefly trading for less than $4 in 2016.
Pressure from outside voices forced Mr. Newman -- formerly CFO
at SunCoke Energy Inc. -- to redouble efforts on communicating the
company's turnaround plan.
"There will always be people who try to detract from the story.
Our job is to stay on message and focus on 'here is the plan, and
here is how we're doing against the plan,'" Mr. Newman said.
Better business performance helped fuel a run-up in Chemours's
share price. Mr. Left, the short-seller, closed out his position in
the summer of 2016.
"I realized that I had no firm grasp on the [titanium dioxide]
pricing and that the lawsuits are not going to put them out of
business," he said.
Chemours also successfully nurtured a second business line that
has diversified its earnings pool in less than three years through
its Opteon refrigerant, part of the fluoroproducts units. Today,
Opteon is used by all major European auto makers, and has a
significant market share among U.S. auto makers.
"Now their fluoroproducts is almost equal into the earnings
contribution from the [titanium dioxide] products," Mr. Roberts
said. "They have two strong legs now for the company to stand
on."
Still, analysts say that Chemours also benefited from several
factors outside of management's control. For one, titanium dioxide
prices have marched higher as Beijing's increased focus on the
environment shut down parts of Chinese titanium dioxide
production.
The PFOA liability that threatened Chemours's balance sheet
turned out to be less expensive than expected. DuPont in February
agreed to a $671 million settlement with lawyers representing
thousands of people in Ohio and West Virginia. Chemours will pay
half the settlement amount, with DuPont paying the remaining half.
The settlement lifted Chemours shares 14% in one day.
"The things that they had control over, they did a very good job
of improving," said Joe Princiotta, a credit analyst with Moody's
Investors Service. "It was pretty aggressive and pretty
comprehensive."
A spokesman from DuPont declined to comment.
Write to Tatyana Shumsky at tatyana.shumsky@wsj.com
(END) Dow Jones Newswires
November 03, 2017 11:44 ET (15:44 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
Chemours (NYSE:CC)
Historical Stock Chart
From Mar 2024 to Apr 2024
Chemours (NYSE:CC)
Historical Stock Chart
From Apr 2023 to Apr 2024