What: Shares of Rayonier Advanced Materials (NYSE:RYAM), a leading global supplier of high-purity cellulose specialty products and other products used in anything from food and cosmetics to paints and pharmaceuticals, are dropping 15% during Thursday afternoon trading.
So what: The stock price decline is no doubt linked to the company's announcement it would initiate a public offering of mandatory convertible preferred stock. More specifically, it would be issuing 1,250,000 shares, and the underwriters of the offering have a 30-day window to purchase a maximum of 187,500 additional shares.
The company notes that its plans for the proceeds are for (but not limited to) investing in research and development of new products, capital expenditures for the current business, possible acquisitions, and the reduction of debt.
Now what: In my opinion, the move is tilted toward the last of those possibilities. While Rayonier has made progress on reducing costs, there was still substantial financial and operating leverage.
Reporting the company's second-quarter results, Paul Boynton, chairman, president, and CEO, said:
Our continued focus on reducing costs, improving cash flows and investing in our business produced strong second quarter results. ... We remain committed to deliver on our Transformation Initiative so we can drive cash flows to reduce debt, enhance our competitive position and deliver value for our stockholders.
If the offering can give the company a little breathing room while its cost-cutting actions further improve cash flow, this will be a good scenario, and the 15% decline will be more than offset by a more financially stable future.
Daniel Miller has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.