Money Sucked Out Of Pocket

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What happened

After Horizon Global (NYSE:HZN), a leading provider of branded towing and trailering equipment, released preliminary fourth-quarter results and announced a proposed common stock and bond offering, its stock fell by 12% as of 12:10 p.m. EST on Wednesday.

So what

Here's a summary of what Horizon told investors  to expect in its full-year earnings report:

  • Net sales are predicted to increase by 3% to 3.5%, excluding the impact of its Westfalia acquisition.
  • Adjusted segment operating profit is expected to increase by 140 to 160 basis points. That's a 10-basis-point jump over its prior outlook.
  • Interest expense is projected to be in the range of $18.7 million to $19.3 million. That's up slightly from the company's prior outlook.
  • Capital expenditures are expected to represent 2% to 2.4% of sales, which compares favorably to its previous guidance of approximately 2.5% of sales.

This update is likely upsetting the markets since the company had previously called for net sales growth of 3% to 5%. Thus, these results suggest that Horizon is going to come in below the midpoint of its guidance range. For additional perspective, market watchers are expecting its top line to grow by 9.1% for the full year when including the Westfalia acquisition. 

In a separate announcement, Horizon also stated that it intends to raise capital from a secondary common stock offering and by issuing convertible senior notes. Here's a look at the details of each offering:

  • Horizon intends to sell up to 4,025,000 shares of common stock, assuming the underwriters of the deal choose to exercise their option. At current prices, this offering could raise gross process of roughly $72 million.
  • In addition, the company plans to sell up to $115 million worth of convertible senior notes due in July 2022. Buyers of the notes will have the option to later convert them into some combination of cash or common stock. 

Management said that the proceeds of these deals will be used to pay off approximately $147.5 million of the company's current term loan. The remainder will be used to hedge the transaction and for general corporate purposes.

Now what

The credit rating agency Moody's appears to be quite happy with the company's decision to raise capital. Moody's said the move is "credit positive" for Horizon, and that if everything goes according to plan, then its loan rating "could be upgraded to B1 from the current rating of B2." 

That's all great, but investors are likely to be far more focused on the company's disappointing sales results. Shareholders won't have more details about the quarter or the full year until the company officially reports its results. Since that's probably a few weeks away, potential investors might want to stay on the sidelines for more information before they consider buying on today's dip.

Brian Feroldi has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Moody's. The Motley Fool recommends Horizon Global. The Motley Fool has a disclosure policy.