Why Tronox Limited Stock Spiked 35%

Earnings are just the beginning of this story.

Rich Smith
Rich Smith
Feb 21, 2017 at 3:57PM
Energy, Materials, and Utilities

What happened

Shares of Stamford, Connecticut-based titanium producer Tronox Limited (NYSE:TROX) stock leapt 35% to pass $19 a share as of 3:50 p.m. EST Tuesday.

So what

Earnings are part of the reason Tronox stock is doing so well today. The producer of titanium ore and titanium dioxide reported earning $1 per share on revenue of $548 million in its fiscal fourth quarter. On the other hand, $1.14 of this $1 profit -- i.e., all of it and more -- came in the form of "a corporate reorganization tax benefit and restructuring benefit." Without those tax benefits, Tronox would have reported losses of $0.14 per share.

On the third hand, though, Tronox lost $0.78 per share a year ago, so despite all caveats to the contrary, Q4 2016 was better than Q4 of 2015. Management attributed the improved results in part to the fact that "2016 marked the recovery in global TiO2 markets." Moreover, management predicted that "the momentum generated last year [will] continue in 2017" thanks to "below normal levels at both customer and producer locations across the globe resulting in a continued tight supply-demand balance."

Titanium on the periodic table of the elements.

Investors are focusing on titanium today. Image source: Getty Images.

Now what

That's pretty good news (if correct). On top of it, Tronox (which is worth $2.1 billion in market cap itself) announced that it will spend $1.67 billion in cash and stock to acquire rival Cristal's titanium dioxide business, while selling off its own Alkali business -- doubling down on its bet on a revived market for TiO2. Cristal, based in Saudi Arabia, is described as "a privately held global chemical and mining company."

Tronox management noted that this deal will instantly turn Tronox into "the world's largest and most highly integrated TiO2 pigment producer with assets and operations on six continents." Furthermore, Tronox management predicted that the deal will double its profits in the first year after it closes -- and it will close before the first quarter of next year.

Hopefully, by that point, Tronox will be earning profits without needing to resort to tax benefits to turn its numbers positive.