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Why Arconic Inc. Stock Plunged Another 9% on Tuesday

By Rich Smith – Jun 27, 2017 at 6:54PM

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Bad PR from a London fire could be the least of Arconic's problems.

What happened

For the second day running, Arconic (HWM -0.52%) stock declined Tuesday, closing the day down 9% after suffering a 6% decline Monday.

So what

The reason Arconic fell today seems to be the same reason it fell yesterday: Arconic has been implicated as potentially responsible for the deaths of 79 people killed in the Grenfell Tower fire in London last week. That said, new facts entered the picture today, after Arconic released a statement after the close of trading Monday.  

Lamenting "the loss of lives, injuries, and destruction following the Grenfell Tower fire" and offering its "deepest condolences" to those affected, Arconic quickly shifted into damage-control mode. The company admitted that it sold its Reynobond PE product "as one component of the overall cladding system on Grenfell Tower," but it hastened to point out that several other parties were involved in the construction subsequently, including a "fabricator," a "facade installer," and a "general contractor." In the end, Arconic said, it was "not involved in the installation of the system, nor did we have a role in any other aspect of the building's refurbishment or original design."

Nevertheless, Arconic says it will "no longer provide this product in any high-rise applications, regardless of local codes and regulations."

A cartoon illustration of two businessmen looking alarmed as a stock chart falls through the floor.

Why is this stock still going down? Image source: Getty Images.

Now what

On one hand, that sounds like a prudent decision to make for safety reasons. On the other hand, it also looks more than a bit like an admission that Arconic may bear some responsibility for the disaster, which increases the chances that the company will incur financial penalties somewhere down the road.

At the very least, by limiting the future use of this product, Arconic is also limiting the size of its addressable market. For a company that was operating at a net loss even before this PR nightmare, that's not good news.

Rich Smith has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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