Shares of Chemours Co. (NYSE:CC) fell over 12% this morning after the company announced third-quarter 2017 financial results yesterday. It reported $1.59 billion in quarterly revenue, which matched Wall Street estimates, and $1.12 in adjusted earnings per share, which handedly beat analyst expectations of just $1.01 for quarterly earnings. So, why is Mr. Market so mopey?
Despite the relatively strong performance through the first nine months of the year, management only reaffirmed the full-year 2017 outlook for adjusted EBITDA, expected to be $1.3 billion to $1.4 billion. Apparently, Wall Street was hoping for the company to increase its guidance. As of 11:48 a.m. EDT, the stock had settled to a 9.2% loss.
Chemours Co. has turned in a very good 2017 campaign, as evidenced by a 130% year-to-date gain for shares -- and that includes today's 9.2% drop as of this writing. The business has been largely driven by a global recovery in selling prices for titanium dioxide, the company's top product, and new product launches in the fluoroproduct portfolio. Cost-cutting measures in the past year or so have also begun to deliver benefits in the form of higher margins.
Put it all together and the 130% gain in 2017 has certainly been earned. Better yet, management expects for the markets it plays in to strengthen in the coming months.
The only major concern for Wall Street and shareholders may be the potential legal liabilities surrounding the environmental release of a processing aid called GenX. Chemours Co. turned to the chemical to replace PFOA, the former processing aid used in the manufacture of fluoroproducts, which was at the center of a major class action lawsuit in Ohio (a $320 million settlement payment took a bite out of cash flow in the most recent quarter). That's because PFOA is incredibly toxic, and was linked to significant health issues for local communities after previously being dumped into waterways near manufacturing facilities.
Unfortunately, a growing body of evidence suggests GenX isn't any better -- and Chemours Co. was caught releasing it into local waterways as recently as early 2017. It has since promised to refrain from environmental release, but the damage may already be done. A community in North Carolina may bring a class action lawsuit soon.
From a financial performance standpoint, Chemours Co. is firing on all cylinders. Its two largest business segments are growing at healthy clips. Cost-saving measures are delivering on their intended purpose, and the company's titanium dioxide and fluoroproducts portfolios continue to be in high demand. That said, shareholders may not want to dismiss the potential legal liabilities from its legacy activities.