What happened
The hits keep coming for Venator Materials (VNTR 64.25%), which saw its shares fall more than 21% today after announcing third-quarter 2018 operating results. The stock has now receded 74% in the last year. Some of that has to do with Wall Street's dismal projections for the titanium dioxide industry, although a significant chunk of the company's lost market valuation can be explained by internal affairs.
That is, Venator Materials has struggled to contain the uncertainty created by its manufacturing facility in Pori, Finland, which experienced a catastrophic fire in January 2017. The cost estimates to rebuild the facility kept growing and growing until management finally decided to close the factory altogether in September 2018. Doing so will rid the company and shareholders of the headache, but the business had to eat a $428 million restructuring charge in the third quarter of 2018.
Unfortunately, that wasn't the only thing weighing on the company's most recent quarter. As of 2:56 p.m. EDT, the stock had settled to an 18.8% loss.
Image source: Getty Images.
So what
In addition to the large impairment of the assets at Pori, Venator Materials struggled to outperform headwinds encountered in the titanium dioxide market. Customers typically decrease their orders this time of year and draw from inventory, but this year, higher materials costs and regional price disparities amplified the seasonal volatility.
While the industry's fundamentals remain strong and should allow major manufacturers to continue delivering profitable operations and healthy cash flow, the calculus is a bit more complicated for Venator Materials. It needs to shift specialty product manufacturing away from Pori and into other global facilities in the coming quarters, which will add to operating expenses.
Making matters more complicated, an important source of growth is now uncertain. The company was hoping to purchase certain assets from peer Tronox for up to $1.1 billion, but the exclusivity period for negotiating a sale ended without a deal being reached. The business may be able to receive a $75 million "break fee" and may now be able to purchase the assets for $900 million, but Wall Street doesn't appreciate having to factor yet another source of uncertainty into the mix.
Now what
To put it bluntly, things are not going so well for Venator Materials right now. The titanium dioxide industry is entering its slowest part of the year, the company took it on the chin with its Pori facility, and now a much-needed transaction that had the potential to inject growth into the business is on hold. Most investors should probably stay away from this stock.
That said, those with an above-average appetite for risk and a long-term investing horizon may find that shares are irrationally cheap right now. Even for individuals in the latter group, it may be best to wait until the numbers from the recent restructuring charge are factored into the balance sheet before jumping into a position, as the company's leverage ratios will change with the reduced value of assets on the books.
