Shares of U.K. based speciality chemical maker Tronox Holdings (NYSE:TROX) rose as much as 15% in the first two hours of trading on Jan. 19. The driving force behind the move was a mixture of good, bad, and good news. Here are the highlights.
On Jan. 18, while the U.S. markets were closed for a holiday, Tronox reported preliminary results for the fourth quarter. Going into the quarter, management expected to see good numbers, but they turned out to be even better than originally hoped. It preannounced revenue of $783 million and adjusted EBITDA of roughly $200 million, materially above the guidance range of $155 to $170 million. That's the good news.
The bad news is that the company's planned purchase of the TiZir Titanium and Iron business from Eramet has been canceled. Earlier in January Tronox announced that it had received regulatory push back on the deal, with an opportunity to make changes. However, in the end, the decision was simply to scrap it.
That said, the company is planning to use $300 million that it had set aside for the TiZir Titanium and Iron purchase to pay down debt. That will help Tronox reach its internal leverage targets more quickly. And Tronox also announced that it was increasing its quarterly dividend by a generous 14%. While that may or may not have had anything to do with the now canceled acquisition, not having to deal with the expense of the proposed purchase probably didn't hurt this decision. Both of these items were good news, even though they followed on the acquisition disappointment.
It's not surprising that investors were, all things considered, upbeat about Tronox's update. And, thus, the stock went up. That said, the news release was also pretty positive about the future, with management describing itself as "well-positioned to continue our participation in the recovery." Investors might want to keep an eye on this stock, which is still around 40% below its 2017 highs despite a solid rally off of its early 2020 lows.