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Key Takeaways from Chemours' 4Q16 Earnings

PART:
1 2 3 4 5
Part 2
Key Takeaways from Chemours' 4Q16 Earnings PART 2 OF 5

Chemours: Analysts Expected High Adjusted Earnings per Share

Chemours’ 4Q16 adjusted EPS

Chemours (CC) reported adjusted EPS (earnings per share) of $0.08 and missed analysts’ estimate of $0.28. The adjusted EPS mainly excludes $335 million related to the PFOA settlement charge.

Chemours: Analysts Expected High Adjusted Earnings per Share

However, compared to 4Q15, Chemours’ adjusted EPS rose 166.70%. The increase in adjusted EPS was primarily driven by the reduced cost of goods sold. The reduced costs resulted from a reduction in headcounts, closure of facilities, and other cost-saving measures. As a percentage of sales, the cost of goods sold in 4Q15 was 84.3% of its revenue. In 4Q16, the cost of goods sold was 76.80% of its revenue. It implies a reduction of 7.5 percentage points on a year-over-year basis.

PFOA settlement

Litigation was settled related to the environmental release of PFOA from facilities in West Virginia. The litigation involved ~3,500 lawsuits for $670.70 million to be paid in cash. Chemours is a spin-off from DuPont’s (DD) Performance Chemical segment. The good news for Chemours is that the settlement amount will be equally split between DuPont and Chemours.

Future liabilities

DuPont and Chemours reached an agreement about possible litigation that could arise from PFOA issues in the future. For the next five years, Chemours will pay for $25 million in PFOA liabilities annually. If the liability goes beyond $25 million, DuPont will pay for the next $25 million in liabilities. After five years, DuPont won’t have a commitment towards any PFOA liability that could arise. However, the liability would continue for Chemours. After five years, Chemours won’t ask DuPont for any funds related to PFOA liability.

Investors can invest in the Global Spin-off ETF (SPUN). SPUN invested 1.4% in Chemours. SPUN’s top holdings include Exterran (EXTN) and Lumentum Holdings (LITE). They have weights of 1.4% and 1.3%, respectively, as of February 15, 2017.

In the next part, we’ll look at how Chemours’ reporting segments performed in 4Q16.

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