Why Tronox Limited Stock Spiked 35%
What happened
Shares of Stamford, Connecticut-based titanium producerTronox Limited (NYSE: TROX) stock leapt 35% to pass $19a share as of 3:50 p.m. EST Tuesday.
So what
Earnings are part of the reason Tronox stock is doing so well today. The producer of titanium ore and titanium dioxide reported earning $1 per share on revenue of $548 million in its fiscal fourth quarter. On the other hand, $1.14 of this $1 profit -- i.e., all of it and more -- came in the form of "a corporate reorganization tax benefit and restructuring benefit." Without those tax benefits, Tronox would have reported losses of $0.14 per share.
On the third hand, though, Tronox lost $0.78 per share a year ago, so despite all caveats to the contrary, Q4 2016 was better than Q4 of 2015. Management attributed the improved results in part to the fact that "2016 marked the recovery in global TiO2markets." Moreover, management predicted that "the momentum generated last year [will] continue in 2017" thanks to "below normal levels at both customer and producer locations across the globe resulting in a continued tight supply-demand balance."
Investors are focusing on titanium today. Image source: Getty Images.
Now what
That's pretty good news (if correct). On top of it, Tronox (which is worth $2.1 billion in market cap itself) announced that it will spend $1.67 billion in cash and stock to acquire rival Cristal's titanium dioxide business, while selling off its own Alkali business -- doubling down on its bet on a revived market for TiO2. Cristal, based in Saudi Arabia, is described as "a privately held global chemical and mining company."
Tronox management noted that this deal will instantly turn Tronox into "the world's largest and most highly integrated TiO2 pigment producer with assets and operations on six continents." Furthermore, Tronox management predicted that the deal will double its profits in the first year after it closes -- and it will close before the first quarter of next year.
Hopefully, by that point, Tronox will be earning profits without needing to resort to tax benefits to turn its numbers positive.
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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.