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Chemours Company Spikes 14% on Major EPS Improvement, but There's a Catch

Image source: Getty Images. 

What happened

Shares of performance chemicals manufacturer Chemours Company (NYSE: CC) are receiving a boost of nearly 14% in morning trading after a strong quarterly earnings report. 

Chemours Company was created when DuPont completed the spinoff of its performance chemicals business in summer 2015. It's been a difficult journey since. Shares ended last year down nearly 75% from the first day they began trading. Then, after touching new lows in mid-February, shares have maintained a steady climb toward $20 per share. Today's move puts the stock close to all-time highs set during the first trading day after the spinoff was completed.

So what

Three segments drive operations: titanium technologies, fluoroproducts, and chemical solutions. Each struggled in the first half of 2016 compared to the same period of last year, but investors are seeing signs in third-quarter financial results that better days are ahead. Improving market conditions help, but it also appears that Chemours Company is executing against its internal transformation plan to boost margins and earnings.

Here are the important financial metrics for investors to consider:

Metric

3Q16

3Q15

Change

Revenue

$1.398 billion

$1.486 billion

(6%)

Gross profit

$342 million

$264 million

29.5%

Net income

$204 million

($29 million)

--

Earnings per share (EPS)

$1.11

($0.16)

--

Data source: Chemour Company press release.

There are a few things for investors to consider. First, while revenue dropped year over year, improved margins resulted in higher gross profits. That's a good thing, because it shows signs of a healthier business.

Second, net income and EPS during the most recent quarter were substantially higher than the comparison period, but there's some fine print attached. Of the $204 million in net income, $169 million was derived from gains on an asset sale. That's equivalent to $0.92 of quarterly EPS. Earnings are earnings, but investors shouldn't expect the same performance every quarter. 

Now what

Chemours Company would have posted quarterly EPS of $0.19 even without the asset sale, which is markedly better than the year-ago results. Moreover, the company has posted EPS of $1.30 for the first nine months of 2016 (or EPS of $0.38 without the asset sale), compared to negative $0.02 for the same period last year. That hints that management's plan is working -- and receiving a boost from improving market conditions that are lifting both demand and average selling prices for the company's products. 

Still, investors will want to see consistent performance from the company before getting too excited. Chemours Company has witnessed shrinking revenue and profits in each of the last four years. One good quarter doesn't change that.

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Maxx Chatsko has no position in any stocks mentioned.

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