The Chemours Company: A Teflon Buyback

06/28/2019 5:00 am EST

Focus: INDUSTRIALS

David Fried

Editor, The Buyback Letter

The Chemours Company (CC) — the maker of Teflon — is a materials science company that is a spinout of DuPon, explains David Fried, editor of the specialized advisory service, The Buyback Letter.

This global chemistry company went public in 2015. Chemours is a leader in titanium technologies, fluoroproducts and chemical solutions. Chemours ingredients are found in plastics and coatings, refrigeration and air conditioning, mining, and general industrial manufacturing.

Flagship products include prominent brands such as Teflon, Ti-Pure, Krytox, Viton, Opteon, Freon and Nafion. The company has about 7,000 employees and 28 manufacturing sites serving some 3,700 customers in over 120 countries. Chemours HQ is in Wilmington, Delaware.

Chemours' top product is white pigment titanium dioxide. A versatile chemical that is used in everything from cosmetics to animal feed, titanium dioxide has the most use as a white pigment in paint.

So when industries that use a lot of white paint — automotive and construction industries, for example — are doing well, TiO2 prices and sales rise.

Conversely, when the automotive and construction industries falter, TiO2 prices go down and companies selling TiO2 suffer. Chemours' had big stock gains in 2016 and 2017 when automotive and construction markets were hot, and TiO2 demand outstripped supply.

Chemours charged more for its signature product, and the company’s net income soared nearly 400% on a trailing 12-month basis. Those two markets cooled in 2018, so demand is down (until the next cycle begins).

Chemours has been in the news lately as it has shouldered a bulk of the legal burden stemming from DuPont's production of a class of chemicals known as PFAS, types of which have been found to cause serious health issues in humans including cancer, and the subsequent contamination of drinking water near production facilities.

 In 2017, DuPont and Chemours said they would pay $671 million to settle claims that Teflon production in West Virginia leaked PFAS into local ground water and caused thousands of residents’ health issues, including cancers.

Chemours faces a new round of lawsuits from states seeking to force the company to pay for removing PFAS from contaminated sites and drinking water. New Jersey and New Hampshire have filed suit, and residents of Delaware are filing a separate lawsuit over PFAS contamination.

Shares of Chemours fell 40% in May after disappointing operating results. Analysts believe ramp-up delays from a new manufacturing facility in Texas should be short-lived, and observe that it is not unusual for large, complex chemical manufacturing facilities to encounter unique obstacles during start-up and ramp-up activities.

Management is confident the facility can get back on track in the coming quarters, which will be important because the U.S.-based facility is expected to significantly lower costs compared to production in Asia.

Chemours shook up the top office earlier this month by promoting its CFO to COO, and hiring a new CFO.

The company had $261 million of share repurchases in the first quarter. Shares outstanding have been reduced by 7.84% in the last 12 months.

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