Sector News

Carrico leaves Axiall after string of disappointing quarters

July 7, 2015
Chemical Value Chain
Paul D. Carrico has retired as Axiall president, CEO, and member of the board, effective immediately, the company says. Timothy Mann, Jr., will serve as interim president and CEO until a successor is found. “The Axiall board has an active search process under way to select the next CEO to strengthen the company’s financial performance and drive enhanced shareholder value,” the company says in a statement.
 
Axiall’s share price jumped 3% after the news was released on the morning of 6 July.
 
Axiall’s performance since the 2013 acquisition of PPG’s chlor-alkali business has disappointed shareholders, and analysts have been asking whether the company should change direction. 
 
“Axiall has missed consensus estimates in six of the last nine quarters, resulting in its shares underperforming a basket of US commodity chemical names by 84% since January 2013, or since the consummation of the PPG deal,” observed Hassan Ahmed, analyst at Alembic Global Advisors, in a note on 18 May. “What is even more worrisome is that, relative to 2013, while business conditions have improved—flat-to-higher product prices and significantly lower raw material costs—the quarterly average Ebitda run-rate has decreased to $92 million from around $170 million, suggesting that, operationally or strategically, something may be broken.”
 
In a 26 May filing with the SEC, investor Franklin Resources disclosed that it had increased its stake in Axiall to 6% in the belief that the company was “significantly undervalued.” Franklin criticized Axiall’s management. “Despite the issuer’s ‘strategic’ rationale behind the acquisition of PPG’s chlor- alkali business in January 2013, the issuer’s share price has since meaningfully underperformed its peers,” the firm said. “Management has announced that they are examining strategic alternatives for the aromatics business, but this business is a very minor part of the overall company.  In the [Franklin’s] opinion, the board of directors should undertake a more substantial strategic review encompassing the potential sale of all or parts of the issuer, its capital allocation plans, cost structure, and the possible replacement of senior management.”
 
Franklin has since increased its stake to 7.4%.
 
On 2 July, UBS cut its price target for Axiall shares by $3/share, to $38/share. “The PVC market and caustic soda markets remain challenged and we believe prospects for higher margins/prices in the near and medium terms are uncertain,” said UBS analyst John Roberts.
 
Cowen and Company analyst Charles Neivert notes that market conditions will ultimately determine Axiall’s valuation on the stock market. “When it’s all said and done, … it will take a stronger PVC and caustic market to lift the shares,” he says in a note responding to the news. “As such, our market perform rating on the company as well as our $39/share price target remains the same based on the managerial change.”
 
By Clay Boswell
 

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