Watch Out for Georgia Gulf (GGC) Earnings Tomorrow

After the big selloff on Friday when the registration statement for 30 million new Georgia Gulf (GGC) shares was approved, trading has slowed down, and the stock is hovering around 15.

It seems like some of the bond funds haven't decided to sell their new shares yet. But I see two catalysts for another sharp move lower in the stock.

First, GGC will be releasing third quarter earnings tomorrow at 5:00 PM ET. Competitors PPG and OLN both announced disappointing chlor-alkali results. I don't see how GGC could have done better. I do not expect GGC to meet management's 2009 EBITDA target, which would make it a stretch for GGC equity to be worth anything.

Second, I wouldn't be surprised if GGC attempts to issue stock. Raising equity at these prices and de-leveraging the company would make great financial sense. There are ~$40 million of the subordinated notes outstanding which they could buy at 15-20% yields.

Chemical Industry Watch: Georgia Gulf (GGC), Olin (OLN) and PPG Industries (PPG)

Georgia Gulf Corporation (GGC) will be releasing Q3 financial results on Wednesday, November 4, 2009 at 5:00 p.m. ET, with a conference call the next morning at 10:00 a.m. ET. Olin (OLN) announces earnings this Monday with a conference call on Tuesday.

The pair trade has been doing well. Since Oct 2, GGC is down 29% and OLN is down only 5%. I bought more OLN after the big dive it took today, having already shorted more GGC earlier this week.

I will be very curious to see the earnings results.

Competitor PPG Industries had their Q3 conference call last week. They were weighed down by their commodity chemicals operations (the segment that competes with GGC and OLN), which suffered a 43% y-o-y decrease in sales (page 7 of investor presentation). This was the result of big price and volume declines. Year to date chemicals sales were down 32%, meaning that the commodity chemicals decline picked up in the third quarter (segment sales comparisons).

On the conference call, PPG said that they do see the electrochemical unit (ECU) pricing improving a bit so far during the fourth quarter.

GGC also amended their registration statement again. This is the fourth amendment - they already amended it two days ago. Previously I speculated that their motive for these amendments was to stall the SEC from making the registration statement effective. However, I notice that this statement has an opinion from law firm Jones Day dated yesterday (Oct 22) regarding the validity of the new shares. So maybe they were just waiting for that?

I may make the chemical industry a focus area of investing - I am planning to go through a pile of chemical industry books when I get the chance.