Wednesday, May 16, 2012

Explosion At LSB Chemical Plant Causes Stock Sell-off Despite Insurance

Early Tuesday morning, an explosion at LSB Industries‘ (NYSE:LXU) El Dorado, Arkansas chemical facility damaged the facility.

The explosion was in the DSN concentrated nitric acid plant, and damaged both the plant and surrounding equipment. No employees or anyone in the community was injured, and management believes that there was no environmental release. The entire El Dorado facility was shut down pending an assessment and repair of the damage, but management was not able to provide any timeline.

The stock sold off on the news, at one point down over $6, and closing down $2.36 at 30.01. The stock is back up to $31.10in after hours trading, after a management conference call to discuss the incident. Management tried to put the damage in perspective during the call. A transcript of the conference call is available here.

Key points were:
  • The facility was insured for both damages (with a $1 million deductible) and business interruption after a 30 day waiting period.
  • The El Dorado facility accounted for 29% of operating profits from LSB’s chemical division in Q1, although this was expected to be lower in Q2 as the company’s Pryor plant was offline for much of Q1. The chemical division accounts for about 2/3 of the company’s sales.
  • The El Dorado facility has lower margins that the company’s other facilities, which are currently benefiting from low natural gas feedstock prices (El Dorado uses anhydrous ammonia as a feedstock.) Read More