LSB Industries Posted a Loss in Q4, but Investors Are Betting On the New Management


LXU posted Q4 2015 loss of $8.05 million, but compared to the loss of $33.76 million in the previous year, this appeared to be a huge improvement

LXU has secured funds for completing the El Dorado expansion projects in Q4, which will increase efficiency and bring down cost for the chemical business segment

Gross margin improved to 12.14% in Q4 compared to 9.39% in Q3

The new CEO gave plausible explanations for the losses, but also sounded optimistic about the future

Company Overview

As a holding company, LSB Industries Inc (NYSE:LXU) operates in the manufacturing, engineering, and marketing realm through its number of subsidiaries. From a broad perspective, LSB Industries Inc is mainly involved in two major segments, climate control and chemical production businesses.

LSB Industries Inc mainly produces nitrogen based fertilizers and considers to be the leading merchant marketer for nitric acid in the United States under its chemical business unit. On the other hand, the company also offers top line geothermal and water source heat pump, etc. for commercial, institutional and residential new buildings.

Besides these two major segments, LSB Industries Inc operates an engineering business that markets and other precision metal working machine tools and performance solutions to a global customer base.

As of March 5, 2016, the market capitalization of LSB Industries Inc is $238.14 million.

Q4 2015 Analysis

On March 1, LSB Industries Inc announced its Q4 2015 financial results, which showed that while the revenue came up similar to the last quarter, and declined by 13.38% on a year-over-year basis, the earnings have greatly improved.

The revenue of LSB Industries Inc declined to $157.02 million in Q4 2015, which was around $181.28 million in the same quarter last year. By contrast, the earnings situation improved from -33.76 million last quarter to -$8.05 million this quarter. However, compared to $0.72 million in the same quarter last year the earnings are down around -1220.75% on a year-over-year basis.

Furthermore, the gross margin of LSB Industries Inc has gone down to 12.14% in Q4 compared to 17.31% in Q4 2014, which greatly “contributed to decline in earnings” said Capital Cube.


Figure 1: Stock Price of LSB Industries Inc Increased by almost 100% In the Last Week

Although the company lost money in Q4, compared to Q3, it was a huge improvement. As a result, the stock price of LSB Industries Inc has gone up to $11.50 per share from around $5.50 per share since they announced the Q4 2015 results. Currently the stock is trading at $10.44 per share, still representing an increase of 84.45% within a week.

What Management Had to Say

During the earnings call, Dan Greenwell, the Chief Executive Officer of LSB Industries Inc outright said that they “were disappointed by the financial and operational results for the fourth quarter.”

While no CEO would say they did great with a net loss for the quarter, we believe he was being rather modest. Dan Greenwell took over LSB Industries Inc as the Interim Chief Executive Officer in September 2015 and he was appointed President and Chief Executive Officer by the board at the end of December 2015. It would be unfair to hold him responsible for the downfall of the company.

Meanwhile, during this short tenure as the Interim CEO, he has already cut the – $33.76 loss to a -$8.05 million, within a quarter.

Regardless, in his defense, Dan Greenwell mentioned few key factors that contributed to the “disappointing” Q4 results.

As we discussed above, chemical business is one of the major segments of LSB Industries Inc’s operations. During the last quarter, demand for agricultural ammonia went down due to weather conditions, which caused the price to decline across all product lines. Furthermore, the lower volume demand from the mining sector also contributed to the low sales figure.

Since becoming the CEO, Dan Greenwell also had to deal with the downtime of its Cherokee, Alabama and Pryor, Oklahoma plants. Since these two plants produce mainly agricultural products, Urea, and Anhydrous Ammonia, the downtime further contributed to the negative financial results of the company. The good thing is that both plants are not fully operational.

In the climate control segment, sales were also down due to lower sales of residential feed pumps and gross profit decreased as a result of the lower sales, said EVP and CFO of LSB Industries Inc.


During the last quarter, LSB Industries Inc managed to secure the financing for completing the El Dorado expansion projects, which includes the El Dorado ammonia plant. The El Dorado ammonia plant will lower the cost of ammonia as well as increase the production capacity, which will directly contribute to margins and increase the LSB Industries Inc’s competitiveness in the market.

“We are planning to initiate ammonia production early in the second quarter,” noted Dan Greenwell during the earnings call. Also, the new Nitric acid plant in El Dorado became operational in Q4, which “will complement the new Ammonia plants when it becomes operational,” he added.

We believe the management is on the right track and with the addition of new board members, the company will be able to leverage the outcome of their capital expenditure in the new plans and expansion projects this year.

We were impressed by the fact that the new CEO managed to increase the gross margin within a single quarter, and cut losses to a great extent. While this is a small company, and it does not take much capital to move the stock price, a 100% increase within a week speaks volume about the renewed optimism of investors in the new management.

As of today, the average price target for LSB Industries Inc stocks remains at $17.5, which offers secondary investors 67.62% upside potential based on the current market price of $10.44. We believe the new management will steer the company into profitability within the next two quarters and the stock price would likely reach near the consensus price target offered by a number of analysts.