Georgia Gulf In A Deep Hole - Analyst Blog
Georgia Gulf (
GGC) is a leading North American manufacturer and marketer of two integrated chemical product lines, chlorovinyls and aromatics. The company is suffering from potentially overpaying for Royal Plastics, a company that makes vinyl-based housing products. The $1.5 billion acquisition resulted in an equal increase in debt. The company recently renegotiated its debt compliance (leverage and interest coverage) ratios, as the company is in danger of non-compliance.
Also, Georgia Gulf saw high production cost due to volatile energy prices. The company was unable to recover costs by increasing prices of its products. Prices for natural gas (the key input) are increasing, which is negating the impact of product price increases. This has compressed margins for the company. Natural gas prices are expected to rise further, stemming from strong US consumption, low inventory, and limited drilling activity.
Georgia Gulf's end markets are primarily housing related. Until housing market conditions improve, it will be difficult for the company to grow profitability and reduce debt.
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