First Pacific Advisors Buys Nexeo Shares and Adds Board Member

Steven Romick's fund pushing for change at company Wilbur Ross just left

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Sep 21, 2017
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Investment management firm First Pacific Advisors (Trades, Portfolio) added to its stake in Nexeo Solutions (NXEO, Financial) last week, its second purchase of the company’s shares since Aug. 21, and added a member to the company’s board of directors.

Managers at the $31 billion Los Angeles-based fund are buying Nexeo Solutions on its 22% pull back since the start of the year. The stock has traded between a 52-week high of $6.74 and 52-week low of $9.94. Nexeo Solutions traded near $7.06 at FPA’s purchase on Sept. 13 and for $7.27 on their previous purchase on Aug. 21.

The value-investing firm’s September buy consisted of 530,010 shares, representing a 2.26% increase, and the August buy added 162,190 shares, a 0.65% boost. FPA’s total stake went to 25,529,169 shares, or 27.9% of the company with the additions.

The global chemicals and plastics distributor installed Brian Selmo, an FPA portfolio manager and partner, on its board of directors on Sept. 15, growing the board to 10 members. Selmo is an investment officer on the FPA Crescent Fund, led by noted investor Steven Romick (Trades, Portfolio), which owns most of the Nexeo shares. Further, the new board seat will support the FPA in its activist role in the company. His term with the board expires at Nexeo’s 2018 meeting of shareholders.

Another prominent investor, Wilbur Ross (Trades, Portfolio), left his post as chairman of the board in March following his appointment to United States Secretary of Commerce in March.

According to a filing, FPA is monitoring the company’s financials and investment opportunities to make further decisions about when and whether to buy or sells shares.

Price increases at Nexeo helped revenue in each of its segments grow. The chemicals segment saw revenue increased 6.7% due to higher increases in prices, while volumes were flat in regions except for Asia. Plastics revenue rose 6.3% as volumes increased. Revenues in its “other” segment grew 5.8% primarily as a result of higher pricing.

Revenue in all its units combined increased 6% to $918 million year over year, as net loss totaled $1 million, or 1 cent per share, compared to net income of $2 million.

Price increases also led to wider margins year over year, with gross margins expanding to 10.9% from 8.8%, and net margins rising to 1.08% from negative 7.23%.

Nexeo ended the quarter with $34 million in cash and $855 million in debt.