GNC convertibles rise as earnings beat estimates; Arconic paper declines amid CEO departure

By Stephanie N. Rotondo

Seattle, April 18 – While convertible bond market trading continued to be limited, a round of fresh news was pushing around a couple off-the-run names on Tuesday.

GNC Holdings Inc., for instance, saw its 1.5% convertible notes due 2020 getting a boost after the nutritional supplement maker reported earnings that were better than expected.

Though revenue and same-store sales declined year over year, the losses were less than the market had been prepared for.

Arconic Inc.’s convertible debt, however, was not faring well, as the market reacted poorly to the chief executive officer’s departure.

Klaus Kleinfeld stepped down on Monday after it was reported that the CEO had sent a threatening letter to shareholder Elliott Management, without the approval of Arconic’s board of directors.

Meanwhile, DISH Network Corp.’s 3.375% convertible notes due 2026 remained in focus, as the market continued to ponder what DISH management had in store for the company.

The convertibles were slipping again, falling to 113.75 from previous levels with a 115 handle.

The 2.375% convertible notes due 2024 ended just south of 97. The paper had finished just below par on Monday.

The stock was also under pressure again, losing 75 cents, or 1.28%, to close at $58.04.

Weakness invaded the name on Monday when it was announced that the company had bought up $6.2 billion in wireless spectrum at a government auction. However, DISH does not currently use such airwaves, leading investors to believe that a merger could be on the horizon.

Investors are hoping that Charlie Ergen, DISH’s CEO, will give some insight after April 27, when the Federal Communications Commission’s gag order ends after the spectrum auction.

GNC firms on earnings

GNC Holdings’ 1.5% convertibles firmed after the company reported better-than-expected first-quarter results.

One market source called the issue 5.5 points better at 67. Another source quoted the paper at 67 bid, 67.5 offered, up from 62.5 last week.

The underlying equity was also on the rise, up $1.79, or 24.72%, at $9.03.

For the quarter, GNC reported earnings per share of 37 cents, down from 69 cents the year before, but better than the 3 cents per share analysts had expected. Revenue came to $644.8 million, which was a decline of 3.6% year over year.

Still, revenue was about $17 million better than analysts’ projections.

Same-store sales declined 3.9% during the period.

Arconic wanes as CEO exits

Arconic’s 5.375% series 1 class B mandatory convertible preferred stock (NYSE: ARNCPrB) traded off 82 cents, or 1.99%, to $40.30 in Tuesday trading.

The company’s stock meantime waned 89 cents, or 3.33%, to $25.80.

The weakness came as the market reacted negatively to news out Monday regarding the CEO’s sudden departure following a kerfuffle with an activist shareholder.

Kleinfeld stepped down from his post on Monday. In its statement, Arconic’s board said the exit was due to his “poor judgment” in regards to sending a letter to Elliott Management that was considered threatening.

Though the letter has not been released, the hedge fund said in a statement that it “read as a threat to intimidate or extort a senior officer of Elliott Management based on completely false insinuations, a threat that we took seriously and about which we immediately and privately informed the board.”

The fund had previously criticized Kleinfeld for the way he has run Arconic, which was spun off from Alcoa Inc. in 2008.

David Hess, a member of Arconic’s board, has been named interim CEO.

Mentioned in this article:

Arconic Inc. NYSE: ARNC

DISH Network Corp. Nasdaq: DISH

GNC Holdings Inc. NYSE: GNC

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