Share Offerings By Hot Stocks Add To Earnings Season Risks

Investor's Business Daily

Generator maker Generac (GNRC) jolted investors late Wednesday with its announcement of a 10-million-share secondary offering by one of its large shareholders.

Shares sank 5% Thursday as the overall stock market sold off.

Michael Kors Holdings' (KORS) investors know the feeling.

The fashion house was strutting higher on last week's blowout earnings, hitting a closing high Tuesday. That's when Kors announced its 25-million-share secondary offering by existing holders, including 3 million from its founder and namesake.

Kors shares tumbled 5% Wednesday and 4% Thursday.

Such offerings — dilutive if the company issues new shares, and not dilutive if they're coming from existing pools — add a new risk to holding a potentially hot stock through earnings. If the company misses, shares could dive on the news. If it beats and climbs, watch out for management or some other large shareholder to consider cashing out.

That raises the question about whether a company should disclose an imminent stock sale when it releases earnings.

That's what Achillion Pharmaceuticals (ACHN) did late Wednesday. It put out one release reporting better-than-expected earnings and another announcing a $125 million follow-on offering. Since it's issuing the shares, it will reap the proceeds to spend on R&D or other general needs.

Shares fell 11% Thursday on the dual announcements.

Generac isn't getting any of the proceeds from its offering. The shares are being sold by funds affiliated with CCMP Capital.

TAL International (TAL) bounced last week after a strong earnings report. But the shipping container lessor fell 7% Thursday after late Wednesday's release that several large investors will sell more than 4 million shares in an offering.

Shares of auto safety systems maker TRW Automotive (TRW) fell 4% Thursday after announcing late Wednesday 10 million shares being sold by an affiliate of Blackstone Group (BX) and some management. TRW had been trading near all-time highs after its earnings beat Feb. 15.

Kors on Wednesday priced its offering at 61.50, that day's closing. The sale is expected to close by Tuesday. Michael Kors Holdings isn't profiting. Michael Kors, the designer, will. He's cutting his holdings to 4.8 million, or 2.4% of total shares.

Before Kors went public 14 months ago, he owned 11.7%, or more than 22 million shares. He sold some in the IPO and subsequent offerings.

Sportswear Holdings also has reduced its Kors position. The Hong Kong investment firm is selling 19.7 million shares this time, a 5.8% stake from 15.6%.

Kors CEO John Idol is selling 2 million shares in family trusts.

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