U.S. Concrete (USCR) Moves to Hold
We learned this morning that U.S. Concrete (USCR) dismissed its auditing firm, Grant Thornton, and hired Ernst & Young to take over. At the same time, the company’s CFO Joseph Tusa has resigned, citing “personal reasons.”
I think that’s a load of bull. Most likely the company didn’t like the job he was doing and let him go. Or they needed an internal fall guy for some accounting issues and he was the logical choice. The bottom line is we don’t know all the details at the moment, and likely won’t know for several weeks. But what we do know is that Ernst & Young will need to review the books, specifically treatment of income taxes, tax liabilities and tax assets, then disclose if it thinks any balance is due to the IRS, or to U.S. Concrete, and what internal controls need to be changed to remedy the current process. Some of this could easily be related to prior acquisitions, but that’s just speculation on my part.
It’s never a good thing when this type of thing happens. It doesn’t necessarily mean there is an accounting scandal going on, though that’s the obvious concern. A lot of times there are accounting processes that aren’t quite perfect and need to be better, and it takes some time to get that accomplished. Those aren’t a huge deal. Other times, those less-than-perfect processes are found to be quite severe upon further inspection. It appears that in this case, either the processes are severe enough to make some dramatic changes (fire CFO, hire new auditing firm) or the CFO and Grant Thornton just weren’t correcting minor issues fast enough and the rest of the management team needed to send a message to the market that it won’t tolerate less-than-perfect.
I’ve been through this with various companies a number of times in the past. In this case, I’m moving the stock to HOLD today. That’s taking the middle road; not buying on the news but not jumping ship. My logic is that the stock bottomed out at around 10:30 this morning and has since stabilized, even traded a little higher. That suggests the market is comfortable with the new risk and the stock could hold above support at 58.
I’ll likely send another update on Monday since we’ll want to keep a close eye on this. If you don’t want to deal, go ahead and sell. We’re down around 2%–3% from our entry price, so there’s very little risk to selling this stock now. You can always buy it back once the smoke clears. If you are a little more risk-tolerant, just Hold. HOLD.