AMC Entertainment shares fall despite strong earnings and strike deal after $350 million stock offering

AMC shares fell today despite record quarterly profits as the giant theater chain filed with the SEC to sell $350 million in stock. This offset an increase that would have been expected based on solid financial numbers and an end to the actors’ strike. Shares rose pre-market this morning, but reversed course when the filing was announced.

Shares of the biggest global exhibitor are off their lows of the day, but are still down nearly 12% in morning trade.

Adding more shares to the market dilutes the holdings of current shareholders, who are often retail investors who have repeatedly discouraged the company from issuing new shares. This is now only possible after a ruling by the Delaware Chancery Court in complex, overlapping lawsuits.

The company posted a profit thanks to a 45% increase in sales, beating Wall Street expectations and outperforming the broader industry. Cash is available. However, the country still faces potential headwinds on the road to a full recovery from the coronavirus crisis, led by high debt levels.

“Significant uncertainty remains due to AMC’s high financial leverage,” said Jim Goss of Barrington Research. “Management has been successful in raising equity capital, improving AMC’s potential to emerge from the pandemic, but risk levels remain high.”

The company has raised $550 million in equity capital to date.

In a conference call after the results, CEO Adam Aron emphasized, as he has often said, the chain’s ability to raise money when needed [by selling stock] remains crucial to its survival.

Traditional Wall Street analysts agree — and disagree with some retail investors who make up a large part of the base. “AMC needs to continue to pay down its debt, and the most efficient way to do that is to issue shares. Once the country has a more manageable debt burden, it could move to buy back shares and reset its dividend, an analyst said.

Individual shareholders active on Reddit and other social media platforms protected AMC from Chapter 11 during the Covid-19 crisis by rallying and driving up its share price. Aron knows this and has developed features tailored for the group, including a new website for vertical investors with perks. He has also become active on social media and says he responds to every email. He answers questions from private owners with each earnings call.

On Stocktwits today, one shareholder criticized Aron, but others believe that short sellers are putting pressure on the stock or that this is a government conspiracy. Some supported the move.