Lumber Liquidators Stock Soars on Formaldehyde Settlement

Paul Ausick

For the second time in less than two months, shares of Lumber Liquidators Holdings Inc. (NYSE: LL) have posted a big gain, following news that the company has settled potentially devastating investigations for relatively small amounts of cash. The flooring maker announced Tuesday morning that it had reached an agreement with the California Air Resources Board (CARB) that fully resolves an inquiry into the composition of some of the company’s laminate flooring products that were imported from China.

The company will pay $2.5 million and has agreed to implement procedures to ensure compliance with CARB standards for formaldehyde content in flooring products. A report on the “60 Minutes” TV program in March of 2015 regarding the formaldehyde levels of some flooring products sent the stock tumbling 25%. Formaldehyde is a known carcinogen.

CARB has the strictest standards in the United States and concluded its review of the company’s flooring products with no formal finding of violation or admission of wrongdoing by Lumber Liquidators. According to the press announcement:

In its agreement with Lumber Liquidators, CARB expressly recognized the actions taken by the Company to ensure compliance and the lack of evidence of actual harm to public health, safety and welfare. Lumber Liquidators and CARB have also committed to collaborate on pioneering a testing program designed to establish best practices and protocols for testing flooring products.

In early February a federal court judge approved Lumber Liquidators’ payment of a $10 million fine for illegally importing flooring made of Mongolian oak, a violation of the Lacey Act, which forbids importing timber products made from materials protected by another country’s laws. In that case, Lumber Liquidators pleaded guilty to five federal charges, including falsely stating that the oak flooring was made of oak harvested in Germany. Lumber Liquidators’ share jumped as much as 18% on the agreement.

Tuesday’s announcement had boosted shares by more than 16% to an intra-day high of $13.90 before falling back to trade at around $13.65 in the early afternoon. The stock’s 52-week range is $10.01 to $35.18, and the consensus price target is $14.38. Trading volume was already double the daily average of around 2 million shares.