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Can Albemarle (ALB) Maintain Earnings Beat Streak in Q4?

Anindya Barman

Albemarle Corporation ALB will release fourth-quarter 2018 results after the bell on Feb 20.

Albemarle saw its profits rise in the third quarter of 2018, aided by higher lithium prices and earnings growth across its Bromine Specialties and Catalysts units. Adjusted earnings of $1.31 per share for the quarter topped the Zacks Consensus Estimate of $1.25.

Revenues rose around 3% year over year to $777.7 million in the quarter, but trailed the Zacks Consensus Estimate of $804.4 million.

Revenues were aided by favorable pricing across the board and increased sales volumes in Bromine Specialties and Catalysts. This was, in part, offset by reduced volumes in lithium due to shut downs at three of Albemarle’s manufacturing sites and the impact of the divestment of the polyolefin catalysts and components portion of the PCS business.

Albemarle has an impressive earnings surprise history. It has outpaced the Zacks Consensus Estimate in each of the trailing four quarters, delivering a positive average earnings surprise of 7.5%.

Albemarle’s shares have lost around 14.9% over the past six months, compared with the roughly 15.8% decline recorded by the industry it belongs to.

 

Can the company surprise investors again or is it heading for a possible pullback? Let’s see how things are shaping up for this announcement.

Factors to Consider

Albemarle, in November 2018, backed its guidance for 2018. The company continues to see adjusted earnings for the year to be in the band of $5.30-$5.50 per share, a year-over-year increase of 15%-20%. The company also envisions net sales for 2018 to be between $3.3 billion and $3.5 billion.

The Zacks Consensus Estimate for revenues for Albemarle for the to-be-reported quarter stands at $889.9 million, reflecting an expected increase of 3.8% from the year-ago quarter.

The Zacks Consensus Estimate for net sales for the Lithium unit for the fourth quarter is pegged at $349 million, reflecting a 20.3% rise on a year over year basis.

Outages across some of the company’s manufacturing sites led to volume decline in lithium in the third quarter. However, Albemarle, in its third-quarter call, stated that all of its lithium plants are back online and operating at forecasted production rates.

The results in the lithium business are likely to be aided by favorable pricing and volume in battery grade products in the to-be-reported quarter. The company expects its Lithium unit to deliver low 20% year over year growth in adjusted EBITDA in 2018, driven by improved pricing and strong volumes.

Albemarle, in late 2018, inked an Asset Sale and Share Subscription Agreement with Mineral Resources Limited. The deal enables Albemarle to acquire 50% interest in Mineral Resources' Wodgina hard rock lithium project in Australia through a fully-owned subsidiary.

Albemarle will form a joint venture (JV) with Mineral Resources to own and operate the project as well as produce spodumene concentrate and battery grade lithium hydroxide. The JV combines Albemarle's world-class lithium production and marketing expertise with Mineral Resources’ leading mining capabilities as well as regional presence.

Meanwhile, net sales for the Bromine Specialties segment is projected to see a 5% year-over-year increase as the Zacks Consensus Estimate for the fourth quarter is pegged at $230 million.

The Bromine Specialties unit faces headwinds from higher costs of raw materials and freight. However, strong demand in flame retardants will likely drive results in this division.

Moreover, results in the company's Catalysts segment, in the third quarter, were driven by higher volume and pricing in refinery catalysts. Favorable volumes and pricing are likely to support sales and margins in this business in the to-be-reported quarter.

Albemarle Corporation Price and Consensus

 

Albemarle Corporation Price and Consensus | Albemarle Corporation Quote

What the Zacks Model Says

Our proven model does not show that Albemarle is likely to beat estimates this quarter. That is because a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below:

Earnings ESP: Earnings ESP for Albemarle is 0.00%. This is because both the Most Accurate Estimate and the Zacks Consensus Estimate stand at $1.46. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Albemarle currently carries a Zacks Rank #3, which when combined with a 0.00% ESP, makes surprise prediction difficult.

Note that we caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here are some companies in the basic materials space you may want to consider as our model shows they too have the right combination of elements to post an earnings beat this quarter:

The Mosaic Company MOS has an Earnings ESP of +2.11% and carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Eldorado Gold Corporation EGO has an Earnings ESP of +9.48% and carries a Zacks Rank #3.

Quaker Chemical Corporation KWR has an Earnings ESP of +2.99% and carries a Zacks Rank #3.

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