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Why Is Albemarle (ALB) Down 10.8% Since Last Earnings Report?

Zacks Equity Research

A month has gone by since the last earnings report for Albemarle (ALB). Shares have lost about 10.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Albemarle due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Albemarle Tops Q3 Earnings Estimates, Revenues Lag

Albemarle recorded a profit of $155.1 million or $1.46 per share in the third quarter of 2019, up around 20% from $129.7 million or $1.20 per share it earned year ago.

The bottom line in the reported quarter was boosted by higher earnings across the company’s businesses, reduced interest and financing expenses as well as a lower effective tax rate.

Adjusted earnings for the reported quarter were $1.53 per share, up roughly 17% year over year. It trounced the Zacks Consensus Estimate of $1.49.

Revenues rose around 13% year over year to $879.7 million in the quarter. It, however, missed the Zacks Consensus Estimate of $899 million. Revenues were aided by higher volumes across the board and favorable pricing across Lithium and Bromine Specialties units.

Segment Highlights

Sales from the Lithium unit went up around 22% year over year to $330.4 million in the reported quarter, aided by favorable pricing and higher sales volumes, partly offset by deferred shipments due to the impact of Typhoon Tapah. Adjusted EBITDA was up 12% year over year to $127.5 million.

The Bromine Specialties segment logged sales of $256.3 million, up around 10% year over year, driven by favorable pricing and higher volumes. Adjusted EBITDA was $88.8 million, up around 13% year over year.

The Catalysts unit recorded revenues of $261.3 million in the reported quarter, up roughly 4% year over year. Adjusted EBITDA was $66.9 million, up roughly 7% year over year. Favorable pricing in Fluid Catalytic Cracking (FCC) catalysts was offset by reduced volumes due to delays in the start-up of new FCC units.

Financial Position

Albemarle ended the quarter with cash and cash equivalents of roughly $317.8 million, down roughly 50% year over year. Long-term debt was around $1,382 million, down around 2% year over year.

Cash flow from operations was $345.6 million for the first nine months of 2019, down around 8% year over year. Capital expenditures were $608.5 million for the period, up 29% year over year.

Outlook

Albemarle backed its earnings outlook for 2019 which it had provided last month. It continues to see adjusted earnings for 2019 in the band of $6.00-$6.20 per share, a year-over-year increase of 10-14%.

The company expects net sales for 2019 to be between $3.6 billion and $3.7 billion, representing 7-10% year over year growth. Moreover, Albemarle sees adjusted EBITDA for the year in the range of $1.02-$1.06 billion, representing 2-6% year over year growth.

The company also initiated a cost management program which it expects to deliver more than $100 million in savings over a two-year period.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

VGM Scores

At this time, Albemarle has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Albemarle has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.



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