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Can Albemarle (ALB) Beat Earnings in Q3 on Lithium Strength?

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Albemarle Corporation (ALB - Free Report) will release third-quarter 2018 results after the bell on Nov 7.

Albemarle saw its profits shoot up in the second quarter on the back of strong gains in its Lithium unit. It logged a profit of $302.5 million, or $2.73 per share in the quarter, a roughly three-fold surge from a profit of $103.3 million or 92 cents per a year ago. The bottom line in the second quarter was also boosted by gains on divestment of the polyolefin catalysts and components portion of the PCS business.

Adjusted earnings of $1.36 per share for the quarter topped the Zacks Consensus Estimate of $1.28.

Revenues rose around 16% year over year to $853.9 million in the quarter on the back of higher volumes and pricing as well as favorable currency impacts across the company’s businesses. It also surpassed the Zacks Consensus Estimate of $799.5 million.

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 6.6%.

Albemarle’s shares have gained around 14.8% over the past three months, outperforming the roughly 19.4% 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 August, raised its adjusted earnings per share outlook for 2018. The company now sees adjusted earnings for the year to be in the band of $5.30-$5.50 per share (up from earlier view of $5.10-$5.40), a year-over-year increase of 15%-20%.

Moreover, the company now envisions net sales for 2018 to be between $3.3 billion and $3.5 billion, up from $3.2 billion and $3.4 billion it expected earlier. Adjusted EBITDA for the year has been forecast in the range of $990 million to $1,020 million.

The Zacks Consensus Estimate for revenues for Albemarle for the to-be-reported quarter stands at $804 million, reflecting an expected increase of 6.6% from the year-ago quarter.

Strong performance of the company’s Lithium unit boosted its second-quarter results. Sales from the unit jumped around 30% year over year in the quarter, supported by favorable pricing, higher sales volumes and favorable currency impacts. The Lithium division is expected to continue to support results in the September quarter. The results in the lithium business are likely to be aided by favorable pricing and volume trends in battery grade products.

The company expects the Lithium unit to deliver low-to mid-20% year over year growth in adjusted EBITDA in 2018, driven by improved pricing and strong volumes.

The Zacks Consensus Estimate for net sales for the Lithium unit for the third quarter is pegged at $319 million, reflecting a 0.3% rise on a sequential comparison basis.

Meanwhile, Albemarle’s 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.

Net sales for the Bromine Specialties segment is projected to see an 1.8% sequential increase as the Zacks Consensus Estimate for the third quarter is pegged at $225 million.

Results in the company's Catalysts segment, in the second quarter, were driven by higher volume in refinery catalysts and improved pricing in FCC catalysts, which offset the unfavorable impact from shortage of raw materials in curatives products. Favorbale volumes and pricing are likely to support margins in this business in the to-be-reported quarter.

Albemarle Corporation Price and EPS Surprise

 

Albemarle Corporation Price and EPS Surprise

Albemarle Corporation price-eps-surprise | Albemarle Corporation Quote

Earnings Whispers

Our proven model does not conclusively show that Albemarle is likely to beat the Zacks Consensus Estimate this quarter. That is because a stock needs to have both 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 currently pegged at -4.15%. This is because the Most Accurate Estimate stands at $1.20 while the Zacks Consensus Estimate is pegged at $1.25. 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 negative 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.

Other Stocks to Consider
 
Here are some companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:

Nutrien Ltd. (NTR - Free Report) has an Earnings ESP of +10.43% and carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
 
Osisko Gold Royalties Ltd (OR - Free Report) has an Earnings ESP of +19.05% and carries a Zacks Rank #3.

Emerson Electric Co. (EMR - Free Report) has an Earnings ESP of +6.91% and carries a Zacks Rank #3.

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