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Insights into Albemarle's Strong 3Q17 Returns

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Part 4
Insights into Albemarle's Strong 3Q17 Returns PART 4 OF 6

How Albemarle’s Bromine Specialties Segment Performed in 3Q17

Albemarle’s Bromine Specialties segment in 3Q17

Albemarle’s (ALB) Bromine Specialties segment is the company’s second-largest revenue contributor, accounting for 28.2% of total revenues in 3Q17 compared to 29.7% in 3Q16.

The segment reported revenues of $212.9 million in 3Q17, a rise of 9.5% on a YoY (year-over-year) basis. In 3Q16, the segment reported revenues of $194.5 million.

How Albemarle&#8217;s Bromine Specialties Segment Performed in 3Q17

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The segment’s revenues increased primarily due to higher volumes and higher prices. Higher volumes were driven by good demand growth in flame retardants. A decline in bromine exports from Chinese companies also helped the segment’s volumes rise. There was no significant impact of the foreign currency translation. However, the clear brine fluids demand continued its declining trend and remained lower than its historical levels.

Segment’s adjusted EBITDA and margins

Albemarle’s (ALB) Bromine Specialties segment reported adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of $63.9 million in 3Q17, a rise of ~23.4% on a YoY basis.

In 2Q16, the segment reported adjusted EBITDA of ~$51.8 million. The adjusted EBITDA margin for the segment stood at 30.0% in 3Q17 compared to 26.6% in 3Q16. That implies an increase of 340 basis points on a YoY basis. The increase in the margin was primarily due to higher volumes and higher pricing.

Outlook

As oil prices recover, the demand for deepwater drilling is expected to increase. That could help the company’s drilling fluid business. Also, a continued emphasis on stringent fire safety regulations in developing countries could drive the demand for fire safety products and help the segment’s revenue grow.

Investors can seek broad-based exposure to Albemarle (ALB) by investing in the Materials Select Sector SPDR ETF (XLB), which invests 1.7% of its portfolio in Albemarle. The top holdings of the fund include DowDuPont (DWDP), Praxair (PX), and Monsanto (MON) with weights of 22.8%, 5.1%, and 7.3%, respectively, as of November 9, 2017.

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