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Behind the Revenue Decline of Albemarle’s Bromine Specialties Segment

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Albemarle’s Bromine Specialties segment in 2Q17

Albemarle’s (ALB) Bromine Specialties segment is the company’s second-largest revenue contributor, accounting for 27.7% of ALB’s total revenues in 2Q17 compared to 30.9% in 2Q16.

The segment reported revenues of ~$204.0 million in 2Q17, a decrease of 1.4% on a year-over-year basis. In 2Q16, the segment reported revenues of $206.9 million.

The segment’s revenues declined primarily due to lower prices, followed by an adverse impact due to its foreign currency hedging strategy. The lower crude oil prices had an adverse impact on its Drilling Fluid business.

Its volumes were also impacted by supply constraints from China. However, the demand for flame retardants continues to be strong.

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Segment’s adjusted EBITDA and margins

Albemarle’s (ALB) Bromine Specialties segment reported adjusted EBITDA[1. earnings before interest, taxes, depreciation, and amortization] of ~$62.1 million in 2Q17, a decline of ~6.5% on a year-over-year basis.

In 2Q16, the segment reported adjusted EBITDA of ~$66.6 million. The adjusted EBITDA for this segment stood at 30.4% in 2Q17 compared to 32.2% in 2Q16. This implies a decrease of 180 basis points on a year-over-year basis. The decline in its margin was primarily due to lower volumes and lower pricing.

Outlook

The outlook for ALB’s Bromine Specialties segment depends on the recovery of crude oil prices, which could push the deep water drilling activities. This trend could help the company’s Drilling Fluid business.

The implementation of stringent fire safety regulations in developing markets could drive the demand for fire safety products. However, the pricing pressure could present a challenge.

Investors can seek broad-based exposure to Albemarle (ALB) by investing in the Materials Select Sector SPDR ETF (XLB), which invests 2.2% of its portfolio in Albemarle. The top holdings of the fund include Dow Chemical (DOW), DuPont (DD), and Monsanto (MON) with respective weights of 11.8%, 11.6%, and 8.5% on August 7, 2017.

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