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Why Albemarle’s Bromine Specialties Segment’s Margin Expanded

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Albemarle’s Bromine Specialties segment in 4Q17

Albemarle’s (ALB) Bromine Specialties segment accounted for 25.5% of the company’s total revenues in 4Q17 compared to 27.9% in 4Q16. That was a decline of 2.4 percentage points on a YoY (year-over-year) basis. The segment reported revenues of $219.1 million in 4Q17, a rise of 12.6% on a YoY basis. In 4Q16, the segment reported revenues of $194.5 million.

The segment’s revenues increased primarily due to higher volumes, higher prices, and a favorable foreign currency hedge. The segment’s volume growth was driven by good demand growth in flame retardants and other bromine derivatives. Volume growth was also helped by the decline in bromine exports from Chinese companies, although there was some improvement in production due to restarts by local producers.

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The segment’s adjusted EBITDA and margins

The Bromine Specialties segment reported adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of $64.4 million in 4Q17, an increase of 37.1% on a YoY basis. In 4Q16, the segment reported adjusted EBITDA of $47 million.

The adjusted EBITDA margin for the segment stood at 29.4% in 4Q17 compared to 24.1% in 4Q16. That implies an increase of 530 basis points on a YoY basis. The increase in the margin was primarily due to higher volumes and higher pricing. However, the segment’s SG&A (selling, general, and administrative) expenses had an adverse impact on its margins.

Outlook

ALB expects the Bromine Specialties segment to grow, driven by the demand for flame retardants and bromine derivatives. However, there could be stress on its margins and EBITDA due to an increase in raw material costs.

Investors can seek broad-based exposure to Albemarle (ALB) by investing in the Materials Select Sector SPDR ETF (XLB), which invests 1.9% of its portfolio in Albemarle. The top holdings of the fund include DowDuPont (DWDP), Praxair (PX), and Monsanto (MON), with weights of 23.1%, 6.4%, and 7.8%, respectively, as of February 27, 2018.

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