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Why Albemarle’s Catalysts Segment Revenue Rose despite Divestiture

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Catalysts segment’s performance in Q2 2018

Albemarle’s (ALB) Catalysts segment accounted for 33.4% of ALB’s total revenues in Q2 2018 compared to 35% in Q2 2017, a decrease of 1.6 percentage points on a YoY (year-over-year) basis. The segment reported revenue of $284.96 million in Q2 2018, an increase of 10.3% on a YoY basis. In Q2 2017, the segment reported revenue of $258.25 million. This segment was formed by merging the company’s Refining Solutions and PCS businesses.

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The segment’s revenue grew due to higher volumes in CFT, FCC, and PCS businesses. The rise was also due to the increase in prices and favorable foreign currency due to the weakness of the US dollar against the euro. On the other hand, the segment’s revenue was adversely impacted by the divestiture of the polyolefin catalyst and components portion of the PCS business to W.R. Grace (GRA).

The segment’s adjusted EBITDA and margins

This segment reported adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of $75.10 million in Q2 2017, an increase of 11.4% on a YoY basis. In Q2 2017, the segment reported adjusted EBITDA of $67.40 million.

The segment’s Q2 2018 adjusted EBITDA margin increased to 26.4% compared to 26.1% in Q2 2017, which implies an increase of 30 basis points over the previous year. The increase was primarily due to higher volumes and higher prices.

Outlook

Higher volume and favorable prices are expected to drive the segment’s growth. However, strength in the US dollar might have an adverse impact on revenue, EBITDA, and margin.

Investors looking for diversified exposure to ALB can consider the iShares U.S. Basic Materials ETF (IYM), which invests 1.8% of its portfolio in ALB. IYM also provides exposure to Praxair (PX), LyondellBasell (LYB), and Air Products & Chemicals (APD) with weights of 7.1%, 5.8%, and 5.6%, respectively, as of August 8.

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