Can Albemarle (ALB) Beat Q4 Earnings on Lithium Strength?

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Albemarle CorporationALB will release its fourth-quarter 2017 results after the bell on Feb 27.

Albemarle posted strong third-quarter results with both earnings and revenues topping estimates. Adjusted earnings of $1.08 per share for the quarter beat the Zacks Consensus Estimate of $1.07. Revenues rose around 15% year over year to $754.9 million and also topped the Zacks Consensus Estimate of $737 million.

Sales in the quarter were aided by favorable impacts of pricing and higher sales volume in Lithium and Advanced Materials and Bromine segments as well as favorable currency impacts.

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 4.3%.

Albemarle has outperformed the industry it belongs to over a year, partly reflecting its forecast-topping earnings performance and its strategic growth initiatives. The company's shares have rallied around 22.3% over this period, compared with roughly 16.6% gain recorded by the industry.

Let's see how things are shaping up for this announcement.

Factors to Consider

Albemarle, in November 2017, raised its guidance for 2017. The company now sees full-year net sales of between $3 billion and $3.05 billion (compared with prior view of $2.90 billion and $3.05 billion), adjusted earnings per share of between $4.40 and $4.50 (compared with prior view of $4.20 and $4.40) and adjusted EBITDA of $860-$875 million (compared with $835-$875 million expected earlier).

The Zacks Consensus Estimate for revenues for Albemarle for the to-be-reported quarter stands at $791.5 million, reflecting an increase of 13.6% from the year-ago quarter.

Strength in the company's core Lithium and Advanced Materials division boosted its third-quarter results and is expected to continue to drive its results in the December quarter.

Albemarle is seeing significant momentum in its lithium business and is well placed to leverage strong expected growth in the battery-grade lithium market. The company is executing a number of projects aimed at boosting its global lithium derivative capacity.

Albemarle, in September 2017, said that it has developed a novel technology that would allow it to increase annual lithium production in Chile on a sustainable basis to as much as 125,000 metric tons of lithium carbonate equivalent without requiring additional brine pumping at its facility in the Salar de Atacama.

Projects currently underway are expected to raise the company's total annual production capacity in Chile to more than 80,000 metric tons of lithium carbonate equivalent.

Sales from the company's Lithium and Advanced Materials unit jumped 43% year over year to $343.6 million in the third quarter, supported by favorable pricing, higher sales volumes and favorable currency impacts. The division's results are expected to continue to be boosted by higher pricing and volumes in battery grade products in the fourth quarter.

Revenues from the Bromine Specialties segment rose around 10% year over year to $212.9 million in the last reported quarter. Strong flame retardant demand in electronics applications is expected to support the division's results in the to-be-reported quarter.

However, revenues from the Refining Solutions unit fell around 11% year over year to $170.3 million in the third quarter, hurt by reduced sales volumes and unfavorable pricing. The company expects a strong fourth-quarter for the unit. However, some lingering impacts of Hurricane Harvey are likely to affect the division in the fourth quarter.

Albemarle Corporation Price and Consensus

Albemarle Corporation Price and Consensus | Albemarle Corporation Quote

Earnings Whispers

Our proven model does not conclusively show that Albemarle is likely to beat estimates this quarter. This 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. This is not the case here as you will see below:

Zacks ESP: The Earnings ESP for Albemarle is -1.58% as the Most Accurate estimate stands at $1.19 while the Zacks Consensus Estimate is pegged at $1.20. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank: Albemarle 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 in the basic materials space you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Franco-Nevada Corporation FNV has an Earnings ESP of +0.46% and sports a Zacks Rank #1.

Huntsman Corporation HUN has an Earnings ESP of +2.22% and carries a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here .

Ferroglobe PLC GSM has an Earnings ESP of +61.77% and carries a Zacks Rank #3.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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