Albemarle Corporation (ALB): Stay Away From This Specialty Chemicals Company

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Albemarle Corporation (ALB)Albemarle Corporation (NYSE:ALB), a specialty chemicals manufacturing company, released its quarterly earnings last month and the results were terrible. The company recorded a dip in its margin and missed analysts’ estimates, which is a trend that has been continuing for a long while.

Let’s take a look at the factors which damaged Albemarle Corporation (NYSE:ALB)’s top and bottom-line performance.

The problems

Albemarle Corporation (NYSE:ALB) has chalked out a rigid business strategy over the years by focusing on a few core areas, such as bromine products and petroleum catalysts. It enjoys sturdy competitive advantages in these areas and has a very small number of competitors, but results have been very bad over the past few quarters.

Sales in the company’s catalyst segment dipped 14% to $229.1 million. As this segment contributes almost one-third of Albemarle Corporation (NYSE:ALB)’s revenue, its overall revenue fell 8% to $634 million, missing analysts’ estimates of $741 million. The company’s departure from the phosphorous-flame-retardants business also affected the top line.

Albemarle posted net income of $82 million, or $0.97 per share, in its second quarter, falling way behind analysts’ estimates of $1.23 per share. This was a result of the drop in sales of company’s fire-safety solutions and antioxidants, which are used in numerous industries.

Three-fifths of Albemarle’s sales come from outside of the U.S. and the sluggishness in emerging economies, particularly China, impacted demand for products. Demand in Europe remained well below the prior periods. Thus, a decline in the company’s margin doesn’t come as a surprise, but will Albemarle Corporation (NYSE:ALB) bounce back in the future? Let’s find out

Making some moves

The company has been trying out various strategies to improve revenue and earnings in the future, such as price increases and entering into joint ventures. In June, Albemarle announced that it would be raising prices of dibromomethane (DBM) and bromochloromethane (PCM) by 25%. The price-hike went into effect when it was announced and might help the company rescue its dropping revenue.

It also hiked the price of Ethanox to the tune of $0.95 per kilogram in April, and I would have expected these measures to improve its revenue. But it looks like these moves are not working, as Albemarle Corporation (NYSE:ALB)’s revenue is going downhill.

The company’s Saudi Organometallic Chemicals joint venture started production at the tri-ethyl aluminum (TEA) facility in Saudi Arabia in July. The plant is expected to yield 6,000 metric tons of TEA per year. But weak economic conditions in Europe have impacted the company’s business and I’m not sure how these moves will play out.

But the company was aggressive in its share-buyback program in the second quarter, with aggregate repurchases to the tune of roughly 10% of shares outstanding. This, along with the previously announced 20% increase in the dividend, speaks of Albemarle’s commitment to returning capital to shareholders even though it is taking a hit of late.

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