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Albemarle profits fall 27%, miss estimates

10:09 AM MDT | April 19, 2013 | Rebecca Coons

Albemarle’s first-quarter results fell short of analysts’ estimates as all three of its business units posted double-digit profit declines year-over-year.

The company reported net income of $84 million for its fiscal quarter ended 31 March, down 27% from the year-ago quarter. Excluding non-operating items, earnings were 93 cts/share, 7.9% below a $1.01/share consensus of analysts’ estimates reported by Thomson Reuters (New York). Sales fell 9.8%, to $641.6 million, driven by Albemarle’s exit from the phosphorus flame retardants business, lower metals surcharges, and pricing on certain products.

"First-quarter results matched our expectation that 2013 would begin the year slowly," says Luke Kissam, Albemarle CEO.  "Catalysts was impacted by start-up costs from our two greenfield polyolefin catalysts expansions and an unfavorable mix in Refinery Catalysts.  In Fine Chemistry, we saw robust demand for drilling fluids and an expected slow quarter in custom manufacturing.  Polymer Solutions showed modest improvement from fourth quarter, but our current order book patterns suggest that demand for our portfolio of products in consumer electronics, construction and European auto markets will remain sluggish."

Lower metals surcharges, turnarounds at customers' fluid catalytic cracking (FCC) operations, an unfavorable product mix in hydroprocessing catalysts (HPC), and the costs associated with polyolefin catalyst expansions drove Catalysts segment income 32% lower, to $57 million. Segment revenue was 20% lower, at $235.5 million.

Polymer solutions segment income declined 18%, to $45.3 million, on lower prices, higher costs, and unfavorable foreign currency impact, although this was partially offset by higher sales volumes and the positive impact of Albemarle’s exit from the phosphorous flame retardants business. The company announced in May of last year that it would exit the phosphorous flame retardants business and shut related capacities in UK and China. The business, which Albemarle said was “not strategically aligned with [its] growth plans,” had annual revenues of approximately $50-$70 million. Polymer solutions segment sales slipped 6%, to $214.8 million. 

Albemarle’s fine chemicals segment reported a 24% drop in income, to $31.4 million, on weaker pricing, lower operating rates, and the timing of custom services projects. Sales increased 1%, however, to $191.3 million, on improved sales volumes. Albemarle says higher Food Safety antimicrobial volumes drove strong Specialty Bromides sales, but continued pricing pressure in China and India on hydrogen bromide and elemental bromine negatively impacted results.

Albemarle says the business outlook for refinery catalysts remains "solid," although the less favorable HPC product mix and FCC turnarounds are expected to continue through the first half of 2013. Uncertainty regarding electronics demand is likely to continue to impact polymer solutions results in the first half of the year, and the outlook for European construction and automotive remains weak. Fine chemicals results are expected to continue to benefit from strong offshore drilling activity, while new production capacity should improve custom services results.

Oppenheimer cut its 2013 earnings estimate for Albemarle to $4.75/share, below analysts' consensus of $5.01/share. Oppenheimer analyst Edward Yang says he believes the street is either underestimating cost headwinds in the first half of the year or overestimating a rebound in Polymer Solutions. "Management had guided for EPS to grow 0-6% in 2013, but with weaker than expected 1H, will need to see a back-end loaded recovery," he adds.

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