Arcadium Lithium Posts Lower-than-Expected September Quarter Earnings, Mizuho Securities Says

Australian shares jumped on Friday following a second interest rate cut by the US Federal Reserve.

The S&P/ASX 200 rose 0.8% or 68.80 points to close at 8,295.10.

The US central bank cut interest rates by 0.25% as inflation continued to move toward its 2% target, Reuters reported.

"The Fed didn't rock the boat," said Carson Group's Chief Market Strategist Ryan Detrick, as cited in the report.

"The big question now is will they cut again in December? Our best guess is they do, as inflation continues to improve," Detrick added.

On the domestic front, the Australian Bureau of Statistics said that Australia's 13-industry aggregate business turnover measure rose 0.2% in September following a 0.7% decline in August.

Meanwhile, ANZ Research said in a note that Australia is expected to see a "robust" increase in employment in October, suggesting that the downward trend in the jobs market is now receding.

In corporate news, News Corporation reported attributable net income of $0.21 per share for the fiscal first quarter, up from $0.05 per share a year ago. Analysts polled by Visible Alpha expected EPS of $0.17. The company's shares closed up over 2%.

ANZ Group Holdings reported earnings of AU$1.045 per share for the fiscal second half, down 10% from AU$1.16 per share in the first half ended March. Analysts polled by Visible Alpha expected EPS of AU$1.10. The bank's shares ended more than 1% higher.

Lastly, Arcadium Lithium reported earnings of $0.01 per share for the third quarter ended Sept. 30, down from $0.17 per share in the year-ago period. Analysts polled by Visible Alpha expected EPS of $0.04. The company's shares were down 2% at market close.

The market is fast approaching what is typically the most bullish period for iron ore prices. Since 2014, iron ore has averaged a gain of 19.2% in the four month stretch between November and February.

While past performance is not a reliable indicator of future returns, the end of year seasonal rally for iron ore has been rather consistent for the past six years. The upward move for iron ore has also driven relatively consistent returns for household names like Fortescue , BHP and Rio Tinto .

Iron ore price seasonality

The below data observes the average, median and the percentage of months that are positive between July 2014 and November 2024. The iron ore price that I'm quoting here are Singapore iron ore futures.

Source: Market Index, TradingView

The seasonal strength is underpinned by China's need to stock up on iron ore between November and February as well as June and July, in anticipation of Lunar New Year and peak construction periods, which take place in September and October.

Taking a closer look at each month:

• November – This is a relatively mixed month for iron ore. The 4.1% average has been supercharged by the 29.3% surge in 2022 (when iron ore prices finally bottomed after the Evergrande crisis). If you exclude 2022, the average for November falls to 1.6%. That said, November still has a relatively high % positive rate of 64%.

• December – Iron ore has never had a down December in the past ten years but it crawled over the finish line in December 2014, up just 0.1%. This month has posted a fair share of double digit percentage gains, including 2020 (+23.7%), 2021 (+18.3%), 2023 (+16.4%) and 2018 (+10.5%).

• Jan-Feb – The performance for these two months tends to be a little more choppy, with January only positive 40% of the time. This year serves as a reminder about following historical data, with iron ore prices falling 6.5% in January and down another 11.3% in February.

Fortescue seasonality

The below data observes the average, median and the percentage of months that are positive between July 2014 and November 2024. These are price returns and excludes dividends.

Source: Market Index, TradingView

The November to January period has a very strong % positive rate of more than 70%, while February tends to deliver mixed returns. It is worth noting that the past five years (2019-2023) have demonstrated even stronger returns, up an average 14.6% and positive 100% of the time.

Where are we now?

Several key factors currently influence iron ore seasonality. Most immediately, China's 14th National People's Congress (NPC) meeting, running November 4-8, could significantly impact demand.

Chinese officials have been taking aggressive steps to achieve their 5% GDP growth target amid economic headwinds. Their September 2024 stimulus package included interest rate reductions, mortgage rate adjustments, and increased bank liquidity. However, markets remain skeptical about these measures' ability to drive broad economic recovery.

Adding to the uncertainty, Trump's victory has triggered a sharp rise in Treasury yields and the US dollar, driven by concerns over budget deficits and inflationary policies. This stronger dollar environment typically creates headwinds for commodity markets.

Further complicating matters, Trump's proposed 60%+ tariffs on Chinese imports – far exceeding the 7.5-25% rates from his first term – could introduce significant volatility to global trade and China's economic outlook.

Arcadium (ALTM) came out with quarterly earnings of $0.01 per share, missing the Zacks Consensus Estimate of $0.05 per share. This compares to earnings of $0.44 per share a year ago. These figures are adjusted for non-recurring items.

This quarterly report represents an earnings surprise of -80%. A quarter ago, it was expected that this supplier of performance lithium compounds would post earnings of $0.05 per share when it actually produced earnings of $0.05, delivering no surprise.

Over the last four quarters, the company has surpassed consensus EPS estimates just once.

Arcadium, which belongs to the Zacks Chemical - Specialty industry, posted revenues of $203.1 million for the quarter ended September 2024, missing the Zacks Consensus Estimate by 22.82%. This compares to year-ago revenues of $211.4 million. The company has topped consensus revenue estimates just once over the last four quarters.

The sustainability of the stock's immediate price movement based on the recently-released numbers and future earnings expectations will mostly depend on management's commentary on the earnings call.

Arcadium shares have lost about 69.7% since the beginning of the year versus the S&P 500's gain of 24.3%.

What's Next for Arcadium?

While Arcadium has underperformed the market so far this year, the question that comes to investors' minds is: what's next for the stock?

There are no easy answers to this key question, but one reliable measure that can help investors address this is the company's earnings outlook. Not only does this include current consensus earnings expectations for the coming quarter(s), but also how these expectations have changed lately.

Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. Investors can track such revisions by themselves or rely on a tried-and-tested rating tool like the Zacks Rank, which has an impressive track record of harnessing the power of earnings estimate revisions.

Ahead of this earnings release, the estimate revisions trend for Arcadium: mixed. While the magnitude and direction of estimate revisions could change following the company's just-released earnings report, the current status translates into a Zacks Rank #3 (Hold) for the stock. So, the shares are expected to perform in line with the market in the near future. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

It will be interesting to see how estimates for the coming quarters and current fiscal year change in the days ahead. The current consensus EPS estimate is $0.05 on $282.47 million in revenues for the coming quarter and $0.21 on $1.06 billion in revenues for the current fiscal year.

Investors should be mindful of the fact that the outlook for the industry can have a material impact on the performance of the stock as well. In terms of the Zacks Industry Rank, Chemical - Specialty is currently in the bottom 46% of the 250 plus Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

Perimeter Solutions, SA (PRM), another stock in the same industry, has yet to report results for the quarter ended September 2024. The results are expected to be released on November 12.

This company is expected to post quarterly earnings of $0.61 per share in its upcoming report, which represents a year-over-year change of +96.8%. The consensus EPS estimate for the quarter has remained unchanged over the last 30 days.

Perimeter Solutions, SA's revenues are expected to be $265.3 million, up 86% from the year-ago quarter.

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