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Why GrafTech International Shares Are Up Today

By Lou Whiteman – Nov 5, 2021 at 1:03PM

Key Points

  • GrafTech, maker of a key component in steel production, reported earnings and revenue that were ahead of what analysts expected.
  • The company said it has pricing power heading into 2022 thanks to strong steel demand.
  • GrafTech has needed awhile to establish itself since rejoining public markets in 2018, but it appears to have finally found its stride.

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The company beat expectations and said pricing power is strong heading into 2022.

What happened

Shares of GrafTech International (EAF -2.70%) jumped as much as 11.7% on Friday after the maker of graphite electrodes used in steel production reported earnings that came in well ahead of expectations.

So what

On Friday, GrafTech reported third-quarter earnings of $0.45 per share on revenue of $347.35 million, surpassing analyst expectations for $0.41 per share in earnings on sales of $338 million. Sales volume increased 33% from the same quarter last year, and GrafTech generated a net income margin of 35%, and an adjusted margin of 50% based on earnings before interest, taxes, depreciation, and amortization (EBITDA).

Hot steel coming out of a furnace.

Image source: Getty Images.

Production volumes in the third quarter of 2021 increased 22% compared to a year prior.

GrafTech is focused on production of graphite electrodes used in steel production. The company was taken private in 2015 by Brookfield Business Partners and returned to the public markets three years later. In the years since, the stock has been choppy, moving on both demand and Brookfield's gradual divestiture of its remaining shares. But GrafTech appears to be finally hitting its stride as a stand-alone company.

"We are pleased with our third quarter results, reflecting strength in market demand and rising graphite electrode prices and solid execution by our team," CEO David Rintoul said in a statement. "Our average non-[long-term agreement] graphite electrode price increased 12% sequentially from the second quarter of 2021."

GrafTech also reduced its debt by $100 million in the quarter, for total debt reduction of $300 million so far in 2021. The board also approved a new $150 million stock repurchase program.

Now what

GrafTech expects continued strength heading into year-end. Rintoul said that the company expects fourth-quarter pricing to increase an additional 7% to 9% compared to the third quarter, with a larger increase in 2022, thanks to the continued strength of the global steel market. Its electrodes are a key part of electric arc furnace steel production, a more environmentally friendly way to make steel that is expected to increase its market share in the years to come.

The company in the past year has worked its total debt down to 1.7 times adjusted EBITDA, from 2.2 times, and has no debt maturing before 2025.

EAF Chart

EAF data by YCharts.

GrafTech still trades below its 2018 IPO price. It has experienced its share of ups and downs since rejoining public markets, but the third-quarter update and forecast heading into 2022 are giving investors confidence there are better days ahead for the company.

Lou Whiteman owns shares of GrafTech International Ltd. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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