What happened
London-based specialty metals company Ferroglobe (GSM 1.97%) is defying the downturn on the Nasdaq Wednesday afternoon. The stock was up 5.3% as of 1 p.m. ET today after reporting a beat on earnings last night.
Ferroglobe actually missed analyst targets for sales for its first quarter of fiscal 2022, reporting only $715.3 million. The company easily topped Wall Street's earnings expectations, however, reporting $0.80 per share in profits based on generally accepted accounting principles (GAAP), and $0.88 pro forma, well above analysts' forecast of $0.73.
Image source: Getty Images.
So what
Ferroglobe's other numbers were equally impressive. Sales for the quarter were up 98% year over year. Operating profit margins, which were negative last year, are now 29.5%, with the result that Ferroglobe is now profitable on the bottom line after suffering through three straight years of net losses.
Cash generation is also through the roof. Ferroglobe generated $56.8 million in cash profits during the quarter, a 521% increase year over year. Management noted that the company is enjoying "higher prices across our product portfolio [despite shipping] lower volumes," sending sales, profits, and free cash flow higher.
Now what
Management did not give specific guidance for how long these good times will keep rolling, citing COVID-19 and the Russian invasion of Ukraine as factors that keep the situation uncertain.
One factor in particular for investors to keep in mind: While Ferroglobe notes that the war between Russia and Ukraine has the potential to interrupt supplies of metallurgical coke, anthracite, and electrodes, both Russian and Ukraine compete with the company globally in markets for silicon metal, ferroalloys, and manganese-based alloys.
That means that as long as a combination of sanctions on Russia and conflict in Ukraine constrain supplies of these exports, it's likely that Ferroglobe will enjoy significant pricing power, and significant profits as well -- just like we saw last night.
Suffice it to say that with the stock priced at less than three times forward earnings, investors don't seem to appreciate just how good the current business environment could be for Ferroglobe.
