Albemarle (ALB 1.65%) stock slumped by double digits this morning and was trading 13.4% lower as of 10:40 a.m. ET Tuesday. The world's largest lithium producer is raising money to fund growth capital expenditures among other things, and the market believes it's a sign of how difficult the business environment remains for lithium companies.
A move to bolster liquidity amid challenges
Albemarle said it plans to sell $1.75 billion worth of depositary shares, each representing 1/20th interest in mandatory convertible preferred stock. Albemarle intends to list the depositary shares on the New York Stock Exchange.
Albemarle says it expects to use the proceeds for general corporate purposes, which may include the funding of its growth projects, particularly the construction and expansion of operations in Australia and Chile.
What this means for Albemarle stock
Albemarle was growing at a torrid pace until lithium prices started to plummet in 2023. The company's net sales dropped 10% year over year and it reported a net loss of $618 million versus a profit of $1.1 billion in the fourth quarter, largely because of low lithium prices.
Albemarle, however, still ended 2023 with record sales of $9.6 billion, but it expects to generate sales worth only $6.9 billion to $7.6 billion in 2024 even at its highest projected lithium prices. If lithium prices don't recover, Albemarle's sales could fall at least 35% this year.
Given the backdrop, it appears Albemarle's cash flows this year will not be enough to fund growth. Although the company had cash and equivalents of nearly $890 million as of Dec. 31, 2023, it expects to spend $1.6 billion to $1.8 billion in capital expenditures this year. That's down from the $2.1 billion it spent in 2023 as management wants to prioritize projects near completion given the tightening liquidity.
Does that make Albemarle stock a risky bet now? I'd say no, because Albemarle is doing what it should to boost cash flows amid a difficult market. Meanwhile, lithium prices are rebounding as well after last year's crash, rising 12.4% this year so far according to data from Trading Economics.
