The World's Largest Lithium Supplier, Albemarle Corporation, Delivers Solid Q3 Earnings Growth

Lithium companies are benefiting from rising demand for lithium-ion batteries to power electric vehicles and various electronic gadgets. Image source: FMC Corp.

Albemarle Corporation (NYSE: ALB), the world's largest supplier of lithium, reported third-quarter earnings on Monday, Nov. 7. Like fellow big lithium player FMC Corp. -- which reported last week -- the Charlotte, N.C.-based specialty company's earnings continue to benefit from strength in its lithium business. The major lithium companies have been having a Goldilocks year thanks to lithium's rise in price, which is largely being driven by increasing demand for rechargeable lithium-ion batteries to power electric vehicles and electronic gadgets.

Albemarle's revenue declined 5.7% year over year to $654 million – topping the $645.8 million analysts were looking for -- while adjusted earnings per share from continuing operations increased 20% to $0.91, beating Wall Street's estimates of $0.81. GAAP EPS jumped 96% to $1.13. The revenue decline was driven by the company's divestitures of its metal sulfides and minerals-based flame retardants and specialty chemicals businesses, partially offset by higher sales volumes, higher prices, and more favorable product mixes in certain businesses, and overall favorable currency exchange impacts.

Albemarle's stock has returned 66% over the one-year period through Tuesday, breezing by the broader market's 4.2% return. It's also significantly outpaced FMC's 32% return over the same period, and has slightly edged out the 59% return of the lithium industry's other big publicly traded player, Sociedad Quimica y Minera de Chile, or SQM. 

Albemarle's results by business

Data source: Albemarle. YOY = year over year. 

A couple of things to keep in mind when looking at these numbers: Segment revenue and adjusted EBITDA do not add up to the company's totals because there is a small "other" category and a corporate category. As a result, total adjusted EBITDA increased 4.2% year over year, while adjusted EBITDA from continuing operations increased 10%.

Albemarle's segment results bring to mind the '70s hit song "Two Out of Three Ain't Bad" -- and, indeed, two out of three of its segments performed well enough to more than compensate for its laggard bromine business.  

Lithium and advanced materials' sales and EBITDA increased primarily because of increased lithium sales volumes and higher prices offset by lower performance catalyst solutions and curatives (PCS) sales. The segment's results also benefited from a relatively small foreign currency exchange tailwind.

Drilling further down into this segment by product line shows how well lithium performed:

Data source: Albemarle. 

Bromine specialties' sales benefited from currency tailwinds plus higher sales volumes, partially offset by lower prices. Adjusted EBITDA declined because of lower prices partially offset by lower raw material and utility costs, lower SGA (selling, general, and administrative) expenses, and currency benefits.

Refining solutions' sales increase was driven by higher clean fuels technology sales volumes and higher prices, partially offset by a decrease in heavy oil upgrading volumes and a slight negative currency impact.

What management had to say, specifically about expanding the lithium business 

CEO Luke Kissam commented in the press release about the overall results, as well as what the company is doing to take advantage of the strong lithium market:

In the third quarter, we continued our strong growth trend as adjusted EBITDA grew by 10% compared to third quarter of 2015, excluding the impact of divestitures. Adjusted EBITDA growth of 32% in Lithium and 19% in Refining Solutions set the pace. We also took steps to accelerate our strategy and strengthen our lithium franchise by entering into an agreement to acquire the spodumene conversion assets of Jiangxi Jiangli New Materials Science and Technology Company and entering into an agreement with Bolland Minera, S.A. that gives us exclusive exploration and acquisition rights to what could prove to be the largest lithium resource in Argentina.

The Talison joint venture spodumene mine in Greenbushes, Australia. Image source: Albemarle. 

Kissam said on the analyst conference call that the company expects to close on the acquisition of the spodumene conversion assets in Q1 2017. (Spodumene is a lithium-bearing mineral, which is obtained via open-pit mining of ore that contains it.) He stated these assets will give the company conversion capacity of 15,000 metric tons per year of lithium hydroxide and lithium carbonate with infrastructure in place to support a 20,000 to 25,000 metric ton expansion. Spodumene for the current operations and the planned expansion will be supplied from Albemarle's Talison joint venture in Australia.

In addition to the planned capacity expansion at Jiangxi Jiangli, Albemarle will continue to pursue development of a greenfield spodumene conversion plant which will provide additional conversion capacity of about 40,000 metric tons a year so that it can fully utilize the Talison resources over time. Full utilization of the Talison resources combined with the additional capacity the company expects to add in Chile (where it extracts lithium chloride from brine at the Salar de Atacama) once a new quota is finalized will allow it to achieve about 160,000 metric tons per year of lithium carbonate equivalent production capacity by the beginning of the next decade, Kissam said on the call. 

Full-year 2016 earnings guidance edged up 

Citing strong performance in its lithium and refining solutions businesses, Albemarle inched up its full-year 2016 adjusted EPS guidance at the midpoint. It expects revenue to range between $2.6 billion and $2.7 billion, adjusted EBITDA between $725 million and $745 million, and adjusted EPS between $3.45 and $3.55 – up slightly at the midpoint ($3.50) from its prior guidance of between $3.35 and $3.60 (midpoint of $3.475).