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Lithium Stock FMC Corp. Jumps 8% Following Q1 Earnings Release

By Beth McKenna - May 7, 2018 at 9:47AM

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Here are four key things investors should know about the specialty chemical company's fast-growing lithium business.

FMC Corp. ( FMC 0.28% ) stock spiked 8.1% in the two days following its release on Wednesday afternoon of strong first-quarter 2018 financial results. Shares have returned 23.6% for the one-year period through Friday, versus the S&P 500's 13.8% return.

The Philadelphia-based specialty chemical company's revenue soared 103% year over year to $1.21 billion, and it posted earnings per share (EPS) of $1.96, versus a loss of $0.92 in the year-ago quarter. EPS adjusted for one-time factors rocketed 328% to $1.84. Wall Street was looking for adjusted EPS of $1.63 on revenue of $1.15 billion, so FMC beat both expectations.

Moreover, the company raised its full-year 2018 earnings guidance. It now expects adjusted EPS to be in the range of $5.90 to $6.20, an increase of 12% at the midpoint compared to the prior forecast, and 123% higher than its 2017 result.

FMC's lithium business continued to help power growth, thanks to robust demand for the metal to make lithium-ion batteries for electric vehicles (EVs). And its agricultural solutions segment got a big boost from the company's purchase in November of a portion of DuPont's (now DowDuPont) crop protection business. Management said on the earnings call that the integration of that acquisition is going very well. 

Below are four key things investors should know from FMC Corp.'s Q1 earnings call about its fast-growing lithium business.

A lithium brine mining operation, showing evaporation ponds, with mountains and blue sky in background.

A brine lithium mining operation. Image source: Getty Images.

1. Lithium business delivered great results again

From CEO Pierre Brondeau's remarks: 

Lithium delivered another strong quarter, with revenue up 57% compared to Q1 last year and segment EBITDA [earnings before interest, taxes, depreciation, and amortization] of $50 million, almost double [up 95%] that from a year ago. The business continues to benefit from a favorable environment, with demand growth continuing to outpace supply growth for key battery-grade lithium product.

FMC realized price increases of about 30% year over year for both lithium carbonate and lithium hydroxide, the two lithium compounds used in lithium-ion batteries for EVs. A more favorable product mix and increased sales volumes also contributed to the great results. Volumes increased because of the company's "debottlenecking" at its Argentina plant (where it processes the lithium it extracts from brine at the Salar del Hombre Muerto into downstream products) and new lithium hydroxide production capacity in China.

To put matters in context, however, its necessary to consider that the lithium business accounted for only 8.5% of FMC's total revenue and 12.4% of total segment earnings. So while lithium is contributing more than its fair share to earnings, the company is primarily an agricultural chemicals play. The DuPont acquisition also diluted lithium's relative earnings contribution, which was more than 20% of the total in Q1 2017. Investors who like FMC's primary business and want greater exposure to lithium will soon be able to have their cake and eat it too, after the two businesses separate. (More on that below.)

Person's hand holding an EV charger and about to charge (or just finished charging) his or her white vehicle. A city in background.

Image source: Getty Images.

2. Company raised its 2018 guidance for its lithium business

From Brondeau's remarks: 

We now expect full year revenue for lithium to be in the range of $430 million to $460 million, a year-over-year increase of 28% at the midpoint. Full year EBITDA is now expected to be in the range of $193 million to $203 million, which represents an increase at the midpoint of 40% year-over-year and $8 million versus our February guidance.

This one speaks for itself. 

3. Management expects lithium prices to rise through 2020

From Brondeau's remarks: 

Prices in 2018 will be higher than in 2017 across all [lithium] product categories. The majority of our 2018 forecast revenue fall under multiyear contracts that have defined pricing, and we believe this trend will continue in 2019 and beyond. We expect that by the end of this year, we will have 80% of our 2020 lithium hydroxide capacity of 30,000 metric tons committed under long-term contract. To that end, our current expansion in both carbonate and lithium hydroxide are on track. 

FMC knows for sure that it will realize higher lithium prices this year than last year. And Brandeau also added that, based on the company's long-term contract stipulations and its knowledge of the market, management is "pretty sure" prices will continue to rise through 2020.

4. Its lithium business IPO is on schedule for October

From CFO Paul Graves' remarks:

We remain on track to IPO the business in October of this year. We will be looking to file with the SEC [Securities and Exchange Commission] this summer, and we'll have a clearer view of the timing when we get our first set of comments back.

FMC management previously said that it was targeting autumn for the initial public offering of its lithium business, but investors didn't have a more narrow time frame until now. The IPO will be followed within six months by the spinoff of the remaining shares of the lithium business to FMC Corp. shareholders.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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