What happened

It's a good-news/bad-news...worse-news kind of a day for investors in lithium mining companies Thursday. But let's start off with the good news: Albemarle (NYSE:ALB) just crushed on its Q1 2021 earnings report.

Heading into Q1, analysts had forecast that the lithium metals miner would earn $0.80 per share (pro forma) in Q1 on sales of just $757.7 million. As it turned out, though, when Albemarle reported its numbers last night, the company earned $1.10 per share (38% better than expected) on sales of $829.3 million (9% better than expected).

3 colorful arrows all pointing down

Image source: Getty Images.

So what

But if that's the case, then why is Albemarle stock down 9.6% as of 11:20 a.m. EDT today? Why are its peer producers of the lithium needed for electric car batteries, Lithium Americas (NYSE:LAC) and Livent (NYSE:LTHM), also down -- 9.2% and 9.6%, respectively?

Well, let's look at the numbers. On the one hand, Albemarle reported a strong 12% increase in revenue for the quarter and a 10% increase in pro forma earnings. That's pretty good news. On the other hand, though, when calculated according to generally accepted accounting principles (GAAP), Albemarle's profits didn't really measure up. Q1 GAAP earnings came in at a lowly $0.84, down 17% year over year -- the exact opposite of what the pro forma numbers implied.

Even worse for Albemarle, the company left its "full year 2021 guidance unchanged." While that sounds like a "no news is good news" situation, what it really means is that for every revenue dollar and profitable cent over what it was expected to record in Q1, it's telling investors to subtract an equal amount from their expectations for quarters two, three, and four. The "earnings beat" the company achieved in Q1 isn't raising expectations for the year ahead at all.

Now what

Instead Albemarle is telling investors it still thinks full-year 2021 sales will be no more than $3.3 billion, 2021 pro forma profits will be no better than $3.65 per share, and free cash flow for this year will be...negative. Indeed, the company left open the possibility that it will burn through as much as $475 million in cash this year.

That's the very opposite of good news for Albemarle, and when you recall that the company is operating in a cyclical industry, selling a commodity product virtually indistinguishable from the lithium that Livent produces, or that Lithium Americas hopes to produce, that bad news for Albemarle translates into a gloomy outlook for Livent and Lithium Americas as well, only modestly better than what we saw in 2020.  

And this, in a nutshell, is why all three of these lithium stocks are going down today.

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.