What happened
Shares of lithium mining company Albemarle (ALB 2.09%) crashed Thursday, down 17.6% as of 12:12 p.m. ET despite it reporting an "earnings" beat for its fiscal fourth quarter 2021 last night.
Analysts had forecast that Albemarle would earn $0.99 per share on sales of $894.5 million in Q4, but the company actually earned two cents more than that -- $1.01 -- despite selling slightly less lithium than expected, $894 million.
Image source: Getty Images.
So what
So why are investors selling Albemarle stock on what sounds -- at first -- to be pretty decent news?
Albemarle characterized its Q4 performance as "strong," even though sales inched up only 2% year over year, a deceleration from earlier quarters. Also, the $1.01 per share profit mentioned above turns out to have been only a pro forma number. When calculated according to generally accepted accounting principles (GAAP), Albemarle actually lost $0.03 per share for the quarter.
For the full fiscal year 2021, Albemarle booked a 6% increase in sales -- $3.3 billion. GAAP earnings, however, fell steeply, down 70% year over year to just $1.06 per share. And Albemarle's continued investments in capacity expansion meant that free cash flow turned even more deeply negative.
Instead of burning $51.6 million in cash, as it did in 2020, in 2021 Albemarle held a veritable cash bonfire, burning through $609.5 million in negative free cash flow.
Now what
So as it turns out, 2021's news was not quite as good as it first appeared. Albemarle management, however, promised that its performance will "improve relative to full-year 2021" in 2022.
In particular, management is guiding toward revenue of between $4.2 billion and $4.5 billion -- at least a 27% improvement over 2021's numbers. Management did not give GAAP guidance for the coming year, saying only that "adjusted" diluted earnings per share should range from $5.65 to $6.65 per share.
Sadly, whichever flavor of "earnings" you favor, the one thing that seems certain is that Albemarle will continue burning cash like mad in 2022. Guidance calls for operating cash flow of now more than $500 million, and capital expenditures of from $1.3 billion to $1.5 billion.
Long story short: Free cash flow of negative $1 billion this year looks like a distinct possibility.
