Sociedad Quimica y Minera de Chile (SQM 2.46%), or SQM, stock jumped 5.6% on Thursday, May 19, following the lithium giant's release of powerful first-quarter 2022 results on Wednesday after the market close. The Chile-based specialty-chemicals company's results were driven by its lithium business, which benefited from booming demand and prices relative to the year-ago period. Demand for the metal has been robust because it's used in the lithium-ion batteries that power electric vehicles (EVs).
In 2022, SQM stock has returned 81% through Thursday. That performance leaves the broader market in the dust, as the S&P 500 index's return is underwater by nearly 18% so far this year. For additional context, shares of major lithium producers Albemarle and Livent have returned 2.5% and 18%, respectively, in 2022. (Click to read my Livent Q1 earnings article.)
Now let's dive into SQM's first-quarter numbers.
SQM's key numbers
|Metric||Q1 2022||Q1 2021||Change|
|Revenue||$2.02 billion||$528.5 million||282%|
|Net income||$796.1 million||$68.0 million||1,071%|
|Earnings per share (EPS)||$2.79||$0.26||973%|
"Our first quarter results reflect several positive circumstances; first, the impact of higher prices in all our business lines, where significant increases in lithium prices stand out, and second, the successful long-term, operational and commercial strategy," CEO Ricardo Ramos said in the earnings release.
Wall Street was looking for earnings of $1.28 per share on revenue of $1.28 billion. So the company crushed both expectations.
The quarter's gross profit was $1.16 billion, up from $136.6 million in the year-ago period. These results translated to gross margins (gross profit divided by revenue) of 57.7% and 25.9%, respectively.
SQM ended the quarter with $2.27 billion in cash and cash equivalents, up from $1.52 billion at the end of last quarter. It had $2.58 billion in long-term debt, which was about flat with last quarter.
SQM's revenue by business
|Segment||Q1 2022 Revenue||Change (YOY)|
|Lithium and derivatives||$1.45 billion||970%|
|Specialty plant nutrition (SPN)||$275.3 million||42%|
|Iodine and derivatives||$152.4 million||59%|
|Potassium chloride and potassium sulfate||$114.1 million||89%|
|Industrial chemicals||$27.1 million||(26%)|
In the first quarter, SQM's lithium business accounted for about 72% of its total revenue, so it's driving the company's overall results. The lithium segment benefited from both higher sales volumes and prices.
Sales volume was 38,100 metric tons (MT) of lithium carbonate equivalent (LCE), up 59% from the year-ago period. The company realized an average price of $38,000 per MT, an increase of 572% year over year.
SQM's iodine business also got a boost from the combination of higher prices and sales volumes, with average realized price surging 47% and volume rising 8% year over year. Sales-volume growth was driven by "strong demand recovery ... mostly related to X-ray contrast media and LCD [liquid crystal displays]," the company said in the earnings release.
Revenue growth in the company's fertilizer businesses -- specialty plant nutrition (SPN) and potassium chloride and potassium sulfate -- was driven solely by price increases. Prices rose sharply because of supply chain issues and inflationary pressures that were exasperated by Russia's invasion of Ukraine. Volumes declined because of a global shortage of fertilizer.
SPN's average price per MT and sales volume were up 89% and down 25%, respectively, year over year. The potassium segment's average price rocketed 170% from the year-ago period, while sales volume dropped 30%.
In short, SQM turned in a robust quarter. Management expects global demand for lithium to grow about 30% in volume in 2022, driven by continued strong EV sales. It also projects that its lithium sales volume for the year will surpass 140,000 MT of LCE. For context, in 2021, SQM's lithium sales volume was 101,100 MT of LCE.