Albemarle (ALB +6.79%) and Livent (LTHM +0.00%) reported their third-quarter 2022 results this week. So, investors can now compare the two major lithium producers' results in their lithium businesses.
There are a few things to keep in mind, including that long-term investors should not place too much weight on a single quarter's performance. Second, qualitative factors can be just as important as quantitative ones. Lastly, Albemarle has businesses other than lithium, so its results will also be affected by their performances. Even with these caveats, the data in this article should help you make better investing decisions in the lithium space.
Interest in lithium stocks has surged over the last year or so, as investors have taken notice of the powerful revenue and profit growth that the well-established lithium players have been pumping out. These performances are being primarily driven by the electric vehicle (EV) revolution, as lithium is used to produce the lithium-ion batteries that power EVs. Demand for the material has been outstripping supply, which has sent prices rocketing.
Lithium business revenue growth
|
Company |
Q3 2022 Result |
|---|---|
|
Albemarle |
$1.50 billion, up 318% year over year |
|
Livent | $231.6 million, up 124% year over year |
Data sources: Company earnings reports.
Winner: Albemarle
Albemarle, based in the U.S., gets the gold medal (or should it be a lithium medal?) for this category. Both companies had fantastic revenue growth, but Albemarle's topped that of its fellow U.S. company.
Albemarle's Q3 year-over-year revenue growth stems primarily from higher realized lithium prices, though higher sales volumes contributed 20% to total growth. Livent's growth was driven by higher realized lithium prices, as the company won't have any significant new production capacity come on line until next year.
NYSE: ALB
Key Data Points
Lithium business profit growth (using adjusted EBITDA)
Both companies use the same metric to gauge the profitability performance of their overall company: adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization). Albemarle uses this same metric to measure the profitability of each of its three business segments.
|
Company |
Q3 2022 Result |
|---|---|
| Albemarle |
$1.11 billion, up 786% year over year |
| Livent | $110.8 million, up 644% year over year |
Data sources: Company earnings reports.
Winner: Albemarle (though calling this one a tie also seems fair)
Albemarle gets the win here, though both companies have stellar numbers in this profit growth category. I'd not argue, however, with anyone who thinks this category should be deemed a draw. Indeed, the numbers are in the same general ballpark.
A note below addresses an issue with Livent's adjusted EBITDA. It's applicable in this category, too, but should have less of an impact in this category.
Lithium business profit margin (using adjusted EBITDA)
An adjusted EBITDA profit margin is calculated by dividing that metric by revenue.
|
Company |
Q3 2022 Result |
|---|---|
| Albemarle | 74% |
| Livent | 48% |
Data sources: Company earnings reports.
Winner: Albemarle
Albemarle is the clear winner here, though even Livent's profitability is just amazing for an industrial company.
This comparison isn't quite apples-to-apples, but it's the best we can do. The upshot is that Livent's lithium business is a little more profitable than the number above suggests, but we can't know by how much.
Explanation (skip this paragraph if you don't want to go into the weeds a bit): Albemarle breaks out its company-adjusted EBITDA by segment (lithium, bromine, and catalysts) and corporate. The latter is a negative number. Livent only provides a company-adjusted EBITDA because it has just one business segment. In other words, a negative adjusted EBITDA from its non-revenue-producing corporate operations is included in the adjusted EBITDA figure that it provides. So, its lithium business's adjusted EBITDA would be somewhat higher than what is shown in this article.
NYSE: LTHM
Key Data Points
Size of lithium business relative to overall business
This category doesn't lend itself well to choosing a winner, so it's not included in the scoring.
|
Company |
Q3 2022 Lithium Business's Percentage of Total Revenue |
Q3 2022 Lithium Business's Percentage of Total Adjusted EBITDA |
|---|---|---|
| Albemarle | 72% |
93% |
| Livent | 100% | 100% |
Data sources: Company earnings reports.
Winner: N/A
Investors looking for a lithium pure play should obviously favor Livent. Those who appreciate a little diversification should lean toward Albemarle. Some diversification is often a good thing. Having all its eggs in one basket tends to increase a company's risk profile.
And the winner is... Albemarle.
This face-off was a shut-out with Albemarle sweeping all three scoring categories. But keep in mind the several caveats mentioned at the top of the article.
There are also other factors to consider, including such things as financial liquidity and dividend policy (Albemarle pays a modest dividend, while Livent doesn't pay a dividend).
