Sociedad Quimica y Minera de Chile (SQM -0.46%), or SQM, stock fell 9.2% on Thursday, following the lithium giant's release of third-quarter 2022 results on the prior evening.
The quarter's revenue and earnings easily exceeded the Wall Street consensus estimates. Moreover, the Chile-based company's outlook for its overall business and its lithium segment remains very bright.
It seems likely that SQM stock's post-earnings-release pullback was largely driven by market dynamics and profit taking. The broader market was slightly down on Thursday and lithium stocks in general declined even more. Shares of major lithium producers Albemarle and Livent fell 3.3% and 3.1%, respectively.
Going into the report on Wednesday evening, SQM shares had returned 115% in 2022, while the S&P 500 was in the red by more than 20% over this period. With such a big gain and some investors increasingly concerned about a possible recession, it would be expected that some short-term traders and investors would take some profits. Even after the recent pullback, SQM stock has returned 88% this year, through Nov. 18.
SQM's key numbers
| Metric | Q3 2021 | Q3 2022 | Change |
|---|---|---|---|
| Revenue | $661.6 million | $2.96 billion | 347% |
| Net income | $106.1 million | $1.10 billion | 937% |
| Earnings per share (EPS) | $0.37 | $3.85 | 941% |
Data source: SQM.
Wall Street was looking for EPS of $3.38 on revenue of $2.78 billion, so the company comfortably beat both expectations. Gross margin (gross profit divided by revenue) was 55.2%, up from 34% in the year-ago period and also higher than the prior quarter's 49.9%.
SQM ended the quarter with $3.51 billion in cash and cash equivalents and $2.2 billion in long-term debt.
For context, in the second quarter, revenue soared 342% year over year to $2.6 billion. Growth was driven by the lithium and derivatives segment's revenue skyrocketing 1,033% to $1.85 billion.
SQM's revenue by business
| Segment | Q3 2022 Revenue | Change YOY |
|---|---|---|
| Lithium and derivatives | $2.33 billion | 1,161% |
| Specialty plant nutrition (SPN) | $293 million | 28% |
| Iodine and derivatives | $215 million | 98% |
| Potassium chloride and potassium sulfate | $60.2 million | (32%) |
| Industrial chemicals | $45.2 million | 12% |
| Other | $10.5 million | 13% |
| Total | $2.96 billion | 347% |
Data source: SQM. YOY = year over year.
The lithium segment's powerful growth is primarily being driven by robust demand for the metal to produce lithium-ion batteries for electric vehicles.
Its year-over-year results benefited from an increase in volume sold and significantly higher prices. Sales volume rose 89% year over year to 41.6 metric tons (MT) of lithium carbonate equivalent (LCE), a record high. SQM realized an average price of more than $56,000 per MT -- also a record high -- up from about $8,400 per MT in the year-ago period.
Sequentially, the lithium segment's revenue rose 26% from the second quarter. This increase was due to a 4% rise in price and a 22% rise in sales volume.
The company's iodine business was also a standout performer. Its 98% year-over-year revenue growth was driven by a 9% rise in sales volume, with a higher realized average price accounting for the remainder of the revenue growth. Volume growth was primarily driven by increased demand for iodine for X-ray contrast media and liquid crystal display (LCD) applications. The big price increase was due to a tight market.
2022 lithium sales volume guidance increased
SQM turned in another great quarter. Moreover, management, once again, brightened its 2022 outlook for its lithium business.
It now expects global demand for lithium to grow about 40% in volume in 2022, driven by continued robust EV sales. This is an increase from the prior estimate of 35%. In addition, the company now projects that its lithium sales volume for the year will surpass 150,000 MT of LCE, an increase of 5,000 MT from the prior estimate. For context, in 2021, SQM's lithium sales volume was 101,100 MT of LCE.
