Lithium giant Albemarle (ALB -2.94%) released powerful fourth-quarter 2022 results after the market close on Wednesday, Feb. 15. Its growth driver continued to be its lithium business, which benefited from increased sales volumes and much higher prices relative to a year ago, thanks to robust demand for the metal to make lithium-ion batteries for electric vehicles (EVs).
The headline results didn't come as much of a surprise because the company released preliminary results in the form of relatively tight ranges at its investor event on Jan. 24. The same is true of 2023 guidance.
Albemarle's stock gained 7.2% in the three-day period following the release of the preliminary results. The market's positive reaction was attributable to fourth-quarter earnings coming in higher than Wall Street had been expecting, as well as management's rosy outlook for its business in 2023 and beyond.
Albemarle's key quarterly numbers
| Metric | Q4 2021 | Q4 2022 | Change YOY |
|---|---|---|---|
| Revenue | $894.2 million | $2.62 billion | 193% |
| Net income | ($3.8 million) | $1.13 billion | Result flipped to positive from negative. |
| Adjusted net income | $118.5 million | $1.02 billion | 758% |
| Earnings per share (EPS) | ($0.03) | $9.60 | Result flipped to positive from negative. |
| Adjusted EPS | $1.01 | $8.62 | 753% |
Data source: Albemarle. YOY = year over year.
Growth in the company's top line was largely driven by the lithium business, while growth in the bottom line was entirely driven by this segment.
Wall Street was looking for adjusted EPS of $8.28 on revenue of $2.63 billion. So the company beat the profit expectation and essentially hit the revenue estimate on target.
In 2022, Albemarle generated cash of $1.91 billion running its operations, compared to $344 million in the year-ago period. It ended the year with about $1.5 billion in cash and cash equivalents and $3.2 billion in long-term debt.
For context, in the third quarter of 2022, the company's revenue jumped 152% year over year to $2.09 billion, and its adjusted EPS skyrocketed 614% to $7.50.
Segment performance
| Segment | Q4 2022 Revenue | Change YOY | Q4 2022 Adjusted EBITDA | Change YOY |
|---|---|---|---|---|
| Lithium | $2.07 billion | 410% | $1.19 billion | 759% |
| Bromine | $319.4 million | 10% | $85 million | (3%) |
| Catalysts | $235.5 million | 18% | ($2.6 million) |
Loss widened 110% from the year-ago period. |
| Corporate | -- | -- | ($26.3 million) | Loss widened 9% from the year-ago period. |
| Total | $2.62 billion | 193% | $1.24 billion | 444% |
Data source: Albemarle. YOY = year over year. EBITDA = earnings before interest, taxes, depreciation, and amortization.
Lithium revenue growth of 410% consists of 328% higher lithium prices net of foreign currency changes and 82% higher volume. The increased volume is primarily due to the company's La Negra III/IV expansion in Chile and higher tolling volumes.
For context, in the third quarter, the lithium segment's revenue grew 318% year over year to $1.50 billion, and its adjusted EBITDA increased 786% to $1.11 billion.
2023 guidance
Management set the following guidance using the assumption that average lithium prices in 2023 will be flat with year-end 2022 prices.
| Metric | 2022 Result | 2023 Guidance | Annual Growth Implied by Guidance* |
|---|---|---|---|
| Revenue | $7.32 billion | $11.3 billion to $12.9 billion |
55% to 76% |
| Adjusted EBITDA |
$3.48 billion |
$4.2 billion to $5.1 billion |
20% to 47% |
| Adjusted EBITDA margin | 47.5% | 37% to 40% |
Decrease of 9.5 to 7.5 percentage points |
| Adjusted EPS | $21.96 | $26.00 to $33.00 |
18% to 50% |
| Cash from operations | $1.91 billion | $2.1 billion to $2.4 billion | 10% to 26% |
| Capital expenditures | $1.26 billion | $1.7 billion to $1.9 billion | 25% to 51% |
Data source: Albemarle. *Calculations by author.
The expected decline in adjusted EBITDA is not a cause for concern. The main reason for this expectation is the spodumene (a lithium-bearing mineral) inventory time lag, CFO Scott Tozier explained on the earnings call. In 2022, lithium prices rose so sharply that Albemarle benefited from the half-year between when it incurred the cost of spodumene and when it sold its refined lithium made from that spodumene.
In short, Albemarle turned in another great quarter. And unless a relatively deep and prolonged recession occurs, its growth prospects for the next couple of years look bright.
