Albemarle (ALB 1.71%) stock gained 1.6% on Thursday, following the lithium-producing giant's release of strong first-quarter 2023 results on the prior afternoon. The stock's modest gain is largely attributable to first-quarter earnings speeding by Wall Street's expectation, along with management's positive comments in the earnings release and on the earnings call about the company's long-term growth prospects.
The stock's rise was held back, however, by management significantly lowering its 2023 guidance for both the top and bottom lines and other key metrics, citing falling lithium prices. Indeed, spot lithium carbonate prices in China have declined substantially this year but are still higher than they were a couple of years ago before the rapid run-up.
Albemarle's key numbers
| Metric | Q1 2022 | Q1 2023 | Change YOY |
|---|---|---|---|
| Revenue | $1.13 billion | $2.58 billion | 129% |
| Net income | $253 million | $1.24 billion | 389% |
| Earnings per share (EPS) | $2.15 | $10.51 | 389% |
| Adjusted EPS | $2.38 | $10.32 | 334% |
Data source: Albemarle. YOY = year over year.
The quarter's growth was heavily driven by continued soaring demand for the company's lithium products that can be used to produce lithium-ion batteries for electric vehicles (EVs).
Wall Street was looking for adjusted EPS of $7.03 on revenue of $2.73 billion. So the company crushed the profit expectation but missed the revenue estimate.
In Q1, Albemarle generated cash of $721 million running its operations, about 3.5 times the cash it generated in the year-ago period. It ended the year with $1.6 billion in cash and cash equivalents and $3.2 billion in long-term debt.
For context, in the prior quarter (Q4 2022), the company's revenue surged 193% year over year to $2.62 billion, and its adjusted EPS skyrocketed 753% to $8.62.
Segment performance
| Segment | Q1 2023 Revenue | Change YOY | Q1 2023 Adjusted EBITDA | Change YOY |
|---|---|---|---|---|
| Energy storage | $1.94 billion | 319% | $1.41 billion | 393% |
| Specialties | $418.8 million | (6%) | $162.2 million | 6% |
| Ketjen (the catalysts business) | $217.8 million | Flat | $14.5 million |
(14%) |
| Corporate | -- | -- | $12.8 million | Increase from a loss of $22.8 million in the year-ago period. |
| Total | $2.58 billion | 129% | $1.60 billion | 269% |
Data source: Albemarle. YOY = year over year. EBITDA = earnings before interest, taxes, depreciation, and amortization.
Energy storage's sales growth was primarily driven by higher pricing net of foreign exchange (301%), stemming from renegotiated contracts and increased lithium market pricing. An 18% sales-volume increase also contributed to growth.
What happened with Albemarle in the quarter and through the earnings release?
- The company selected a location for its new U.S. lithium processing facility: Richburg, South Carolina (a rural area located about 40 miles south-southwest of Charlotte, North Carolina).
- It signed an agreement with Mineral Resources, an iron ore and lithium miner based in Australia, to restructure the two companies' MARBL Lithium joint venture in Australia.
- It also signed an agreement with Mineral Resources for the latter to invest in Albemarle's lithium conversion assets in China.
- On May 3, it announced that it had decided to build a third and fourth train at its Kemerton lithium hydroxide processing plant in Australia. These two additional trains will enable it to increase its processing capacity.
2023 guidance lowered
Management lowered its annual outlook because lithium prices have declined this year. It had set its initial guidance in February using the assumption that average lithium prices in 2023 would be flat with year-end 2022 prices.
| Metric | 2022 Result | Initial 2023 Guidance (Feb. 2023) | Current 2023 Guidance | Annual Growth Implied by Guidance* |
|---|---|---|---|---|
| Revenue | $7.32 billion | $11.3 billion to $12.9 billion | $9.8 billion to $11.5 billion |
34% to 57% (prior: 55% to 76%) |
| Adjusted EBITDA |
$3.48 billion |
$4.2 billion to $5.1 billion | $3.3 billion to $4 billion |
(5%) to 15% (prior: 20% to 47%) |
| Adjusted EBITDA margin | 47.5% | 37% to 40% | 34% to 35% |
Decrease of 13.5 to 12.5 percentage points (prior: decrease of 10.5 to 7.5 percentage points) |
| Adjusted EPS | $21.96 | $26.00 to $33.00 | $20.75 to $25.75 |
(6%) to 17% (prior: 18% to 50%) |
| Cash from operations | $1.91 billion | $2.1 billion to $2.4 billion | $1.7 billion to $2.3 billion | (11%) to 20% (prior: 10% to 26%) |
| Capital expenditures | $1.26 billion | $1.7 billion to $1.9 billion | $1.7 billion to $1.9 billion (no change) | 25% to 51% |
Data source: Albemarle. *Calculations by author.
A great quarter, but investors need to monitor the Chile lithium situation
In short, Albemarle turned in another stellar quarter, thanks largely to robust demand for its lithium products. The substantial guidance cuts are disappointing, but the company's long-term prospects still look bright, with a notable caveat: If Chile nationalizes its lithium supply, as top political leaders have recently proposed, Albemarle could be hurt. While the company is aggressively diversifying its lithium sources, its largest source remains the Salar de Atacama in Chile.
