Albemarle (ALB 1.65%) stock fell 1.8% on Thursday following the giant lithium producer's release on the prior afternoon of its second-quarter 2023 report.
The stock's modest decline might lead some investors to believe the report was only so-so or slightly negative. This was not the case -- the report was very good. Indeed, shares had gained more than 5% in Wednesday's after-hours trading session. Thursday's reversal probably had as much to do with broader market dynamics as with Albemarle. All major stock indexes were down slightly on Thursday.
The quarter's earnings raced by Wall Street's expectation, though revenue fell somewhat short of the consensus estimate. The big earnings beat, of course, was a positive, but the best part of the report was management increasing its 2023 guidance for revenue and earnings.
Albemarle's key numbers
| Metric | Q2 2022 | Q2 2023 | Change YOY |
|---|---|---|---|
| Revenue | $1.48 billion | $2.37 billion | 60% |
| Net income | $407 million | $650 million | 60% |
| Adjusted net income | $406 million | $864 million | 114% |
| Earnings per share (EPS) | $3.46 | $5.52 | 60% |
| Adjusted EPS | $3.45 | $7.33 | 112% |
Data source: Albemarle. YOY = year over year.
As has been the case for some time now, the quarter's growth was heavily driven by soaring demand for the company's lithium products that can be used to produce lithium-ion batteries for electric vehicles (EVs). These lithium products fall within its energy storage segment.
Wall Street was looking for adjusted earnings per share (EPS) of $4.44 on revenue of $2.43 billion. So the company crushed the profit expectation but missed the revenue estimate.
For the first half of the year, Albemarle generated cash of $794.7 million running its operations, up significantly from $60.3 million in the year-ago period. It ended the quarter with $1.6 billion in cash and equivalents and $3.5 billion in long-term debt.
For context, in this year's Q1, the company's revenue surged 129% year over year to $2.58 billion, and its adjusted EPS skyrocketed 334% to $10.32.
Segment performance
| Segment | Q2 2023 Revenue | Change YOY | Q2 2023 Adjusted EBITDA | Change YOY |
|---|---|---|---|---|
| Energy storage | $1.76 billion | 120% | $932 million | 93% |
| Specialties | $371 million | (21%) | $60 million | (59%) |
| Ketjen (the catalysts business) | $236 million | 12% | $43 million |
338% |
| Corporate | -- | -- | ($3 million) | Significantly lower than the over $30 million in the year-ago period. |
| Total | $2.37 billion | 60% | $1.03 billion | 69% |
Data source: Albemarle. YOY = year over year. EBITDA = earnings before interest, taxes, depreciation, and amortization.
The energy storage segment's sales growth was primarily driven by higher lithium prices stemming from "tight market conditions." A 36% sales-volume increase also contributed to growth.
The big increase in Ketjen's adjusted EBITDA was primarily driven by an insurance claim receipt.
What happened with Albemarle in the quarter and through the earnings release?
- In May, the company entered into a strategic agreement with Ford to supply the automaker with over 100,000 metric tons of battery-grade lithium hydroxide from 2026 to 2030. This quantity will reportedly be able to produce about 3 million Ford EV batteries.
- In July (just after the quarter ended), it amended the terms of the transaction signed earlier this year with Mineral Resources, an ore and lithium miner based in Australia, to significantly simplify operations at their Australian joint venture and retain full control of downstream lithium-conversion assets in China.
2023 revenue and earnings guidance raised (after being significantly lowered last quarter)
Management increased its annual revenue and earnings outlook because of recently rising lithium market prices.
The decrease in cash from operations guidance was driven by
changes in working capital related to timing of Energy Storage shipments and agreements in principle to resolve the previously disclosed matter with the U.S. Department of Justice and the Securities Exchange Commission.
This matter relates to foreign bribery probes.
The increase in planned capital expenditures stems from the company retaining full ownership in the lithium-processing assets under its amended agreements with Mineral Resources, discussed previously.
| Metric | 2022 Result | Initial 2023 Guidance (Feb. 2023) | Guidance Issued in May 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 | $10.4 million to $11.5 million |
42% to 57% [prior: 34% to 57%] |
| Adjusted EPS | $21.96 | $26.00 to $33.00 | $20.75 to $25.75 | $25.00 to $29.50 |
14% to 34% [prior (6%) to 17%] |
| Cash from operations | $1.91 billion | $2.1 billion to $2.4 billion | $1.7 billion to $2.3 billion | $1.2 million to $1.8 million | (37%) to (6%) [prior (11%) to 20%] |
| Capital expenditures | $1.26 billion | $1.7 billion to $1.9 billion | $1.7 billion to $1.9 billion (no change) | $1.9 million to $2.1 million | 51% to 67% [prior: 25% to 51%] |
Data source: Albemarle. *Calculations by author.
In short, Albemarle turned in another very good quarter. The brightest spot was the raise in 2023 guidance for the top and bottom lines.
