Albemarle (ALB 1.65%) stock gained 1.4% on Thursday, following the giant lithium producer's release of its third-quarter 2023 report on the prior afternoon.
The stock's gain is attributable to market dynamics, not the company's earnings report. The stock market had a great day on Thursday, driven by the release of economic data suggesting a cooling off of labor market-driven inflation.
Indeed, Albemarle stock was down 5.1% in Wednesday's after-hours trading session, and also opened in the red on Thursday. In other words, investors viewed the report somewhat -- but not overwhelmingly -- negatively. That's because the quarter's revenue and adjusted earnings both missed Wall Street's consensus estimates, and management lowered its full-year 2023 guidance for the top and bottom lines, along with cash flow from operations.
Albemarle's key numbers
| Metric | Q3 2022 | Q3 2023 | Change |
|---|---|---|---|
| Revenue | $2.09 billion | $2.31 billion | 10% |
| Net income | $897.2 million | $302.5 million | (66%) |
| Adjusted net income | $883.5 million | $322.6 million | (63%) |
| Earnings per share (EPS) | $7.61 | $2.57 | (66%) |
| Adjusted EPS | $7.50 | $2.74 | (63%) |
Data source: Albemarle.
The quarter's growth was largely driven by strong demand for the company's lithium products to make 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 $4.05 on revenue of $2.55 billion. So the company fell significantly short of both expectations.
For the first three quarters of the year, Albemarle generated cash of $1.42 billion running its operations, up 49% from the year-ago period. It ended the quarter with $1.6 billion in cash and equivalents and $3.5 billion in long-term debt.
Segment performance
| Segment | Q3 2023 Revenue | Change YOY | Q3 2023 Adjusted EBITDA | Change YOY |
|---|---|---|---|---|
| Energy storage | $1.7 billion | 20% | $407.5 million | (62%) |
| Specialties | $352.7 million | (20%) | $46.3 million | (65%) |
| Ketjen (the catalysts business) | $260.7 million | 11% | $15.2 million |
227% |
| Corporate | -- | -- | ($15.7 million) | Expense lower than the $32.9 million in the year-ago period |
| Total | $2.31 billion | 10% | $453.3 billion | (62%) |
Data source: Albemarle. YOY = year over year. EBITDA = earnings before interest, taxes, depreciation, and amortization.
The energy storage segment's sales growth was driven by 40% higher volumes, offset by a lower average realized price. The production increase came from the company's La Negra III/IV expansion at its Chile brine mining operation, its processing plant in Qinzhou, China, and higher tolling volumes. The 62% drop in its adjusted EBITDA stems largely from higher spodumene pricing in costs of goods sold. (Spodumene is a lithium-bearing mineral obtained by hard-rock mining, which is processed into battery-grade lithium hydroxide.)
Ketjen's big profitability increase was driven by higher prices, primarily for fluid catalytic cracking and clean fuel technologies, and lower energy costs.
Key happenings in the quarter
- In September, the company "signed agreements with Caterpillar to collaborate on solutions to support the full circular battery value chain and sustainable mining operations," it said in the release. More specifically, this teaming is focused on Albemarle's plans to restart its hard-rock lithium mine in Kings Mountain, N.C.
- Also in September, Albemarle was awarded a $90 million critical materials grant from the U.S. Department of Defense to support restarting mining in Kings Mountain, NC. At one time, this mine was one of the world's largest lithium producers. It closed in the late 1980s because less costly sources of lithium (from underground brine) were found in South America.
What the CEO had to say
Here's what CEO Kent Masters had to say in the earnings release:
Albemarle grew net sales by 10%, driven by higher volumes in our Energy Storage business. In the third quarter, we formed new strategic partnerships and streamlined our existing MARBL joint venture to better position Albemarle for long-term growth. Our investments across the globe continue to progress, with the Meishan [China] project ahead of schedule for completion in early 2024. Through our operating model, Albemarle Way of Excellence, we are on track to achieve more than $170 million in productivity benefits in 2023 and expect to achieve additional benefits in 2024 as we continue to operate with a disciplined approach.
The Meishan, China, facility will be a conversion plant, which will process a lithium feedstock (spodumene) into battery-grade lithium hydroxide. Originally, the plant, which has a designated capacity of 50 ktpa (kilotons per annum), had been scheduled for completion in late 2024.
2023 guidance lowered for revenue, adjusted EPS, and cash flow from operations
There's a lot of data in this table, but I think it's beneficial for investors to see the full progression of the company's 2023 guidance.
| Metric | 2022 Result | Initial 2023 Guidance (Feb. 2023) | Guidance Issued in May 2023 | Guidance Issued in August 2023 | Current 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 billion to $11.5 billion | $9.5 billion to $9.8 billion |
30% to 34% [prior: 42% to 57%] |
| Adjusted EPS | $21.96 | $26.00 to $33.00 | $20.75 to $25.75 | $25.00 to $29.50 | $21.50 to $23.50 |
(2%) to 7% [prior 14% to 34%] |
| Cash from operations | $1.91 billion | $2.1 billion to $2.4 billion | $1.7 billion to $2.3 billion | $1.2 billion to $1.8 billion | $600 million to $800 million | (69%) to (58%) [prior (37%) to (6%)] |
Data source: Albemarle. *Calculations by author.
In short, Albemarle turned in a somewhat disappointing report. But as the world's largest lithium producer, the company's stock is still worth at least watching for investors focused on the long term.
Over the years, many so-called "experts" have overestimated how quickly companies will be able to ramp up lithium production. So, it seems highly possible that the projections of a glut of lithium hitting the market as soon as next year are overstated. And even if there is a glut next year, it shouldn't last for an extended period, given the humongous amount of lithium needed for the transition of the world's vehicle fleet to one that's electrically powered.
