Chilean lithium giant Sociedad Quimica y Minera de Chile (SQM 1.45%), or SQM, released lower-than-expected third-quarter revenue and earnings on Wednesday night. The main culprits for the disappointing results were significantly lower average sales prices in the company's lithium and fertilizer businesses.
SQM's report doesn't bode well for its stock's performance on Thursday. That said, the stock's price movement will also be influenced by the information management shares on Thursday's earnings call and the overall performance of the market.
SQM is widely viewed as the world's second-largest lithium producer, behind North Carolina-based Albemarle. Demand for the silvery-white metal has surged in recent years, driven by the rapid adoption of electric vehicles (EVs), which are powered by lithium-ion batteries. However, after soaring to all-time highs last year, lithium prices have significantly retreated.
SQM's key numbers
| Metric | Q3 2022 | Q3 2023 | Change |
|---|---|---|---|
| Revenue | $2.96 billion | $1.84 billion | (38%) |
| Net income | $1.10 billion | $479.4 million | (56%) |
| Earnings per share (EPS) | $3.85 | $1.68 | (56%) |
Data source: SQM.
Wall Street was looking for EPS of $2.11 on revenue of $1.9 billion, so the company fell short of both expectations.
Gross margin (gross profit divided by revenue) was 40.9%, down from 55.2% in the year-ago period.
The company ended the quarter with $1.19 billion in cash and cash equivalents and $2.48 billion in long-term debt.
Revenue by business
| Segment | Q3 2023 Revenue | Change YOY |
|---|---|---|
| Lithium and derivatives | $1.28 billion | (45%) |
| Specialty plant nutrition (SPN) | $222 million | (24%) |
| Iodine and derivatives | $213 million | (1%) |
| Potassium chloride and potassium sulfate | $75.2 million | 25% |
| Industrial chemicals | $43.4 million | 4% |
| Other | $9.1 million | (14%) |
| Total | $1.84 billion | (38%) |
Data source: SQM. YOY = year over year.
In the earnings release, CEO Ricardo Ramos summed up the quarter by saying, "results were impacted by significantly lower average sales prices in lithium and fertilizer business lines, partially offset by higher sales volumes, when compared to the same period last year, and higher iodine sales prices."
In Q3, the lithium segment's sales volume increased 4% from the year-ago period to over 43,300 metric tons (MT) of lithium carbonate equivalent (LCE), a quarterly record. However, this small volume gain was more than offset by a much lower average realized price, which dropped 47% year over year.
For context, in the second quarter, the lithium segment's revenue declined 21% year over year to $1.46 billion. The segment's sales volume jumped 26% from the year-ago period, but this volume gain was more than offset by the average realized price falling 37% year over year.
For more context, in Q3, lithium goliath Albemarle's energy storage segment (which includes all lithium used for EV batteries and other energy storage end uses) grew 20% year over year to $1.7 billion.
SQM's specialty plant nutrition business also had a poor quarter, with revenue declining 24% year over year. Pricing was the culprit here, too. The segment's volume was up 8%, but this gain was more than offset by a significantly lower average realized price.
Looking ahead
SQM doesn't provide quarterly or annual guidance. That said, Ramos commented on management's broad outlook for lithium demand and prices:
We continue to see strong fundamentals behind long-term lithium demand growth, supported by strong EV sales volumes and decarbonization targets across the globe. However, the excess of inventory accumulated across battery and lithium chemical supply chains, particularly in Asia, as well as additional lithium supply, have put pressure on lithium market prices and could continue to have a negative impact on lithium prices in the short term.
The company's shorter-term outlook is brighter for its specialty plant nutrition business. It said in the earnings release that it believes pricing could have hit a bottom and that the market could rebound in 2024.
