Albemarle (ALB 1.65%) stock gained 2.7% on Thursday, following the giant lithium producer's release on the prior afternoon of its fourth-quarter 2023 report. This modest rise was likely in part due to the quarter's revenue and adjusted earnings per share (EPS) exceeding Wall Street's expectations. Shares also probably got a mild tailwind from the overall market, as all the major indexes were up.
On the negative side, however, the North Carolina-based specialty chemicals company's 2024 revenue guidance came in lighter than the analyst consensus estimate.
Albemarle's key quarterly numbers
| Metric | Q4 2022 | Q4 2023 | Change |
|---|---|---|---|
| Revenue | $2.62 billion | $2.36 billion | (10%) |
| GAAP net income | $1.13 billion | ($617.7 million) | Result flipped to negative from positive. |
| Adjusted net income excluding LCM charge* and tax valuation allowance expense | $1.02 billion | $217.6 million | (79%) |
| GAAP earnings per share (EPS) | $9.60 | ($5.26) | Result flipped to negative from positive. |
| Adjusted EPS excluding LCM charge and tax valuation allowance expense | $8.62 | $1.85 | (79%) |
Data source: Albemarle. GAAP = generally accepted accounting principles. *LCM = "Lower of cost or market" is an accounting principle that requires businesses to write down the value of their inventory to the lower of its cost or current market value. Albemarle's $604 million pre-tax LCM charge is due to the drop in lithium market pricing and higher spodumene (a lithium-bearing mineral obtained during hard-rock mining) values in cost of goods sold.
The quarter's sales decline was driven by lower realized lithium prices partially offset by higher sales volumes in the energy-storage segment and higher prices and volumes in the Ketjen segment. For clarification, the energy-storage segment includes the company's lithium products that are used to make lithium-ion batteries for electric vehicles (EVs) and other energy-storage applications. Lithium products for other uses, such as pharmaceutical and industrial, fall into the specialties segment.
Wall Street was looking for adjusted EPS of $1.01 on revenue of $2.18 billion. So, the company surpassed both expectations, with the bottom-line beat particularly sizable.
For full-year 2023, Albemarle generated cash of $1.33 billion running its operations, down 31% from the year-ago period. It ended the quarter (and year) with $890 million in cash and cash equivalents, down from $1.5 billion in the year-ago period, and long-term debt of $3.5 billion, up from $3.2 billion.
Segment quarterly performance
| Segment | Q4 2023 Revenue | Change YOY | Q4 2023 Adjusted EBITDA | Change YOY |
|---|---|---|---|---|
| Energy storage | $1.68 billion |
(15%) |
($338.3 million) | Flipped to negative from positive. Result was $1.18 billion in the year-ago period. |
| Specialties | $339.6 million | (16%) | $29.8 million | (68%) |
| Ketjen (the catalysts business) | $341.5 million | 45% | $31.3 million |
Flipped to positive from negative. Result was negative $2.6 million in the year-ago period. |
| Corporate | -- | -- | ($37.8 million) | Negative result higher than the negative $26.3 million in the year-ago period. |
| Total | $2.36 billion | (10%) | (315.0 million) | Flipped to negative from positive. Result was $1.24 billion in the year-ago period. |
Data source: Albemarle. YOY = year over year. EBITDA = earnings before interest, taxes, depreciation, and amortization.
The energy-storage segment's sales decline was driven by a 50% drop in average realized lithium price, partially offset by a 35% increase in volume. The volume rise was largely due to the company's expansion of its operations in Chile and higher tolling volumes. This segment's adjusted EBITDA loss was due to the lower lithium volumes and the pre-tax LCM charge described below the top table.
The specialties business is being hurt by softness in the consumer electronics and elastomers end markets.
Ketjen had a solid quarter, and management expects its good performance to continue through the year, driven by high refinery utilization and increased demand for clean fuel technology products.
What the CEO had to say
Here's part of what CEO Kent Masters had to say in the earnings release:
Albemarle's full-year 2023 result marks the second highest earnings year in company history, made possible by the disciplined focus of our global teams. Looking ahead, we are taking actions to enhance our financial flexibility, while advancing near-term growth and preserving future opportunities to create value.
2024 guidance
Management initiated 2024 guidance using three possible scenarios for lithium prices. This makes good sense, as it's early in the year, which makes it particularly challenging to predict what average lithium prices will be for 2024.
- Low lithium price scenario = $15/kilogram (kg) of lithium carbonate equivalent (LCE). This was the observed market price at the end of 2023.
- Middle scenario = $20/kg LCE. Q4 2023 observed market price average.
- High scenario = $25/kg LCE. Second half of 2023 observed market price average.
| Metric | 2023 Result |
2024 Guidance Low Lithium Price Scenario |
2024 Guidance Middle Lithium Price Scenario | 2024 Guidance High Lithium Price Scenario |
|---|---|---|---|---|
| Revenue | $9.617 billion | $5.5 billion to $6.2 billion | $6.1 billion to $6.8 billion | $6.9 billion to $7.6 billion |
| Annual revenue growth implied by guidance* | -- | (43%) to (36%) | (37%) to (29%) | (28%) to (21%) |
| Adjusted EBITDA | $3.6 billion** | $0.9 billion to $1.2 billion | $1.6 billion to $1.8 billion | $2.3 billion to $2.6 billion |
| Annual adjusted EBITDA growth implied by guidance* | -- | (75%) to (67%) | (56%) to (50%) | (36%) to (28%) |
Data source: Albemarle. *Calculations by author. **Result using the company's new definition of this metric beginning in 2024.
Going into the release, Wall Street was modeling for 2024 revenue of $7.1 billion. That number falls into Albemarle's high lithium price scenario rather than in the center of its range for the middle scenario. So, we can probably assume that analysts, as a whole, were expecting a higher revenue outlook.
Worth watching if you're a long-term investor
Albemarle turned in another disappointing quarter, but its Q4 results didn't come as much of a surprise, given the huge drop in lithium market prices over the last year-plus.
The company's overall results could remain disappointing over the short and medium terms because its energy-storage segment could remain challenged due to lithium market prices. However, at some point, lithium prices should spring back once the supply and demand picture is more favorable for lithium producers -- and, as the world's largest producer of this commodity, Albemarle is well poised to benefit when that occurs.
Demand for lithium still has a huge runway for growth, driven largely by the EV revolution. And supply should grow at a slower rate than it was poised to relatively recently because producers, such as Albemarle, are postponing some planned capacity expansions and, in some cases, pausing ones that have already started. Near-term, they're focusing on preserving cash.
