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A lot of lithium used in EV batteries comes from salt brines. Here is Albemarle’s lithium mine in Calama, Chile.
Cristobal Olivares/Bloomberg
Disappointing guidance from the lithium miner
Albemarle
shows just how tough it can be to invest in commodity producers. Investors need to track spot prices, government policy, demand, and supply, not to mention the strategic choices of company management.
Wednesday evening,
Albemarle
(ticker: ALB) reported first-quarter adjusted earnings per share of $10.32 from sales of $2.6 billion. Wall Street was looking for $7 and $2.7 billion, respectively. A year ago, the company reported EPS of $2.38 and $1.1 billion in sales.
Sales rose about 129% year over year. Earnings jumped about 334%. Rising demand for lithium, higher lithium prices, and a change in pricing strategy boosted both numbers substantially.
Overall, it was an incredible quarter. The stock fell in after hours trading Wednesday, but shares were up 4.3% on Thursday at $180.39.
“We see strong sales volume growth for the rest of the year but have modified our guidance to reflect softening lithium market pricing,” said CEO Kent Masters in a news release. “We remain confident in the underlying market strength of our world-class asset base and our long-term growth strategy.”
Annual sales are now expected to fall between $9.8 billion and $11.5 billion, while management had projected $11.3 billion to $12.9 billion in February. Earnings per share are now expected to be between $20.75 and $25.75, down from a range of $26 to $33.
Wall Street is projecting 2023 earnings per share of about $26.
Volatile lithium prices drove the changes in guidance. Benchmark prices for lithium carbonate, a key component in the lithium-ion batteries that power electric vehicles from
Tesla
(TSLA) and others, peaked in November at around $90,000 per metric ton. They started 2023 at about $75,000 and are now at about $25,000.
Most business between miners and their customers is done with annual contracts. Albemarle, however, has been moving more to a model where spot pricing is reflected in those contracts more quickly than in the past.
“Live by sword, die by the sword,” wrote Evercore ISI analyst Stephen Richardson in a Wednesday report. He still rates shares Buy and has a $295 price target for the stock.
“Albemarle spent much of 2022 renegotiating and restructuring lithium contacts to better reflect market index pricing… plenty of moving parts, and headwinds to conviction, but much of the damage looks to be done here.”
Coming into Thursday trading, Albemarle stock was down about 20% so far this year. The
S&P 500
and
Dow Jones Industrial Average
are up about 7% and 1%, respectively.
The difference in contracting philosophy can be seen in the earnings of lithium mining peer
Livent
(LTHM). It reported first-quarter numbers Tuesday evening. It also posted a big earnings “beat,” but raised its full-year 20203 guidance.
Livent
now expects earnings before interest, taxes, depreciation and amortization to fall between $530 million and $600 million. Prior guidance, given in February, was a range of $510 million to $580 million. Wall Street currently projects 2023 Ebitda of $530 million.
Livent stock rose 7% in Wednesday trading, following its results. Investors appear to be fine with both pricing strategies.
The declines in Albemarle stock leave it trading for about six times earnings over the past 12 months. That’s a huge discount to the market’s ratio of roughly 19 times. Investors are struggling to factor the volatility of the lithium market into the prices of companies that produce the metal.
Write to Al Root at allen.root@dowjones.com
