Lithium Maker Albemarle Crushed Earnings. Here’s Why the Stock Is Falling.

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Disappointing guidance from lithium miner

Albemarle

shows just how tough it can be to invest in commodity industries. Investors need to track spot prices, government policy, demand as well as supply. They also need to track how commodity producers choose to do business.

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, and higher lithium prices as well as a change in pricing strategy boosted both numbers substantially.

Overall, it’s an incredible quarter. The stock is down about 1.7% in after-hours trading because of changes to the company’s full-year 2023 outlook.

“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. Prior guidance given in February projected $11.3 billion to $12.9 billion. Earnings per share are now expected to be between $20.75 and $25.75 a share, 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 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 a metric ton and are now sitting at about $25,000 a metric ton.

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.

The difference in contracting philosophy can be seen in earnings of lithium mining peer

Livent

(LTHM). It reported first-quarter numbers Tuesday evening. It also posted a big earnings “beat” but the company raised its full-year 20203 guidance.

Livent

now expects earnings before interest, taxes, depreciation and amortization, or Ebitda, 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 results. Investors will have to wait until Thursday to see how bad it gets for Albemarle stock.

Coming into Thursday trading, Albemarle stock already reflects some bad news. Shares are down more than 20% year to date. The

S&P 500
and

Dow Jones Industrial Average
are up about 7% and 1%, respectively.

Declines leave Albemarle stock 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 just don’t know what to do with all the lithium pricing volatility.

Write to Al Root at [email protected]