Albemarle and Livent, the two lithium stocks reporting earnings this week, are heading in different directions because of different approaches to negotiating contracts. Albemarle crushed first-quarter earnings estimates late Wednesday but slashed its full-year outlook to reflect slumping lithium prices. That followed Livent's late-Tuesday report of a huge upside surprise for Q1 and modest raise for 2023.
Albemarle's lowered guidance didn't come as a surprise. Over the past 18 months, major lithium players restructured fixed-price contracts to take advantage of surging spot prices for the key EV battery material. Rising spot prices fueled big gains in sales and profits for lithium stocks like ALB, LTHM and SQM.
But with lithium stocks now much more exposed to spot-price movements, the downside of that strategy has arrived. That's especially true for Albemarle, which moved aggressively, largely completing a transition to contracts that more closely reflect market prices. However, Livent has said that 70% of contracts in 2023 would still be fixed price.
Albemarle Earnings
Estimates: Analysts expected Albemarle's Q1 earnings per share to surge 194% to $7. Revenue was seen growing 142% to $2.73 billion.
Results: Albemarle EPS soared 334% to $10.32, while revenue jumped 129% to $2.58 billion.
Outlook: Albemarle slashed 2023 sales guidance to a range of $9.8 billion-$11.5 billion from $11.3 billion-$12.9 billion. Ahead of Q2 results, analysts were predicting $11 billion in sales. Albemarle lowered its EPS outlook to $20.75-$25.75 from $26-$33. Analysts were forecasting $25.95.
Livent Earnings
Estimates: Analysts expected Livent to report a Q1 profit of 39 cents a share, up 86% from a year ago. Revenue was seen growing 63% to $233.5 million.
Results: Livent EPS surged 186% to 60 cents. Revenue grew 77% to $253.5 million.
Outlook: Livent bumped up 2023 revenue guidance to a range of $1.025 billion-$1.125 billion, raising the floor and ceiling by $25 million. Ahead of Q2 results, analysts were projecting $1.07 billion in full-year sales. The firm raised its outlook for adjusted EBITDA by $20 million to a range of $530 million-$600 million.
Livent's guidance reflects a planned 20% increase is sales volumes. Capacity expansions are on track, providing an additional 4,000 metric tons of volume in 2023 and 10,000 more in 2024.
Lithium Stocks: LTHM, ALB
ALB stock initially sold off in late Wednesday trade, but turned higher in early Thursday stock market action. ALB stock rallied at the open, rising 2.7% to 177.65. In Wednesday's regular session, ALB stock slipped 0.3% following news that it's undertaking a big capacity expansion in Australia.
LTHM stock jumped 6.95% to 22.48 on Wednesday, gapping above its 50-day moving average.
Neither stock had shown much fight lately. LTHM stock closed on Wednesday 38% below its all-time high last September. ALB stock has fallen 48% from its November peak and is testing its lowest levels since July 2021.
BMO Capital Markets analyst Joel Jackson said in a Wednesday note that Livent guidance suggests a near-term earnings peak in Q1. He kept a neutral rating and 30 price target for LTHM stock, citing risk around execution and high inflation.
TD Cowen analyst cut his ALB stock price target to 300 from 330 but kept an outperform rating.
The plunge in lithium prices and slashing of Albemarle's outlook may have de-risked lithium stocks to a significant degree after their sharp pullback. That's especially the case if lithium prices are headed higher in the second half of 2023, as one analyst recently forecast.
Lithium Price Outlook
In an April 20 note, Deutsche Bank analyst Corinne Blanchard said she now expects a modest lithium surplus in 2023 amid a 40% boost to expectations for Chinese output. However, Blanchard sees a bottom forming in Q2 and recovery in the second half of the year. In the medium to long term, she still sees a significant lithium supply shortage.
Blanchard cut her price targets for buy-rated lithium stocks SQM (to 90 from 95), ALB (to 240 from 325) and Lithium Americas (to 30 from 36).
Those price-target cuts came before Chilean President Gabriel Boric announced plans to partially nationalize the industry. The impact of Chile's new plan, which needs approval from the legislature under opposition control, is far from clear. Boric said the leases with Albemarle, up in 2043, and with SQM, up in 2030, will be honored. But the companies may need to restructure the leases in advance to get related regulatory approvals.
Despite softer lithium prices at the moment, Albemarle isn't slowing down. On Tuesday, the company said it will double production of lithium hydroxide at its Kemerton plant in Western Australia. When completed in 2026, capacity should reach 100,000 metric tons per year, enough to supply 2.4 million electric vehicles.
Albemarle will feed the new Kemerton capacity from its Greenbushes mine in Australia.
