Albemarle topped Q3 earnings estimates after the close on Wednesday, but sales missed and the company slightly more muted guidance. The weakness wasn't focused on lithium, though, but on bromine, amid soft end markets including electronics and construction. ALB stock fell in early Thursday stock market action, then powered into positive ground, back near key support.
A day earlier, Livent's results and outlook weighed on lithium stocks, but LTHM stock recouped some of those losses on Thursday.
Livent earnings topped forecasts after Tuesday's close, but revenue fell short. Both Albemarle and Livent lowered the top end of revenue and earnings guidance, though for somewhat different reasons.
Why Livent Revenue Is Falling Short
Albemarle's lithium business surged 318% from a year ago to $1.5 billion, or 72% of total company revenue. By comparison, Livent's 124% sales growth looks tepid.
Logistics issues seem to be part of the explanation for the trimmed guidance. CEO Paul Graves said in the earnings statement that some deliveries are being pushed into the next quarter. Conservative contract structures are another 1ssue. About 70% of Livent's supply has been sold at fixed prices that don't reflect much of the run-up in prices.
But Graves said in the conference call that Livent is on track for a 25% boost in volumes next year. That portion can be sold at market prices. He added that "the day of the fixed-price contract has been killed by the last 12 months" of soaring lithium prices. That will be evident in Livent results in 2024 and 2025, he said.
Albemarle Earnings
Estimates: Albemarle was expected to post a profit of $6.95 a share, up 562%. Revenue was seen climbing 192% to $2.25 billion.
Results: EPS surged 614% to $7.50. Revenue grew 152% to $2.092 billion.
Outlook: Albemarle reaffirmed its full-year guidance for lithium division EBITDA growth of 500% to 550%. That outlook is now building in potential for upside in average pricing, but also some possible downside for Q4 volume growth, if production ramps hit some speed bumps.
Including its bromine and catalyst divisions, Albemarle narrowed full-year revenue guidance to a range of $7.1 billion to $7.4 billion, with the top end slipping from $7.5 billion. Albemarle narrowed guidance for full-year EPS to a range of $19.75 to $21.75 from $19.25 to $22.25.
Livent Earnings
Estimates: Livent earnings per share were seen rocketing 1200% to 39 cents. Revenue is expected to grow 143% to $251.9 million.
Results: Livent earnings per share vaulted to 41 cents. Revenue rose 124% to $231.6 million.
Outlook: Livent narrowed its full-year revenue guidance to a range of $815 million to $845 million from $800 million to $860 million. Guidance for adjusted EBITDA went to a range of $350-$370 million from $325-$375 million.
For 2023, Livent said its capacity ramp is on target, with an extra 6,000 tons of added production available. A higher percentage of its volume will be "exposed to market-based prices," the company said. That will be good news, assuming that lithium prices remain elevated.
However, the company also said it expects greater cost pressures and will boost capital spending.
Lithium Stocks: LTHM, ALB
ALB stock slid as much as 6% in early Thursday stock market action, but fought back to close up 2.95% at 274.56. That followed a 4.5% drop in Wednesday's regular session, which saw ALB stock undercut its 50-day moving average. Albemarle stock closed just shy of that key technical level on Thursday.
In the run-up to earnings, ALB stock made a nice move above its 50-day line, edging past last week's high of 287.07. That action help land Albemarle on the watchlist of the IBD Leaderboard portfolio of elite stocks.
LTHM stock likewise made a move past an early entry point on Tuesday, before reversing lower ahead of earnings.
However, investors are advised against buying just before earnings, and that caution again proved wise this week.
LTHM stock dived 9.3% to 28.43 on Wednesday, slicing through its 50-day moving average. But LTHM bounced 3.4% to 29.40 on Thursday.
LTHM stock is now 19% below its 52-week high of 36.38 touched on Sept. 9. Livent has an official buy point of 36.48.
ALB stock closed 11% below its 52-week high of 308.24 on Sept. 14. ALB stock now has a 289.15 buy point from a double-bottom base.
Lithium Price Keeps Climbing
The move by LTHM and ALB stocks ahead of earnings came as the price of lithium, the key ingredient in EV batteries, keeps defying Wall Street predictions of a big price drop. This week, the spot price of lithium carbonate has climbed to a record 564,500 yuan per ton, up 190% from a year ago. That's equivalent to nearly $78,000.
That follows a prediction from Morgan Stanley earlier this month that the current lithium supply deficit will turn to a surplus next year. By 2024, spot lithium prices would fall by about 75%.
Other industry specialists have panned predictions like Morgan Stanley's, arguing that optimistic lithium supply projections almost never come to fruition. Mining timelines get pushed out and quality issues often arise.
Still, lithium stock skeptics have another arrow in their quiver now. The issue isn't just a potential oversupply, but a coming hit to demand from a possible global recession.
On Oct. 17, JPMorgan analyst Jeffrey Zekauskas started coverage of Livent with a neutral rating and 28 price target for LTHM stock. He wrote that global economic weakness could slow the fast-growing EV market, easing tight lithium supplies.
Inflation Reduction Act Impact
Yet so far, lithium producers are in the driver's seat as battery and EV makers jockey for supply. In July, Livent announced a new supply agreement reached with General Motors, which will see Livent build out processing capacity in the U.S. That will be key for GM EVs to qualify for $7,500 tax credits under the Democrats' Inflation Reduction Act, signed into law in August.
GM agreed to pay Livent $198 million in advance to secure supply starting in 2025.
The law includes a 10% tax credit to offset production costs of key battery materials like lithium.
