Lithium mining stocks are on a tear Thursday, with Albemarle (NYSE:ALB) up 10.8%, Lithium Americas (NYSE:LAC) rising 9.5%, and Livent (NYSE:LTHM) 7.7% higher as well — but it’s all because of Albemarle.
Yesterday evening after close of trading, Albemarle delivered a huge third-quarter earnings beat, reporting $1.09 per share in profit where Wall Street had expected only $0.78, and $747 million in revenue instead of the $740 million analysts had expected.
The news wasn’t all great for Albemarle, of course. For one thing, those profit numbers above were only pro forma numbers. When earnings are calculated according to generally accepted accounting principles (GAAP), it turns out Albemarle actually only earned $0.92 per share — and that was down 37% year over year. Sales, too, declined year over year, down 15%.
Still, Albemarle called the numbers “solid,” and noted that sales fell toward “the upper end of our outlook range,” with “adjusted EBITDA exceeding outlook.” While profits declined, Albemarle is taking steps to cut as much as $120 million in annual operating cost, and those cuts should be complete by the end of next year, boosting profits.
In the meantime, Albemarle issued new guidance for the rest of this year, predicting that sales will run between $3.05 billion and $3.15 billion. That would be a decline from last year — which is bad. On the other hand, the entirety of the new sales guidance range comes out above the $3.04 billion in sales that Wall Street had been predicting for 2020 — which is good.
This is probably the reason why Albemarle stock is moving higher today. And since sales strength in one commodity producer can reasonably be expected to extend even to its competitors, it’s probably the reason why shares of Livent and Lithium Americas stocks are moving higher today as well.
But as much as I’d like to leave you on that high note, there’s one final factoid that bears emphasizing: Even as Albemarle predicts above-consensus sales, it’s also warning that free cash flow this year is going to run increasingly negative — at least negative $140 million, and perhaps as bad as negative $240 million.
When you recall that Livent and Lithium Americas stocks, too, are burning cash, it seems clear to me that declining sales isn’t the only problem these companies face. And the fact that sales might not be declining as fast as previously feared might not be a very good reason to buy lithium stocks.