Just a day after Sarge fave Livent (LTHM) stunned the crowd when that firm reported with a beat, beat and raise, here comes Albemarle (ALB) , the blue chip in the lithium space with an even more impressive beat, beat and raise. Wow. Truth be told, I was long both of these names earlier this year on my own expectations for a burst in demand for lithium. As equity markets eroded throughout March, I had to cut risk and chose one... LTHM to hang on to. Doesn't mean that I don't like Albemarle, but you will see why when I felt I had to cut one of these stocks, it was this one. Let's check out this firm's quarterly performance.
For the first quarter, Albemarle reported adjusted EPS of $2.38 (GAAP EPS: $21.5) on revenue of $1.127B. These numbers easily beat expectations for both the top and bottom lines and amount to earnings growth of 116% on revenue growth of 36%. Adjusted EBITDA increased 87.8% to $431.9M, as net income increased 164.8% to $253.4M.
Segment Performance
Lithium... produced sales of $550.3M (+97.2%) creating adjusted EBITDA of $306.6M (+190%). Revenue was driven by higher net pricing due to renegotiated variable price contracts as well as a one-time sale of spodumene produced during the initial startup of the MARBL Lithium Wodgina mine. Operations are ongoing or getting underway in Chile, Australia, China, and the United States.
Bromine... produced sales of $359.6M (+28.2%) creating adjusted EBITDA of $129.2M (+36.6%). Tight conditions continue to drive strong demand and favorable pricing. Higher net sales were partially offset by elevated costs for raw materials and freight.
Catalysts... produced sales of $217.9M (-1.1%) creating adjusted EBITDA of $16.9M (-33.5%). Higher sales were offset by cost pressures from rising prices for natural gas and raw materials.
Knockout Guidance
Albemarle provided knockout guidance for the full year 2022. The company increased its outlook for net sales to $5.2B-$5.6B from prior guidance of $$4.2B-$4.5B. Wall Street was at $4.4B on this metric.
The firm also upped adjusted full year EPS to $9.25-$11.25 all the way from $5.65-$6.65. Wall Street has been around $6.22 for this number. Albemarle also sees full year adjusted EBITDA at $1.7B-$2B, providing adjusted EBITDA margin of 33%-36%.
Balance Sheet and Liquidity
Here's where it gets messy. As of March 31st, Albemarle had $463.325M in net cash on the balance sheet, and $777.6M remaining under a $1B revolver, as well as another $500M remaining under an amended draw term loan, and $176.9M available through other credit lines.
Current assets total $2.336B including the above cash as well as $1.013B in inventories. Current liabilities add up to $2.103B including $503.8M in current debt. This leaves the firm with a current ratio of 1.11, which is in my book... a passing grade. Albemarle can meet its short to medium term obligations. Now, if we ex-out inventories, Albemarle runs with a quick ratio of 0.63, which is not very impressive. Not at all.
We move to total assets of $11.416B that includes $1.575B in "goodwill" and $297.4M in other intangibles. Still, these assets easily outweigh total liabilities less equity of $5.381B. Long-term debt totals $1.985B. Total debt equals $2.5B. Total assets less all intangibles still seriously outweigh all liabilities, but that debt-load relative to the firm's net cash position truly makes me uncomfortable.
Thoughts
ALB trades at 34 times forward looking earnings and maybe that's justified in a world ever more demanding of materials like lithium. (LTHM trades at 23 times). I know that it is difficult to justify elevated valuations in a rising rates environment. Albemarle is executing at a high level. The outlook for this year is outstanding. Still, that balance sheet is a tough one to swallow. I think it is probably okay to hold a small to medium sized long position in ALB if one is careful with their entry. Buying the shares up 11% with the market selling off would not be careful.
Readers will note that ALB found support this Spring at an almost precise 50% retracement of the stock's March 2020 through November 20212 run. Both the stock's Relative Strength and Full Stochastic Oscillator now show the stock nearing a technically overbought condition.
Readers will also note that ALB has broken above trendline resistance in place since that November apex. Holding that line, not to mention the 200 day SMA, which has been retaken in early Thursday trade is key for current shareholders.
In theory (if I were long this stock my target price would be...) holding the 200 day, allows for this stock to trade as high as $265 to $270. Tempting. Tough environment though. Today is a good chance for those long the name to move their panic points higher. I would think a break of the 50 day SMA could be such a catalyst.
