Albemarle vs. SQM: Whose Lithium Business Results Were Best in Q3?

Sociedad Quimica y Minera (QM 1.81%)or SQM, reported its third quarter results last week; Albemarle (ALB 0.99%) did the same earlier this month. So investors can now compare the results of the two major lithium producers.

There are a few things to keep in mind, including that long-term investors shouldn’t place too much emphasis on a single quarter’s performance. Additionally, both companies have businesses other than lithium, so their overall results will also be impacted by the performance of those businesses.

Lithium stocks have generally outperformed the market over the past year, largely thanks to rising demand and skyrocketing prices for the metal, which is used to make lithium-ion batteries for electric vehicles (EVs).

Revenue growth in the lithium business

company Results Q3 2022
Albemarle $1.50 billion, up 318% year over year
QM $2.33 million, up 1,161% year-on-year

Data Sources: Corporate Earnings Reports.

Winner: SQM.

Based in Chile, SQM wins this category. The lithium segment’s sales growth was significantly higher than that of Albemarle, which is headquartered in the United States. However, both companies had strong sales growth.

SQM’s annual revenue growth in the lithium business was primarily driven by a massive increase in the average realized lithium price, although higher sales volume contributed 89% of the revenue growth.

Albemarle’s revenue growth in its lithium business was also largely driven by a huge increase in the average realized lithium price, with an increase in sales volume contributing 20% ​​to the revenue growth.

SQM ramped up its lithium production capacity faster than Albemarle last year, allowing the company to sell significantly more lithium year-over-year while prices for the metal were at record highs. Both companies have capacity expansion projects underway.

Profit growth in the lithium business

Companies don’t use the same metric to measure the profitability performance of their businesses. But that shouldn’t matter for this category, as it measures annual growth in profitability.

company Results Q3 2022
Albemarle $1.11 billion Adjusted EBITDA, up 786% year over year
QM $1.35 billion in gross profit, up 1,532% year-on-year*

Data Sources: Corporate Earnings Reports. EBITDA = earnings before interest, taxes, depreciation and amortization. *These numbers should be very close, but are probably not accurate as they had to be calculated using a metric input, which SQM calls “approximate”.

Winner: SQM.

Once again, SQM is the winner. However, profits from both companies’ lithium businesses are growing like gangbusters. This earnings growth reflects a tight market for lithium that has ignited a fire below the price of battery-grade lithium.

Profit margin in the lithium business

The same caveat applies here as for the last category: the two companies do not use the same metric to measure the profitability performance of their businesses. Unlike the last category, this circumstance could influence this comparison.

Reported margins are calculated by dividing lithium business earnings (adjusted EBITDA for Albemarle, gross margin for SQM) by sales.

company Results Q3 2022
Albemarle 74%
QM 58%

Data Sources: Corporate Earnings Reports.

Winner: Albemarle.

Keep in mind that this is not an apples-to-apples comparison, as mentioned earlier. To say that both companies’ lithium businesses are incredibly profitable would be an understatement.

Lithium business size in relation to overall business

This category does not lend itself well to selecting a winner, so it will not count towards the score.

company Lithium business percentage of total sales in Q3 2022 Lithium business as a percentage of total profit in Q3 2022
Albemarle 72% 93% of the company’s Adjusted EBITDA
QM 79% Approximately 83% of consolidated gross profit

Data Sources: Corporate Earnings Reports.

Winner: N/A

Both companies have a bit of diversification, which is a positive, at least over the long term.

Albemarle’s two non-lithium segments are bromine and catalysts, which accounted for 17% and 11% of sales in the third quarter, respectively.

SQM’s other businesses include two fertilizer-focused segments (specialty crop nutrition and potassium chloride and potassium sulfate), iodine and industrial chemicals. These segments accounted for 10%, 2%, 7%, and less than 2% of total sales, respectively, in the third quarter.

And the winner is… SQM.

SQM is the winner in this metric duel as it scored 2 points to Albemarle’s 1 point. One category did not count towards the rating.

Note the caveats mentioned at the beginning of the article. There are also other factors you should consider when evaluating the relative attractiveness of stocks. These include, among other things, the financial liquidity of a company and the valuation of its shares.

In this particular case, the fact that SQM is based in Chile increases its level of risk compared to US-based Albemarle. More specifically, it has higher political and currency risks. For that reason, Albemarle is probably a better choice for most investors.

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