Albemarle vs. SQM vs. Livent: Which Had the Best Lithium Results in Q4?

Beth McKenna, The Motley Fool

We're going to compare the fourth-quarter performances of the lithium businesses of the three largest producers of the metal that trade on a major U.S. stock exchange: Albemarle (NYSE: ALB)Sociedad Quimica y Minera de Chile (NYSE: SQM), or SQM, and Livent (NYSE: LTHM)

Livent is now fully separated from FMC, via an initial public offering (IPO) in mid-October, followed by FMC's spinoff of its remaining ownership stake in its former lithium business earlier this month. It's a pure play on lithium, while Albemarle and SQM are not, so their overall results will also be affected by how well their other businesses perform. Nonetheless, this comparison should still help you make investment decisions in the lithium space.

For context, lithium stocks were standout performers in 2016 and 2017, driven by soaring demand for the metal to make batteries for electric vehicles and supply that couldn't keep up. They struggled last year because of concerns that increased capacity coming online would cause an oversupply situation to develop sooner, rather than later, which would cause lithium prices to decline. In 2019, shares of Albemarle, SQM, and Livent have returned 7.8%, negative-0.3%, and negative-6.4%, respectively, through March 22. The S&P 500 has returned 12.3% over this period.

Lithium brine pool, with mounds of lithium salts in foreground, and mountains and blue sky in background.

Lithium brine pool. Image source: Getty Images.

Lithium business revenue 

Company

Q4 2018 Result

Albemarle

18% year-over-year increase to $341.6 million

SQM

30% increase to $233.9 million 

Livent*

6% increase to $119.8 million

Data sources: Q4 2018 earnings reports.
*Livent's Q4 results were reported by FMC, since Livent was not a separate entity for the entire quarter. 

Winners: Albemarle and SQM.

Albemarle and SQM could both make a claim to winning this category. Albemarle, which is based in North Carolina, has the largest lithium business of the three companies -- in fact, it's the largest producer of the metal in the world. Chile's SQM grew its lithium business the fastest on a year-over-year basis. Livent, based in Philadelphia, is the clear laggard here, as its lithium business is the smallest of the three companies and it experienced rather tepid growth in the quarter.

SQM CEO Ricardo Ramos said in the company's earnings release that "we believe that demand growth surpassed 25% in [full-year] 2018, led by growth in the electric vehicle market."

All three companies are expanding production capacity.

Lithium business earnings  

Company

Q4 2018 Result

Albemarle

22% year-over-year increase to $144.5 million adjusted EBITDA*   

SQM

19% decrease to $101.2 million gross profit** 

Livent 5% decrease to $45.6 million EBITDA

Data sources: Q4 earnings reports except as noted.
*EBITDA = earnings before interest, taxes, depreciation, and amortization.
**SQM's result had to be calculated by subtracting its lithium business' earnings for the first nine months of 2018 from those for the full-year earnings; the year-over-year change was then determined after calculating the Q4 2017 result in the same manner.

Winner: Albemarle.

Albemarle's lithium business experienced an increase in profitability from the year-ago period, whereas the other two companies had declines. In its earnings release, Albemarle attributed this profitability improvement to higher sales volumes along with an average 4% rise in lithium prices compared to the fourth quarter of 2017. The price increase did, however, slowdown in the quarter, as the price rise for full-year 2018 was 9% year over year.

The companies aren't using the same metric to measure the profitability performances of their business segments. So you may want to place greater weight on each company's percentage change, rather than their absolute earnings results.

Lithium business profit margin

Company

Q4 2018 Result

Albemarle 42.3%
SQM

43.3%  

Livent 38.3%

Data sources: Q4 2018 earnings reports. 

Winners: SQM and Albemarle.

SQM has historically been considered the lowest-cost producer of lithium, so Albemarle's showing here is particularly impressive. Profit margin reflects the efficiency of a company's operations and/or the mix of the products it sells. That said, the same caveat as above also applies here: The companies aren't using the same metric to measure the profitability of their segments.

Size of lithium business relative to overall business 

Company

Lithium Business Percentage of Total Revenue in Q4 2018

Lithium Business Percentage of Total Earnings in Q4 2018

Albemarle 37%    

55% of adjusted EDITDA 

SQM 41% 

50% of consolidated gross profit

Livent 100% beginning Oct. 11, 2018.* 100% beginning Oct. 11, 2018.* 

Data sources: Q4 2018 earnings reports.
*Date of Livent's IPO.

Winner: Livent, if one wants to invest in a lithium pure play.

This category doesn't lend itself well to choosing a winner, though for investors looking for a pure play on lithium, Livent is the only choice. 

Albemarle's and SQM's lithium businesses accounted for quite similar portions of their overall businesses with respect to revenue and earnings. In other words, the two companies' degree of "pure playness" isn't materially different. So when choosing between the stocks of these two companies, investors should consider other factors, including the overall financial performance, projected earnings growth, and risk level. As to the latter, Albemarle is the least risky of the two because it's a U.S. company, whereas SQM is based in Chile, so it has increased political and financial risks.

And the winner is... Albemarle

Albemarle emerges as the winner in this metric face-off, as it scored 3 points to SQM's 2 points and Livent's 1 point. With that said, Livent's growth profile could change quite a bit now that it's an independent company. 

Of course, this is just a brief quantitative look and the following caveats apply: qualitative factors can matter at least as much as quantitative ones and the future is more important than the past.

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Beth McKenna has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.