Albemarle Corporation (ALB) 2024 Q2 Earnings Call Summary

Optimistic Highlights

• Strong Operational Execution: Albemarle demonstrated strong operational execution with net sales of $1.4 billion and sequential increases in adjusted EBITDA and cash from operations.
• Volumetric Growth in Energy Storage: The energy storage segment saw a 37% year-over-year increase, driven by successful project ramps and spodumene sales.
• First Commercial Sales from Meishan: Achieved first commercial sales from Meishan ahead of schedule by approximately six months.
• Restructuring and Productivity Improvements: Delivered more than $150 million in restructuring and productivity improvements, on track to exceed full-year targets by 50%.
• Maintained Full-Year 2024 Outlook: Despite industry headwinds, operational discipline allows Albemarle to maintain its full-year 2024 outlook considerations.

Pessimistic Highlights

• Decline in Net Sales: Net sales declined 40% year-over-year from $2.4 billion to $1.4 billion, primarily due to lower pricing.
• Net Loss Recorded: Albemarle recorded a loss attributable to $188 million and a diluted loss per share of $1.96, including an after-tax charge of $215 million related to capital project asset write-offs for Kemerton 4.
• Adjusted EBITDA Down: Adjusted EBITDA of $386 million was down substantially versus the year-ago period, with favorable volume growth offset by lower prices and reduced equity earnings.

Company Outlook

• $15 per Kilogram Lithium Price Scenario: Expects the $15 per kilogram lithium price scenario to apply even assuming that lower July market pricing persists, due to higher volumes, cost out and productivity progress, and contract performance.
• Comprehensive Review of Cost and Operating Structure: Announced a comprehensive review to maintain competitive position and drive long-term value, including immediate adjustments to operating and capital spending plans at Kemerton site in Australia.
• Anticipate 2.5 Times Lithium Demand Growth: From 2024 to 2030, with battery size growing over time, driven by technology developments and EV adoption.

Q & A Highlights

• Q: Can EBITDA improve if prices recover to the $15 per kilogram scenario in the back half? (Unidentified Analyst)

  A: Prices could improve EBITDA if stronger; the forecast holds even at July prices for the rest of the year, driven by volumes, contract terms, etc. (Jerry Kent Masters, Jr.)

• Q: Initial expectations on volume growth for 2025 and 2026 after Kemerton actions? (Unidentified Analyst)

  A: Volume growth should not be significantly different from previous indications; changes in conversion capacity but still have the resource. (Jerry Kent Masters, Jr.)

• Q: What is the cash margin for Kemerton 2 and its position on the cost curve? (Stephen Byrne)

  A: Specific cash cost not provided; Kemerton 1 and 2 offer geographic diversity and are closer to the resource. (Jerry Kent Masters, Jr.)

• Q: How should we think about 3Q sequentially for energy storage? (Patrick Cunningham)

  A: Tracking towards the high end of the 10% to 20% volume growth range given at the year's start; earnings corridor driven by the pricing range provided. (Neal R. Sheorey)

• Q: Capital allocation priorities in light of comprehensive review? (Vincent Andrews)

  A: View on investment-grade rating, long-term net debt to adjusted EBITDA target, and dividend support has not changed. (Jerry Kent Masters, Jr.)

• Q: How does the AR factoring process work? (Vincent Andrews)

  A: AR factoring program is untapped and will be used if and when liquidity is needed. (Neal R. Sheorey)

• Q: Impact of higher Talison shipments and cost improvements on EBITDA? (Harris Fein)

  A: July pricing holds the forecast; a blend of factors including volume mix, additional volume from Talison, contracts, and cost savings contribute. (Jerry Kent Masters, Jr.)

• Q: Thoughts on OEMs' challenges in making a profitable EV and European tariffs on Chinese EVs? (Harris Fein)

  A: Battery technology hitting benchmarks for cost parity; not commenting on OEMs' cost positions but technology and battery advancements continue. (Jerry Kent Masters, Jr.)

• Q: What does Kemerton capacity curtailments mean for Wodgina production? (David Begleiter)

  A: No impact on Wodgina production; Kemerton changes are a tweak in the conversion asset network. (Jerry Kent Masters, Jr.)

• Q: State of play for DLE projects in Latin America? (Laurence Alexander)

  A: Focused on DLE technology for both Magnolia and Salar de Atacama; not waiting on government funding, moving forward with pilots. (Jerry Kent Masters, Jr.)

• Q: How are contracts being enforced given current market conditions? (Colin Rusch)

  A: Contracts are performing; discussions with customers around maintaining competitiveness while respecting contracts, with flexibility in source and sourcing points. (Eric W. Norris)

• Q: Sustaining capital and CAPEX expectations for next year? (David Deckelbaum)

  A: Working on reducing CAPEX in the current environment without taking unnecessary risk; more details to be shared in coming quarters. (Neal R. Sheorey)

• Q: Is some of the weakness in specialties temporary channel destocking? (John Roberts)

  A: Seeing some end market weakness, particularly in electronics; expecting recovery and sequential growth in financials. (Netha N. Johnson, Jr.)