Shares of Sociedad Quimica y Minera de Chile(NYSE: SQM), or SQM, eked out a 0.2% gain on Thursday, following the Chile-based lithium giant's release of its first-quarter 2023 results on the prior evening.
Most investors were probably at least satisfied with the stock treading water. After all, the quarter's revenue and earnings missed the Wall Street consensus estimates. The stock's saving grace was management's positive outlook for its lithium business -- by far, the largest of its segments -- for the year.
In recent years, the lithium segment has been turning in robust to downright powerful results, thanks primarily to surging demand for the compounds used to produce lithium-ion batteries for electric vehicles.
SQM's lithium brine operation at the Atacama salt flat in Chile. Image source: SQM.
SQM's key numbers
| Metric | Q1 2022 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $2.02 billion | $2.26 billion | 12% |
| Net income | $796.1 million | $749.9 million | (6%) |
| Earnings per share (EPS) | $2.79 | $2.63 | (6%) |
Data source: SQM.
Wall Street was looking for EPS of $3.05 on revenue of $2.46 billion, so the company missed both expectations.
Gross margin (gross profit divided by revenue) was 47.1%, down from 57.7% in the year-ago period.
SQM ended the quarter with $2.09 billion in cash and cash equivalents and $2.87 billion in long-term debt.
SQM's revenue by business
| Segment | Q1 2023 Revenue | Change YOY |
|---|---|---|
| Lithium and derivatives | $1.65 billion | 14% |
| Specialty plant nutrition (SPN) | $221 million | (20%) |
| Iodine and derivatives | $240 million | 57% |
| Potassium chloride and potassium sulfate | $87 million | (24%) |
| Industrial chemicals | $66 million | 144% |
| Other | $4.2 million | (9%) |
| Total | $2.26 billion | 12% |
Data source: SQM. YOY = year over year.
The lithium segment's revenue accounted for 73% of total revenue, so it was the primary driver of the company's overall results.
The lithium segment's sales volume decreased 15% year over year to 32,300 metric tons (MT) of lithium carbonate equivalent (LCE). Management attributed the decline to "advanced purchases in the previous quarter, the change in subsidies in China and the high level of stock across the battery supply chain led to a weaker demand, predominantly in China, in the beginning of the year." The lower volume was more than offset by the increase in average realized price, which was about $51,000 per MT, up about 34% from approximately $38,000 per MT in the year-ago period.
Thanks to another strong quarter, the company's iodine business is now its second largest by revenue. Sales volume increased 12% year over year, with higher realized average price accounting for the remainder of the revenue growth. Continued robust demand for iodine for X-ray contrast media drove the segment's growth.
In the earnings release, CEO Ricardo Ramos said the iodine business "saw record high average prices and high sales volumes," and that "SQM is the only iodine producer which has been able to successfully increase capacity in the last years."
2023 lithium sales volume expected to grow 20%
In the earnings release, Ramos indicated that management has a positive outlook for its lithium business for the year:
Based on the recent increase in customer activity, we believe that the de-stocking period has concluded and anticipate our sales volumes to recover in the upcoming quarters. We expect the global lithium demand growth to reach at least 20% this year and will continue to operate at full capacity, producing high-quality lithium products to meet this growth.
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