Sociedad Quimica y Minera de Chile (NYSE: SQM), or SQM, reported its first-quarter 2023 results last week; Albemarle(NYSE: ALB)did the same earlier this month. So, investors can now compare the two major lithium producers' results.
Keep in mind these caveats: Long-term investors should not place too much weight on a single quarter's performance. And neither company is a pure play on lithium, so their overall results will also be affected by the performances of their smaller, non-lithium businesses.
Lithium stocks are garnering much investor attention mainly because they're a way to invest in the growth of the electric vehicle (EV) market. Lithium is used to make the lithium-ion batteries that power EVs, and these batteries are also used to produce energy storage products.
Size of lithium business relative to overall business
This category is provided for context; it's not included in the scoring.
This article uses Albemarle's energy storage segment's numbers because its focus is on investing in lithium producers as a way to invest in the growth of EVs. Albemarle recently changed its segment reporting. Previously, all lithium sales were included in one category. Now, the company's energy storage segment includes only the forms of lithium sold to produce lithium-ion batteries, which predominantly are used in EVs and energy storage products. The company's smaller specialties segment includes sales of the forms of lithium that have other end uses.
| Company | Lithium Business Percentage of Total Revenue in Q1 2023 | Lithium Business Percentage of Total Profit in Q1 2023 |
|---|---|---|
| Albemarle | 75% | 88% of company's adjusted EBITDA |
| SQM | 73% | Approximately 75% of consolidated gross profit* |
Data sources: Company earnings reports. EBITDA = earnings before interest, taxes, depreciation, and amortization. *This number should be very close, but might not be exact because it had to be calculated using a metric input that SQM terms as "approximately."
Winner: N/A
Both companies have a little diversification, which is usually a positive.
Lithium business revenue growth
| Company | Q1 2023 Result |
|---|---|
| Albemarle | $1.94 billion, up 319% year over year |
| SQM | $1.65 million, up 14% year over year |
Data sources: Company earnings reports.
Winner: Albemarle
Albemarle, based in the U.S., left its Chilean competitor in the dust in this category.
It seems safe to assume that the main reason for the huge discrepancy in their revenue growth rates relates to contracts with customers. SQM was likely more exposed to the spot (or market) prices of the battery-grade lithium compounds (lithium carbonate and lithium hydroxide) that it sells because these prices declined drastically in the first quarter from their all-time peaks late last year. Both companies use some long-term contracts with varying terms, though Albemarle obviously did a better job on the contractual end.
We can conclude that at least one of two things is likely true: Of the two top management teams, Albemarle's is more conservative or it was better at predicting the direction of spot lithium prices.
Lithium business profit growth
The companies aren't using the same metric to measure the profitability performances of their business segments. But that shouldn't matter for this category, as it measures year-over-year growth in profitability.
| Company | Q1 2023 Result |
|---|---|
| Albemarle | $1.41 billion adjusted EBITDA, up 393% year over year |
| SQM | $799.2 million gross profit, down 8.5% year over year* |
Data sources: Company earnings reports. *These numbers should be very close, but might not be exact because they had to be calculated using a metric input that SQM terms as "approximately."
Winner: Albemarle
Once again, Albemarle crushed SQM in this category. The main reason is the same as discussed in the revenue section.
And the winner is... Albemarle
Albemarle is the winner in this metric face-off, as it won both of the scoring categories. The top category didn't count in the scoring.
Keep in mind the caveats mentioned at the top of the article. In addition, there are also other factors to consider when deciding between stocks in a specific category: dividend policy, financial liquidity, stock valuation, and various qualitative factors.
There's a big qualitative factor in this case. SQM is based in Chile, which increases its currency and political risk levels relative to U.S.-based Albemarle. This is probably the biggest reason Albemarle is the better bet for most U.S. investors.
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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.
