Albemarle Corporation — Q2 2021 Form 10-Q Summary
Business context and reporting period
Albemarle is a global specialty chemicals producer operating through Lithium, Bromine Specialties and Catalysts. The filing covers the unaudited three and six months ended June 30, 2021, compared with the corresponding 2020 periods. The company continues to emphasize lithium growth, energy storage and electric-vehicle applications, while managing recovery, pricing and supply-chain conditions across its other markets.
Key financial metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net sales | $773.9 million | $764.0 million | $1.603 billion | $1.503 billion |
| Gross profit / margin | $248.4 million / 32.1% | $233.4 million / 30.5% | $512.1 million / 31.9% | $475.4 million / 31.6% |
| Operating profit | $542.3 million | $112.2 million | $698.2 million | $236.2 million |
| Net income attributable to Albemarle | $424.6 million | $85.6 million | $520.3 million | $192.8 million |
| Diluted EPS | $3.62 | $0.80 | $4.51 | $1.81 |
| Adjusted EBITDA | $194.6 million | $185.2 million | $424.7 million | $381.6 million |
| Cash flow from operations | $227.9 million | $52.9 million | $385.9 million | $207.9 million |
Q2 net sales increased 1%, while six-month sales increased 7%. Q2 adjusted EBITDA rose 5% and six-month adjusted EBITDA rose 11%. The effective tax rate was 20.0% in Q2 and 19.6% for the first six months, compared with 17.5% and 16.6%, respectively, in the prior-year periods.
- Segment performance: Q2 Lithium sales increased 13% and adjusted EBITDA increased 16%; Bromine Specialties sales increased 20% and adjusted EBITDA increased 27%; Catalysts sales decreased 25% and adjusted EBITDA decreased 7%. For the first six months, Lithium and Bromine Specialties sales increased 15% and 21%, respectively, while Catalysts sales decreased 9%.
- Liquidity: Cash and cash equivalents were $823.6 million at June 30, 2021, compared with $746.7 million at December 31, 2020. Net current assets were approximately $1.17 billion.
- Debt: Total long-term debt was approximately $2.04 billion, excluding the current portion, versus $2.77 billion at year-end 2020. The company reported no borrowings under its $1.0 billion 2018 Credit Agreement and no commercial paper outstanding. It had approximately $1.3 billion of availability under its commercial paper program and credit agreements, plus $132.0 million under other lines of credit.
- Capital spending: Six-month capital expenditures were $396.9 million. Management expects full-year 2021 capital expenditures of $850 million to $950 million, primarily for lithium growth and capacity expansion.
- Dividends: The quarterly dividend was increased to $0.39 per share from $0.385 per share in 2020.
Material changes versus the prior comparable period
- On June 1, 2021, Albemarle sold its Fine Chemistry Services business to W. R. Grace for approximately $570 million of proceeds, consisting of $300 million in cash and preferred equity with a stated value of $270 million. The transaction generated a $429.4 million pretax gain and a $331.6 million after-tax benefit.
- The FCS divestiture reduced Q2 sales by approximately $25.0 million and six-month sales by approximately $38.5 million compared with the prior periods.
- The FCS gain materially increased reported operating profit, net income and EPS; management stated that the gain contributed $2.82 to Q2 diluted EPS.
- Albemarle issued approximately 9.8 million shares in February 2021 for net proceeds of approximately $1.45 billion. The proceeds were used primarily for debt repayments and general corporate purposes, increasing the share count and partially diluting EPS.
- The company repaid approximately $1.5 billion of debt in the first quarter, including Euro-denominated notes, floating-rate notes, credit-facility borrowings and commercial paper. The repayments produced a $29.0 million loss on early extinguishment of debt during the first six months.
- Higher Lithium and Bromine Specialties volumes and productivity improvements benefited results. Lithium pricing was unfavorable, while Bromine Specialties pricing was favorable. Catalysts was affected by lower demand, shipment timing and the U.S. Gulf Coast winter storm, which increased production and utility costs by approximately $23 million across Bromine Specialties and Catalysts during the first six months.
- Q2 SG&A increased 14%, partly due to a $20.0 million additional contribution to the Albemarle Foundation and a $4.0 million loss on the sale of property, plant and equipment.
Guidance, outlook, risks and unusual items
- Lithium: Management expects 2021 results to be higher year over year, supported by North American plant restarts, efficiency improvements and tolling. La Negra and Kemerton are expected to begin commercial sales in 2022. The Wodgina spodumene mine remains idled until market conditions improve.
- Bromine Specialties: Management expects modestly higher 2021 sales and profitability, but second-half bromine volume is expected to decline versus the first half because of a chlorine force majeure declaration in the United States.
- Catalysts: Full-year 2021 results are expected to decline year over year. Refining catalyst volumes are expected to be lower due to customer order patterns and the winter storm; management does not expect FCC demand to return to normal until late 2022 at the earliest.
- COVID-19: The company had not experienced a material operational impact as of the filing date, but warned that the duration and severity of the pandemic could affect materials availability, customer purchases, operations, cash flows and liquidity.
- Projects and execution: La Negra was entering commissioning and qualification in the second half of 2021. Kemerton Train I was expected to be completed by or shortly after year-end 2021, with Train II expected by the end of the first quarter of 2022. Cost overruns, commissioning delays and higher operating costs remain relevant risks.
- Grace preferred equity: The preferred equity received in the FCS sale had a fair value of $244.5 million at June 30, 2021 and accrues payment-in-kind dividends at 12% annually beginning in June 2023, subject to Grace’s redemption rights and other conditions.
- Legal and regulatory matters: Albemarle is cooperating with DOJ, SEC and Dutch Public Prosecutor reviews concerning potential improper payments by third-party sales representatives in its Refining Solutions business. The duration, outcome and costs are not predictable.
- Environmental contingencies: Recorded environmental liabilities were $46.5 million. Management estimated possible additional remediation costs of $10 million to $37 million before tax, primarily related to a formerly owned site.
- Other risks: Key risks include lithium and catalyst demand, pricing and order timing, raw-material and energy costs, foreign-currency volatility, chemicals-manufacturing hazards, regulation, litigation, cybersecurity, climate and geopolitical conditions, and the ability to execute acquisitions, divestitures and capacity expansions.
Investor verification points
- Separate recurring operating performance from the $429.4 million FCS divestiture gain and the related $97.8 million tax expense.
- Assess normalized earnings and cash generation after excluding the divestiture, the $20.0 million foundation contribution, early debt-extinguishment costs and other unusual items.
- Monitor Lithium pricing, customer order acceleration, Wodgina restart conditions and the timing, cost and ramp-up of La Negra and Kemerton.
- Evaluate Catalysts’ recovery assumptions, including refinery demand, shipment timing and the expected late-2022 normalization of FCC demand.
- Confirm progress against the $850 million to $950 million 2021 capital-expenditure plan and related funding needs.
- Review debt covenant compliance, refinancing capacity, variable-rate exposure and the concentration of cash held by foreign subsidiaries.
- Track the DOJ, SEC and Dutch Public Prosecutor investigations, environmental remediation exposure and any resulting penalties or remedial obligations.