Albemarle Corporation 10-Q Summary
Reporting period: Three and nine months ended September 30, 2021. The filing is unaudited and covers Albemarle’s Lithium, Bromine Specialties and Catalysts segments. Results are not necessarily indicative of full-year performance.
Financial Performance
| Metric | Q3 2021 | Q3 2020 | Change |
|---|---|---|---|
| Net sales | $830.6 million | $746.9 million | Up 11% |
| Gross profit | $249.3 million | $254.1 million | Down 2% |
| Gross margin | 30.0% | 34.0% | Down 400 basis points |
| Operating profit | $131.5 million | $144.4 million | Down 9% |
| Net income attributable to Albemarle | $(392.8) million | $98.3 million | Decline driven by legal accrual |
| Diluted EPS | $(3.36) | $0.92 | Down $4.28 |
| Adjusted EBITDA | $217.6 million | $216.1 million | Up 1% |
| Operating cash flow | $105.0 million | Not clearly provided for Q3 | Not comparable from filing text |
For the first nine months, sales increased 8% to $2.434 billion, gross profit increased 4% to $761.4 million, and adjusted EBITDA increased 7% to $642.3 million. Net income attributable to Albemarle declined 56% to $127.5 million, or $1.10 diluted EPS, compared with $291.1 million, or $2.73 diluted EPS, in the prior-year period.
Segment performance was mixed. Q3 Lithium sales rose 35% to $359.2 million and adjusted EBITDA rose 28% to $125.4 million. Bromine Specialties sales rose 17% to $277.8 million and adjusted EBITDA rose 8% to $86.0 million. Catalysts sales fell 2% to $193.6 million and adjusted EBITDA fell 13% to $33.1 million. The divested Fine Chemistry Services business contributed no Q3 sales versus $46.1 million in Q3 2020.
Cash Flow, Debt and Liquidity
- Cash and cash equivalents were $595.0 million at September 30, 2021, down from $746.7 million at December 31, 2020.
- Nine-month operating cash flow was $490.6 million, compared with $461.7 million in the prior-year period.
- Nine-month capital expenditures were $652.7 million. Management expected full-year 2021 capital expenditures of $925 million to $975 million, primarily for Lithium growth and capacity expansion.
- Total long-term debt was $2.022 billion at September 30, 2021, compared with $3.572 billion at year-end 2020. The noncurrent portion was $2.021 billion.
- Debt reductions were funded principally with approximately $1.5 billion of gross proceeds from a February 2021 common-stock offering. The company repaid commercial paper, credit-facility borrowings and several notes.
- Unused availability under the commercial paper program and credit agreements was approximately $1.27 billion, plus $131.5 million under other credit lines.
- Management stated that cash on hand, operating cash flow, divestiture proceeds and borrowing capacity should be sufficient for operating expenses, debt service, capital expenditures, acquisitions, pension contributions and dividends for the foreseeable future.
Material Changes Versus Prior Period
- Sales growth was led by higher Lithium volume and favorable Bromine Specialties pricing, partially offset by lower Catalysts sales and the June 2021 divestiture of Fine Chemistry Services.
- Gross margin declined because of a $13.5 million out-of-period inventory foreign-exchange correction, higher commission, freight, raw-material and production costs, and the loss of Fine Chemistry Services revenue.
- Q3 and nine-month earnings were significantly reduced by a $657.4 million accrual related to the Huntsman arbitration, or $504.5 million after tax.
- The company completed the Fine Chemistry Services sale for approximately $570 million of consideration, including $300 million in cash and $270 million of Grace subsidiary preferred equity. The transaction generated a $428.4 million pretax gain, or $330.9 million after tax.
- Common shares outstanding increased following the February equity offering, reducing per-share comparability with 2020.
- The quarterly dividend increased to $0.39 per share from $0.385 per share.
Guidance, Outlook and Risks
- Management expected 2021 Lithium results to exceed 2020, supported by plant restarts, efficiency improvements, tolling, stronger demand and higher pricing, although average full-year prices were expected to be flat to slightly higher.
- New Lithium capacity at La Negra and Kemerton was expected to contribute commercial sales beginning in 2022. Kemerton Train II completion was delayed to the second half of 2022 because of labor shortages and COVID-19 travel restrictions.
- The company expected Bromine Specialties sales and profitability to be modestly higher in 2021, but noted lower second-half bromine volume following a U.S. chlorine force majeure declaration.
- Catalysts results were expected to decline year over year because of the U.S. Gulf Coast winter storm, lower refining-catalyst orders, weaker clean-fuels demand and delayed refinery spending.
- Albemarle signed an agreement to acquire Tianyuan for approximately $200 million in cash. Closing was expected in early 2022, subject to customary conditions, with commercial production expected in the first half of 2022 and designed capacity of up to 25,000 metric tons of LCE annually.
- COVID-19 had not materially affected operations at the filing date, but future effects remained uncertain, including potential supply-chain disruption, government shutdowns and customer demand impacts.
- The company is cooperating with the DOJ, SEC and Dutch Public Prosecutor regarding potential improper payments involving third-party sales representatives in its Refining Solutions business. The timing, outcome and costs remain uncertain.
- Environmental liabilities totaled $45.7 million, with possible additional remediation costs estimated at $10 million to $37 million before tax above recorded amounts.
- The company stated that no material changes had occurred in the risk factors disclosed in its 2020 Form 10-K.
Most Important Facts to Verify
- Final payment obligations, legal fees and any appeal or settlement related to the approximately $600 million Huntsman arbitration award and the $657.4 million recorded accrual.
- Progress, cost and timing of La Negra, Kemerton and other Lithium capacity projects, including the delayed Kemerton Train II schedule.
- Completion and operating ramp-up of the Tianyuan acquisition and the planned China Lithium hydroxide plants.
- Whether Catalysts weakness, refinery customer order changes and winter-storm impacts persist beyond 2021.
- Cash generation after the substantial capital-spending program, dividend payments, acquisition spending and arbitration-related obligations.
- Potential fines, penalties, disgorgement or remediation costs from the ongoing DOJ, SEC and Dutch investigations.
- Impact of the $13.5 million inventory correction and the $7.9 million deferred-tax out-of-period correction on future reporting and controls.