Q2 2024 Albemarle Corp Earnings Call
Hello, and welcome to Albemarle, Q2, 2024 earnings call.
I will now hand, it over to Meredith bandy, Vice President of Investor Relations and sustainability.
Thank you and welcome everyone to Albemarle second quarter 2024 earnings Conference call. Our earnings were released after the market yesterday and you'll find the press release and earnings presentation posted to our website under the investors section at Albemarle Dot com.
Also posted to our website is yesterday's additional press release announcing our initiation of a comprehensive review of our cost and operating structure, which we will also referenced during our comments today.
Joining me on the call today are Kent Masters, Chief Executive Officer Shire, Chief Financial Officer.
NASA Johnson President of specialties, and Eric Norris President of energy storage are also available for Q&A.
As a reminder, some of the statements made during this call, including our outlook guidance expected company performance and strategic initiatives.
Constitute forward looking statements. Please note the cautionary language about forward looking statements contained in our press release and earnings presentation, which also applies to this call.
Please also note that some of our comments today refer to non-GAAP financial measures reconciliations can be found in our earnings materials.
And now I'll turn the call over to Kent.
Yes.
Thank you Meredith.
During the second quarter Albemarle continued to demonstrate strong operational execution we.
We recorded net sales of $1 4 billion and sequential increases in adjusted EBITDA and cash from operations. Thanks in part to successful project delivery productivity and restructuring initiatives and working capital improvements.
We continued to capture volumetric growth driven by our.
For each segment, which was up 37% year over year, highlighting successful project ramps and spodumene sales in that segment for.
For example, during the quarter, we achieved first commercial sales for me Sean ahead of our original schedule by approximately six months.
During the second quarter, we also delivered more than $150 million in restructuring and productivity improvements.
Consistent with our efforts to align our operations and cost structure with the current market environment.
We are on track to exceed our full year target on this front by 50%.
Looking to the rest of this year, our operational discipline allows us to maintain our full year 2024 outlook considerations.
Notably, we expect our $15 per kilogram lithium price scenario to apply even assuming that lower July market pricing persists.
This is due to higher volumes cost out and productivity progress and contract performance.
We've made great progress in strengthening our competitive position and enhancing our financial flexibility.
However industry headwinds that began last year have persisted longer than the sector anticipated, making it clear that we must proactively take additional steps.
Building on the actions we announced this past January we announced yesterday that we were taking a comprehensive review of our cost and operating structure with the goal of maintaining albemarle competitive position and driving long term value.
As part of the initial review, we announced the difficult but necessary decision to immediately adjust our operating and capital spending plans at our <unk> site in Australia.
These actions showcase our deeper focus on cost and operating discipline.
There is no question that the global energy transition is underway. However, the pace of the industry changes are dynamic.
We must remain agile as well.
Later on the call I will spend some time diving deeper into the cost and asset actions that we continue to take in this environment to maintain our competitiveness.
And I will also highlight the strategic advantages that remain proof points of Albemarle is competitive and operational strengths.
I'll now hand, it over to Neil to talk about our financial results during the quarter.
Okay.
Neil: Thanks, Ken and good morning, everyone beginning on slide five let's move to our second quarter performance.
In Q2, 2024, we recorded net sales of $1 4 billion.
Neil: Compared to $2 4 billion in the prior year quarter, a decline of 40% driven principally by lower pricing.
During the quarter, we recorded a loss attributable to Albemarle of $188 million and a diluted loss per share of $1 96.
This result included an after tax charge of $215 million, primarily related to capital project asset write offs for camera 10 four.
Adjusted diluted EPS was <unk> <unk> per share.
Moving to slide six our second quarter adjusted EBITDA of $386 million was.
<unk> was down substantially versus the year ago period as favorable volume growth was more than offset by lower prices and reduced equity earnings due to soft fundamentals in the lithium value chain.
Compared to the first quarter second quarter, adjusted EBITDA rose, 33% driven by higher sales volumes across all businesses and higher income from increased callison JV sales volumes.
As a reminder, on last quarter's earnings call, we said that we expected and approximately $100 million sequential lift to our EBITDA from higher than normal offtake by a partner at the <unk> JV and Thats, what we saw in the quarter.
Yes.
Turning to slide seven.
As we've done in prior quarters, we are providing full year 2024 outlook considerations based on historically observed lithium market pricing scenarios the.
The price scenarios shown represent a blend of relevant market prices, including both China and ex China pricing for lithium carbonate and hydroxide.
The numbers you see here on this slide have not changed since our last earnings call. What is new is what Kent mentioned at the top of the call.
We now expect the $15 per kilogram price scenario to be applicable, even assuming lower July market pricing persists for the balance of the year.
We are able to maintain this scenario due to the success of our enterprise wide cost improvements continued strong volume growth higher sales volumes at our <unk> JV and contract performance and energy storage.
Moving to slide eight.
We continue to prioritize our financial flexibility and strong liquidity to navigate the dynamic market environment.
Neil: We ended the second quarter with available liquidity of $3 5 billion <unk>.
Including $1 $8 billion of cash and cash equivalents and $1 5 billion available under our revolver.
Neil: Our net debt to adjusted EBITDA was two one times, which was well below the quarter's covenant maximum of five times.
We continue to add new liquidity resources, such as our AR factoring program and from a long term debt perspective, we are well position and have no significant maturities due until late 2025.
Turning to slide nine which shows our improved operating cash flow performance and considerations.
Our focus on cash generation and efficiency continues to drive important benefits our operating cash flow conversion in the second quarter was 94%, which was unusually high primarily due to increased callison dividends. We also continued to drive volume growth cost and productivity improvement and working capital.
Efficiencies all of which contributed to our cash conversion.
Neil: As we look forward, we now expect our full year operating cash conversion to be approximately 50%, which is at the higher end of our historical range.
I'll now hand, it back to Ken.
Ken: Thanks Neil.
Ken: Turning to slide 10 for more details about the actions, we announced yesterday to streamline our operations build on the cost out and productivity actions, we already have underway and maintain albemarle is competitive position across the cycle.
Ken: Now on slide 11, I'll first cover of the fundamentals in our market.
On the demand side EV registrations are up more than 20% year to date through June led by strong growth in China.
However, the pace of growth in Europe, and the U S has moderated substantially versus the industry's expectations.
Across the value chain, we are seeing meaningful mix shifts.
First stronger growth in plug in hybrid sales, which has translated to smaller batteries with less lithium per vehicle.
And second we see a continuation in the trend towards more carbonate based batteries. Both of these developments are still positive for overall long term lithium demand. However, they highlight the shifting nature of this value chain as it develops and matures.
These demand changes are occurring at the same time as we see dynamic conditions on the supply side.
Ken: We have yet to see significant changes at the mine level as existing and new supplies continue to come to market.
Ken: And on the conversion side Theres still oversupply predominantly in China.
Ken: At current Chinese spot pricing, we believe and are hearing from the market that many non integrated producers are unprofitable with some operating at reduced rates or idling production.
And we're hearing that even producers who are integrated into cathode or batteries are under pressure.
Moreover, current pricing is well below the incentive pricing required for western Greenfield lithium projects.
At the same time geopolitical developments are also adding uncertainties to our business.
Ken: This includes escalating trade tensions and ongoing armed conflicts.
Ken: Challenging western supply chain dynamics are also at play.
Ken: Notably the Iras 30 be consumer tax credit has yet to benefit upstream producers like Albemarle.
Ken: And specific to our position as written the final U S Department of energy foreign entity of concern or Fiat rule will impact the eligibility of our Australian product and we suspect that others could be impacted as well.
Ken: While current dynamics at challenging uncertainties. There is no question that the energy transition remains well underway and the long term growth potential of our end markets as strong.
Ken: As you can see on slide 12.
Ken: The global EV supply chain is on track to achieve the critical $100 per kilowatt hour tipping point, where evs are at cost parity with internal combustion engine vehicles.
Ken: Chinese industry has likely surpass that target with the rest of the world not far behind.
Ken: Taking all of these changes in the consideration we continue to anticipate two five times lithium demand growth from 2024 to 2030.
Ken: Additionally, we see battery size growing overtime, driven by technology developments and EV adoption.
Ken: These factors all translate to significantly higher long term global lithium needs.
Speaker Change: Turning to slide 13.
Speaker Change: In January we announced a series of proactive actions to preserve growth reduce costs and optimize cash flow.
Speaker Change: Our teams have successfully executed on many of those actions, including ramping inflight projects that Chin Zoe may Sean and the <unk> on or ahead of schedule.
Speaker Change: Delivering cost out and productivity actions and we are now tracking to deliver 50% ahead of our initial targets.
Speaker Change: Reducing 2020 for estimated capex by between 300 $400 million year over year.
Speaker Change: And enhancing our financial flexibility, including improving cash generation and conversion.
Speaker Change: While these steps have served us well the industry dynamics I just described require us to do more to ensure our competitiveness across the cycle.
Speaker Change: Building on the actions, we announced in January we announced yesterday that we are embarking on a comprehensive review of our cost and operating structure pushed.
Speaker Change: Pushing deeper into our playbook to further pivot and pace to maintain our leading position.
Speaker Change: We're focused on four key areas you see on the slide.
Speaker Change: Optimizing Albemarle global converged network to preserve our world class resorts advantages.
Speaker Change: Improving our cost competitiveness and efficiency.
Speaker Change: Continuing to reduce capital expenditures in future capital intensity.
Speaker Change: And enhancing Albemarle financial flexibility.
Speaker Change: The middle section of this slide highlights that we've already taken the next set of actions across these four focus areas and the bottom of the slide details of additional opportunities that will closely evaluate as part of the process.
Speaker Change: The comprehensive review of our cost and operating structure has just begun and we plan to provide additional details with our third quarter earnings.
Speaker Change: That said, we took the difficult but necessary decision to bring forward. The first step in the review, which is to further optimize our Australia network as we show on slide 14.
Speaker Change: That's one of the first steps in this comprehensive review, we announced yesterday immediate adjustments to our Australia lithium hydroxide footprint.
Speaker Change: These changes follow our previously announced decision not to proceed with the construction of cymric to train four.
Speaker Change: Specifically, we will idle production at Cymric and train two in place the unit in care and maintenance.
Speaker Change: Additionally, we will stop construction activity on train III.
Speaker Change: Notably we estimate that stopping construction on train three will save at least $200 million to $300 million of capital spending over the next 18 months.
Speaker Change: Capturing procurement and back office initiatives.
Speaker Change: Much of the better than expected performance to date is in manufacturing improvements.
Speaker Change: For example, optimize pond management at the Salon and overall equipment effectiveness improvements at La Negra have maximized production at one of our lowest cost assets.
Speaker Change: These manufacturing benefits in Chile, or in addition to the increased efficiency and volume we expect as the Solara yield improvement project continues to ramp.
Speaker Change: Moving to slide 16, and our capital spending profile.
Speaker Change: As I mentioned earlier, we expect 2020 for capex to be $300 million to $400 million below 2023 levels.
Moving forward, we are evaluating opportunities to further reduce our capital intensity and total capital spending.
Speaker Change: This will provide enhanced optionality improved free cash flow and put Albemarle in a stronger competitive position long term or.
Our capital spending profile profile is another element of our comprehensive review and we'll have more to say about our near term spending plans on future calls.
In specialties, we are the only producer with access to both of the two best bromine resources globally.
Speaker Change: Jordan on the southeast side of the dead Sea. The sources the largest concentration of bromine in the world and in the smack over formation in Arkansas, the only source of commercial bromine in the United States.
And both of our core businesses, we maximize the value of our world class resources by converting and flexibly derivatives into higher value in use products and our conversion assets or in the case of energy storage through our extensive polling network.
Second our leading process chemistry, Knowhow is key to achieving further productivity and cost improvements safely and sustainably for example, the solara yield improvement project utilizes a proprietary technology to enable up to 20% higher yield.
At Magnolia, we've leveraged advanced process controls to increase production, while lowering costs and improving sustainability.
And that both the <unk> and Magnolia, we have evaluated a wide range of direct lithium extraction options.
Speaker Change: However, we understand these positive actions may not be sufficient given ongoing industry headwinds.
Our entire organization is focused on delivering operational excellence, while positioning the company to capitalize on the incredible long term opportunities in our markets.
That's why we are taking the proactive steps to control what we can control and ensure we are competitive across the cycle.
Speaker Change: Albemarle is a global leader with a world class portfolio and vertical integration strength.
We are uniquely positioned to win.
I am confident we are taking the right actions to maintain our competitive position and to ensure we execute with agility today.
And in the future.
Speaker Change: Okay.
I look forward to seeing some of you face to face at upcoming events listed here on slide 26.
And with that I'd like to turn the call back over to the operator to begin the Q&A portion.
We will now move to our Q&A portion if you'd like to ask a question. Please press star five to raise their hand as a reminder, that is star five to raise your hand.
To align to that so it's not significantly different than we had indicated at the last call.
Our next question comes from Steve Byrne, Steve. Your line is now open. Please go ahead.
Steve Byrne: Yes. Thank you.
Chimera has some more meaningful freight cost than some of your.
Speaker Change: Chinese conversion book.
Steve Byrne: Roughly what is the cash margin for camera attuned to and where would you put it on the cost curve what quartile.
Steve Byrne: Yes.
So I mean, we've never put any of our assets and given.
That type costs.
Out there so it is.
Again, it's a combination of your W. Two so three is really about some of the money that we're spending in growing that and Kim merchant and wanting to gives us a couple of things so.
It's closer to the resource, but it gives us diversity geographic diversity. So we have we would have.
I mentally boosted dividends in the second quarter and helped our cash conversion and then the other part is yes on the working capital side. We are highly focused on it and we have a lot of initiatives around this and we're seeing some of those come through already.
Already in the first half of the year and are continuing to work on that in the back half of the year. So working capital was another nice tailwind to cash in terms of the release of cash from from that.
Speaker Change: Understood very helpful. And then just generally on how we should think about <unk> sequentially for energy storage can you help us triangulate how much lower volumes will be sequentially based on some of those onetime benefit wherever you should stand for pricing. If we kind of hold that July averages here and then there's the remaining sensitivity here.
Numbers, mostly around volume or is there something else.
Speaker Change: Yes, so I can maybe take the second part of that we are obviously from a volume perspective, we're obviously tracking toward the higher end of the 10% to 20% volume growth range that we gave you at the beginning of the year and I think at this point for the visibility.
Speaker Change: Got it that's helpful and then and then for my second question.
In Slide 12, you show that the global average E V.
Is on track for cross parity with ice in the next year or two.
It would be nice to hear your take maybe on what you make of some of the recent challenges that western Oems are having and making a profitable EV.
And also the fallout from European tariffs on Chinese Evs kind of how that is playing into your demand outlook.
Okay. So I mean, the cost on the cost curve that you see on slide 12, I mean that that's a curve that we've been that the industry has been looking at for some time that $100 per kilowatt hour is been a benchmark or a tipping point we call it.
That people have been looking for them.
We're below that in China today.
Some of that fair enough is on lithium.
It is to put the company within the cost structure in the supply chain that we can compete at the pricing that we're seeing today.
And if it stays that way long term. So that's the hypothetical question, you're asking but that's what we're planning for.
And we because we don't know when prices are going to rebound we know that.
Speaker Change: We think a lot of players are operating below cash cost. We think they have to come up we just don't know when so we're going to structure the company to operate and be competitive and profitable.
In that range, so what that margin what that what the margin looks like I'm not I'm not going to hazard a guess on that but it is we're going to put ourself in a position to be profitable.
Speaker Change: Being able to compete where prices are today.
Our next question comes from Colin Rusch Colin Your line is now open. Please go ahead.
Thanks, So much guys you know as you're working through enforcing these contracts can you talk about some of the dynamics with the customers and any sort of compromises that you might be making.
Speaker Change: Adjustments you know historically, you kind of enforce some pricing and you reallocated volumes just want to get a sense of how those dynamics are playing out.
Speaker Change: Yeah.
Speaker Change: Hi, Yes, good morning, Collin its Eric.
Speaker Change: Those as you pointed out it's obvious with where market pricing is going it is.
Speaker Change: It is a discussion certainly around helping our customers remain competitive through through this period of time, while at the same time respecting the contracts we have in the bench and the thresholds that we have there in order to continue to invest on their behalf.
So these are areas of growth.
Speaker Change: These errors, we see frankly, having a faster adoption and technologies outside of electric vehicles, where there's but there's a smaller format battery and perhaps less risk involved and the customer base as a first step on the one hand on the other hand, if you speak to some of the more progressive.
Speaker Change:
Speaker Change: Vehicle producers Oems, who are looking at future technologies, there's a lot of investment there doing in this area as well so it's part and parcel of the overall partnership we have with customers I mean, it's the reason that relative to the earlier question, maintaining a contract relationship and supporting us.
Speaker Change: Alone we support them through throughout the cycle as well is if we got to respect and have strong contracts contract relationships because they are more than just supply they deal with things like technology as well that you're pointing out.
Speaker Change: Capacity is the commercial profile going forward, just all going to be reliance on tolling or do you have flexibility to sell spot spodumene concentrate into the market and will you be able to satisfy all of your customer contracts through tolling alone.
Speaker Change: Well, it's not well, it's not just totally so we've got a network of conversion assets today, and Phil May Shawn is up and operating and ramping.
Speaker Change: As we speak.
Speaker Change: And we've got first sales for me Sean in this in this quarter.
Speaker Change: As we've said ahead of schedule, we have multiple other facilities in China that we own and operate for conversion. So Kim Martin as a portion of it of our hard rock conversion assets and then it.
Speaker Change: Six.
Speaker Change: Okay. Thank you and thank you all for joining US today, we continue to adapt and move Albemarle forward to better position ourselves in the current market environment enhance our company's.
Speaker Change: Profitable organic growth trajectory and create long term value for shareholders.
Speaker Change: I remain confident in the long term secular growth opportunities in our end markets and that we're taking the right steps to position Albemarle for value creation.
Speaker Change: Thank you.
Speaker Change: This concludes today's conference call. Thank you for your participation you may now disconnect.
Speaker Change: Okay.