Albemarle is keeping more cash. Lithium will test the gains.
A higher Specialties profit target and a smaller investment budget strengthen the recovery. The lithium business faces a softer fourth quarter.
Albemarle is giving its cash recovery more room to run. The chemicals producer cut its annual investment budget to $300 million–$350 million from about $500 million, while raising the profit outlook for its Specialties business.
That combination matters as lithium faces another softer quarter. Higher lithium prices helped lift September-quarter earnings, but management expects lower prices and more expensive feedstock to reduce the Energy Storage business's sales, adjusted earnings and margin in the fourth quarter.
Cash generated earlier in the year and a smaller spending bill give Albemarle more flexibility through that slowdown.
Less spending, with some costs moved into the future
Albemarle generated $1.21 billion of free cash flow in the first nine months, measured as operating cash flow minus capital spending. The new investment budget supports that improvement, though part of the reduction comes from changing project schedules. Other savings come from making growth projects and the existing production network less expensive to maintain and develop.
The company did not put a dollar amount on each part. Some spending can return as projects advance.
| Measure | August outlook | November outlook |
|---|---|---|
| Specialties adjusted EBITDA | $275m–$325m | $350m–$375m |
| Capital spending | About $500m | $300m–$350m |
Specialties, which makes bromine-based and other specialized chemicals, offers support beyond lithium. Its quarterly adjusted EBITDA rose to $98.7 million from $75.5 million. Higher prices, higher sales volumes and productivity improvements all helped.
The cash improvement survives a closer look
Operating cash flow rose to $1.46 billion in the first nine months from $893.8 million. Investment dividends supplied $368.4 million of the current total, versus $89.0 million a year earlier. Last year's cash flow also included a $350 million customer advance.
Research by Ticker Byline shows that the improvement remains substantial after removing those investment dividends from both periods and the customer advance from last year. On that basis, operating cash flow more than doubled, from about $455 million to $1.09 billion.
The balance sheet has strengthened too. Debt was $1.88 billion at September 30, down from $3.19 billion at the previous year-end, with $1.85 billion in cash. Asset sales helped fund the roughly $1.3 billion of debt repurchases and redemption completed in the first quarter.
Lithium's next quarter will be harder
Energy Storage sales reached $1.12 billion in the third quarter, up from $708.8 million, despite lower lithium sales volumes. Prices did much of the work: segment adjusted EBITDA rose to $559.8 million from $124.1 million.
The next quarter will face lower market prices and the cost of processing higher-priced mineral feedstock bought earlier. Management expects broadly steady lithium sales volumes.
Albemarle kept its total-company annual ranges under different lithium-price scenarios. It also said strong results so far were trending toward the higher end of its $20-per-kilogram scenario, which allows for $2.4 billion–$2.6 billion of adjusted EBITDA. That range assumes the stated pricing conditions.
The recovery has a stronger cash foundation than a year ago. The next test is how much of it lower investment needs and Specialties can preserve as lithium earnings ease. The Albemarle company profile tracks the targets, debt, completed divestitures and production changes behind that test.