Albemarle vs. Livent: What were the best results for the Lithium business in the third quarter?

Albemarle (NYSE:ALB) and Livent (NYSE: LTHM) published their results for the third quarter of 2022 this week. Thus, investors can now compare the results of the two main lithium producers in their lithium activities.

There are a few things to keep in mind, including that long-term investors shouldn’t place too much emphasis on a single quarter’s performance. Second, qualitative factors can be just as important as quantitative factors. Finally, Albemarle has activities other than lithium, so its results will also be affected by their performance. Even with those caveats, the data in this article should help you make better investment decisions in the lithium space.

interest in lithium stocks has surged over the past year or so as investors have taken note of the strong growth in revenue and earnings that well-established lithium players have generated. These performances are mainly driven by the electric vehicle (EV) revolution, because lithium is used to produce the lithium-ion batteries that power electric vehicles. Demand for the material exceeded supply, causing prices to skyrocket.

Growth in revenue from the Lithium activity

Data sources: Corporate earnings reports.

Winner: Albemarle

Albemarle, based in the United States, gets the gold medal (or should it be a lithium medal?) for this category. Both companies recorded fantastic revenue growth, but Albemarle’s exceeded that of its American sister company.

Albemarle third-quarter revenue growth year-over-year was primarily driven by higher realized lithium prices, although higher sales volumes contributed 20% to overall growth. Livent’s growth has been driven by higher realized lithium prices as the company will not have any significant new production capacity until next year.

Lithium business profit growth (using Adjusted EBITDA)

Both companies use the same metric to assess their overall business profitability performance: adjusted EBITDA (earnings before interest, taxes, depreciation and amortization). Albemarle uses this same metric to measure the profitability of each of its three business segments.

Data sources: Corporate earnings reports.

Winner: Albemarle (although calling this a tie also seems fair)

Albemarle takes the win here, although both companies have stellar numbers in this earnings growth category. I wouldn’t argue, however, with anyone who thinks this category should be considered a draw. Indeed, the figures are in the same general stage.

A note below discusses an issue with Livent’s Adjusted EBITDA. It is also applicable in this category, but should have less impact in this category.

Lithium business profit margin (using Adjusted EBITDA)

An adjusted EBITDA profit margin is calculated by dividing this metric by revenue.

Data sources: Corporate earnings reports.

Winner: Albemarle

Albemarle is the clear winner here, even though Livent’s profitability is nothing short of incredible for an industrial company.

This comparison isn’t quite apples to apples, but it’s the best we can do. The result is that Livent’s lithium business is a bit more profitable than the figure above suggests, but we can’t tell by how much.

Explanation (skip this paragraph if you don’t want to go into detail): Albemarle details its adjusted EBITDA by company by segment (lithium, bromine and catalysts) and by company. This is a negative number. Livent only provides Adjusted EBITDA to the business as it has only one business segment. In other words, negative Adjusted EBITDA from its non-revenue generating business activities is included in the Adjusted EBITDA figure it provides. Thus, the adjusted EBITDA of its lithium activity would be slightly higher than what is indicated in this article.

Size of lithium activity compared to overall activity

This category does not lend itself well to choosing a winner, so it is not included in the scoring.

Data sources: Corporate earnings reports.

Winner: N/A

Investors looking for a pure play lithium should obviously favor Livent. Those who appreciate a bit of diversification should lean towards Albemarle. Some diversification is often a good thing. Having all your eggs in one basket tends to increase a company’s risk profile.

And the winner is… Albemarle.

This matchup was a shutout with Albemarle sweeping all three goal categories. But keep in mind the many caveats mentioned at the top of the article.

There are also other factors to consider, including things like financial liquidity and dividend policy (Albemarle pays a modest dividend, while Livent pays no dividend).

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Beth McKenna has no position in the stocks mentioned. The Motley Fool has no position in the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.