Hot Stock Alert: Lithium Company Crushes Earnings

Written by Jason Simpkins
Posted November 18, 2016 at 7:09PM

Amid all the excitement of the presidential election FMC Corp. (NYSE: FMC), one of the world’s top lithium producers, quietly released its earnings.

And they were terrific.

FMC reported third quarter net income of $0.59 per share, compared to a net loss of $0.02 per share for the same period of 2015. That exceeded even FMC’s own top-end guidance. The company generated $808 million in revenue for the quarter, compared to analyst estimates of $795 million.

To be clear, FMC isn’t solely a lithium producer. It has an agricultural business (pesticides and fungicides) and a health and nutrition segment that includes food ingredients, pharmaceuticals, and hygiene products.

But it’s FMC’s lithium division that’s driving the bottom-line growth.

The company, which is very vertically integrated, produces lithium carbonate from the lithium chloride that it extracts from brine. It then further refines the carbonate into various other lithium products, including lithium hydroxide and lithium metals.

FMC Lithium reported $70 million in revenue, a 22% increase year-over-year. Income rose to $18 million from just $2 million a year ago.

Segment earnings for the fourth quarter are expected to be in the range of $16 million to $20 million, up 62% from last year. As a result, segment earnings for all of 2016 are expected to be between $65 million and $69 million — $5 million higher than previous guidance.

FMC Earnings

Higher product prices, lower operating costs, and the devaluation of the Argentinean peso (FMC operates its lithium business in the Salar del Hombre Muerto) all contributed to the increase in segment earnings. But the biggest factor by far is higher lithium prices.

Lithium carbonate has surged 33% in the past year from $6,000 per ton to $8,000 a ton. In some cases, it's even fetched as much as $25,000(!) on the spot market.

Furthermore, prices are projected to keep rising, as demand has shown no signs of slowing down.

Macquarie estimates global demand in 2016 will be about 184,500 tons, rising to more than 260,000 tons in 2020. Metals and minerals consultancy Roskill Information Services has a similar estimate, pegging its base scenario for lithium consumption at 290,000 tons in 2020. However that figure rises to a whopping 420,000 tons in its "optimistic" scenario.

Lithium Demand

In any case, 2020 supply figures to be less than 238,000 tons. So the shortfall here is apparent.

Most of the demand is coming from China, which accounts for 40% of global lithium consumption. This is because Beijing, seeking to solve the country's notorious air pollution, has pushed for wider use of electric vehicles.

Of course, it’s not just China. Electric vehicle demand (and projected electric vehicle demand) is growing globally. U.S. electric car sales, for instance, surged 26% through October. EV sales in Canada, meanwhile, hit a new record in September, climbing 60%.

The end result of all this activity?

FMC has seen its stock surge 37% this year. And it’s not alone.

Two other major lithium producers, Albemarle (NYSE: ALB) and Chemical & Mining Co. of Chile (NYSE: SQM), are up 48% and 42% respectively.

Along with Talison Lithium, these companies control a whopping 86% of global lithium production.

We’ve been reporting on them, and the lithium boom itself, for months.

We’ve even released a special report on the subject, which you can get here. It contains what's probably the last “sleeper” play in the industry, a stock poised to surge dramatically in the year ahead.

So make sure to check that out, if you haven’t already.

In the meantime, lithium and lithium companies like FMC are poised to power forward.

Get paid,

Jason Simpkins Signature

Jason Simpkins

follow basic@OCSimpkins on Twitter

Jason Simpkins is a seven-year veteran of the financial publishing industry, where he's served as a reporter, analyst, investment strategist and prognosticator. He's written more than 1,000 articles pertaining to personal finance and macroeconomics. Simpkins also served as the chief investment analyst for a trading service that focused exclusively on high-flying energy stocks. For more on Jason, check out his editor's page. 

*Follow Outsider Club on Facebook and Twitter.

Comments

The Birth of a 10-Year Uranium Bull

sprott-mining