Albemarle Drops Most on S&P 500 as Cost of Finding Lithium Rises

  • Weaker prices for the mineral will be another drag on earnings
  • Shares fall most in 18 months as profit forecast disappoints

Why Electric Cars Aren't Taking Over Yet

Albemarle Corp. plunged the most in 18 months as the world’s largest lithium producer forecast disappointing earnings amid rising exploration costs and lower prices for the mineral used in electric-vehicle batteries.

Lithium profit the rest of this year will probably decline from the record level in the second quarter, Chief Financial Officer Scott Tozier said Tuesday on a conference call to discuss financial results. The company’s profit forecast for 2017 suggested earnings will probably fall short of analysts’ estimates in the second half.

Sales of less expensive forms of the mineral will climb the rest of this year because of contractual commitments, leading to a “slight” decrease in average prices than in the past quarter, Tozier said. Expenses are set to increase as the company accelerates efforts to identify new lithium sources in the U.S., Argentina, Chile and Australia, Chief Executive Officer Luke Kissam said on the call.

“The weaker-than-expected outlook is due to rising lithium exploration costs,” Jim Sheehan, an analyst at Suntrust Robinson Humphrey Inc. said in a note to clients. That will more than offset a modest boost from a weaker dollar, he said.

Albemarle fell 5.2 percent to $116.70 at 11:09 a.m. in New York after sliding as much as 7.6 percent for the biggest intraday drop since February 2016. The shares posted the sharpest decline on the S&P 500 Index.

Earnings Forecast

The Charlotte, North Carolina-based company reported late Monday that adjusted earnings rose to $1.13 a share in the second quarter. That topped the $1.10 average of analysts’ estimates compiled by Bloomberg. Sales increased 10 percent to $737.3 million, while analysts had projected $735.5 million.

The company maintained its 2017 forecast for adjusted profit of $4.20 to $4.40 a share, the midpoint of which fell short of the $4.36 average of analyst estimates compiled by Bloomberg as of Monday.

Lithium prices for Albemarle should still be up 20 percent for the year, after the 31 percent increase in the second quarter, the company said.

“The long-term secular growth rate in lithium continues to strengthen as evidenced by increasing targets across the automotive industry and the global effort for governments to support the transition to electric vehicles,” Kissam said.

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