The Role of 2020 Lithium Prices in Livent’s Q4 Report

When Livent Corp. (NYSE: LTHM) released its fourth-quarter financial results late Thursday, the specialty chemicals company said that it had $0.05 in earnings per share (EPS) and $78.4 million in revenue. The consensus estimates had called for $0.05 in EPS and revenue of $82.01 million. The same period of last year reportedly had EPS of $0.23 and $119.8 million in revenue.

The company previously disclosed that its fourth-quarter and full-year results would reflect declining prices throughout the year, primarily due to industry supply additions outpacing demand growth. Additionally, in the fourth quarter, certain orders that were delayed into 2020 by customers and Livent’s decision to carry hydroxide inventory to meet higher customer commitments in 2020 resulted in lower volumes compared to the prior year.

Looking ahead to the 2020 full year, the company expects to see EPS in the range of $0.18 to $0.31 and revenue between $375 million and $425 million. The consensus estimates are $0.38 in EPS and $459.99 million in revenue for the year.

This guidance is based on expected volume growth of roughly 30% compared with 2019. Offsetting this volume increase is Livent’s view that market pricing will continue to remain depressed and that its average realized pricing for lithium hydroxide in 2020 will be low-to-mid-teens percent lower than its average realized pricing in 2019.

Additionally, Livent anticipates higher costs from using up to 5,000 tons of additional third-party lithium carbonate to sell higher volumes of battery-grade lithium hydroxide. These two items are the largest drivers of Livent’s expectation of lower year-on-year profitability in 2020.

Paul Graves, president and CEO of Livent, commented:

Despite another record year of lithium compound demand, pricing has been severely impacted by oversupply conditions.  Lithium producers and resource developers are responding to this by reducing output and delaying or canceling capacity expansion projects. We recognize the financial challenges current pricing levels are creating, and as a result, have elected to slow down our own capacity expansion program in order to preserve our financial flexibility and align our additional supply with future demand growth.

Livent stock traded down about 16% Friday morning to $9.94, in a 52-week range of $5.49 to $14.16. The consensus price target is $8.69.

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