Albemarle Reports Second Quarter Results

CHARLOTTE, N.C., Aug. 5, 2020 /PRNewswire/ -- Albemarle Corporation (NYSE: ALB) today announced its results for the second quarter ended June 30, 2020.

Second Quarter 2020 Highlights
(Unless otherwise stated, all percent changes are based on year-over-year comparisons)

• Net income of $86 million, or $0.80 per diluted share; Adjusted diluted EPS of $0.86
• Net sales of $764 million decreased by 14%, in-line with Q2 2020 outlook
• Adjusted EBITDA of $185 million decreased by 29%, in-line with Q2 2020 outlook
• Our plants continue to operate without material impact from the COVID-19 pandemic
• Maintained our quarterly dividend of $0.385 per share, an increase of approximately 5% over the quarterly dividend paid in 2019
• Continued actions to bolster our balance sheet and enhance financial flexibility include the previously announced covenant amendment
• Cost savings initiatives remain on track: realization of between $50 and $70 million of sustainable cost savings in 2020; implementation of short-term cash management actions to save between $25 and $40 million per quarter; and deferral of 2020 capital spending by about $150 million from plan

"We are pleased that our net sales and adjusted EBITDA were at the upper range of our outlook this quarter. These results are due in no small part to the diligence of our global teams who continue to operate our businesses safely and efficiently," said Albemarle CEO Kent Masters. "We remain confident that we have the right strategy in place to deliver value to our stakeholders by investing in and growing our Lithium business. While our strategy has not materially changed, the environment in which we operate has changed dramatically. Our response must be to focus on operational discipline in terms of manufacturing, business, and capital project excellence."

Outlook

Albemarle anticipates that its third quarter 2020 performance will be lower year-over-year based on reduced global economic activity due to the global pandemic. As previously disclosed, we have withdrawn full-year 2020 outlook given the uncertainty around the duration and economic impact of the pandemic. We intend to reintroduce our full-year outlook as the situation allows. In an effort to help investors better understand our business, we have temporarily introduced a quarterly outlook.

COVID-19 Response

Albemarle's cross-functional Global Response Team continues to meet weekly to assess the situation and take necessary actions to address employee health and safety and operational challenges. Protocols including restricted travel, shift adjustments, increased hygiene, and social distancing for the essential workers at our plants remain in place at all locations. In some regions, including China, Australia, and Europe, our employees have returned to work. Other regions, including most of North and South America, remain on work-from-home protocols for non-essential personnel.   

Second Quarter Results

(a) See Non-GAAP Reconciliations for further details.
(b) Totals may not add due to rounding.

Net sales of $764.0 million decreased by $121.0 million compared to the prior year quarter, primarily driven by the Catalysts and Lithium business segments as discussed below.

Adjusted EBITDA of $185.2 million decreased by $76.7 million from the prior year quarter due to lower net sales, which were partially offset by productivity and cost improvements. Similarly, net income attributable to Albemarle of $85.6 million decreased by $68.6 million from the prior year. Corporate costs including SG&A were down compared to the prior year period as a result of cost savings initiatives. 

The effective income tax rate for Q2 2020 was 17.5% compared to 18.2% in the same period in 2019. The difference is largely due to a change in the geographic mix of earnings. On an adjusted basis, the effective income tax rates were 18.9% and 18.4% for the second quarter of 2020 and 2019, respectively.

Business Segment Results

Lithium net sales of $283.7 million declined $41.0 million primarily due to lower market and contract pricing. Lower contract pricing reflects 2020 battery-grade price adjustments that were agreed to in late 2019. Adjusted EBITDA of $94.5 million declined by $47.2 million primarily due to reduced net sales as well as reduced Talison equity income. The decline was partially offset by cost savings initiatives and efficiency improvements.

Current Trends: We expect the impact of low OEM automotive production to be felt more acutely in Q3 2020. At the same time, we are seeing impacts of lower market prices, higher inventory in the battery channel, and reduced demand in the glass and ceramics markets. As a result, we expect Q3 2020 EBITDA to be down about 10% to 20% compared to Q2 2020.   

Bromine net sales of $232.8 million declined $22.7 million primarily due to lower volumes driven by COVID-19 related impacts. Adjusted EBITDA of $73.0 million declined $8.3 million due to lower net sales, which were partially offset by cost savings initiatives. 

Current Trends: Third quarter 2020 EBITDA is expected to be similar to Q2 2020. Due to our position in the supply chain, the impact of COVID-19 related weakness began in Q2 2020 and is expected to continue into Q3 2020. Strong demand for surfactants and stabilization in building and construction helps offset weakness in other end use markets.     

Catalysts net sales of $197.1 million declined $69.2 million due primarily to lower volumes. Fluid Catalytic Cracking (FCC) volume was down primarily from lower transportation fuel consumption as a result of stay-at-home orders and travel restrictions. Hydroprocessing Catalysts (HPC) volumes were also down due to normal lumpiness of shipments and some softness related to lower oil prices and reduced fuel demand. Adjusted EBITDA of $22.8 million declined $44.1 million as a result of lower net sales and a net $12 million correction of out-of-period errors regarding inventory values and freight accruals. The errors primarily relate to Q1 2020 results (see note to the income statement).  Adjusted EBITDA was favorably impacted by cost savings initiatives and efficiency improvements.

Current Trends:  We expect FCC demand to partially recover in H2 2020 as travel begins to increase and global gasoline inventories deplete. Conversely, we expect that HPC will be negatively impacted in H2 2020 as refiners defer spending into 2021 and 2022. As a result, Q3 2020 EBITDA is expected to remain down about 50% to 60% from prior year. 

Other operations represents our Fine Chemistry Services (FCS) business. FCS net sales of $50.5 million increased $11.9 million and adjusted EBITDA of $18.6 million increased $7.4 million. The FCS business tends to be contract driven. Recent contracts include life sciences products which are typically anti-cyclical.

Balance Sheet and Liquidity

As of June 30, 2020, Albemarle had estimated liquidity of over $1.5 billion, including $737 million of cash and equivalents, $550 million remaining under our $1 billion revolver, and $220 million on other available credit lines. Total debt was $3.5 billion, representing net debt to adjusted EBITDA of approximately 3.2 times.

As previously disclosed, we recently negotiated a covenant amendment to ensure ongoing financial flexibility. The revised covenant is based on net debt to adjusted EBITDA, with a maximum ratio of 4.5 times for the third quarter 2020 through third quarter 2021, decreasing to 4.0 times in the fourth quarter of 2021, and 3.5 times thereafter. 

Cash Flow and Capital Deployment

Cash from operations for the six months ended June 30, 2020, of $207.9 million, increased $8.6 million versus the prior year as reduced working capital outflows in 2020 offset lower earnings. Capital expenditures of $419.0 million were in-line with the prior year as progress continued on our Lithium expansion projects.

Our primary capital allocation priorities are to maintain our investment grade rating and our quarterly dividend while preserving our long-term growth profile. 

In order to preserve cash and align with the current economic environment, we have accelerated our previously announced cost savings initiatives, implemented short-term cash management tactics, and delayed capital expenditures. We continue to anticipate realizing $50 to $70 million of sustainable cost savings in 2020. Expected  full-year 2020 capital spending remains approximately $850 to $950 million. 

In May, the board declared a quarterly dividend of $0.385 per share, an increase of approximately 5% over the quarterly dividend paid in 2019. We expect 2020 to be our 26th consecutive year of dividend increase, and the company remains committed to shareholder returns.

Our share repurchase authorization remains in place; however, there are no near-term plans to execute share buybacks. Divestiture activity is ongoing but has been slowed as travel restrictions have delayed due diligence processes. 

Earnings Call

The Company's earnings presentation and supporting material are available on Albemarle's website at https://investors.albemarle.com.

About Albemarle

Albemarle Corporation (NYSE: ALB), headquartered in Charlotte, N.C., is a global specialty chemicals company with leading positions in lithium, bromine and refining catalysts. We think beyond business-as-usual to power the potential of companies in many of the world's largest and most critical industries, such as energy, electronics, and transportation. We actively pursue a sustainable approach to managing our diverse global footprint of world-class resources. In conjunction with our highly experienced and talented global teams, our deep-seated values, and our collaborative customer relationships, we create value-added and performance-based solutions that enable a safer and more sustainable future.

We regularly post information to www.albemarle.com, including notification of events, news, financial performance, investor presentations and webcasts, non-GAAP reconciliations, SEC filings and other information regarding our company, its businesses and the markets it serves.

Forward-Looking Statements

Some of the information presented in this press release, the conference call and discussions that follow, including, without limitation, information related to product development, production capacity, committed volumes, market trends, pricing, expected growth, earnings and demand for our products, input costs, surcharges, tax rates, stock repurchases, dividends, cash flow generation, costs and cost synergies, capital projects, economic trends, outlook and all other information relating to matters that are not historical facts may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from the views expressed. Factors that could cause actual results to differ materially from the outlook expressed or implied in any forward-looking statement include, without limitation: changes in economic and business conditions; changes in financial and operating performance of our major customers and industries and markets served by us; the timing of orders received from customers; the gain or loss of significant customers; competition from other manufacturers; changes in the demand for our products or the end-user markets in which our products are sold; limitations or prohibitions on the manufacture and sale of our products; availability of raw materials; increases in the cost of raw materials and energy, and our ability to pass through such increases to our customers; changes in our markets in general; fluctuations in foreign currencies; changes in laws and government regulation impacting our operations or our products; the occurrence of regulatory actions, proceedings, claims or litigation; the occurrence of cyber-security breaches, terrorist attacks, industrial accidents, natural disasters or climate change; the inability to maintain current levels of product or premises liability insurance or the denial of such coverage; political unrest affecting the global economy, including adverse effects from terrorism or hostilities; political instability affecting our manufacturing operations or joint ventures; changes in accounting standards; the inability to achieve results from our global manufacturing cost reduction initiatives as well as our ongoing continuous improvement and rationalization programs; changes in the jurisdictional mix of our earnings and changes in tax laws and rates; changes in monetary policies, inflation or interest rates that may impact our ability to raise capital or increase our cost of funds, impact the performance of our pension fund investments and increase our pension expense and funding obligations; volatility and uncertainties in the debt and equity markets; technology or intellectual property infringement, including cyber-security breaches, and other innovation risks; decisions we may make in the future; the ability to successfully execute, operate and integrate acquisitions and divestitures; uncertainties as to the duration and impact of the coronavirus (COVID-19) pandemic; and the other factors detailed from time to time in the reports we file with the SEC, including those described under "Risk Factors" in our Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q. These forward-looking statements speak only as of the date of this press release. We assume no obligation to provide any revisions to any forward-looking statements should circumstances change, except as otherwise required by securities and other applicable laws.

Albemarle Corporation and Subsidiaries
Consolidated Statements of Income
(In Thousands Except Per Share Amounts) (Unaudited)

¹ Cost of goods sold for the three-month period ended June 30, 2020 includes a net expense of $9.8 million for the correction of out-of-period errors regarding understated cost of goods sold for inventory values within the Catalysts segment and overstated freight accruals primarily within the Lithium and Catalysts segments. 

Albemarle Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(In Thousands) (Unaudited)

Albemarle Corporation and Subsidiaries
Selected Consolidated Cash Flow Data
(In Thousands) (Unaudited)

Albemarle Corporation and Subsidiaries
Consolidated Summary of Segment Results
(In Thousands) (Unaudited)

See accompanying non-GAAP reconciliations below.

Additional Information

It should be noted that adjusted net income attributable to Albemarle Corporation, adjusted diluted earnings per share, non-operating pension and OPEB items per diluted share, non-recurring and other unusual items per diluted share, adjusted effective income tax rates, EBITDA, adjusted EBITDA, EBITDA margin and adjusted EBITDA margin are financial measures that are not required by, or presented in accordance with, accounting principles generally accepted in the United States, or GAAP. These non-GAAP measures should not be considered as alternatives to Net income attributable to Albemarle Corporation ("earnings"). These measures are presented here to provide additional useful measurements to review our operations, provide transparency to investors and enable period-to-period comparability of financial performance. The Company's chief operating decision maker uses these measures to assess the ongoing performance of the Company and its segments, as well as for business and enterprise planning purposes.

A description of other non-GAAP financial measures that we use to evaluate our operations and financial performance, and reconciliation of these non-GAAP financial measures to the most directly comparable financial measures calculated and reported in accordance with GAAP can be found on the following pages of this press release, which is also is available on Albemarle's website at https://investors.albemarle.com. The Company does not provide a reconciliation of forward-looking non-GAAP financial measures to the most directly comparable financial measures calculated and reported in accordance with GAAP, as the Company is unable to estimate significant non-recurring or unusual items without unreasonable effort. The amounts and timing of these items are uncertain and could be material to the Company's results calculated in accordance with GAAP.

ALBEMARLE CORPORATION AND SUBSIDIARIES
Non-GAAP Reconciliations
(Unaudited)

See below for a reconciliation of adjusted net income attributable to Albemarle Corporation, EBITDA and adjusted EBITDA, the non-GAAP financial measures, to Net income attributable to Albemarle Corporation ("earnings"), the most directly comparable financial measure calculated and reported in accordance with GAAP. Adjusted earnings is defined as earnings before the non-recurring, other unusual and non-operating pension and OPEB items as listed below. EBITDA is defined as earnings before interest and financing expenses, income taxes, and depreciation and amortization. Adjusted EBITDA is defined as EBITDA and the non-recurring, other unusual and non-operating pension and OPEB items as listed below.

See below for a reconciliation of adjusted EBITDA on a segment basis, the non-GAAP financial measure, to Net income attributable to Albemarle Corporation, the most directly comparable financial measure calculated and reported in accordance with GAAP (in thousands, except percentages).

Non-operating pension and OPEB items, consisting of mark-to-market actuarial gains/losses, settlements/curtailments, interest cost and expected return on assets, are not allocated to our operating segments and are included in the Corporate category. In addition, we believe that these components of pension cost are mainly driven by market performance, and we manage these separately from the operational performance of our businesses. In accordance with GAAP, these non-operating pension and OPEB items are included in Other (expenses) income, net. Non-operating pension and OPEB items were as follows (in thousands):

In addition to the non-operating pension and OPEB items disclosed above, we have identified certain other items and excluded them from our adjusted net income calculation for the periods presented. A listing of these items, as well as a detailed description of each follows below (per diluted share):

See below for a reconciliation of the adjusted effective income tax rate, the non-GAAP financial measure, to the effective income tax rate, the most directly comparable financial measure calculated and reported in accordance with GAAP (in thousands, except percentages).

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SOURCE Albemarle Corporation