Albemarle Corporation (ALB) Earnings Call Transcript & Summary

Hello, and welcome to Albemarle Corporation's Q2 2026 Earnings Call. I will now hand it over to Meredith Bandy, Vice President of Investor Relations and Sustainability.

Thank you, and welcome, everyone, to Albemarle's Second Quarter 2026 Earnings Conference Call. Our earnings were released after market closed yesterday, and you'll find the press release and earnings presentation posted to our website under the Investors section at albemarle.com. Joining me on the call today are Kent Masters, Chief Executive Officer; and Neal Sheorey, Chief Financial Officer. Mark Mummert, Chief Operations Officer; and Eric Norris, Chief Commercial Officer, are also available for Q&A. As a reminder, some of the statements made during this call, including outlook, guidance, expected company performance and strategic initiatives may constitute forward-looking statements. Please note the cautionary language about forward-looking statements contained in our press release and earnings presentation that same language applies to this call. Please also note that some of our comments today may refer to non-GAAP financial measures. You can find reconciliations in our earnings materials. And now I'll turn the call over to Kent.

Thank you, Meredith. Our strong start to 2026 continued in the second quarter, supported by disciplined execution and improving conditions across our key markets. Second quarter net sales of $1.7 billion increased 31% year-over-year, driven by higher pricing in energy storage and both higher pricing and volumes in specialties. Adjusted EBITDA more than doubled to $858 million, with our enterprise EBITDA margin expanding to 49%. Importantly, we converted that performance into cash. we generated $710 million of cash from operations, representing a more than 80% operating cash conversion and $638 million of free cash flow in the quarter. We are also on track to reach the high end of our $100 million to $150 million full year target for cost and productivity improvements. These results reflect a deliberate focus on operational excellence and cost discipline. We also benefit from globally diverse and resilient key end markets. Global lithium consumption was up 45% year-over-year through May, tracking above our forecasted range, driven by continued strength in stationary storage and improving growth in electric vehicles. Needed supply increases are coming to market slower than demand growth due to limited spodumene availability, temporary disruptions in shipments from Africa and slower-than-expected ramp-up of Chinese lepidolite mines. And as a result, inventories are low and the physical lithium market remains tight. We are improving our 2026 outlook considerations, including raising our specialty sales and EBITDA outlook due to a strong year-to-date performance and reducing expected capital spending, thanks to ongoing capital efficiency efforts. Beyond our 2026 outlook, we are also advancing resource options that can support sustainable growth through the cycle. On today's call, I'll focus on our efforts at the Salar de Atacama, where we're leveraging decades of brine processing expertise to advance direct lithium extraction. We also have opportunities at our Australian Hard Rock joint ventures. Wodgina is outperforming on better-than-planned ore availability and recoveries. This has helped -- this is helping offset the impact of a fire at Greenbushes CGP3 plant, which occurred on June 9. CGP3 restarted on August 1. Now I'll turn it over to Neal to discuss recent results and outlook. I will then cover recent market trends and give more detail on our resources before we open the call for Q&A.

Thank you, Kent, and good morning, everyone. I'll begin with our second quarter results on Slide 5. Second quarter net sales were $1.7 billion, driven by energy storage pricing up 73% while specialties pricing and volumes were up 11% and 8%, respectively. Adjusted EBITDA for the quarter was $858 million, up 155% year-over-year reflecting higher net sales and our ongoing cost and productivity improvements. Both segments contributed to this strong growth, with energy storage adjusted EBITDA up 229% and specialties up 61%. Net income attributable to Albemarle was $480 million, and we reported diluted earnings per share of $3.52. Turning to Slide 6. I'll walk through the key drivers of our year-over-year EBITDA performance. As I mentioned, second quarter adjusted EBITDA increased primarily due to higher pricing in both segments. Due to higher lithium pricing, our cost of goods sold reflects increased Chilean commission payments and higher-priced spodumene inventory. The impact of higher spodumene pricing is offset by increased equity income from our Talison joint venture versus the prior year. Across both segments, cost and productivity improvements helped offset raw material and supply chain cost increases related to the situation in the Middle East. Corporate and all Other reflects a reduction in adjusted EBITDA due to the Ketjen Refining Solutions divestiture, partially offset by favorable foreign exchange impacts. Turning to Slide 7. We are maintaining our total company outlook ranges and expect to come in at the high end of the scenario ranges due to strong year-to-date performance and an increased specialties outlook. These factors offset modestly lower expected energy storage sales volume due to the fire at the CGP3 plant at the Talison joint venture. Our outlook ranges continue to reflect the expected impact of supply chain disruptions related to the situation in the Middle East which we still estimate at approximately $70 million to $90 million on an unmitigated basis for the full year. In Specialties, we are increasing our outlook due to higher pricing and volumes, which I will cover in more detail on the next slide. The Specialty segment delivered another strong quarter. Net sales were $424 million, up 20% year-over-year and adjusted EBITDA was $118 million, up 61% year-over-year. Adjusted EBITDA margin was 28%, up 700 basis points from the prior year period. The solid performance in the second quarter was primarily due to higher pricing and volume and favorable product mix as a result of bromine market disruptions related to the situation in the Middle East. As a result, we are increasing our full year outlook ranges, raising net sales to $1.4 billion to $1.6 billion and adjusted EBITDA to $275 million to $325 million. This increase reflects strong year-to-date performance as our teams have worked to capture the upside of increased bromine pricing while mitigating Middle East related supply chain disruptions through proactive cost management. Our second half outlook assumes stabilization of the bromine market as we've seen pricing normalize since reaching a peak in April, and it reflects continued uncertainty in the Middle East. As such, we expect third quarter net sales and EBITDA to be lower sequentially. Long term, we continue to see margin upside for the Specialty segment as our business and asset diversity continues to deliver positives. Specialties benefits from diverse end markets, including electronics and semiconductors, building and construction, oil and gas and pharmaceuticals. Geographic diversity also complements the platform's end market diversity and adds resilience against regional volatility. Turning to energy storage on Slide 9. Net sales increased 78% year-over-year and adjusted EBITDA increased 229%, both driven by higher pricing. Second quarter sales volumes were 65,000 tons lithium carbonate equivalent, or LCE, with an average realized price of approximately $20 per kilogram LCE. Realized price was approximately 15% below market pricing due to the dilutive impact of spodumene sales on an LCE basis and the 3-month pricing lag for our long-term agreements. See Slide 24 in the appendix for additional information. For the third quarter, net sales and adjusted EBITDA are expected to decrease sequentially and due to lower sales volumes and assuming that pricing is lower sequentially for the quarter as it stands today. Additionally, energy storage margins are expected to decrease sequentially due to the timing of spodumene inventories and also assuming that today's pricing continues for the quarter. As a reminder, it takes approximately 4 months to ship and process spodumene purchased from the Talison joint venture. In a rising price environment, this creates a margin tailwind as we process lower cost inventory while benefiting from higher selling prices. and a declining price environment, that timing effect reverses and is dilutive to margins. For the full year, energy storage sales volumes are now expected to be in the range of 225,000 to 235,000 tons LCE or flat to down 4% year-over-year. This reflects the delay in the CGP3 ramp following the June 9 fire, partially offset by better-than-planned production at Wodgina. As Kent mentioned, CGP3 restarted last weekend and is now ramping back up. Turning to Slide 10. We continue to focus on converting earnings into cash, as evidenced by our performance over the last 3 years. First half operating cash flow conversion is at the high end of our long-term target range of 60% to 70%. In the second quarter, we benefited from increased Talison dividends and nonrecurring working capital reductions driven by favorable inventory and accounts receivable. On a full year basis, we still expect cash flow to be impacted by $87.5 million of deferred revenue related to our 2025 customer prepayment which benefits EBITDA but does not contribute cash and approximately $100 million of spend related to idling Kemerton Train 1. Slide 11 highlights our continued focus on cost and productivity. Thus far, we have achieved approximately $100 million of run rate savings year-to-date. This performance puts us on track to reach the high end of our $100 million to $150 million full year target. Across these gross improvements, roughly 40% has been driven by supply chain and back-office initiatives. The remaining 60% includes manufacturing cost out and incremental volumes and yield. Examples of these productivity improvements include debottlenecking projects at La Negra, JBC and our lithium conversion sites in China. Importantly, these improvements continue to help us offset the supply chain disruptions and cost inflation related to the situation in the Middle East. With that, I'll turn it back over to Kent to discuss the market outlook.

First, let me highlight the breadth of Albemarle's end markets and why we are generally seeing resilient demand trends. Our portfolio serves key markets across mobility, energy, connectivity and health, and that diversity strengthens our resilience through the cycle. Electric vehicles and stationary storage remains significant long-term growth drivers. Together, these 2 end markets make up about 50% to 60% of Albemarle's total net sales last year. We'll talk in more detail on both these markets in a moment. In specialties, electronics and semiconductors, building and construction and oil and gas remain key market segments. AI-related demand continues to support electronics and semiconductor applications. In oil and gas, clear brine fluid demand has remained stable in the Middle East, while geopolitical uncertainty has incentivized demand in other regions, such as the Americas and Europe. We can serve all these geographies from our global asset network creating resilience in volatile environments like we face today. Let's now turn to a deeper dive into EV and stationary storage markets. Turning to Slide 13. Lithium demand is up 45% through May, primarily driven by continued strength in stationary storage. We are increasing our 2026 and 2030 stationary storage forecast ranges due to that strong demand. We now expect stationary storage battery production of 900 to 1,100 gigawatt hours in 2026, up 11% or 100 gigawatt hours from our prior forecast. We are also raising the low end of our 2030 stationary storage range between 1,500 and 2,000 gigawatt hours, up approximately 9% from our prior forecast. As a result of this change, we are also raising the low end of our 2030 forecast for total lithium demand by 100,000 tons. Lithium demand growth continues to outstrip supply growth. As a result, we exited the second quarter near record lows in terms of days of lithium salt inventory. Based on mass balance calculations, we also estimate spodumene inventories are at near historic lows. And some conversion sites in China have reportedly shut down or reduced production due to the lack of spodumene availability. Lithium demand continues to diversify by application and geography as stationary storage gained share. Slide 14 highlights the strength of stationary storage demand. Global stationary storage production has nearly doubled year-over-year with broad support across most geographic regions. Long-term demand remains supported by multiple secular trends. First, global electricity demand growth is accelerating, led by urbanization, AI and data centers and EVs. With grid upgrades taking multiple years, stationary storage is the fastest and most cost-effective way to support grid reliability. Also, policy support in regions like China, Europe and Australia improves project economics for stationary storage and renewables. We now expect stationary storage to make up about 30% of 2026 global lithium market demand, nearing parity with light-duty EVs. Turning to Slide 15. Year-to-date, global EV sales are up 10% year-over-year. EV sales growth inflected in the second quarter, up 16% versus prior year. European EV demand remained strong, up 31% year-to-date, driven by policy support in key markets like the U.K., Germany, France and others. Europe also benefits from increased model availability and affordability as Chinese OEMs have increased exports and domestic production for the region. In China, growing EV exports and larger battery sizes have helped offset weaker domestic EV unit sales. The rest of the world was the fastest-growing region in the first half, up 90% year-over-year and has overtaken North America as the third largest market. led by growth in Brazil, Australia, India and South Korea. Turning to Slide 16 for an update on our Australian joint ventures. As previously mentioned, Greenbushes CGP3 plant restarted on August 1. We had previously expected the plant to reach full run rate by year-end. Prior to this incident, the plant was ramping ahead of schedule. However, to ensure adequate contingency for our downstream operations, we've assumed CGP3 reaches full run rate in the first quarter of 2027. Greenbushes is in the middle of a multiyear transformation. Mine optimization studies are progressing well, and we anticipate operational improvements and further brownfield expansion projects. Our primary focus remains on operating the mine safely, and we have good alignment with all partners towards that goal. At Wodgina, operations are performing well. supported by better-than-planned ore availability and recoveries. All 3 processing trains are now operating. Ore quality is expected to remain consistent next quarter before improving later this year as the availability of clean ore increases. As we have highlighted before, these hard rock assets are an important part of our long-term resource position and provide near-term brownfield growth opportunities. Moving to Slide 17. Albemarle has decades of brine processing expertise at Magnolia and Silver Peak in the United States, the Salar de Atacama and La Negra in Chile and JBC in Jordan. That foundational experience informs how we are advancing DLE technology at the Salar de Atacama. Our dedicated team of scientists, engineers and operators have a deep understanding of DLE fundamentals based on more than 10 years of research and innovation. Over that time, we've evaluated dozens of DLE technologies, including both proprietary and third-party solutions. Our highest and best opportunity to leverage DLE is in Salar de Atacama based on the large scale and high grade of that world-class asset. At the Salar, we have progressed from scientific research and lab-scale work to pilot validation and integrated pilot testing. In March of 2026, we submitted an environmental assessment permit for a DLE project at the Salar de Atacama. Our phased approach to DLE is intended to support future growth and sustainability while leveraging Albemarle's existing infrastructure and process chemistry expertise. We intend to advance this project prudently subject to regulatory approvals, community consultation and technology validation. On Slide 18, we show our phased DLE concept at the Salar de Atacama. Our current environmental permit submission seeks authorization for up to 6 trains. The planned investment will start with 1 train as we prove the technology at a commercial scale. Under this scenario, lithium-rich brine would be extracted from the Salar through pumping wells and sent in parallel to the existing evaporation ponds and the proposed DLE plant. The concentrated lithium solution from the DLE plant would be combined in the final solar operation ponds and further concentrated before being converted at La Negra into battery-grade lithium carbonate. Our proposed DLE plant does not use solvent extraction, meaning that we retain the option to reincorporate the lithium depleted brine back into the Salar through dedicated wells. The Atacama integrated pilot plant has operated for more than a year, our over 3,000 operating hours, giving us valuable data and confidence in our process design and scale up capability. Recoveries are critical to efficiency and sustainability, particularly in buying deposits. This is something we've worked on for years. A conventional pond system recovers about 30% to 40% of the lithium in extracted brine. With Albemarle's Salar yield improvement technology, we've been able to increase recoveries to 50% to 60%. Our DLE pilot plant has demonstrated recoveries of over 90%, allowing us to extract more lithium with a smaller footprint and more fully utilize this world-class resource. Our team is also focused on minimizing water footprint in Chile. Approximately 85% of processed water is recycled at the current DLE pilot plant. Our DLE project is consistent with our broader strategy, leverage our world-class resources, technical expertise and existing infrastructure to create durable long-term value while improving sustainability outcomes. In summary, Albemarle delivered another strong quarter, including net sales of $1.7 billion and cash from operations of $710 million. We are improving our 2026 outlook considerations by increasing specialty's outlook, optimizing capital expenditure spend and tracking towards the high end of our cost and productivity target. We are also capitalizing on long-term secular growth opportunities in energy transition and energy resilience, including strong global grid storage demand. Finally, we remain focused on execution and disciplined capital allocation to enable us to grow ratably through the cycle. With that, I'll turn the call over to the operator for Q&A.

[Operator Instructions] Our first question comes from David Begleiter with Deutsche Bank Securities.

Kent or Neal, can you just clarify your comments on guidance coming at the top end of the scenario ranges, which one are you referring to, total company or energy storage. Just some clarification, that would be great.

David, this is Neal. It's really both. And maybe I can clarify that a little bit. So we were referring to the $20 per scenario. And actually, if you -- there's a couple of reasons why we say that we're towards the top end. First of all, if you look at market pricing so far this year in the first half of the year, it has trended actually, on average, a little bit higher than $20. So naturally, that pushes us towards the higher end of the range. Then in addition to that, obviously, we've had a little bit better volume performance in the first half of the year. We've been working on our cost and productivity improvement. And at least at an enterprise level, you had the very strong performance from specialties, particularly in the second quarter. So for all of those reasons, at an enterprise level, if pricing had been at that $20, we would be towards the upper end of that range in the first half of the year and then the same would be true for the energy storage segment as well.

Very helpful. And Kent, just on a potential government funding for lithium, there's been an increasing talk about the government focused on critical mineral supply chain and shoring that up in the U.S. Can you talk about where you stand on those discussions.

Okay. So look, there has been a lot of talk about it in discussions, and we've talked to the government quite a bit. So we've been involved in that process for quite some time. We don't have anything to tell you about today that involves that. So -- but it continues around critical minerals. Lithium is probably not the highest priority across all those critical minerals, and you probably see that for the projects that they've announced. But we have conversations, we're talking to them, but we have nothing to tell you about today.

Our next question comes from Patrick Cunningham with Citi.

This is Rachael on for Patrick. So you've noted lithium demand is accelerating higher than expectations and growing faster than supply. So curious to hear kind of your latest thoughts on the supply side of the equation and if the market requires higher pricing models to support new investments.

Okay. So you kind of said it. So demand is a little stronger than we were anticipating. It is strong. There's a bit -- it was EVs were weak in the first quarter, but they kind of trended back in the second quarter and then energy storage demand is kind of off the charts. And that -- and so with the EVs coming back, there is strong demand. Supply is a little behind that. So when we look out, say, for the year, there is supply coming on, and you always need that supply to come on because this market is growing. It's a little -- it's behind demand. So that's probably why you see inventories getting down to levels which we haven't seen for a while. So the inventory -- so the physical market is very tight. And then you'll see -- there are projects on the board. We expect investments to come. You need that to keep up with supply. And then your question about is pricing driving that? I don't mean we're in a range where good projects will -- people will invest in good projects and more speculative projects probably not. So it's not a bad place from a pricing perspective. I don't think it's driving projects that weren't planned, and it's not taking projects that were planned off the books. So it's not a bad place to be.

Got it. and you raised both the 2026 and 2030 stationary storage demand forecast. So curious to hear if anything changed specifically in your customer discussions or project pipeline visibility to give you the confidence to increase the longer-term outlook.

Yes. Look, I think it's just the confidence that we see in the projects that are happening, the supply chain that's getting built out and all the activity. Eric, maybe you want to talk about any specific customer discussions that give us more confidence.

Well, most of the chemistry question that we're talking about that's driving this is driving our demand is iron phosphate chemistry comes out of China. So our customer discussions there indicate a market that is tight and struggling to keep up with installation demand installations are exceeding actual battery production. We can track sort of about a 1-year lag between when lithium is sold and when it goes into an installation and the latter of the installation number that's been announced is larger than what's being produced today and that drives a healthy market, and we're seeing that in our customer base in China right now.

Our next question comes from John Roberts with Mizuho.

Could you talk a little bit about the constrained supply out of both Africa and China, lapel. How long would you expect that to last?

Yes. So that's been a story over the last year, I would say, and it's starting to move. So you see that starting to move and that will go into the back half of the year of a bit of additional supply. I think it's a little different. Africa is moving a little faster. Lepidolite, I think we've seen one mine come back on and start to ramp up. So that will add capacity. But as we said, the market is pretty tight. Inventories are low. We kind of need that capacity.

And then what's the sequential price assumed for bromine in the specialties guidance?

John, this is Neal. So look, I -- it's hard to give you a specific price on bromine in the -- for the third quarter, mainly because as we've shown you before, there is a bromine index in China, but only about 1/3 of our volume tracks that bromine index. One thing I will say about the Chinese bromine index, which you can observe is that index hit a peak back in the second quarter and has come back down to levels today that are probably closer to where we started the year. So that's 1 data point. The other data point is that, look, I think supply-demand fundamentals were quite a bit tighter in the first half of the year due to the situation in the Middle East and chains were reorienting. So right now, what we're assuming is that there's a little bit more normalized kind of supply-demand fundamental in the back half of the year. But I will admit, we're watching this closely because obviously, the situation in the Middle East hasn't gone away. So generally speaking, we're assuming that pricing kind of holds where it is today, but it is a live situation.

Next question comes from Arun Viswanathan with RBC.

I guess, first off, I just wanted to ask about the volume picture. So maybe we can get some initial expectations for volume for next year. I guess you will be facing maybe some limitations this year, just given the fire, but then that could be offset by lodging extra production. So do you expect to grow volumes next year and maybe kind of in the low single-digit range? Or how should we think about how volumes evolve from here for energy storage.

Yes. So I'll start with that. But I would say, I mean, this year is -- I think we'll get close to offsetting the fire at Talison with extra performance at Wodgina. So we were kind of tight there. We kind of pulled back on our volume estimates a little bit, but we think we can cover that for the most part and that will make us kind of flat year-over-year just because of our capacity. We will have growth into next year as CTP3 ramps, we'll get -- we won't get a full year of it probably next year, I mean, closely, and we're saying we get close to full production in the first quarter, then you'd see that annualizing as we go forward. So we'll have room for growth next year. It will be -- I mean you can do the math on what that looks like. So it's high single digits.

Yes, Arun. And maybe I can point you back to -- this is a slide that we put out, gosh, I think it might have been 2 quarters ago. So I don't expect you to remember this, but if you follow our 15% CAGR volume growth that we've said we're doing from '22 to '27. That would put 2027 in the range of 240,000 to 260,000 tonnes LCE. And I would say now that CGP3 is back ramping back up, we're back on that trajectory. So that's maybe a way to think about 2027.

Okay. Great. I appreciate it. And then just as a follow-up, just on the pricing outlook. You guys said had mentioned that the market is relatively tight, Energy storage demand is very robust. But we have seen anticipatory -- would you agree that we've seen anticipatory price declines ahead of new supply coming back online, specifically the lepidolite as well as the Zimbabwe tons. Do you expect that decline -- the recent price declines to kind of plateau and moderate as you go into the second half? Or do you see continued price declines possible, especially given the low inventory levels that you mentioned. So why have prices, I guess, been going down? And do you expect that to stop.

Yes. So we're not going to tell you what we think the price is in the quarter. So we've not been very good at predicting that. But it's a very speculative market. driven by traders in China for the most part. With the inventories tight, the demand that we've seen, you do have forecasting volumes coming back on. But again, the growth rates we see, we need that. Otherwise, you're going to get into a more difficult problem. But in price, it was up, it has come back. But it's kind of, I'd say, consolidating, right, around the price where it is right now, which is around $20 or so, which is -- it's not -- that's not a bad price as we've talked about. So I can't speculate as to what it's going to do. It's very heavily driven by trading and someone's view of volumes coming on. We do see those volumes coming on, but we need that with the growth rate with a 45% growth. You're going to have to have supply coming on or you're going to -- it's going to get very, very tight.

Our next question comes from Laurence Alexander with Jefferies.

So given your progress with the DLE at the Atacama, can you give your perspective on the attractiveness or not of projects elsewhere in Chile? What would you need to see for those to move up your priority list?

Well, I would -- look DLE, we've done a lot of work over time, and we've kind of prioritized the Salar de Atacama for that. So that's our focus, but we've still got technology development work to do, but we feel pretty good about it enough that we've submitted the permit and we've kind of built a plan around that. So I think I want to execute on that project first and then see where that goes against other resources in Chile or in other places in South America or wherever. I think the -- we're getting more confidence in and brine resources and -- but we want to execute against the project and the Salar de Atacama, and then we'll be able to talk about that.

Our next question comes from Joel Jackson with BMO.

It's Evan on for Joel. Your cash flow up has been quite large recently and some of your peers have announced restarts and projects go ahead. When would we expect you to go ahead with some of your brownfield projects or short of that, how does the company want to use your extra cash?

Okay. So let me start with projects. So I mean we are kind of -- we're executing against that now. So you see CGP3 that we would consider that one of those it's online now and ramping up after we had some issues there. And then the other projects we have not gone through an FID. We've not agreed those projects with our partners either. But there's potential for doing projects both in Wodgina and at Talison an additional. But we need to ramp CGP3 before we take that on. Again, we'll have to agree with our partners and get to FID. So it's going to take us a little bit of time, but that would be our next phase of growth. And then further out, use the Salar de Atacama project that we're talking about, another, and then we have Kings Mountain and then further out, we have [indiscernible]. Those are all resources we own. So there's potential there could be other resources that become available. So we expect your cash question. So we want to have a strong balance sheet, so -- and we've been doing that. So we've used it for that. These growth projects are a big opportunity for us to invest. And we think given brownfield nature in jurisdictions that we know, with partners that we know with technology that we know, we feel that those are low risk, good return projects. But that said, we're always evaluating projects against all alternatives or the use of capital, and we do that every time we look at it a big investment.

Great. And would you mind providing an update on the ramp of CGP3. Just any color you could give on the revamp.

Well, it's been up about -- back on about 5 days now. And it's operating at reduced rates, but it's operating, I think, reasonably well as what we would have expected to be 5 days in from a restart.