FMC Corp.'s Lithium Business and Outlook

FMC Corp. (NYSE: FMC) last month reported robust fourth-quarter 2017 results, capping off a strong year. Quarterly revenue jumped 42% and earnings per share (EPS) adjusted for one-time factors soared 107% year over year.

The Philadelphia-based specialty chemical company's white-hot lithium business has been driving its growth in recent years, thanks to rising demand for the silvery-white mineral to make lithium-ion batteries for electric vehicles (EVs). Its fourth-quarter results also got a boost from its acquisition of a portion of DuPont's (now DowDuPont) crop protection business.

Lithium stocks soared in 2016 and 2017, though they've pulled back in 2018 due to concerns among some market players about an oversupply situation looming on the horizon. All the major producers -- including FMC, Albemarle (NYSE: ALB), and Sociedad Quimica y Minera de Chile, or SQM -- are ramping up production at their existing mining sites, with some also in the process of bringing new lithium sources on line.

Below are five key things investors should know from FMC Corp.'s Q4 earnings call.

1. Lithium business delivered great quarterly results

From CEO Pierre Brondeau's remarks:

For some context, Albemarle, which is the world's largest lithium producer, posted revenue and profitability growth of 39% and 52%, respectively, in its lithium segment in the fourth quarter. Albemarle's lithium business is much bigger, however, which makes it more difficult for it to grow on the same percentage basis as a smaller lithium business. FMC's lithium business accounted for 11.7% and 19% of the company's total revenue and segment operating income, respectively, in the quarter.

2. Lithium business spin-off plans are on target

From CFO Paul Graves' remarks:

When FMC spins off its lithium business, it will be the largest pure-play lithium miner trading on a major U.S. stock exchange.

3. The company is aggressively expanding lithium production capacity

From Brondeau's remarks:

The Argentina references refer to the Salar del Hombre Muerto, where FMC extracts lithium from brine. In addition to its two planned capacity increases noted above, FMC is also exploring adding a third carbonate expansion phase, providing a further 20,000 LCE tons of capacity by 2025 at the latest. Moreover, it's expanding its lithium hydroxide production capacity. In 2017, it increased capacity from 10,000 to 19,000 LCE metric tons, and plans to hike it again by at least 4,000 LCE metric tons by the end of this year. This is important because lithium hydroxide is increasingly becoming favored over battery-grade lithium carbonate to use in the production of lithium-ion batteries for EVs.

4. FMC's 2018 lithium business outlook is solid

From Brondeau's remarks:

The above noted outlook is solid, though it does represent a notable slowdown from FMC's lithium business' growth in 2017. The company can safely project that prices for its lithium products will be higher in 2018 than in 2017 because the bulk of its 2018 forecast revenue falls under multiyear contracts that have defined pricing already in place. Lithium buyers involved in the EV supply chain are increasingly interested in longer-term supply contracts, Brondeau said. This dynamic was also mentioned by Albemarle management on the company's Q4 call. Both companies' CEOs have opined that this trend reflects customers' general view that supply will remain tight.

5. Management believes the market, as a whole, is overestimating future supply

From Brondeau's remarks:

Brondeau said that FMC's supply-and-demand analysis projects that there will be a price floor for lithium carbonate of "low double-digit dollars per kilogram for at least the next seven years." This equates to approximately $10,000 to $13,000 per LCE metric ton. By contrast, a Morgan Stanley analyst said in late February that he expects the price of lithium carbonate to decline 45% from then-current levels of about $13,330 to $7,332 per metric ton in 2020 because of a projected surplus in the lithium market of 190,000 metric tons by that date.

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Beth McKenna has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.