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Why Shares of Livent Plunged on Wednesday

Lou Whiteman, The Motley Fool

What happened

Shares of Livent (NYSE: LTHM) fell by more than 22% on Wednesday morning after the lithium producer cut its full-year revenue and profit forecasts due to lower demand and weaker prices.

So what

Livent is the onetime lithium business of agriculture chemicals vendor FMC Corp. that was spun off as an independent late last year. On Tuesday after market close, it reported first-quarter earnings of $0.12 per share on revenue of $98.3 million, matching expectations on profit but missing on revenue by more than $5 million. The company also warned it sees deteriorating demand that will impact the rest of the year.

Lithium-infused salt lake in Bolivia.

Image source: Getty Images.

The company said it does not see demand for lithium hydroxide used in high-nickel cathode chemistries improving until late 2019 or early 2020, causing it to lower expectations for the year.

Livent said it expects to earn between $0.11 and $0.14 per share in the second quarter on sales between $105 million and $115 million, well short of consensus estimates for $0.23 per share in earnings on sales of $124 million. For the year it now expects total revenue between $435 million and $475 million, down from the $495 million to $525 million in previous guidance and short of the $513.6 million consensus.

"We are seeing weaker near-term demand for our high-performance lithium hydroxide, as several major customers have informed us about recent decisions to delay their own commercial launches of high-nickel cathode chemistries," CEO Paul Graves said in a statement accompanying earnings.

The company also had to deal with almost three weeks of lost production during the quarter at its Argentina lithium facilities due to heavy rains.

Now what

Lithium has been a hot topic with investors in recent years, with demand for the metal soaring thanks to growing interest in electric vehicles (EVs). But concerns about increased capacity coming on line and the impact of reduced EV subsidies eating into pricing weighed on the sector in 2018, and Livent's results would suggest those worries were justified.

Graves insists the long-term trends still work in his company's favor, even if they won't fuel growth as quickly as some had hoped.

"Despite weaker current market conditions, the outlook for electric vehicles and lithium demand remains positive," Graves said, noting that multiple automakers are moving forward with new EV model launches. "Importantly, for the first time, they are now specifying performance requirements that will require the use of high-nickel cathode chemistries, which increases our confidence in the growing importance of high-performance lithium hydroxide."

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Lou Whiteman 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.