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Why Did SQM’s Income Fall in 3Q15?

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Price movement of Sociedad Química y Minera de Chile

Sociedad Química y Minera de Chile (SQM) has a market cap of $5.7 billion. After the company’s fiscal 3Q15 earnings report, SQM fell by 5.6% to close at $18.49 per share on November 17, 2015. The company’s price movements on weekly, monthly, and YTD bases are -1.6%, 9.7%, and -22.0%, respectively.

Technically, the stock has broken the support of 20-day, 50-day, and 200-day moving averages throughout 2015. Currently, SQM is trading 2.2% below its 20-day moving average, 6.3% above its 50-day moving average, and 0.15% below its 200-day moving average.

The Global X Lithium ETF (LIT) invests 9.4% of its holdings in SQM. The ETF tracks a market cap–weighted index of global lithium producers. The YTD price movement of LIT was -8.3% as of November 16, 2015.

SQM’s competitors and their market caps are listed below:

  • Potash Corporation of Saskatchewan (POT)—$16.9 billion
  • The Mosaic Company (MOS)—$11.2 billion
  • FMC Corporation (FMC)—$5.6 billion
  • Compass Minerals (CMP)—$2.8 billion
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SQM’s performance in 3Q15

The company reported 3Q15 net revenue of $445.2 million, a fall of 4.5% when compared to net revenue of $466.4 million in 3Q14. Revenue from Specialty Plant Nutrition, Lithium and Lithium Derivatives, and Industrial Chemicals rose by 8.3%, 18.7%, and 20.1%, respectively, while revenue from Iodine and Iodine Derivatives and Potassium Chloride & Potassium Sulfate fell by 24.7% and 16.2%, respectively, in 3Q15, as compared to revenue in 3Q14. The cost of goods sold as a percentage of revenue rose by 1.8% in 3Q15, as compared to 3Q14. The company’s net income and EPS (earnings per share) fell to $13.7 million and $0.05, respectively, in 3Q15, as compared to net income and EPS of $66.3 million and $0.25, respectively, in 3Q14.

Meanwhile, cash and cash equivalents and inventory rose by 2.0% and 2.8%, respectively, in 3Q15 on a quarter-over-quarter basis. The company’s current ratio fell to 3.42 in 3Q15, as compared to the current ratio of 3.43 in 2Q15. Its long-term debt-to-equity ratio remained the same as 0.7.

According to Patricio de Solminihac, SQM’s CEO, “The greatest impact on our results during the third quarter was the restructuring of our operating facilities. As announced in September, we are stopping the mining and nitrate operations and reducing our iodine production in Pedro de Valdivia. We expect that total world potash demand will be at least 10% lower in 2015. As a result of this lower demand, we saw prices in this market decrease in the third quarter, over 13% when compared to the third quarter of last year. In the lithium market, we continue to lead the world as a low-cost producer.”

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