Neal R. Sheorey
Executive Vice President, Chief Financial Officer at Albemarle
Thanks, Kent, and good morning, everyone. Beginning on lide five, let's jump into our first quarter performance. In Q1 2024, we recorded net sales of $1.4 billion compared to $2.6 billion for the prior year quarter, a year-over-year decline of 47%, driven principally by lower pricing, partially offset by volume growth. Adjusted EBITDA was $291 million, significantly down from the same period last year when pricing and margins across our energy storage and specialties businesses were at peak levels. Diluted EPS was negative $0.08. Adjusted diluted EPS was $0.26, which excludes primarily restructuring charges and mark-to-market losses on public equity securities held or sold in the quarter. Our earnings decline was driven mostly by margin compression on lower pricing, especially within our energy storage segment. Additionally, we had some margin pressure due to timing of higher cost spodumene flowing through cost of goods sold and reduced equity earnings at the Talison joint venture. These factors were partially offset by volumetric growth, primarily lithium carbonate and hydroxide, and we also recorded spodumene sales at favorable pricing. Also, the Ketjen business recorded increased net sales and EBITDA, driven primarily by higher volumes. Looking at slide six, we'll break down the company's first quarter adjusted EBITDA by driver. Compared to the prior year quarter, the decline in EBITDA was $1.4 billion related to lower lithium pricing in both Energy Storage and Specialties, $90 million in cost of goods sold due to timing of higher-priced Spodumene inventories built in prior periods and $270 million related to pretax equity income primarily from our Talison JV.
Offsetting these declines were improvements of $251 million related to higher volumes as our energy storage projects continue to ramp as well as better clean fuel technologies volumes at Ketjen and $80 million of net improvements mainly due to restructuring and productivity benefits across multiple areas, including procurement, manufacturing and back-office spend. This demonstrates our team's agility and focus on delivering higher volumes and productivity improvements in the current market environment. Turning to slide seven. As we did last quarter, we are providing outlook ranges based on historically observed lithium market pricing scenarios. We are reaffirming our outlook considerations published last quarter. There are two notable updates here related to our tax rate and share count expectations. We are updating our adjusted effective tax rate guidance to reflect the range of lithium price scenarios as well as our updated expectations of geographic income mix. At the $15 lithium price scenario, we'd expect a modest tax expense benefit in our P&L. At higher pricing, we'd expect a more typical tax rate in the mid- to high 20% range. We have also accounted for the adjusted change in the diluted share count to reflect our $2.3 billion public mandatory convertible preferred stock offering. Moving to slide eight, where we provide some operating cash flow considerations. We had previously highlighted that our cash flow conversion would be constrained this year, and I want to provide some additional color on those drivers. As you see here, our cash flow conversion in 2024 is expected to be below historical averages for four reasons.
First, Talison is progressing its chemical-grade plant or CGP3 expansion resulting in lower dividends from the JV. Second, working capital release related to lower lithium pricing is expected to be mostly offset by increased working capital investments for our new plants at Kemerton, Meishan, Salar Yield and Qinzhou. Third, Cash tax is expected to be similar to last year, primarily reflecting jurisdictional mix. For example, we will pay Australian cash taxes in midyear based on earnings estimates from the prior year period. And finally, we expect to have higher interest expenses year-over-year. Turning to slide nine. I'll provide further details on trends in each segment's outlook. First, in energy storage. We continue to expect approximately 2/3 of our 2024 volumes to be sold on index referenced variable price contracts. The remaining 1/3 of the volume is still expected to be sold on short-term purchase agreements including our recently announced bidding events, which Kent will discuss in a moment. Year-over-year, energy storage volume growth is trending toward the high end of our expected 10% to 20% range, driven by timing of project ramps and spodumene sales. We continue to anticipate increased year-over-year volumes in the second half of the year due to the ramp of our expansions. All else being equal, we continue to expect improving margins through the year as lower cost spodumene offsets new facility ramp costs. However, we expect some quarterly variance in EBITDA and margin due to the timing of Talison shipments. Specifically in Q2, we expect a lift to our EBITDA margin of about 10 points from higher offtake by our partners at the Talison JV. Next, on specialties.
Our outlook reflects continued softness in consumer electronics, partially offset by solid demand in oilfield services, agriculture, and pharmaceutical applications. Furthermore, we are seeing higher costs for logistics as we manage through regional challenges, notably at our site in Jordan. We anticipate higher sales in the second half of the year on the expectation of modest end market recovery and improved pricing in bromine specialties. Taken together, we now expect specialties adjusted EBITDA to be toward the lower end of the outlook range. Finally, at Ketjen, we are seeing the building success of our turnaround program. We are optimistic about increased volumes driven by high refinery utilization. In Q1, we have seen end market strength, primarily in clean fuel technology and expect higher volumes across each of the Ketjen businesses in 2024. Turning to slide 10 and our financial position. As you know, during the quarter, we took action to maintain a solid investment-grade credit rating and further enhance Albemarle's financial flexibility as we navigate this market down cycle.
In March, we closed a $2.3 billion public preferred stock offering to fortify our competitive position and stay ahead of dynamic market conditions. Together, with the amended credit facility we discussed in February, these actions put Albemarle in a position to invest in and finish our last mile expansion projects as well as capitalize on the secular growth trends we see in our core end markets of mobility, energy, connectivity, and health. Following the offering, we repaid our outstanding commercial paper, resulting in improved leverage. We ended the quarter with a larger-than-normal cash balance, and the primary use of that cash will be to complete our in-flight capital projects. Our balance sheet management highlights our focus on adapting to changing market conditions and controlling the things in our control. Finally, turning to slide 11 for a reminder of our capital allocation priorities. This is a slide you've seen before, and we're touching on it briefly to acknowledge that our capital allocation priorities have not changed. We'll continue to selectively invest in high-return growth but will be patient and disciplined. Our near-term focus remains on operational execution, and you can expect that our actions will be aligned with driving cost and productivity improvements, ramping our assets to full contribution, and preserving our financial flexibility. While we believe current lithium prices are unsustainable for most of the industry in the long term, we are managing to the current environment. To support our ability to reinvest and grow for the future, we are taking the prudent steps to rightsize our capital spending and cost structure, focusing on ramping our plants to full contribution and volume growth capture and taking steps to boost cash flow and enhance our financial flexibility. With that, I'll turn it back over to Kent to provide more details on the proactive actions Albemarle is taking in the current market to preserve long-term growth and value creation.
