Alcoa Corporation Reports Second Quarter 2023 Results

Alcoa Corporation reported second quarter 2023 results that included higher sequential revenue as increased shipments outweighed lower average realized pricing.

Second Quarter

Generated revenue of $2.68 billion

Posted Net loss attributable to Alcoa of $102 million, or $0.57 per share, an improvement of 56 percent sequentially

Recorded Adjusted EBITDA excluding special items of $137 million

Finished the second quarter with a cash balance of $1.0 billion

Paid quarterly cash dividend of $0.10 per share of common stock, totaling $18 million

Completed the Company’s sixth pension annuity transaction for a total transfer of approximately $3.6 billion in pension obligations and assets since 2018

Executed new multi-year agreement to supply up to 15.6 million metric tons of alumina to Emirates Global Aluminium over an 8-year period commencing in 2024

“While we saw lower pricing during the second quarter, our global teams have worked to address short-term challenges and drive operational improvements,” said Alcoa President and CEO Roy Harvey. “We expect to see financial improvement in the third quarter of 2023 as the Alumina and Aluminum segments are both forecast to have reduced costs for raw materials and production,” Harvey said.

“For the first half of the year, we’ve kept up with solid demand for value add aluminum products, which gives us access to a variety of end-use markets,” Harvey said. “As we look forward, we continue to be excited for the future because aluminum is a critical material, and we offer low-carbon solutions for our customers through our SustanaTM family of products.”

Second Quarter 2023 Results

Revenue: The Company’s total third-party revenue of $2.68 billion increased 1 percent sequentially with higher shipments in both the Alumina and Aluminum segments, which partially offset lower average realized third-party prices for alumina and aluminum of 2 percent and 5 percent, respectively.

Shipments: In the Alumina segment, third-party shipments of alumina increased 11 percent sequentially, primarily due to increased trading. Third-party shipments in the second quarter of 2023 include alumina purchased to offset lower production.

In Aluminum, total shipments increased 4 percent sequentially due to increased offtake under a joint venture supply agreement and higher volumes from European smelters. Most of the volume increase is attributable to value add aluminum products, primarily foundry and high purity.

Production : Alumina production decreased 7 percent sequentially to 2.6 million metric tons primarily due to lower production at the Alumar refinery in Brazil, which had unplanned maintenance. Also, some Australian refineries had lower output as anticipated, due to lower grade bauxite. Increased production at the San Ciprián refinery in Spain partially offset decreases.

In Aluminum, Alcoa produced 523,000 metric tons, a sequential increase of 1 percent above the first quarter’s strong output.

Net loss attributable to Alcoa Corporation was $102 million, or $0.57 per share. The sequential results reflect lower aluminum prices and higher Alumina segment production costs primarily related to operating Australia refineries with lower grade bauxite, partially offset by lower raw material costs. The sequential improvement reflects the non-recurrence of first quarter restructuring related charges of $149 million primarily related to the permanent closure of the Intalco smelter and certain employee obligations related to the updated agreement for the San Ciprián smelter and a utility settlement of $41 million at the Ma’aden joint venture in Saudi Arabia.

Adjusted net loss was $62 million, or $0.35 per share, excluding the impact from special items of $40 million. Notable special items include charges of $21 million in noncash pension settlement charges, and $13 million related to restart costs at the Alumar smelter.

Adjusted EBITDA excluding special items was $137 million, a $103 million sequential decrease due primarily to higher Alumina segment production costs and lower prices for aluminum.

Cash: Alcoa ended the quarter with a cash balance of $1.0 billion. Cash used for operations was $13 million. Cash used for financing activities was $24 million, primarily related to $18 million of cash dividends on common stock. Cash used for investing activities was $120 million, primarily related to capital expenditures of $115 million. Free cash flow was negative $128 million.

Working capital: For the second quarter, Receivables from customers of $0.7 billion, Inventories of $2.4 billion and Accounts payable, trade of $1.5 billion comprised DWC working capital. The Company reported 55 Days working capital over days in the quarter, a sequential improvement of one day. The change primarily relates to a decrease of two days in accounts receivable primarily related to lower pricing for aluminum.

Key Strategic Actions:

Financial

Pension annuitization: In May 2023, the Company completed the purchase of group annuity contracts to transfer approximately $235 million of pension obligations and assets associated with defined benefit pension plans for approximately 500 Canadian retirees and beneficiaries. The transfer, which required no cash funding from Alcoa, reduces the risk from volatility in pension plan obligations and continues to meet commitments to retirees and beneficiaries.

Commercial

In May 2023, the Company and Emirates Global Aluminium (EGA) announced a new multi-year agreement for Alcoa to supply EGA with smelter grade alumina. Over the life of the 8-year agreement, which commences in 2024, volume options will allow EGA to procure as much as 15.6 million metric tons of alumina from Western Australia. The supply agreement will represent a significant portion of Alcoa’s annual third-party alumina sales.

Operational

Labor agreement: In May 2023, members of the United Steelworkers ratified a new three-year collective bargaining agreement that covers more than 800 active employees at two smelters: Warrick Operations in Indiana and Massena Operations in New York.

Western Australia Mine Plan Approvals: During the second quarter of 2023, the Company continued to work with relevant state government agencies to support the annual mine approvals process. Alcoa seeks annual approvals from the Western Australian State Government for a rolling five-year mine plan and related forest clearing activities that are needed for the Huntly and Willowdale mines.

In April 2023, Alcoa began mining lower grade bauxite in areas already permitted under Mine Management Programs (MMPs) at the Huntly Mine, which supplies the Pinjarra and Kwinana alumina refineries. The reduction in grade extends the ore supply to provide more time to work through the approvals process.

Additionally, a third party has asked the Western Australian Environmental Protection Authority (WA EPA) to determine whether additional environmental review is needed on the Company’s MMPs. The WA EPA has indicated it could decide by the end of July 2023 whether to proceed to a public comment period, which would be the next stage in its consideration process on the third-party referrals.

After a public comment period, the EPA would then consider whether to formally conduct additional review on all or part of the MMPs and, if so, at what level. The Company believes the MMPs can continue to be adapted to meet evolving needs and expectations for existing mine regions while transitioning to longer term plans for new regions that would fall under the WA EPA’s assessment process.

Sustainability

On May 25, 2023, the Company announced it received certification from the Aluminium Stewardship Initiative (ASI) for its Portland Aluminium joint venture in Australia. The latest ASI certification for Portland means that all of Alcoa of Australia’s operations are certified to ASI’s Performance Standard, which provides third-party validation of responsible production.

The Company currently has 18 global sites certified to ASI and has also earned ASI’s Chain of Custody certification, which allows Alcoa to continue marketing globally ASI-certified bauxite, alumina and aluminum. The ASI certification program is the aluminum industry’s most comprehensive third-party program to validate responsible production practices.

Forward-Looking Non-GAAP financial measures

Alcoa Corporation does not provide reconciliations of the forward-looking non-GAAP financial measures Adjusted EBITDA and Adjusted Net Income, including transformation, intersegment eliminations and other corporate Adjusted EBITDA; operational tax expense; and other expense; each excluding special items, to the most directly comparable forward-looking GAAP financial measures because it is impractical to forecast certain special items, such as restructuring charges and mark-to-market contracts without unreasonable efforts due to the variability and complexity associated with predicting the occurrence and financial impact of such special items. For the same reasons, we are unable to address the probable significance of the unavailable information, which could be material to future results.

2023 Outlook

The Company expects 2023 total alumina and aluminum shipments to remain unchanged between 12.7 and 12.9 million metric tons, and between 2.5 and 2.6 million metric tons, respectively.

For third quarter 2023 Alumina Segment Adjusted EBITDA, the Company expects an improvement of $65 million due to lower raw material prices, and lower production costs and higher volumes as elevated maintenance from the second quarter of 2023 has concluded, to be partially offset by unfavorable impacts of $10 million related to operating the Kwinana and Pinjarra refineries with the lower bauxite grade.

For the third quarter 2023, the Company expects a net improvement of $25 million in Aluminum Segment Adjusted EBITDA on favorable raw materials and lower production costs, partially offset by unfavorable value add aluminum products sales, primarily due to softer billet demand. In addition, the Company expects alumina costs to be favorable by $5 million.

The second quarter 2023 included favorable foreign currency gains of $40 million that may not recur. Based on current alumina and aluminum market conditions, Alcoa expects third quarter operational tax expense to approximate $10 million to $20 million, which may vary with market conditions and jurisdictional profitability.

https://news.alcoa.com/press-releases/press-release-details/2023/Alcoa-Corporation-Reports-Second-Quarter-2023-Results/default.aspx

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