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Alcoa beats expectations, despite layoffs and narrower Q1 earnings

12th April 2016

By: Henry Lazenby

Creamer Media Deputy Editor: North America

  

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TORONTO (miningweekly.com) – US metals company Alcoa on Monday reported a 70% drop in headline earnings, mainly owing to a 40% dip in the Alumina Price Index (API) and a 26% drop in aluminium pricing.

The NYSE-listed specialty alloys maker reported adjusted earnings of $108-million, or $0.07 a share, excluding the impact of special items, for the first quarter ended March 31, beating Wall Street analyst expectations by $0.05 a share.

These results were $255-million below the year-ago period, as unfavourable pricing was partially offset by $364-million in year-on-year productivity savings.

Alcoa, which expected to separate its main upstream and beneficiating downstream business units later this year, posted a first-quarter net profit of $16-million, or nil per share, down from $195-million, or $0.15 a share, a year earlier, as low alumina and aluminium prices, the strong greenback and plant closures or divestments weighed.

Alcoa reported first-quarter revenues of $4.9-billion, down 15% from $5.8-billion in the first quarter of 2015. Year-on-year, revenue increased 5.7% from acquisitions and organic growth, offset by a 20.7% decline from continued low alumina and aluminium pricing, foreign exchange impacts, and divested, curtailed or closed facilities undertaken largely to strengthen the new Alcoa business, the company advised.

“Each of our segments delivered strong performances. Profits grew in all of the Arconic segments, led by automotive and aerospace, and upstream segments maintained profitability in a persistently low pricing environment,” commented chairperson Klaus Kleinfeld.

“Looking ahead, we are well on track to meet or exceed our three-year business targets in our segments, with the exception of EPS [Engineered Products and Solutions], where we have revised expectations to better reflect aerospace market conditions and Firth Rixson performance. Our separation is on course for completion later this year,” he advised.

DOWNSTREAM HEADWINDS
Alcoa reported that the EPS segment had set new 2016 goals to reflect end-market headwinds, lower performance expectations for the Firth Rixson acquisition and higher performance expectations in Alcoa Titanium and Engineered Products (ATEP), the former RTI, which is ahead of the integration plan.

As a result, EPS now targeted segment revenue of between $6-billion and $6.2-billion, down from the $7-billion three-year target revenue adjusted for foreign exchange impact. EPS also expected an adjusted earnings before interest, taxes, depreciation and amortisation (Ebitda) margin of 21% to 22%, revised down from about 23% expected previously.

To strengthen its cost structure, Alcoa advised that EPS was taking a number of actions, including headcount reductions, overtime reduction, productivity savings and other cost controls. The business reduced its workforce by 600 positions in the first quarter and planned a further reduction of 400 positions. Further, given the current market environment, it was evaluating another reduction of up to 1 000 positions, Alcoa advised.

The EPS segment recorded first-quarter revenue of $1.4-billion, record first-quarter after-tax operating income of $162-million, up 4% year-on-year, and an adjusted Ebitda margin of 21% – boosted by aerospace sales, which grew 14% year-on-year.

For the first quarter, Alcoa’s future downstream segment, which had already been named Arconic, reported after-tax operating income of $269-million, up 8% year-on-year; adjusted Ebitda of $537-million, up 7% year-on-year; and a record adjusted Ebitda margin of 16.4%, despite revenue of $3.3-billion having fallen 2.2% year-over-year.

The Global Rolled Products downstream segment reported $68-million after-tax operating income, up 26% year-on-year, and adjusted Ebitda per metric ton of $374, up 8% from a year ago, owing to strong cost control. Automotive sheet shipment growth was up 38% year-on-year, Alcoa advised.

Further, the transportation and construction solutions segment reported $39-million in after-tax operating income, up 3% year-on-year, and a record first-quarter adjusted Ebitda margin of 14.9%.

Arconic achieved $179-million in productivity savings, on target to deliver $650-million in 2016, Alcoa guided.

UPSTREAM PROFITABILITY
Meanwhile, Alcoa lauded itself for operating profitable alumina and primary metals business segments, despite lower pricing.

The company noted that a 32.2% year-on-year decline in third-party revenue of $1.7-billion, reflected a 4.5% revenue increase from organic growth, which was more than offset by a 26.1% revenue decline, owing to lower pricing and foreign exchange impacts, as well as a 10.6% revenue decline mainly attributable to curtailed or closed operations.

The yet unnamed future Alcoa business segment reported total revenue of $2.1-billion, after-tax operating income of $22-million, and adjusted Ebitda of $185-million.

The company last week reported that Alcoa World Alumina and Chemicals had signed new third-party bauxite contracts valued at more than $350-million over the next two years.

Meanwhile, the Ma’aden-Alcoa joint venture refinery continued to ramp up, and was now at 80% of nameplate capacity.

Alcoa said that, during the first quarter, the upstream business continued to take aggressive action to improve its competitiveness, and closed 269 000 metric tons of smelting capacity at its Warrick smelter, in Indiana. It also curtailed about 1.2-million metric tons refining capacity at its Point Comfort, Texas facility, with plans to curtail the plant’s remaining capacity by the end of the second quarter.

Alcoa advised that the upstream segment achieved $175-million in productivity savings during the quarter and was on target to deliver $550-million in 2016.

Edited by Samantha Herbst
Creamer Media Deputy Editor

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