Arconic reports strong productivity gain for Q4 and full year 2016: revenue stays flat YOY

Arconic Inc. reported fourth quarter and full-year 2016 results on January 31, the Company’s first quarter reporting earnings after the separation of Alcoa Inc. on November 1, 2016, into two standalone companies- Arconic Inc. (the new name for Alcoa Inc.) and Alcoa Corporation. Arconic is a global leader in multi-materials innovation, precision engineering and advanced manufacturing, mainly in aerospace and transportation.

The numbers include one month of Alcoa Corporation for fourth quarter 2016 and ten months of Alcoa Corporation for full-year 2016.

4Q and Full Year 2016 Highlights

Revenue roughly stayed flat YOY. The fourth quarter total revenue stands at $3.0 billion (versus $3.0 billion in fourth quarter 2015). For the full year 2016 revenue stands at  $12.4 billion (versus $12.4 billion in full year 2015).

The net loss to Arconic was mainly due to special items related to the separation of Alcoa Inc. Net loss for the fourth quarter stands at $1.2 billion versus net loss of $0.7 billion in fourth quarter 2015. For the full year, net loss stands at $0.9 billion versus net loss of $0.3 billion in full year 2015.

Adjusted income from continuing operations excluding special items for the fourth quarter stands at $71 million and for the full year; it stands at $505 million. It was driven by strong productivity gains but, was partially offset by cost increases and unfavourable price and mix, mostly in aerospace.

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Combined segment adjusted EBITDA was up seven% per cent in the fourth quarter and up nine per cent in full year 2016.

The company reported strong net savings of 2.5 per cent of revenues (gross productivity savings $710 million; net savings $310 million) and a year-end cash balance of $1.9 billion.

Klaus Kleinfeld, Arconic Chairman and CEO said, “In the fourth quarter we completed the successful separation of Alcoa Inc., which has unlocked substantial value for all shareholders. In the face of significant market challenges, we continued to improve the businesses – we increased adjusted EBITDA margins 100 basis points or more in each of our three business segments, delivered strong net savings and systematically cut overhead cost. We also strengthened our balance sheet, paid down $750 million of debt and ended the year with a strong cash balance of $1.9 billion.”

Engineered Products and Solutions (EPS)

EPS reported revenue of $1.4 billion, flat YOY, fourth quarter ATOI of $138 million, up $15 million, or 12 per cent, YOY, adjusted EBITDA of $265 million, up nine per cent YOY, and an adjusted EBITDA margin of 18.8 per cent in the fourth quarter of 2016, up from 17.3 per cent in the fourth quarter of 2015.

Global Rolled Products (GRP)

GRP reported revenue of $1.1 billion, a drop of 9 per cent year over year, ATOI of $45 million, compared to $49 million in the fourth quarter 2015, adjusted EBITDA of $116 million, flat YOY and adjusted EBITDA per metric ton of $329, up 8 per cent (from $306) YOY.

Transportation and Construction Solutions (TCS)

TCS delivered revenue of $456 million, an increase of 3 per cent YOY, record fourth quarter ATOI of $44 million, up $4 million, or 10 per cent, YOY, adjusted EBITDA of $75 million, up 15 per cent year over year, and a fourth quarter record adjusted EBITDA margin of 16.4 per cent.

Segment performance in 2016:

EPS reported revenue of $5.7 billion, up seven per cent YOY and adjusted EBITDA of $1.2 billion, up eight per cent YOY.

GRP reported revenue of $4.9 billion, down seven per cent YOY and adjusted EBITDA of $577 million, up 13 per cent YOY.

TCS reported revenue of $1.8 billion, down four per cent YOY and EBITDA of $291 million, up seven per cent YOY.

For full year 2017, Arconic sets its target Revenue of $11.8 to $12.4 billion, including $400 million of negative impact from the Tennessee packaging ramp down, adjusted EBITDA margin of approximately 15 per cent, free cash flow of $350 million or more and $1 billion of debt reduction. The Company is focused on margin expansion and RONA improvement across all segments for 2017.