Alcoa reports strong third quarter 2014 profits as portfolio transformation delivers

Lightweight metals leader Alcoa today reported a surge in third quarter profits as the Company’s repositioning continues accelerating. Alcoa is aggressively transforming its portfolio by building out its multi-material value-add businesses to capture profitable growth and by creating a lower cost, globally competitive commodity business.

3Q 2014 Highlights:

· Net income of $149 million, or $0.12 per share; excluding special items, net income of $370 million, or $0.31 per share, up sequentially and year-over-year
· Revenue of $6.2 billion, up 7 percent sequentially, up 8 percent from prior year period
· Engineered Products and Solutions delivers highest after-tax operating income in history of $209 million, 18th consecutive quarter of year-over-year after-tax operating income improvement; new record adjusted EBITDA margin of 23.5 percent
· Global Rolled Products after-tax operating income up 30 percent sequentially, 45 percent higher year-over-year
· Upstream business improves performance for 12th consecutive quarter; highest Primary Metals segment adjusted EBITDA per metric ton since second quarter 2008
· $306 million year-over-year productivity gains; year-to-date productivity gains of $862 million, exceeding annual target
· $249 million cash from operations; $34 million negative free cash flow
· Global aluminum demand growth forecast of 7 percent in 2014 reaffirmed
In third quarter 2014, Alcoa reported net income of $149 million, or $0.12 per share, which includes $221 million in special items largely tied to previously announced restructurings to further improve the cost structure of the commodity business. Sequentially, third quarter 2014 results compare to net income of $138 million, or $0.12 per share, in second quarter 2014. Year-over-year, third quarter 2014 results increased from net income of $24 million, or $0.02 per share, in third quarter 2013.

Excluding the impact of special items, net income was $370 million, or $0.31 per share, up 71 percent from net income of $216 million, or $0.18 per share, in the sequential period. Year-over-year, net income excluding special items more than tripled from net income of $120 million, or $0.11 per share, led by strong productivity and pricing.

Third quarter 2014 revenues climbed 7 percent sequentially and 8 percent year-over-year to $6.2 billion. Nearly half of the year-over-year revenue improvement resulted from organic growth. Favorable metal pricing and higher energy sales also contributed to revenues.

“This quarter is a clear data point that Alcoa’s transformation is delivering,” said Klaus Kleinfeld, Alcoa Chairman and Chief Executive Officer. “Our downstream business again achieved historically high profitability, the midstream maintained disciplined cost control while capturing growth, and Primary Metals performed at levels not seen since before the downturn. This strong quarter is the direct result of our intense focus on repositioning our portfolio, and we’re just hitting our stride.”

Engineered Products and Solutions (EPS), the downstream business, achieved its best ever quarterly results, delivering $209 million in after-tax operating income (ATOI). In the midstream business, Global Rolled Products rose 45 percent year-over-year to $103 million. The upstream commodity business, comprising Alumina and Primary Metals, improved performance for the 12th consecutive quarter. Primary Metals’ adjusted EBITDA per metric ton was $612, the strongest since second quarter 2008, reflecting a lower cost, reshaped commodity business better positioned to capture greater profitability from higher metal prices.

Special items in third quarter 2014 included $202 million in restructuring-related costs, 60 percent non-cash, associated with previously announced plant closures of the Portovesme and Point Henry smelters and the Australian rolling mills. There were also costs associated with the Firth Rixson acquisition, an unfavorable impact of mark-to-market changes on certain energy contracts, and a gain from the sale of an equity investment in a China rolling mill.