Alcoa upstream divisions maintain sequential profitability QoQ despite low metal pricing

Lightweight metals leader Alcoa reported third quarter 2016 results. In spite of near-term market challenges, Alcoa Corporation segments, Alumina and Primary Metals, maintained profitability sequentially despite continued low alumina and aluminium pricing by proactively managing costs and capacity.

Alcoa reported third quarter 2016 net income of $166 million, or $0.33 per share, including a net $5 million in income related to special items primarily associated with the sale of non-essential land offset by separation costs and associated tax impacts. Year over year, third quarter 2016 results compare to net income of $44 million, or $0.06 per share in the third quarter of 2015.

Excluding the impact of special items, third quarter 2016 net income was $161 million, or $0.32 per share. Year over year, all segments contributed a combined $246 million (after-tax) in productivity gains, partially offset by lower alumina pricing, cost increases, unfavourable price and product mix, and unfavourable currency impacts. In third quarter 2015, Alcoa reported net income excluding special items of $109 million, or $0.21 per share.

The third quarter effective tax rate of 44 percent was affected by special items during the quarter.


Cash Flows

Alcoa ended third quarter 2016 with cash on hand of $1.9 billion. Cash from operations was $306 million; free cash flow for the quarter was $31 million. Cash used for financing activities totaled $154 million in the third quarter; cash used for investing activities was $220 million.

Primary Metals

ATOI in the third quarter was $56 million, a $15 million sequential improvement from $41 million in the second quarter of 2016. This improvement was primarily due to cost reductions and higher metal prices, partially offset by higher costs for alumina.

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”Alcoa steered steady and showed resilience in spite of near-term market challenges,” said Klaus Kleinfeld, Alcoa Chairman and Chief Executive Officer. “Profits grew in the combined Arconic segments, and Alcoa Corporation segments managed successfully to stay profitable in a low pricing environment. Productivity across the portfolio was exceptional, and paired with non-essential asset sales, further strengthened our cash position."

“Alcoa Corporation segments have met or exceeded their respective 2016 global cost curve goals. The aluminium business now sits at the 38th percentile – from the 51st percentile in 2010, 43rd in 2013 - and the alumina business has moved down to the 17th percentile – from the 30th percentile in 2010, 27th in 2013," Kleinfeld added.

Alcoa Forecast: Alumina & aluminium market

For 2016, Alcoa has projected a global alumina deficit of 1.6 million metric tons. The company also continues to project a global aluminium deficit of 615 thousand metric tons in 2016 as 5 percent global aluminium demand growth surpasses 3 percent global aluminium supply growth.