09 JULY 2014Alcoa Press Release
Alcoa’s strong second quarter 2014 profits driven by continued portfolio transformation
Edited by : AL CIRCLE
9 min read
2Q 2014 Highlights
• Net income of $138 million, or $0.12 per share; excluding special items, net income of $216 million, or $0.18 per share, up sequentially and year-over-year
• Revenue of $5.8 billion, up 7 percent sequentially, steady from the prior year period
• Engineered Products and Solutions delivers highest after-tax-operating income in history of $204 million; record adjusted EBITDA margin of 23.1 percent
• Global Rolled Products after-tax-operating income up 34 percent sequentially
• Upstream business improves performance for 11th consecutive quarter
• $302 million in productivity gains across all segments year-over-year
• Lowest net debt since third quarter 2007; cash on hand of $1.2 billion
• $518 million cash from operations; $260 million positive free cash flow
• Global aluminum demand growth forecast of 7 percent in 2014 reaffirmed; global aluminum deficit increasing; global alumina surplus shrinking
2Q 2014 Portfolio Transformation Highlights
• Announced agreement to acquire Firth Rixson, global jet engine component leader; expected to contribute $1.6 billion in incremental revenues and $350 million EBITDA in 2016
• Investing $125 million in Alcoa Power and Propulsion (APP) to expand advanced jet engine component offerings; APP revenues to reach $2.2 billion in 2016
• Expansion in Davenport, Iowa ramping up production to serve automotive demand; Tennessee auto expansion on track
• Safely completed previously announced curtailments of 147,000 metric tons of smelting capacity in Brazil
• Letter of intent signed to pursue sale of ownership stake in Alcoa Minerals of Jamaica bauxite mine and alumina refinery
Lightweight metals technology, engineering and manufacturing leader Alcoa (NYSE:AA) today announced that profits surged in the second quarter as the Company’s portfolio transformation continues accelerating. Alcoa is aggressively transforming its portfolio by building out its value-add businesses to capture profitable growth and by creating a lower cost, very competitive commodity business.
In second quarter 2014, Alcoa reported net income of $138 million, or $0.12 per share, which includes $78 million in special items largely tied to a previously announced restructuring aimed at reducing the cost base of the commodity business.
Excluding the impact of special items, net income was $216 million, or $0.18 per share, more than double sequentially and nearly triple year-over-year.
“Our second quarter results prove Alcoa’s transformation is in high gear,” said Klaus Kleinfeld, Alcoa Chairman and Chief Executive Officer. “We are taking the downstream business to new profitability heights, capturing midstream demand as auto lightweighting accelerates, while continuing to relentlessly improve upstream performance. Our strategy of building a lightweight multi-material innovation powerhouse and a highly competitive commodities business is driving compelling and sustainable shareholder value.”
Second quarter 2014 revenues climbed sequentially to $5.8 billion and held steady from the same period last year. The sequential improvement resulted from stronger volumes in the mid and downstream, improved metal pricing, and higher energy sales.
All of Alcoa’s business segments were profitable during the quarter. Engineered Products and Solutions (EPS), the downstream business, achieved its best ever results, delivering $204 million in after-tax operating income (ATOI). The midstream business, Global Rolled Products (GRP), continued to capture increasing demand for automotive sheet. The upstream business, comprising Alumina and Primary Metals, improved performance for the 11th consecutive quarter. Primary Metals’ results reflect a more competitive business, the positive impact of energy sales, and higher regional premiums due to robust aluminum demand.
Sequentially, second quarter 2014 results compare to a net loss of $178 million, or $0.16 per share, in first quarter 2014. Excluding special items, second quarter 2014 results compare to net income of $98 million, or $0.09 per share, in the sequential period.
Year-over-year, second quarter 2014 results compare to a net loss of $119 million, or $0.11 per share, in second quarter 2013. Excluding special items, second quarter 2014 results compare to net income of $76 million, or $0.07 per share, in the year-ago period.
Special items in second quarter 2014 included the previously announced restructuring associated with the closure of the Point Henry smelter in Australia and the Australian rolling mills. There were also costs associated with the Firth Rixson acquisition agreement and the recently completed U.S. labor contract negotiations.
Continued Growth Across End Markets
Alcoa continues to project 2014 global aerospace growth of 8 to 9 percent driven by robust demand for both large commercial aircraft and regional jets. The Company’s projected 2014 automotive growth of 1 to 4 percent, packaging growth of 2 to 3 percent, and building and construction growth of 4 to 6 percent, remain unchanged. In the industrial gas turbine market, the Company’s projected decline of 8 to 12 percent, on lower orders for new gas turbines and spare parts, also remains unchanged.
Alcoa increased its 2014 estimate for the North America commercial transportation market to a range of 10 to 14 percent, from a previous range of 5 to 9 percent in the first quarter. The higher estimate is based in part on rising truck orders and backlogs. Globally, Alcoa continues to expect a steady commercial transportation market in 2014 of -1 to 3 percent due to weakness in the European market.
Additionally, Alcoa reaffirmed its 7 percent global aluminum demand growth projection for 2014.
For 2014, the Company sees a global aluminum deficit of 930,000 metric tons, an increase from a deficit of 730,000 metric tons estimated in the first quarter. Alcoa also sees a tightening of the alumina market with a surplus declining from 2,257,000 metric tons in the first quarter to 824,000 metric tons in second quarter 2014.
Value-Add Portfolio Transformation
Alcoa’s strategy to build out its value-add businesses took a major step forward in the second quarter with the signing of a definitive agreement to acquire Firth Rixson, a global leader in aerospace jet engine components. The $2.85 billion cash and stock acquisition will further strengthen Alcoa’s robust aerospace portfolio, positioning the Company to capture additional aerospace growth with a broader range of multi-material, value-add jet engine components.
Firth Rixson’s revenues are expected to grow 60 percent over the next three years, from $1 billion in 2013 to $1.6 billion, and contribute $350 million EBITDA in 2016. Firth Rixson’s sales are expected to grow 12 percent annually through 2019, a rate more than double the expanding global aerospace market. Approximately 70 percent of Firth Rixson’s revenue growth is secured by long-term agreements.
In the second quarter, Alcoa also announced two organic investments in its Power and Propulsion (APP) business in the EPS segment totaling $125 million to meet increasing demand for next-generation jet engine components. In La Porte, Indiana, Alcoa is investing $100 million to build a new state-of-the-art 320,000-square-foot facility. It will expand Alcoa’s reach in structural engine components for military, business and regional jets to large commercial aircraft, including narrow-and wide-body airplanes. In Hampton, Virginia, Alcoa is scaling-up technology at an existing plant to cut the weight of its highest-volume jet engine blades by 20 percent. The lighter blade will enhance aerodynamic performance for increased fuel efficiency. Both expansions are expected to be complete by fourth quarter 2015 and will contribute towards APP’s expected $2.2 billion revenues in 2016.
In Alcoa’s GRP segment, the automotive expansion in Davenport, Iowa, is complete and will continue to ramp up production in the third quarter to serve growing demand for aluminum intensive vehicles. Alcoa’s second automotive expansion in Tennessee is on schedule for completion in mid 2015. The amount of aluminum body sheet content in North American vehicles is expected to quadruple by 2015 and increase tenfold by 2025 from 2012 levels. In addition, the rolling mill at the Ma’aden-Alcoa joint venture in Saudi Arabia produced its first production-grade coil on schedule.
Upstream Portfolio Transformation
The Company continues to execute previously announced portfolio actions to lower the cost base of its commodity business and take further decisive action to optimize its portfolio.
In the second quarter, Alcoa completed the curtailment of 147,000 metric tons of smelting capacity in Brazil at São Luís (Alumar) and Poços de Caldas. In August, Alcoa will permanently close the 190,000 metric ton Point Henry aluminum smelter in Australia.
The Saudi Arabia joint venture is also integral to the Company’s strategy of increasing the cost competitiveness of its commodity portfolio. In the second quarter, the start up of the Saudi Arabia smelter, the lowest cost aluminum production facility in the world, was completed.
To further optimize the Alumina business, Alcoa signed a non-binding letter of intent to pursue a sale of its ownership stake in Alcoa Minerals of Jamaica, L.L.C. (AMJ), which operates the Jamalco bauxite mining and alumina refining joint venture. Jamalco is owned jointly by AMJ (55%) and Clarendon Alumina Production Ltd. (45%). AMJ is part of the Alcoa World Alumina & Chemicals (AWAC) group of companies and is owned 60% by Alcoa and 40% by Alumina Ltd. Clarendon Alumina Production Ltd. is a company wholly owned by the Government of Jamaica.
The above actions are consistent with the Company’s goal of lowering its position on the world aluminum production cost curve to the 38th percentile and the alumina cost curve to the 21st percentile, by 2016.
Financial Performance
Alcoa continues to drive strong performance across all businesses, delivering $302 million in second quarter productivity gains across all segments and $556 million in year-over-year productivity gains in the first half of 2014 against an $850 million annual target. Productivity gains have been driven by process improvements and procurement savings across all businesses. Alcoa managed growth capital expenditures of $206 million against a $500 million annual target and controlled sustaining capital expenditures of $261 million against a $750 million annual plan. Contributions in the Saudi Arabia joint venture project were on track at $64 million invested against a $125 million annual plan.
Free cash flow for the quarter was $260 million, with cash from operations generating $518 million. Alcoa ended the quarter with cash on hand of $1.2 billion, up from $665 million in first quarter 2014.
The Company reported an average of 33 days working capital for the quarter, up 4 days from second quarter 2013. The increase was primarily due to inventory build to support automotive growth and third quarter 2014 sales expectations, as well as to fulfill stocking requirements for both the recently-completed labor negotiations and curtailments. Sequentially, average days working capital was 3 days higher primarily due to longer customer terms and inventory build to support the automotive growth.
Alcoa’s net debt decreased sequentially from $7.1 billion to $6.9 billion in second quarter 2014, the lowest since 2007. Alcoa’s debt totaled $8.1 billion. The Company’s debt-to-capital ratio stood at 35.4 percent, while net debt-to-capital ratio stood at 31.8 percent.
• Net income of $138 million, or $0.12 per share; excluding special items, net income of $216 million, or $0.18 per share, up sequentially and year-over-year
• Revenue of $5.8 billion, up 7 percent sequentially, steady from the prior year period
• Engineered Products and Solutions delivers highest after-tax-operating income in history of $204 million; record adjusted EBITDA margin of 23.1 percent
• Global Rolled Products after-tax-operating income up 34 percent sequentially
• Upstream business improves performance for 11th consecutive quarter
• $302 million in productivity gains across all segments year-over-year
• Lowest net debt since third quarter 2007; cash on hand of $1.2 billion
• $518 million cash from operations; $260 million positive free cash flow
• Global aluminum demand growth forecast of 7 percent in 2014 reaffirmed; global aluminum deficit increasing; global alumina surplus shrinking
2Q 2014 Portfolio Transformation Highlights
• Announced agreement to acquire Firth Rixson, global jet engine component leader; expected to contribute $1.6 billion in incremental revenues and $350 million EBITDA in 2016
• Investing $125 million in Alcoa Power and Propulsion (APP) to expand advanced jet engine component offerings; APP revenues to reach $2.2 billion in 2016
• Expansion in Davenport, Iowa ramping up production to serve automotive demand; Tennessee auto expansion on track
• Safely completed previously announced curtailments of 147,000 metric tons of smelting capacity in Brazil
• Letter of intent signed to pursue sale of ownership stake in Alcoa Minerals of Jamaica bauxite mine and alumina refinery
Lightweight metals technology, engineering and manufacturing leader Alcoa (NYSE:AA) today announced that profits surged in the second quarter as the Company’s portfolio transformation continues accelerating. Alcoa is aggressively transforming its portfolio by building out its value-add businesses to capture profitable growth and by creating a lower cost, very competitive commodity business.
In second quarter 2014, Alcoa reported net income of $138 million, or $0.12 per share, which includes $78 million in special items largely tied to a previously announced restructuring aimed at reducing the cost base of the commodity business.
Excluding the impact of special items, net income was $216 million, or $0.18 per share, more than double sequentially and nearly triple year-over-year.
“Our second quarter results prove Alcoa’s transformation is in high gear,” said Klaus Kleinfeld, Alcoa Chairman and Chief Executive Officer. “We are taking the downstream business to new profitability heights, capturing midstream demand as auto lightweighting accelerates, while continuing to relentlessly improve upstream performance. Our strategy of building a lightweight multi-material innovation powerhouse and a highly competitive commodities business is driving compelling and sustainable shareholder value.”
Second quarter 2014 revenues climbed sequentially to $5.8 billion and held steady from the same period last year. The sequential improvement resulted from stronger volumes in the mid and downstream, improved metal pricing, and higher energy sales.
All of Alcoa’s business segments were profitable during the quarter. Engineered Products and Solutions (EPS), the downstream business, achieved its best ever results, delivering $204 million in after-tax operating income (ATOI). The midstream business, Global Rolled Products (GRP), continued to capture increasing demand for automotive sheet. The upstream business, comprising Alumina and Primary Metals, improved performance for the 11th consecutive quarter. Primary Metals’ results reflect a more competitive business, the positive impact of energy sales, and higher regional premiums due to robust aluminum demand.
Sequentially, second quarter 2014 results compare to a net loss of $178 million, or $0.16 per share, in first quarter 2014. Excluding special items, second quarter 2014 results compare to net income of $98 million, or $0.09 per share, in the sequential period.
Year-over-year, second quarter 2014 results compare to a net loss of $119 million, or $0.11 per share, in second quarter 2013. Excluding special items, second quarter 2014 results compare to net income of $76 million, or $0.07 per share, in the year-ago period.
Special items in second quarter 2014 included the previously announced restructuring associated with the closure of the Point Henry smelter in Australia and the Australian rolling mills. There were also costs associated with the Firth Rixson acquisition agreement and the recently completed U.S. labor contract negotiations.
Continued Growth Across End Markets
Alcoa continues to project 2014 global aerospace growth of 8 to 9 percent driven by robust demand for both large commercial aircraft and regional jets. The Company’s projected 2014 automotive growth of 1 to 4 percent, packaging growth of 2 to 3 percent, and building and construction growth of 4 to 6 percent, remain unchanged. In the industrial gas turbine market, the Company’s projected decline of 8 to 12 percent, on lower orders for new gas turbines and spare parts, also remains unchanged.
Alcoa increased its 2014 estimate for the North America commercial transportation market to a range of 10 to 14 percent, from a previous range of 5 to 9 percent in the first quarter. The higher estimate is based in part on rising truck orders and backlogs. Globally, Alcoa continues to expect a steady commercial transportation market in 2014 of -1 to 3 percent due to weakness in the European market.
Additionally, Alcoa reaffirmed its 7 percent global aluminum demand growth projection for 2014.
For 2014, the Company sees a global aluminum deficit of 930,000 metric tons, an increase from a deficit of 730,000 metric tons estimated in the first quarter. Alcoa also sees a tightening of the alumina market with a surplus declining from 2,257,000 metric tons in the first quarter to 824,000 metric tons in second quarter 2014.
Value-Add Portfolio Transformation
Alcoa’s strategy to build out its value-add businesses took a major step forward in the second quarter with the signing of a definitive agreement to acquire Firth Rixson, a global leader in aerospace jet engine components. The $2.85 billion cash and stock acquisition will further strengthen Alcoa’s robust aerospace portfolio, positioning the Company to capture additional aerospace growth with a broader range of multi-material, value-add jet engine components.
Firth Rixson’s revenues are expected to grow 60 percent over the next three years, from $1 billion in 2013 to $1.6 billion, and contribute $350 million EBITDA in 2016. Firth Rixson’s sales are expected to grow 12 percent annually through 2019, a rate more than double the expanding global aerospace market. Approximately 70 percent of Firth Rixson’s revenue growth is secured by long-term agreements.
In the second quarter, Alcoa also announced two organic investments in its Power and Propulsion (APP) business in the EPS segment totaling $125 million to meet increasing demand for next-generation jet engine components. In La Porte, Indiana, Alcoa is investing $100 million to build a new state-of-the-art 320,000-square-foot facility. It will expand Alcoa’s reach in structural engine components for military, business and regional jets to large commercial aircraft, including narrow-and wide-body airplanes. In Hampton, Virginia, Alcoa is scaling-up technology at an existing plant to cut the weight of its highest-volume jet engine blades by 20 percent. The lighter blade will enhance aerodynamic performance for increased fuel efficiency. Both expansions are expected to be complete by fourth quarter 2015 and will contribute towards APP’s expected $2.2 billion revenues in 2016.
In Alcoa’s GRP segment, the automotive expansion in Davenport, Iowa, is complete and will continue to ramp up production in the third quarter to serve growing demand for aluminum intensive vehicles. Alcoa’s second automotive expansion in Tennessee is on schedule for completion in mid 2015. The amount of aluminum body sheet content in North American vehicles is expected to quadruple by 2015 and increase tenfold by 2025 from 2012 levels. In addition, the rolling mill at the Ma’aden-Alcoa joint venture in Saudi Arabia produced its first production-grade coil on schedule.
Upstream Portfolio Transformation
The Company continues to execute previously announced portfolio actions to lower the cost base of its commodity business and take further decisive action to optimize its portfolio.
In the second quarter, Alcoa completed the curtailment of 147,000 metric tons of smelting capacity in Brazil at São Luís (Alumar) and Poços de Caldas. In August, Alcoa will permanently close the 190,000 metric ton Point Henry aluminum smelter in Australia.
The Saudi Arabia joint venture is also integral to the Company’s strategy of increasing the cost competitiveness of its commodity portfolio. In the second quarter, the start up of the Saudi Arabia smelter, the lowest cost aluminum production facility in the world, was completed.
To further optimize the Alumina business, Alcoa signed a non-binding letter of intent to pursue a sale of its ownership stake in Alcoa Minerals of Jamaica, L.L.C. (AMJ), which operates the Jamalco bauxite mining and alumina refining joint venture. Jamalco is owned jointly by AMJ (55%) and Clarendon Alumina Production Ltd. (45%). AMJ is part of the Alcoa World Alumina & Chemicals (AWAC) group of companies and is owned 60% by Alcoa and 40% by Alumina Ltd. Clarendon Alumina Production Ltd. is a company wholly owned by the Government of Jamaica.
The above actions are consistent with the Company’s goal of lowering its position on the world aluminum production cost curve to the 38th percentile and the alumina cost curve to the 21st percentile, by 2016.
Financial Performance
Alcoa continues to drive strong performance across all businesses, delivering $302 million in second quarter productivity gains across all segments and $556 million in year-over-year productivity gains in the first half of 2014 against an $850 million annual target. Productivity gains have been driven by process improvements and procurement savings across all businesses. Alcoa managed growth capital expenditures of $206 million against a $500 million annual target and controlled sustaining capital expenditures of $261 million against a $750 million annual plan. Contributions in the Saudi Arabia joint venture project were on track at $64 million invested against a $125 million annual plan.
Free cash flow for the quarter was $260 million, with cash from operations generating $518 million. Alcoa ended the quarter with cash on hand of $1.2 billion, up from $665 million in first quarter 2014.
The Company reported an average of 33 days working capital for the quarter, up 4 days from second quarter 2013. The increase was primarily due to inventory build to support automotive growth and third quarter 2014 sales expectations, as well as to fulfill stocking requirements for both the recently-completed labor negotiations and curtailments. Sequentially, average days working capital was 3 days higher primarily due to longer customer terms and inventory build to support the automotive growth.
Alcoa’s net debt decreased sequentially from $7.1 billion to $6.9 billion in second quarter 2014, the lowest since 2007. Alcoa’s debt totaled $8.1 billion. The Company’s debt-to-capital ratio stood at 35.4 percent, while net debt-to-capital ratio stood at 31.8 percent.
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