Aleris continues with loss in Q3 2017; adjusted EBITDA drops due to lower volume

Aleris Corporation today reported results for Q3 and first nine months ended September 30, 2017. The company reported net loss of $66 million compared to net loss of $22 million in Q3 2016. Adjusted EBITDA stands at $46 million compared to $53 million in Q3 2016. Operational cash stood at $43 million compared $2 million in Q3 2016.

Lower volumes decreased adjusted EBITDA approximately $8 million. The volume reduction was primarily due to the scheduled outage at the Lewisport hot mill in connection with the North America auto body sheet ("ABS") project, destocking in the aerospace supply chain and delayed launches of automotive programs.

Improved rolling margins, favourable metal spreads resulting from increased aluminium prices and improved scrap availability in North America increased Adjusted EBITDA substantially.

The company successfully completed planned complex Lewisport outage and put CALP I and new wide cold mill in production mode.  CALP II cold mill is in commissioning stage and is progressing well in time.

Commenting on the results Sean Stack, Aleris chairman and CEO said, "The third quarter marked a major turning point in our strategic realignment. Successfully completing our very complex Lewisport outage and expansion allows us to transition from planning, building, commissioning and spending to production and revenue generation. Solid fundamentals, strategic commercial wins and recent order patterns give us confidence going into 2018 that the disappointing short term trends in aerospace, European automotive and building and construction are temporary."

North America segment income increased to $20 million in the third quarter of 2017 from $18 million in Q3 2016. Segment Adjusted EBITDA increased to $21 million in Q3 2017 from $18 million in Q3 2016. Strong North America operating performance and productivity as well as favourable metal environment more than offset significant impact of Lewisport outage.

Europe segment income was $28 million in Q3 2017 compared to $41 million in Q3 2016. Segment Adjusted EBITDA was $29 million in Q3 2017 compared to $42 million in Q3 2016. Reduction in aerospace and automotive volumes decreased segment Adjusted EBITDA considerably. Improved rolling margins increased segment Adjusted EBITDA approximately $1 million.

Asia Pacific segment reported income and  Adjusted EBITDA of $4 million in Q3 2017 compared to $3 million in Q3 2016. An increase in volumes increased segment Adjusted EBITDA approximately $1 million but, lower rolling margins decreased segment Adjusted EBITDA approximately $1 million.

The company reports a liquidity of approximately $281 million as of September 30, 2017.

For the nine months ended September 30, 2017, revenues stood at $2,163 million compared to $2,051 million for the same period of 2016. The increase of 5% was primarily attributable to higher average aluminium prices and improved rolling margins. These increases were partially offset by lower volumes.  The company reported a net loss of $103 million for the period compared to a net loss of $41 million in 2016. The increase in loss was driven by increased interest expense, increased start-up costs and an unfavourable change in unrealized derivative gains and losses. Adjusted EBITDA increased to $164 million in the current year from $162 million in 2016.

The company estimates segment income and Adjusted EBITDA for Q4 2017 to be lower Q4 2016. In 2018, the company expects a significant increase in shipments from Lewisport facility. As a result, the company expects improved margins and increased revenues from Lewisport in 2018. They expect European automotive demand to benefit from new model launches and less Europe capacity used to support Lewisport's ramp up in 2018.