Aleris reports 16% EBITDA growth in Q1 2017, positive outlook for Q2

Aleris Corporation reported results for the first quarter ended March 31, 2017. The company reported net loss of $35 million compared to $6 million YoY. Adjusted EBITDA of $52 million was up 16% from $45 million in Q1 2016.

Net loss was affected by unfavourable change in unrealized derivative gains and losses, increase in interest expenses, start-up costs, unfavourable metal price lag etc. Adjusted EBITDA increase was driven by improved operating performance and productivity despite weaker product mix and lower volumes.

The company reported a liquidity of $394 million.The majority of the capital expenditures in the quarter were for the North America ABS project at their Lewisport, Kentucky facility and related spending to upgrade critical equipment and capabilities. That project continues to progress and is expected to commence in 2017.

North America segment income remained flat YoY at $24 million. Adjusted EBITDA increased to $23 million in Q1 2017 from $21 million in Q1 2016. North American business was favourably impacted by higher building and construction volumes and favourable scrap spreads.

Europe segment income increased to $38 million from $33 million in Q1 2016. Segment Adjusted EBITDA increased to $37 million in the first quarter of 2017 from $33 million in the first quarter of 2016. Coil and sheet mix improvement in the Europe market partially offset aerospace and automotive headwinds.

Asia Pacific segment income and adjusted EBITDA remained flat YoY at $1 million. Performance drivers for segment income and segment Adjusted EBITDA include an increase in volumes and the ongoing improved product mix sold toward higher aerospace volumes. Lower rolling margins decreased segment Adjusted EBITDA approximately $2 million.

"Improving operational performance globally and healthy demand in the North American building and construction industry led to solid year-over-year performance improvement in the first quarter, despite some demand softness in aerospace and weaker than normal first quarter automotive volumes," Sean Stack, chairman and CEO said. 

"As we look to the second quarter, we expect to benefit from the continued strength in building and construction in the U.S. as well as favorable aluminum prices," Stack said. 

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The company expected the segment income and adjusted to be in line with the second quarter of 2016 and higher than Q1 2017.  Continued demand growth for North America building and construction, improved operating performance, favourable scrap spreads and solid inventory build are expected to drive productivity in the second quarter.

The company also updates on the Merger of Aleris with Zhongwang USA. The Merger is expected to close in the second quarter of 2017. However, there can be no assurance that the Merger will be consummated in the second quarter of 2017 or at all. The Merger Agreement may be terminated by Aleris Corporation or Zhongwang USA on or before May 29, 2017.