Aleris reports loss and lower EBITDA for 2016; Q4 EBITDA improves on stronger demand

Aleris Corporation today reported results for the Fourth Quarter and the full year ended December 31, 2016.

Fourth Quarter

Aleris reported a net loss of $35 million in Q4 2016 compared to $13 million in Q4 2015. The adjusted EBITDA increases to $43 million from $39 million in Q4 2015.  The improved EBITDA is driven by improved rolling margins, stronger building and construction demand and stable global automotive volumes.  Favourable metal spreads increased adjusted EBITDA approximately $3 million. Positive currency movements and the positive results from annual physical inventories increased Adjusted EBITDA approximately $3 million.

Weak distribution demand, an unfavourable mix of products and softening aerospace demand impacted the results negatively. Asia Pacific results are benefitted by growing aerospace volumes. In Q4 2016, capital expenditures were $62 million and as of December 31, 2016, Aleris had liquidity of $176 million.    

Full Year 2016

For 2016, full year, Aleris posted revenues of approximately $2,664 million compared to approximately $2,918 million in 2015. Aleris reported a net loss of $76 million compared to net income of $49 million in 2015. Full year adjusted EBITDA was down from $223 million in 2015 to of $205 million. The lower EBITDA and increased loss was driven by $17 million from challenging metal spreads and $5 million from foreign currency. The results were favourably impacted by increased global volume for aerospace and automotive. Demands were not fully realized due to North America production issues and planned outages.

Commenting on the results, Sean Stack, Aleris Chairman and CEO said, "Our solid fourth quarter performance across all regions, combined with the significant progress we've made on our strategic growth initiatives, gives us momentum in 2017."

Segment Results

North America segment income increased to $16 million in Q4 2016 from $15 million in Q4 2015. Segment Adjusted EBITDA increased to $14 million in Q4 2016 from $12 million in Q4 2015. The increase was driven by higher volume, and favourable cost absorption, increase in building and construction volumes, favorable scrap spreads and improved rolling margins.

Europe segment income increased to $36 million in in Q4 2016 from $32 million in Q4 2015. Segment Adjusted EBITDA of $34 million remains flat YOY. Lower energy costs, productivity gains and positive results from annual physical inventories were the main performance drivers

Asia Pacific segment reported income of $5 million and Adjusted EBITDA of $4 million in Q4 2016 as compared to $1 million for both in Q4 2015. Favorable currency movements, more aerospace volume and favorable variance in metal price lag drove the positive results.

Merger Update

On August 29, 2016, Aleris Corporation entered into a Merger Agreement with Zhongwang USA LLC, Zhongwang Aluminum Corporation, a wholly owned subsidiary of Zhongwang USA. Once the Merger is complete, Aleris Corporation is expected to be a direct, wholly owned subsidiary of Zhongwang USA. The Merger is targeted to close in the first quarter of 2017, subject to customary regulatory approvals.

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Outlook

For Q1 2017, performance is expected to be in line with or slightly above the first quarter of 2016. The company is upbeat about North America building and construction demand, favourable scrap spread and improved operating performance. Lower aerospace and automotive volumes and a lower value-added mix of products sold are expected to impact the performance negatively.

For 2017, the company expects that segment income and Adjusted EBITDA will be higher than 2016 driven by improved demand for Aleris products, a favourable scrap spread environment and productivity savings.