Alcoa Earnings Rebound Over Prior Quarter on Higher Productivity, Improved Market Conditions

 

 

Excluding the impact of special items, income from continuing operations was $105 million, or $0.10 per share. Special items in first quarter 2012 included the negative impact of mark-to-market changes on certain energy contracts and restructuring charges primarily related to smelter curtailments.

 

 

First quarter 2012 income from continuing operations compares to fourth quarter 2011 loss from continuing operations of $193 million, or $0.18 per share, and first quarter 2011 income from continuing operations of $309 million, or $0.27 per share.

 

 

The improvement over fourth quarter 2011 results was driven by strong productivity improvements across all businesses, higher realized prices for aluminum, and improved volume and mix. These were offset somewhat by a lower realized alumina price and higher input costs.

 

 

“Performance rebounded strongly this quarter due to our proactive cash sustainability actions, our relentless focus on profitable growth, and stabilizing markets,” said Klaus Kleinfeld, Alcoa Chairman and Chief Executive Officer.

 

 

“We are successfully executing on our aggressive strategy to move down the cost curve in our upstream businesses, and drive to record profitability in our midstream and downstream businesses. Challenges remain in this economy, but we approach them better prepared than ever before.”

 

 

Alcoa recorded first quarter 2012 revenue of $6.0 billion, up slightly over fourth quarter 2011 and first quarter 2011. A 9 percent drop in the realized price of aluminum and a 13 percent drop in the realized price of alumina, year-on-year, were partially offset by higher third-party shipments in the upstream businesses, better volume and mix in the midstream business, and improved volume in the downstream business.

 

 

Alcoa recorded revenue growth in the first quarter across global end markets, including industrial products (14 percent), automotive (13 percent), packaging (11 percent), and commercial transportation (11 percent), compared to fourth quarter 2011. Compared to first quarter 2011, revenues were up in commercial transportation (32 percent), aerospace (15 percent), and automotive (7 percent), while revenues were down in industrial products (14 percent) and building and construction (5 percent).

 

 

Alcoa is raising its 2012 global growth forecast for the aerospace market 3 percentage points (13-14 percent), and expects global growth in the automotive (3-7 percent), commercial transportation (1-5 percent), packaging (2-3 percent), building and construction (2.5 - 3.5 percent), and industrial gas turbine (1-2 percent) markets.

 

 

Alcoa continues to project a global aluminum supply deficit in 2012 and reaffirmed its forecast that global aluminum demand would grow 7 percent in 2012, on top of the 10 percent growth seen in 2011.

 

 

First quarter 2012 net income was $94 million, or $0.09 per share, compared to a net loss of $191 million, or $0.18 per share, in fourth quarter 2011 and net income of $308 million, or $0.27 per share, in first quarter 2011. Adjusted EBITDA for the first quarter was $624 million, up 40 percent from fourth quarter 2011, and down 35 percent from first quarter 2011.

 

 

Profitability in Global Rolled Products rebounded in the first quarter despite continued European weakness, with adjusted EBITDA per metric ton an all-time high at $430, 83 percent higher than the 10-year average. Engineered Products and Solutions continued to turn in outstanding performance, with adjusted EBITDA margin of 19 percent, the highest on record.

 

 

Alcoa’s Cash Sustainability Program is on track to deliver against financial and operational targets in 2012. The Company achieved strong first quarter productivity growth across all businesses, driven by process improvements and procurement savings. Alcoa also achieved a record low in working capital for the first quarter at 32 days, seven days lower than the previous record set in 2011. Debt-to-capital ratio stood at 36 percent, while liquidity remained strong with cash on hand of $1.7 billion.

 

 

Capital spending was $270 million in the quarter, compared to $486 million in fourth quarter 2011. Expenditures on the Saudi Arabia joint venture project were also on track at $71 million. An investment in working capital to support growth in downstream end markets and increased cash pension contributions resulted in cash used in operations of $236 million, and negative free cash flow of $506 million.

 

 

As previously announced, Alcoa is curtailing 390,000 metric tons of its system refining capacity to improve the Company’s competitive position and to reflect updated internal demand following smelting curtailments announced earlier this year.

 

 

Combined with the curtailments and closures of high-cost smelting capacity, these actions will improve the competitiveness of Alcoa’s Primary Products business and help the Company meet its previously stated goal of moving down the cost curve 10 percentage points in smelting and 7 percentage points in refining by 2015.

 

 

Segment Information

 

 

Alumina

 

 

After-tax operating income (ATOI) was $35 million, down 75 percent compared to first quarter 2011 and a decrease of $90 million, or 72 percent from fourth quarter 2011. Adjusted EBITDA fell $82 million to $147 million, down 36 percent sequentially. First quarter results were impacted by pricing pressures and a weak U.S. dollar compared to fourth quarter 2011; however, productivity improvements were strong in the quarter, mitigating volume and cost headwinds.

 

 

Primary Metals

 

 

ATOI in the first quarter was $10 million, a decrease of $192 million from a year-ago quarter and an increase of $42 million from the fourth quarter of 2011. Adjusted EBITDA increased $63 million in first quarter 2012 to $134 million, an 89 percent sequential improvement. Third-party realized aluminum price showed a 2 percent sequential improvement on rising London Metal Exchange cash prices. Sequentially, strong productivity improvements and improving product mix more than offset cost headwinds for the quarter.

 

 

Global Rolled Products

 

 

Third-party revenue in the first quarter was $1.8 billion, down 2 percent from first quarter 2011 but up 9 percent sequentially. ATOI was a first quarter record at $96 million, up 19 percent over first quarter 2011 and $70 million better sequentially. Adjusted EBITDA per metric ton was an all-time quarterly record of $430, an increase of 17 percent from first quarter 2011 and 91 percent sequentially. The sequential improvement was primarily driven by solid productivity gains, favorable mix, and increased volumes.

 

 

Engineered Products and Solutions

 

 

Revenue for the first quarter was $1.4 billion, up 11 percent from first quarter 2011 and up 3 percent on a sequential basis. ATOI for the first quarter was $155 million, up $25 million, or 19 percent, from first quarter 2011 and up $33 million, or 27 percent, from fourth quarter 2011. Adjusted EBITDA margin rose in the first quarter, reaching a record level of 19 percent. Sequentially, improved ATOI was primarily the result of strong productivity gains and increased volume.

 

 

Alcoa will hold its quarterly conference call at 5:00 PM Eastern Time on April 10, 2012 to present the quarter results. The meeting will be webcast via alcoa.com. Call information and related details are available at www.alcoa.com under “Invest.”

 

 

About Alcoa

 

 

Alcoa is the world’s leading producer of primary aluminum and fabricated aluminum, as well as the world’s largest miner of bauxite and refiner of alumina. In addition to inventing the modern-day aluminum industry, Alcoa innovation has been behind major milestones in the aerospace, automotive, packaging, building and construction, commercial transportation, consumer electronics, and industrial markets over the past 120 years. Among the solutions Alcoa markets are flat-rolled products, hard alloy extrusions, and forgings, as well as Alcoa? wheels, fastening systems, precision and investment castings, and building systems in addition to its expertise in other light metals such as titanium and nickel-based superalloys. Sustainability is an integral part of Alcoa’s operating practices and the product design and engineering it provides to customers. Alcoa has been a member of the Dow Jones Sustainability Index for 10 consecutive years and approximately 75 percent of all of the aluminum ever produced since 1888 is still in active use today. Alcoa employs approximately 61,000 people in 31 countries across the world.