Actionable news
0
All posts from Actionable news
Actionable news in AA: ALCOA INC,

Alcoa Reports First Quarter 2016 Results

The following excerpt is from the company's SEC filing.

All Future Arconic Segments Deliver Year-Over-Year Profit Growth Alumina and Primary Metals Segments Profitable Despite Lower Pricing On Track to Separate in Second Half of 2016

1Q 2016 Consolidated Highlights

Net income of $16 million, or $0.00 per share; excluding special items, net income of $108 million, or $0.07 per share

Revenue of $4.9 billion, down 15 percent year-over-year, reflects: o 5.7 percent revenue increase related to acquisitions and organic growth, more than offset by a 20.7 percent revenue decline primarily from continued low alumina and aluminum prices, foreign exchange imp acts and divested, curtailed or closed operations

Asset sale resulting in gross proceeds of $234 million to strengthen balance sheet

$1.4 billion cash on hand

Strong productivity gains of $364 million, year-over-year, across all segments

1Q 2016 Arconic Segments (Value-Add) Overview

Revenue of $3.3 billion, down 2.2 percent year-over-year, reflects: o 6.7 percent revenue increase predominantly related to acquisitions, offset by 8.3 percent revenue decline from metal and foreign exchange impacts and 0.6 percent revenue decline from divested or closed operations

After-tax operating income of $269 million, up 8 percent year-over-year, adjusted EBITDA of $537 million, up 7 percent year-over-year, and record adjusted EBITDA margin of 16.4 percent o Global Rolled Products (GRP): $68 million after-tax operating income, up 26 percent year-over-year and adjusted EBITDA per metric ton of $374, up 8 percent from year-ago due to strong cost control; automotive sheet shipment growth up 38 percent year-over-year o Engineered Products and Solutions (EPS): Record first quarter revenue of $1.4 billion, record first quarter after-tax operating income of $162 million, up 4 percent year-over-year and adjusted EBITDA margin of 21.0 percent; aerospace sales up 14 percent year-over-year o Transportation and Construction Solutions (TCS): $39 million after-tax operating income, up 3 percent year-over-year and record first quarter adjusted EBITDA margin of 14.9 percent

Supply agreement for 3D-printed titanium fuselage and engine pylon parts to Airbus

Signed multi-year contract valued at approximately $1 billion to deliver advanced industrial gas turbine (IGT) components, Alcoas largest IGT contract to date

Achieved $179 million in productivity savings, on target to deliver $650 million in 2016

1Q 2016 new Alcoa Segments (Upstream) Overview

Third-party revenue of $1.7 billion, down 32.2 percent year-over-year, reflects: o 4.5 percent revenue increase from organic growth more than offset by 26.1 percent revenue decline due to lower pricing and foreign exchange impacts and 10.6 percent revenue decline predominantly related to curtailed or closed operations

Total revenue of $2.1 billion, after-tax operating income of $22 million, and adjusted EBITDA of $185 million o Profitable Alumina and Primary Metals segments despite 19 percent price decline in the Alumina Price Index, and flat aluminum pricing, sequentially; year-over-year declines of 40 and 26 percent, respectively

Alcoa World Alumina and Chemicals signed new third-party bauxite contracts valued at over $350 million over the next two years

Maaden-Alcoa joint venture refinery continued to ramp-up, now at 80 percent of nameplate capacity

Pt. Comfort, Texas refinery on track to be fully curtailed by end of second quarter; closed Warrick smelter in Indiana

Achieved $175 million in productivity, on target to deliver $550 million in 2016

New York, April 11, 2016 Lightweight metals leader Alcoa (NYSE:AA) today reported solid first quarter 2016 performance. Arconic segments (Value-Add) reported year-over-year profit growth and the Upstream segments, Alumina and Primary Metals, remained profitable despite continued low pricing. The Company is on track to complete its separation in the second half of 2016.

Each of our segments delivered strong performance, said Klaus Kleinfeld, Chairman and Chief Executive Officer. Profits grew in all of the Arconic segments, led by automotive and aerospace; Upstream segments maintained profitability in a persistently low pricing environment. Productivity was high across the portfolio and we divested non-essential assets to strengthen the balance sheet. We won new contracts for bauxite supply, 3-D printed titanium aerospace parts, and airfoils in our largest IGT deal ever. Looking ahead, we are well on track to meet or exceed our three-year business targets in our segments, with the exception of EPS, where we have revised expectations to better reflect aerospace market conditions and Firth Rixson performance. Our separation is on course for completion later this year.

Alcoa reported first quarter 2016 net income of $16 million, or $0.00 per share, including $92 million in special items. Special items include restructuring-related costs of $63 million (approximately 75 percent non-cash) primarily to further optimize the new Alcoa. Year-over-year, first quarter 2016 results compare to net income of $195 million, or $0.14 per share.

Excluding the impact of special items, first quarter 2016 net income was $108 million, or $0.07 per share. These results reflect a $255 million net income reduction from the year-ago period largely due to a 40 and 26 percent decline in the Alumina Price Index (API) and aluminum pricing, respectively. Unfavorable pricing was partially offset by $364 million in year-over-year productivity savings. In first quarter 2015, Alcoa reported net income excluding special items of $363 million, or $0.28 per share.

Year-over-year, revenue increased 5.7 percent from acquisitions and organic growth, offset by a 20.7 percent decline from continued low alumina and aluminum pricing, foreign exchange impacts, and divested, curtailed or closed facilities undertaken largely to strengthen the new

Alcoa business. As a result of these combined factors, Alcoa reported first quarter 2016 revenue of $4.9 billion, down 15 percent from $5.8 billion in the first quarter of 2015.

Asset Sales

Alcoa continually looks for opportunities to strengthen its balance sheet and maximize cash flow while optimizing its portfolio. Recently-announced transactions include:

$154 million: Alcoa of Australia, owned 60 percent by Alcoa and 40 percent by Alumina Limited, sold its 20 percent stake in the Dampier to Bunbury Natural Gas Pipeline (DBNGP) in Western Australia (WA) to Duet Group. Alcoa of Australia will maintain its access to approximately 30 percent of the DBNGP transmission capacity for gas supply to its three WA alumina refineries; and

$102 million: Alcoa agreed to sell its Remmele Medical business, which was part of the RTI International Metals (RTI) acquisition, to LISI MEDICAL.

The natural gas pipeline sale closed at the beginning of second quarter 2016. The Remmele Medical sale is expected to close later in the second quarter 2016.

In addition, during first quarter 2016, the Company liquidated certain company-owned life insurance policies for gross proceeds of $234 million.

Once all of the above transactions are completed, gross proceeds will total approximately $750 million, including an additional company-owned life insurance liquidation of approximately $265 million, expected in the second quarter of 2016.

Cash Flows

Cash used for operations in first quarter 2016 was $430 million, resulting in negative $681 million of free cash flow for the quarter, driven by the normal build in working capital, semi-annual interest payments and pension contributions. Alcoa ended the quarter with cash on hand of $1.4 billion.

The Company reported an average of 47 days working capital (DWC) for the quarter, an increase of 14 days from first quarter 2015, largely due to the impact of acquisitions. Excluding 2015 acquisitions, DWC was 4 days higher than the first quarter last year predominately due to the ramp up of the automotive sheet business and growth programs in the EPS businesses.

Market Update

In aerospace, Alcoa is projecting 6 to 8 percent global aerospace sales growth in 2016, revised from the 8 to 9 percent estimated in fourth quarter 2015. The market is experiencing a transition period as major original equipment manufacturers shift from incumbent platforms to multiple new platforms simultaneously. Powerful trends continue to drive long-term market strength, with the order book for commercial jet airframes and jet engines representing more than nine years of production at 2015 delivery rates.

In automotive, Alcoa continues to forecast global automotive production growth of 1 to 4 percent, including 1 to 5 percent growth in North America. Strong U.S. sales, sustained vehicle demand and incentives are driving the North American automotive market. Automotive sales are also strong in Europe and China.

In the heavy duty truck and trailer end market, Alcoa projects a global production of negative 4 percent to flat. This is revised downward from estimates of negative three to up one percent in fourth quarter 2015 as strength in Europe and China is offset by weakness in North America.

Alcoa projects solid growth in all its other end markets. The Company continues to forecast 1 to 3 percent global sales growth in packaging; 4 to 6 percent building and construction sales growth both globally and in North America; and 2 to 4 percent global airfoil market growth as the market moves towards higher value-add product for new, high efficiency turbines with advanced technology.

In 2016, Alcoa projects an approximately 1.1 million metric ton global aluminum deficit as 5 percent global aluminum demand growth (revised from 6 percent) outweighs 2 percent global aluminum supply growth (revised from 3 percent). In addition, the Company projects a global alumina deficit of 1.4 million metric tons.

Arconic Overview

After the Companys separation, the innovation and technology-driven Arconic company will include Global Rolled Products (GRP), Engineered Products and Solutions (EPS) and Transportation and Construction Solutions (TCS). In first quarter 2016, these business segments reported combined revenue of $3.3 billion, after-tax operating income (ATOI) of $269 million, adjusted EBITDA of $537 million and adjusted EBITDA margin of 16.4 percent. ATOI and adjusted EBITDA increased 8 and 7 percent, respectively, year-over-year. The combined segments also generated $179 million in productivity as part of their business improvement programs, announced in the first quarter. All Arconic segments are on track to deliver $650 million productivity savings in 2016.

In addition, the Arconic business reached the following agreements in the first quarter:

A multi-year contract valued at approximately $1 billion to deliver advanced industrial gas turbine components, Alcoas largest IGT contract to date; and

Agreement to supply 3D-printed titanium fuselage and engine pylon parts to Airbus.

Three-year target update

GRP and TCS are on track to meet their 3-year 2016 business targets (3-year target revenue adjusted for foreign exchange and London Metal Exchange pricing impact) announced in November of 2013:

GRP targets revenue of $6.0 billion to $6.2 billion, and adjusted EBITDA per metric ton at or above average historical highs of $344; and

TCS, comprising Alcoa Wheel and Transportation Products, Alcoa Building and Construction Systems, and the Latin American Extrusions business, targets revenue of $2 billion to $2.2 billion, and adjusted EBITDA margin of approximately 15 percent in 2016.

EPS set new 2016 goals to reflect end market headwinds, lower performance expectations for the Firth Rixson acquisition and higher performance expectations in Alcoa Titanium and Engineered Products (ATEP), the former RTI, which is ahead of the integration plan.

As a result, EPS targets segment revenue of $6 billion to $6.2 billion, revised from $7.0 billion (3-year target revenue adjusted for foreign exchange impact), and adjusted EBITDA margin of 21 percent to 22 percent, revised from approximately 23 percent. This includes:

Firth Rixson 2016 revenue of $1 billion to $1.1 billion, revised from $1.6 billion, and adjusted EBITDA of $150 million to $170 million, compared to $350 million projected at the time of acquisition. Adjusted EBITDA margin is expected between 14 percent and 16 percent.

ATEP 2016 revenue of $810 million to $830 million (excluding the impact of the announced Remmele Medical sale), adjusted EBITDA of $135 million to $160 million, and adjusted EBITDA margin of 17 percent to 19 percent. Due to its effective integration, ATEP is tracking ahead of 2019 targets which include revenue of $1.2 billion, adjusted EBITDA margin of 25 percent and net synergies of $100 million.

To strengthen its cost structure, EPS is taking a number of actions, including headcount reductions, overtime reduction, productivity savings and other cost controls. The business reduced its workforce by 600 positions in the first quarter and plans a further reduction of 400 positions. Additionally, given the current market environment, it is evaluating another reduction of up to 1,000 positions.

New Alcoa Overview

After the Companys separation, the new Alcoa will comprise the five business units that today make up Global Primary Products: Bauxite, Alumina, Aluminum, Cast Products and Energy. In first quarter 2016, these combined businesses reported revenue of $2.1 billion, ATOI of $22 million and adjusted EBITDA of $185 million. The new Alcoa segments generated $175 million in productivity in the first quarter as part of its business improvement program, and is on track to deliver $550 million in productivity savings for 2016.

In the first quarter, the new Alcoa continued to take aggressive action to improve its competitiveness, and:

Closed 269,000 metric tons of smelting capacity at its Warrick smelter in Indiana; and

Curtailed approximately 1.2 million metric tons refining capacity at its Point Comfort, Texas facility, with plans to curtail the plants remaining capacity by the end of the second quarter.

In addition, the new Alcoa continues to successfully build its third-party bauxite business. Alcoa World Alumina and Chemicals (AWAC) has secured multiple bauxite supply contracts valued at more than $350 million over the next two years. Under the contracts, the Company will supply bauxite to external customers from three of its global mines. The new contracts, which will double Alcoas third-party bauxite sales in 2016 from 2015, cover customers in China, Europe and Brazil. The AWAC group of companies is owned 60 percent by Alcoa and 40 percent by Alumina Limited of Australia.

In Saudi Arabia, the Maaden-Alcoa joint venture refinery continued to ramp up. It is now operating at 80 percent of its 1.8 million metric tons of nameplate capacity. Alcoa has a 25.1 percent investment in the joint venture, the worlds lowest-cost, fully integrated aluminum complex.

As a result of these activities, the new Alcoa remains on target to meet or exceed its 2016 goals of moving to the 38th percentile on the...


More