Alcoa Corporation Reports Fourth Quarter and Full-Year 2019 Results

Fourth Quarter 2019

  • Net loss of $303 million, or $1.63 per share
  • Excluding special items, adjusted net loss of $57 million, or $0.31 per share
  • $346 million of adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) excluding special items
  • Revenue of $2.4 billion
  • $262 million cash from operations; free cash flow of $128 million
  • $879 million cash balance and $1.8 billion of debt, for net debt of $921 million, as of December 31, 2019
  • Company takes actions aligned with strategic priorities to reduce complexity, drive returns and advance sustainably, including closing one fully curtailed alumina refinery as part of multi-year asset review process and announcing the first planned sale of non-core assets

Full-Year 2019

  • Net loss of $1,125 million, or $6.07 per share, and adjusted net loss of $184 million, or $0.99 per share
  • Adjusted EBITDA excluding special items of $1.66 billion
  • Revenue of $10.4 billion
  • $686 million cash from operations; free cash flow of $307 million
  • Net pension and other postretirement employee benefits liability of $2.4 billion at December 31, 2019, up $40 million from year-end 2018

PITTSBURGH–(BUSINESS WIRE)–Alcoa Corporation (NYSE: AA), a global leader in bauxite, alumina, and aluminum products, today reported fourth quarter and full-year 2019 results.


M, except per share amounts

4Q181

3Q19

4Q19

FY181

FY19

Revenue

$3,344

$2,567

$2,436

$13,403

$10,433

Net income (loss) attributable to Alcoa Corporation

$51

$(221)

$(303)

$250

$(1,125)

Earnings (loss) per share attributable to Alcoa Corporation

$0.27

$(1.19)

$(1.63)

$1.33

$(6.07)

Adjusted net income (loss)

$133

$(82)

$(57)

$698

$(184)

Adjusted earnings (loss) per share

$0.70

$(0.44)

$(0.31)

$3.70

$(0.99)

Adjusted EBITDA excluding special items

$770

$388

$346

$3,129

$1,656

1

As of January 1, 2019, the Company changed its accounting method for valuing certain inventories from last-in, first-out (LIFO) to average cost. The effects of the change in accounting principle have been retrospectively applied to all prior periods presented. See Exhibit 99.2 to the Company’s Form 8-K filed with the Securities and Exchange Commission (SEC) on April 17, 2019, which illustrates the effects of the change in accounting principle to 2018 interim and full year financial information.

“In 2019, we acted to further strengthen Alcoa, completing the divestiture of uncompetitive assets, modernizing labor agreements in three countries, implementing a new operating model, and making quick progress on the asset review process we announced last quarter,” said Alcoa President and Chief Executive Officer Roy Harvey.

“While the market in alumina and aluminum challenged us, we maintained a strong cash balance of nearly $900 million and drove operational stability,” Harvey said. “Also, our low-cost, top-tier bauxite and alumina segments both set new annual production records based on our current portfolio.”

Fourth Quarter 2019 Results

Alcoa reported a net loss of $303 million, or $1.63 per share, in the fourth quarter of 2019 compared with a net loss of $221 million, or $1.19 per share, in the third quarter of 2019.

In the fourth quarter of 2019, the Company took several actions in alignment with its strategic priorities, including taking the first steps in a multi-year portfolio review and continuing work to strengthen the balance sheet. The announced closure of the Point Comfort alumina refinery in Texas and additional actions taken on pension and other postemployment benefits were the primary drivers of the $246 million in special items for the fourth quarter of 2019.

Excluding the impact of special items, adjusted net loss was $57 million, or $0.31 per share, a sequential improvement of 30 percent from adjusted net loss of $82 million, or $0.44 per share in the third quarter of 2019.

Adjusted EBITDA excluding special items fell 11 percent sequentially to $346 million from $388 million in the third quarter of 2019. The change was primarily due to lower alumina and aluminum prices, partially offset by lower raw material prices.

Alcoa reported fourth quarter 2019 revenue of $2.4 billion, down 5 percent sequentially, due primarily to lower alumina and aluminum prices.

Alcoa ended the quarter with cash on hand of $879 million and debt of $1.8 billion, for net debt of $921 million.

In the fourth quarter of 2019, cash from operations was $262 million. Cash used for financing and investing activities were $93 million and $134 million, respectively. Free cash flow was $128 million.

The Company reported 27 days working capital, which is flat on a year-over-year basis.

Full-Year 2019 Results

For full-year 2019, Alcoa reported a net loss of $1,125 million, or $6.07 per share, compared with net income of $250 million, or $1.33 per share, for full-year 2018.

Excluding special items, the Company reported adjusted net loss of $184 million, or $0.99 per share, compared with adjusted net income of $698 million, or $3.70 per share, in 2018.

Adjusted EBITDA excluding special items was $1.66 billion, down 47 percent from $3.1 billion in 2018. The year-over-year decrease was largely due to lower alumina and aluminum prices, partially offset by lower costs for raw materials.

Revenue in 2019 was $10.4 billion, down 22 percent from 2018, mainly attributable to lower realized prices for alumina and aluminum products.

Cash from operations in 2019 was $686 million. Cash used for financing activities was $444 million and cash used for investing activities was $468 million. Free cash flow was $307 million. Alcoa invested $89 million in return-seeking capital projects and controlled sustaining capital expenditures to $290 million in 2019.

Over the course of 2019, the Company undertook actions to reduce liabilities associated with Alcoa’s pension and other postretirement employee benefit plans. As a result of these actions, along with favorable asset returns, the Company was able to mostly offset the negative impact of sharply lower discount rates as part of the annual remeasurement on December 31, 2019.

The Company’s net pension and other postretirement employee benefits liability at the end of the year was $2.4 billion, up $40 million from year-end 2018.

Strategic Actions Update

In October 2019, Alcoa announced a review of its assets to drive lower costs and sustainable profitability. The review includes two components: The potential sales of non-core assets over the next 12 to 18 months, generating between $500 million and $1 billion in cash, and an analysis of existing production capacities, focusing on 1.5 million metric tons of global smelting capacity and 4 million metric tons of global alumina refining capacity. Conducted over the next five years, the analysis of production capacity will consider opportunities for significant improvement, potential curtailments, closures, or divestitures.

Non-Core Asset Sales

  • On January 2, 2020, the Company announced the first non-core assets sale after reaching agreement to sell its waste treatment facility in Gum Springs, Arkansas, in a transaction valued at $250 million. The transaction, which is subject to regulatory approval and customary closing conditions, is expected to close in the first quarter of 2020. When the transaction closes, Alcoa will receive $200 million in cash with the remaining $50 million paid upon satisfaction of post-closing conditions.

Portfolio Actions

  • In connection with the asset portfolio review, Alcoa announced in December 2019 the permanent closure of the Point Comfort alumina refinery in Texas, which has been fully curtailed since 2016. As previously reported, the closure is expected to result in annual net income improvement of approximately $15 million (after-tax and noncontrolling interest) and cash savings of approximately $10 million (Alcoa’s share) when compared to the ongoing spend for curtailment, exclusive of closure costs.
  • On December 31, 2019, Alcoa completed the transfer of the Afobaka hydroelectric dam to the Government of the Republic of Suriname, according to definitive agreements approved by its parliament. After curtailment of Alcoa’s operations in Suriname in 2015 and permanent closure in early 2017, Alcoa continued to operate the dam, selling electricity to the government for its subsequent sale to customers in Suriname. Alcoa expects an annual net income reduction related to the loss of electricity sales of approximately $20 million (after-tax and noncontrolling interest) in 2020, based on 2019 results.

Market Update

For 2020, Alcoa projects a global aluminum surplus ranging between 600 thousand to 1 million metric tons with global demand growth in a range of 1.4 percent to 2.4 percent. The Company’s final global aluminum demand growth rate estimate for 2019 was between negative 0.4 percent to negative 0.2 percent with a deficit between 1.1 million and 900 thousand metric tons.

The global alumina market closed 2019 with a surplus estimated between 600 thousand metric tons and 1.0 million metric tons, a smaller surplus than the Company’s previous estimate. In 2020, Alcoa expects a balanced alumina market ranging between negative 100 thousand metric tons to positive 700 thousand metric tons.

Compared to 2019, the bauxite market is projected to be in a smaller surplus in 2020, with Chinese stockpile projected to continue, ranging between 8 million and 12 million metric tons. The 2019 surplus was lower than previously expected, estimated to be between 10 million and 12 million metric tons.

2020 Outlook

In 2020, the Company projects total bauxite shipments to range between 48.0 and 49.0 million dry metric tons. Total alumina shipments are expected to be between 13.6 and 13.7 million metric tons. The Aluminum segment is expected to ship between 3.0 and 3.1 million metric tons.

In the first quarter of 2020, Alcoa expects lower quarterly results in the Bauxite segment primarily due to lower pricing and seasonally lower volumes. In the Alumina segment, the Company expects benefits from lower costs for raw materials and the announced portfolio decision to be mostly offset by lower volumes and higher operating costs due to seasonal maintenance. In the Aluminum segment, the Company expects performance to be flat, as improvements from lower alumina costs are expected to be offset by higher energy costs, lower rolled products shipments, and unfavorable price and mix.

Based on current alumina and aluminum market conditions, the Company expects an annual operational tax rate ranging from 70 to 80 percent, which will vary with market conditions and jurisdictional profitability.

Conference Call

Alcoa will hold its quarterly conference call at 5:00 p.m. Eastern Standard Time (EST) on Wednesday, January 15, 2020, to present fourth quarter and full-year 2019 financial results and discuss the business and market conditions.

The call will be webcast via the Company’s homepage on www.alcoa.com. Presentation materials for the call will be available for viewing on the same website at approximately 4:15 p.m. EST on January 15, 2020. Call information and related details are available under the “Investors” section of www.alcoa.com.

Dissemination of Company Information

Alcoa intends to make future announcements regarding company developments and financial performance through its website, www.alcoa.com, as well as through press releases, filings with the Securities and Exchange Commission, conference calls and webcasts.

About Alcoa Corporation

Alcoa (NYSE: AA) is a global industry leader in bauxite, alumina, and aluminum products, and is built on a foundation of strong values and operating excellence dating back more than 130 years to the world-changing discovery that made aluminum an affordable and vital part of modern life. Since developing the aluminum industry, and throughout our history, our talented Alcoans have followed on with breakthrough innovations and best practices that have led to efficiency, safety, sustainability, and stronger communities wherever we operate.

Forward-Looking Statements

This press release contains statements that relate to future events and expectations and as such constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include those containing such words as “anticipates,” “believes,” “could,” “estimates,” “expects,” “forecasts,” “goal,” “intends,” “may,” “outlook,” “plans,” “projects,” “seeks,” “sees,” “should,” “targets,” “will,” “would,” or other words of similar meaning. All statements by Alcoa Corporation that reflect expectations, assumptions or projections about the future, other than statements of historical fact, are forward-looking statements, including, without limitation, forecasts concerning global demand growth for bauxite, alumina, and aluminum, and supply/demand balances; statements, projections or forecasts of future or targeted financial results or operating performance; statements about strategies, outlook, and business and financial prospects; and statements about return of capital. These statements reflect beliefs and assumptions that are based on Alcoa Corporation’s perception of historical trends, current conditions, and expected future developments, as well as other factors that management believes are appropriate in the circumstances. Forward-looking statements are not guarantees of future performance and are subject to known and unknown risks, uncertainties, and changes in circumstances that are difficult to predict. Although Alcoa Corporation believes that the expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that these expectations will be attained and it is possible that actual results may differ materially from those indicated by these forward-looking statements due to a variety of risks and uncertainties. Such risks and uncertainties include, but are not limited to: (a) material adverse changes in aluminum industry conditions, including global supply and demand conditions and fluctuations in London Metal Exchange-based prices and premiums, as applicable, for primary aluminum and other products, and fluctuations in indexed-based and spot prices for alumina; (b) deterioration in global economic and financial market conditions generally and which may also affect Alcoa Corporation’s ability to obtain credit or financing upon acceptable terms; (c) unfavorable changes in the markets served by Alcoa Corporation; (d) the impact of changes in foreign currency exchange and tax rates on costs and results; (e) increases in energy costs or uncertainty of energy supply; (f) declines in the discount rates used to measure pension liabilities or lower-than-expected investment returns on pension assets, or unfavorable changes in laws or regulations that govern pension plan funding; (g) the inability to achieve improvement in profitability and margins, cost savings, cash generation, revenue growth, fiscal discipline, or strengthening of competitiveness and operations anticipated from operational and productivity improvements, cash sustainability, technology advancements, and other initiatives; (h) the inability to realize expected benefits, in each case as planned and by targeted completion dates, from acquisitions, divestitures, facility closures, curtailments, restarts, expansions, or joint ventures; (i) political, economic, trade, legal, and regulatory risks in the countries in which Alcoa Corporation operates or sells products; (j) labor disputes and/or and work stoppages; (k) the outcome of contingencies, including legal proceedings, government or regulatory investigations, and environmental remediation; (l) the impact of cyberattacks and potential information technology or data security breaches; and (m) the other risk factors discussed in Item 1A of Alcoa Corporation’s Form 10-K for the fiscal year ended December 31, 2018 and other reports filed by Alcoa Corporation with the U.S. Securities and Exchange Commission (SEC). Alcoa Corporation disclaims any obligation to update publicly any forward-looking statements, whether in response to new information, future events or otherwise, except as required by applicable law. Market projections are subject to the risks described above and other risks in the market.

Non-GAAP Financial Measures

Some of the information included in this release is derived from Alcoa Corporation’s consolidated financial information but is not presented in Alcoa Corporation’s financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). Certain of these data are considered “non-GAAP financial measures” under SEC regulations. Alcoa Corporation believes that the presentation of non-GAAP financial measures is useful to investors because such measures provide both additional information about the operating performance of Alcoa Corporation and insight on the ability of Alcoa Corporation to meet its financial obligations by adjusting the most directly comparable GAAP financial measure for the impact of, among others, “special items” as defined by the Company, non-cash items in nature, and/or nonoperating expense or income items. The presentation of non-GAAP financial measures is not intended to be a substitute for, and should not be considered in isolation from, the financial measures reported in accordance with GAAP. Reconciliations to the most directly comparable GAAP financial measures and management’s rationale for the use of the non-GAAP financial measures can be found in the schedules to this release.

Alcoa Corporation and subsidiaries

Statement of Consolidated Operations (unaudited)

(dollars in millions, except per-share amounts)

 

Quarter Ended

 

December 31,

2018

 

September 30,

2019

 

December 31,

2019

Sales

$

3,344

$

2,567

 

$

2,436

 

 

 

 

 

 

 

 

 

 

Cost of goods sold (exclusive of expenses below)(1)

 

2,513

 

2,120

 

 

2,048

 

Selling, general administrative, and other expenses

 

59

 

66

 

 

62

 

Research and development expenses

 

7

 

7

 

 

6

 

Provision for depreciation, depletion, and amortization

 

174

 

184

 

 

183

 

Restructuring and other charges, net

 

138

 

185

 

 

363

 

Interest expense

 

31

 

30

 

 

31

 

Other expenses, net

 

32

 

27

 

 

44

 

Total costs and expenses

 

2,954

 

2,619

 

 

2,737

 

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes

 

390

 

(52

)

 

(301

)

Provision for income taxes(1)

 

163

 

95

 

 

54

 

 

 

 

 

 

 

 

 

 

Net income (loss)(1)

 

227

 

(147

)

 

(355

)

 

 

 

 

 

 

 

 

 

Less: Net income (loss) attributable to noncontrolling interest(1)

 

176

 

74

 

 

(52

)

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS) ATTRIBUTABLE TO ALCOA CORPORATION(1)

$

51

$

(221

)

$

(303

)

 

 

 

 

 

 

 

 

 

EARNINGS PER SHARE ATTRIBUTABLE TO ALCOA CORPORATION COMMON SHAREHOLDERS:

 

 

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

 

 

Net income (loss)

$

0.27

$

(1.19

)

$

(1.63

)

Average number of shares(2)

 

186,166,234

 

185,566,202

 

 

185,575,479

 

 

 

 

 

 

 

 

 

 

Diluted:

 

 

 

 

 

 

 

 

Net income (loss)

$

0.27

$

(1.19

)

$

(1.63

)

Average number of shares(2)

 

188,219,224

 

185,566,202

 

 

185,575,479

 

(1)

As of January 1, 2019, the Company changed its accounting method for valuing certain inventories from LIFO to average cost. The effects of the change in accounting principle have been retrospectively applied to all prior periods presented. See Exhibit 99.2 to the Company’s Form 8-K filed with the SEC on April 17, 2019, which illustrates the effects of the change in accounting principle to 2018 interim and full year financial information.

(2)

In December 2018, Alcoa Corporation repurchased and retired 1,723,800 shares of outstanding common stock in accordance with its previously announced common stock repurchase program. Both the basic and diluted average number of shares for the quarter ended December 31, 2018 includes 1,396,755 representing the weighted average number of shares for the length of time the 1,723,800 shares were outstanding during the fourth quarter of 2018.

Alcoa Corporation and subsidiaries

Statement of Consolidated Operations (unaudited), continued

(dollars in millions, except per-share amounts)

 

Year ended

 

December 31,

2018

 

December 31,

2019

Sales

$

13,403

$

10,433

 

 

 

 

 

 

 

Cost of goods sold (exclusive of expenses below)(1)

 

10,053

 

8,537

 

Selling, general administrative, and other expenses

 

248

 

280

 

Research and development expenses

 

31

 

27

 

Provision for depreciation, depletion, and amortization

 

733

 

713

 

Restructuring and other charges, net

 

527

 

1,031

 

Interest expense

 

122

 

121

 

Other expenses, net

 

64

 

162

 

Total costs and expenses

 

11,778

 

10,871

 

 

 

 

 

 

 

Income (loss) before income taxes

 

1,625

 

(438

)

Provision for income taxes(1)

 

732

 

415

 

 

 

 

 

 

 

Net income (loss)(1)

 

893

 

(853

)

 

 

 

 

 

 

Less: Net income attributable to noncontrolling interest(1)

 

643

 

272

 

 

 

 

 

 

 

NET INCOME (LOSS) ATTRIBUTABLE TO ALCOA CORPORATION(1)

$

250

$

(1,125

)

 

 

 

 

 

 

EARNINGS PER SHARE ATTRIBUTABLE TO ALCOA CORPORATION COMMON SHAREHOLDERS:

 

 

 

 

 

Basic:

 

 

 

 

 

Net income (loss)

$

1.34

$

(6.07

)

Average number of shares(2)

 

186,230,908

 

185,489,491

 

 

 

 

 

 

 

Diluted:

 

 

 

 

 

Net income (loss)

$

1.33

$

(6.07

)

Average number of shares(2)

 

188,534,139

 

185,489,491

 

 

 

 

 

 

 

Common stock outstanding at the end of the period

 

184,770,249

 

185,580,166

 

(1)

As of January 1, 2019, the Company changed its accounting method for valuing certain inventories from LIFO to average cost. The effects of the change in accounting principle have been retrospectively applied to all prior periods presented. See Exhibit 99.2 to the Company’s Form 8-K filed with the SEC on April 17, 2019, which illustrates the effects of the change in accounting principle to 2018 interim and full year financial information.

(2)

In December 2018, Alcoa Corporation repurchased and retired 1,723,800 shares of outstanding common stock in accordance with its common stock repurchase program. Both the basic and diluted average number of shares for the year ended December 31, 2018 includes 1,641,367 representing the weighted average number of shares for the length of time the 1,723,800 shares were outstanding during 2018.

Alcoa Corporation and subsidiaries

Consolidated Balance Sheet (unaudited)

(in millions)

 

 

December 31,

2018

 

December 31,

2019

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,113

 

$

879

 

Receivables from customers

 

 

830

 

 

546

 

Other receivables

 

 

173

 

 

114

 

Inventories(1)

 

 

1,819

 

 

1,644

 

Fair value of derivative instruments

 

 

73

 

 

59

 

Prepaid expenses and other current assets(1),(2)

 

 

320

 

 

288

 

Total current assets

 

 

4,328

 

 

3,530

 

Properties, plants, and equipment

 

 

21,807

 

 

21,706

 

Less: accumulated depreciation, depletion, and amortization

 

 

13,480

 

 

13,790

 

Properties, plants, and equipment, net

 

 

8,327

 

 

7,916

 

Investments

 

 

1,360

 

 

1,113

 

Deferred income taxes

 

 

560

 

 

649

 

Fair value of derivative instruments

 

 

82

 

 

18

 

Other noncurrent assets

 

 

1,475

 

 

1,414

 

Total assets

 

$

16,132

 

$

14,640

 

LIABILITIES

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable, trade

 

$

1,663

 

$

1,484

 

Accrued compensation and retirement costs

 

 

400

 

 

413

 

Taxes, including income taxes

 

 

426

 

 

104

 

Fair value of derivative instruments

 

 

82

 

 

67

 

Other current liabilities

 

 

347

 

 

494

 

Long-term debt due within one year

 

 

1

 

 

1

 

Total current liabilities

 

 

2,919

 

 

2,563

 

Long-term debt, less amount due within one year

 

 

1,801

 

 

1,799

 

Accrued pension benefits

 

 

1,407

 

 

1,544

 

Accrued other postretirement benefits

 

 

868

 

 

748

 

Asset retirement obligations

 

 

529

 

 

606

 

Environmental remediation

 

 

236

 

 

296

 

Fair value of derivative instruments

 

 

261

 

 

581

 

Noncurrent income taxes

 

 

301

 

 

276

 

Other noncurrent liabilities and deferred credits

 

 

222

 

 

371

 

Total liabilities

 

 

8,544

 

 

8,784

 

EQUITY

 

 

 

 

 

 

 

Alcoa Corporation shareholders’ equity:

 

 

 

 

 

 

 

Common stock

 

 

2

 

 

2

 

Additional capital

 

 

9,611

 

 

9,639

 

Retained earnings (deficit)(1)

 

 

570

 

 

(555

)

Accumulated other comprehensive loss

 

 

(4,565

)

 

(5,004

)

Total Alcoa Corporation shareholders’ equity

 

 

5,618

 

 

4,082

 

Noncontrolling interest(1)

 

 

1,970

 

 

1,774

 

Total equity

 

 

7,588

 

 

5,856

 

Total liabilities and equity

 

$

16,132

 

$

14,640

 

Contacts

Investor Contact: James Dwyer +1 412 992 5450 James.Dwyer@alcoa.com

Media Contact: Jim Beck +1 412 315 2909 Jim.Beck@alcoa.com

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