Alcoa(AA) - 2024 Q2 - Quarterly Results

Q2 2024 Financial Highlights Alcoa reported significantly improved second-quarter 2024 results, driven by higher prices and profitability programs, with the Alumina Limited acquisition nearing completion Financial Results and Highlights Alcoa reported significantly improved second-quarter 2024 results, with sequential increases in revenue, net income, and Adjusted EBITDA, driven by higher alumina and aluminum prices, alongside progress in profitability programs, and is nearing the completion of its acquisition of Alumina Limited Q2 2024 Key Financial Metrics (in millions, except per share amounts) | M, except per share amounts | 2Q24 | 1Q24 | 2Q23 | | :--- | :--- | :--- | :--- | | Revenue | $2,906 | $2,599 | $2,684 | | Net income (loss) attributable to Alcoa Corporation | $20 | $(252) | $(102) | | Income (loss) per share attributable to Alcoa Corporation | $0.11 | $(1.41) | $(0.57) | | Adjusted net income (loss) | $30 | $(145) | $(62) | | Adjusted income (loss) per share | $0.16 | $(0.81) | $(0.35) | | Adjusted EBITDA excluding special items | $325 | $132 | $137 | - Revenue increased 12% sequentially to $2.9 billion, primarily due to higher alumina and aluminum prices[3] - Adjusted EBITDA excluding special items more than doubled sequentially, increasing to $325 million from $132 million in Q1 2024[4] - The acquisition of Alumina Limited is expected to close on or about August 1, 2024[4] - The company finished the second quarter with a cash balance of $1.4 billion and paid a quarterly dividend of $0.10 per share[4] Detailed Financial and Operational Review This section provides an in-depth analysis of Alcoa's second-quarter financial and operational performance, strategic initiatives, and the full-year 2024 outlook Second Quarter 2024 Results Analysis The company's Q2 performance reflects strong pricing in both Alumina and Aluminum segments, driving a 12% sequential revenue increase, with net income turning positive to $20 million, benefiting from the non-recurrence of a significant Q1 charge related to the Kwinana refinery curtailment, while strategic initiatives are progressing on schedule Financial Performance Revenue grew to $2.9 billion, with a 5% increase in Alumina and a 16% increase in Aluminum third-party revenue, driven by 7% and 9% price increases, respectively, while net income of $20 million marked a significant turnaround from a $252 million loss in Q1, largely due to the absence of the prior quarter's $197 million Kwinana curtailment charge, and Adjusted EBITDA surged by $193 million sequentially to $325 million, with the company generating $123 million in free cash flow and ending the quarter with a $1.4 billion cash balance - Total third-party revenue increased 12% sequentially to $2.9 billion, with Alumina segment revenue rising 5% on a 7% price increase, and Aluminum segment revenue rising 16% on a 9% price increase and higher shipments[7] - Net income improved to $20 million, reflecting higher prices and the non-recurrence of a $197 million charge in Q1 2024 for the Kwinana refinery curtailment[7] - Adjusted EBITDA increased by $193 million sequentially to $325 million, primarily due to higher prices and lower production costs, partially offset by higher energy costs[7] - The company ended the quarter with $1.4 billion in cash, generating $287 million in cash from operations and $123 million in free cash flow[7] Operational Performance Alumina production decreased by 5% sequentially to 2.53 million metric tons, a direct result of the completed Kwinana refinery curtailment, while aluminum production rose for the seventh consecutive quarter to 543,000 metric tons, and total aluminum shipments increased by 7% sequentially Q2 2024 Production & Shipments | Segment | Metric | Value (kmt) | Sequential Change | | :--- | :--- | :--- | :--- | | Alumina | Production | 2,530 | -5% | | Alumina | 3rd Party Shipments | - | -5% | | Aluminum | Production | 543 | Increased (7th consecutive quarter) | | Aluminum | Total Shipments | - | +7% | Strategic Initiatives and Key Actions Alcoa is advancing several key strategic goals, with the acquisition of Alumina Limited set to close around August 1, 2024, the full curtailment of the Kwinana refinery completed in June as planned, and the company's profitability improvement program on track, having achieved $350 million of its $645 million year-end 2025 target - The acquisition of Alumina Limited is expected to be completed on or about August 1, 2024, with all regulatory approvals received[7] - The full curtailment of the Kwinana refinery in Australia was completed in June 2024 as planned[7] - Profitability improvement programs are projected to achieve $350 million of the $645 million target by year-end 2025, indicating the company is on track[7] - Regarding the San Ciprián complex, Alcoa continues to seek competitive energy solutions and progress a potential sale, but anticipates available funding will be exhausted by the end of 2024[7] 2024 Outlook Alcoa reaffirmed its full-year 2024 production and shipment guidance for both the Alumina and Aluminum segments, and for the third quarter, the company anticipates specific financial impacts, including unfavorable bauxite grade effects in Alumina, favorable raw material prices in Aluminum, increased interest expense following the Alumina Limited acquisition, and an operational tax expense of $60 to $70 million Full Year 2024 Shipment & Production Outlook | Segment | Metric | Range (million metric tons) | | :--- | :--- | :--- | | Alumina | Production | 9.8 - 10.0 | | Alumina | Shipments | 12.7 - 12.9 | | Aluminum | Production | 2.2 - 2.3 | | Aluminum | Shipments | 2.5 - 2.6 | - For Q3 2024, Alumina Segment Adjusted EBITDA is expected to see an unfavorable impact of $10 million due to bauxite grade in Australia[10] - For Q3 2024, Aluminum Segment Adjusted EBITDA is expected to see a favorable impact of $10 million from raw material prices[10] - Q3 2024 interest expense is expected to increase by approximately $5 million due to the assumption of Alumina Limited debt[11] - Third quarter operational tax expense is expected to be between $60 million and $70 million[11] Consolidated Financial Statements This section presents Alcoa's consolidated financial statements, including the statement of operations, balance sheet, and cash flows Statement of Consolidated Operations For the second quarter of 2024, Alcoa reported sales of $2.906 billion and net income attributable to the company of $20 million, or $0.11 per diluted share, representing a significant improvement from a net loss of $252 million in Q1 2024 and a net loss of $102 million in Q2 2023, with the company posting a net loss of $232 million for the six months ended June 30, 2024 Quarterly Statement of Operations Highlights (in millions) | Line Item | Q2 2024 | Q1 2024 | Q2 2023 | | :--- | :--- | :--- | :--- | | Sales | $2,906 | $2,599 | $2,684 | | Income (loss) before income taxes | $92 | $(325) | $(99) | | Net income (loss) attributable to Alcoa | $20 | $(252) | $(102) | | Diluted EPS | $0.11 | $(1.41) | $(0.57) | Six-Month Statement of Operations Highlights (in millions) | Line Item | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | | Sales | $5,505 | $5,354 | | Loss before income taxes | $(233) | $(279) | | Net loss attributable to Alcoa | $(232) | $(333) | | Diluted EPS | $(1.29) | $(1.87) | Consolidated Balance Sheet As of June 30, 2024, Alcoa's balance sheet showed total assets of $14.307 billion and total liabilities of $8.891 billion, with cash and cash equivalents increasing significantly to $1.396 billion from $944 million at year-end 2023, while long-term debt also increased, contributing to a rise in total liabilities Key Balance Sheet Items (in millions) | Account | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $1,396 | $944 | | Total current assets | $4,903 | $4,405 | | Total assets | $14,307 | $14,155 | | Total current liabilities | $3,166 | $3,030 | | Long-term debt | $2,469 | $1,732 | | Total liabilities | $8,891 | $8,310 | | Total equity | $5,416 | $5,845 | Statement of Consolidated Cash Flows For the first six months of 2024, Alcoa generated $64 million in cash from operations, a notable improvement from the $176 million used in the same period of 2023, with cash used for investing activities at $281 million, primarily for capital expenditures, and financing activities providing $679 million, largely from new debt issuance, resulting in a net increase in cash of $446 million for the period Six-Month Cash Flow Summary (in millions) | Cash Flow Category | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | | Cash Provided From (Used For) Operations | $64 | $(176) | | Cash Used For Investing Activities | $(281) | $(222) | | Cash Provided From Financing Activities | $679 | $16 | | Net Change in Cash | $446 | $(377) | Segment Information This section details the financial and operational performance of Alcoa's Alumina and Aluminum segments Segment Performance In Q2 2024, the Alumina segment's Adjusted EBITDA rose to $186 million from $139 million in Q1, benefiting from a higher average realized price of $399 per metric ton, while the Aluminum segment showed a more dramatic improvement, with Adjusted EBITDA jumping to $233 million from $50 million in Q1, driven by a significant increase in the average realized price to $2,858 per metric ton Alumina Segment Key Metrics | Metric | 2Q24 | 1Q24 | | :--- | :--- | :--- | | Alumina production (kmt) | 2,539 | 2,670 | | Third-party alumina shipments (kmt) | 2,267 | 2,397 | | Average realized third-party price per mt | $399 | $372 | | Segment Adjusted EBITDA (M) | $186 | $139 | Aluminum Segment Key Metrics | Metric | 2Q24 | 1Q24 | | :--- | :--- | :--- | | Aluminum production (kmt) | 543 | 542 | | Total aluminum shipments (kmt) | 677 | 634 | | Average realized third-party price per mt | $2,858 | $2,620 | | Segment Adjusted EBITDA (M) | $233 | $50 | Non-GAAP Financial Measures and Reconciliations This section provides reconciliations for Alcoa's non-GAAP financial measures, including Adjusted Income, Adjusted EPS, Adjusted EBITDA, Free Cash Flow, Net Debt, and Working Capital Adjusted Income and Adjusted EPS Alcoa's Q2 2024 adjusted net income was $30 million, or $0.16 per diluted share, a non-GAAP measure derived by adjusting the GAAP net income of $20 million for $10 million in net special items, which included restructuring charges, mark-to-market gains on energy derivatives, and costs related to portfolio actions Reconciliation of Net Income (Loss) to Adjusted Net Income (Loss) (in millions) | Description | Q2 2024 | Q1 2024 | Q2 2023 | | :--- | :--- | :--- | :--- | | Net income (loss) attributable to Alcoa (GAAP) | $20 | $(252) | $(102) | | Special items (subtotal) | $10 | $107 | $40 | | Net income (loss) attributable to Alcoa – as adjusted | $30 | $(145) | $(62) | Adjusted EBITDA The company reported Adjusted EBITDA excluding special items of $325 million for Q2 2024, calculated by taking the GAAP net income attributable to Alcoa ($20 million) and adding back items such as taxes, interest, D&A, and restructuring charges, then adjusting for $34 million in special items Reconciliation to Adjusted EBITDA, excluding special items (in millions) | Description | Q2 2024 | Q1 2024 | Q2 2023 | | :--- | :--- | :--- | :--- | | Net income (loss) attributable to Alcoa (GAAP) | $20 | $(252) | $(102) | | Add back various items (NCI, Taxes, Interest, etc.) | $253 | $395 | $183 | | Adjusted EBITDA | $291 | $124 | $111 | | Special items | $34 | $8 | $26 | | Adjusted EBITDA, excluding special items | $325 | $132 | $137 | Free Cash Flow and Net Debt Alcoa generated $123 million in free cash flow during Q2 2024, a significant positive swing from the $324 million used in Q1 2024, and as of June 30, 2024, the company's net debt stood at $1.183 billion, an increase from $923 million at the end of 2023, reflecting higher total debt levels Free Cash Flow Calculation (in millions) | Description | Q2 2024 | Q1 2024 | | :--- | :--- | :--- | | Cash provided from (used for) operations | $287 | $(223) | | Capital expenditures | $(164) | $(101) | | Free cash flow | $123 | $(324) | Net Debt Calculation (in millions) | Description | June 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total debt | $2,579 | $1,867 | | Less: Cash and cash equivalents | $1,396 | $944 | | Net debt | $1,183 | $923 | Working Capital The company's liquidity management efficiency improved in Q2 2024, as evidenced by a reduction in Days Working Capital (DWC) to 41 days from 47 days in the previous quarter, primarily due to better inventory management Days Working Capital (DWC) | Metric | Q2 2024 | Q1 2024 | Q2 2023 | | :--- | :--- | :--- | :--- | | DWC working capital (M) | $1,295 | $1,331 | $1,611 | | Days working capital | 41 | 47 | 55 |