Alcoa(AA) - 2025 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Revenue decreased 1% sequentially to $3 billion, with net income attributable to Alcoa increasing to $232 million from $164 million in the prior quarter, resulting in earnings per share of $0.88 [10][11] - Adjusted EBITDA was $270 million, reflecting a sequential decrease of $43 million primarily due to increased U.S. Section 232 tariff costs and lower alumina prices [11][12] - The year-to-date return on equity was 14.5%, with cash flow activities showing $1.5 billion in cash at the end of the quarter [13][14] Business Line Data and Key Metrics Changes - In the alumina segment, third-party revenue decreased 9% due to lower volumes and bauxite prices, while the aluminum segment saw a 4% increase in revenue driven by higher average realized prices [10][12] - Adjusted EBITDA for the alumina segment decreased by $72 million, while the aluminum segment's adjusted EBITDA increased by $210 million due to higher metal prices and lower alumina costs [11][12] Market Data and Key Metrics Changes - Alumina prices have declined significantly, with recent prices around $315 per metric ton, while LME prices for aluminum rose approximately 7% sequentially to $2,775 per metric ton [17][18] - The Midwest premium has increased, reaching import parity, which reflects declining inventories and reduced aluminum imports [18][19] Company Strategy and Development Direction - The company is focused on safety, operational stability, and strategic investments, including a new long-term energy contract for Massena operations and a $60 million investment in anode bake furnace [7][9] - Alcoa is also developing a gallium plant in Australia, supported by U.S. and Australian governments, which will enhance its role in the critical minerals supply chain [6][29] Management's Comments on Operating Environment and Future Outlook - Management highlighted the importance of safety following a workplace fatality and emphasized the commitment to improving operational performance and profitability [4][9] - The outlook for the fourth quarter includes expectations for higher shipments and improved performance in the alumina segment, while anticipating increased tariff costs [15][16] Other Important Information - The company announced the permanent closure of the Kwinana Refinery, which will impact asset retirement obligations and restructuring charges [11][14] - The approvals process for Australian mining operations is progressing, with expectations for ministerial approvals by the end of 2026 [8][9] Q&A Session Summary Question: Capital allocation and M&A opportunities - Management indicated a priority to pay down debt while evaluating returns to shareholders and potential M&A opportunities across the product line [23][25][27] Question: U.S.-Australia Alcoa partnership - The partnership was initiated with Japanese entities and aims to establish a gallium supply chain outside of China, with first production targeted by the end of 2026 [29][30] Question: Canadian-U.S. negotiations regarding tariffs - Management is providing information to both governments to facilitate understanding of trade flows, emphasizing the U.S. aluminum supply shortage [34][58] Question: Demand dynamics in the U.S. market - Management noted steady demand in packaging and electrical sectors, with weakness in automotive attributed to tariff uncertainties and potential substitution by electric vehicles [80] Question: Updates on aluminum safeguards in Europe - Management mentioned that the next significant regulations in Europe will be CBAM, expected to positively impact Alcoa by raising European premiums [82]