Bauxite, alumina and aluminum products company Alcoa Corp., headquartered in Pittsburgh, has reported a sequential increase in third quarter 2017 revenue and earnings, which the company attributes to improved pricing in the aluminum business segment and higher shipments of aluminum and bauxite. Alcoa says its cash balance as of Sept. 30, 2017, reached $1.1 billion.
Based on stronger alumina and aluminum prices, Alcoa has increased its projection for full-year adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) to approximately $2.4 billion. This adjusted EBITDA forecast, up from the second quarter projected range of $2.1 billion to $2.2 billion, includes higher input costs to be reflected in net performance reported with fourth quarter 2017 results, the company says.
“Alcoa continues to benefit from favorable commodity markets, and we’ve raised our projections for profitability in 2017 and global aluminum demand growth for the balance of the year,” says Roy Harvey, president and chief executive officer. “We continued to execute on our three strategic priorities—our strong cash generation aligns with our priority to strengthen the balance sheet, while our recent Rockdale announcement advances our priorities to reduce complexity and drive returns.”
The company recently announced that as of Oct. 1 it has terminated the electricity contract tied to Alcoa’s Rockdale operations in Texas with power provider Luminant Generation Co. The smelter at Rockdale has been fully curtailed since the end of 2008. Alcoa says it expects the termination, which included a lump sum cash payment of $237.5 million, to result in an annual improvement to net income and adjusted EBITDA of $60 million to $70 million, beginning in the fourth quarter of 2017.
Harvey added, “As we approach our first anniversary as an independent, publicly traded company, we’ll continue to be guided by our three strategic priorities to further strengthen our company and Alcoa’s foundation for the future.”
In third quarter 2017, Alcoa reported net income of $113 million, 60 cents per share, up 51 percent, mostly because of an improvement in the combined results of the company’s business segments. This compares with second quarter 2017 net income of $75 million, or 40 cents per share. The third and second quarters of 2017 include a negative impact for special items of $22 million and $41 million, respectively.
Third quarter 2017 special items were largely related to restructuring charges associated with previous actions, a legacy tax settlement in Brazil, unfavorable mark-to-market impact on certain energy contracts and a net benefit related to the partial restart of the Warrick smelter in Indiana (reversal of previous closure costs partially offset by restart costs), the company says.
Excluding the impact of special items, third quarter 2017 adjusted net income was $135 million, or 72 cents per share, up 16 percent sequentially from $116 million, or 62 cents per share.
In the third quarter 2017, Alcoa reported $561 million of adjusted EBITDA excluding special items, up 16 percent from $483 million in second quarter 2017. The company says the improvement was driven by several positive factors, including higher energy sales in Brazil, improved aluminum pricing and increased shipments for aluminum and bauxite, partially offset by unfavorable currency exchange rates and raw material price inflation.
Alcoa reported third quarter 2017 revenue of $3 billion, up 4 percent sequentially, with higher energy sales in Brazil, higher shipments in the its aluminum and bauxite segments and increased aluminum prices, somewhat offset by a decline in alumina volume.
Cash from operations in third quarter 2017 was $384 million and free cash flow was $288 million. Cash used for financing activities and investing activities was $115 million and $100 million, respectively, in the third quarter of 2017. Cash used for financing in the third quarter of 2017 included the early repayment of a $41 million loan from Brazil’s National Bank for Economic and Social Development (BNDES), Alcoa says.
The company says it ended third quarter 2017 with cash on hand of $1.1 billion with $1.4 billion of debt, for net debt of $0.3 billion. Alcoa also reported 17 days working capital, a one-day improvement from second quarter 2017.
Alcoa says that it continues to see strong global aluminum demand growth and that it increased its full-year 2017 estimate to a range of 5 to 5.5 percent from 4.75 to 5.25 percent in the second quarter.
The company says it expects the global aluminum market to be in relative balance for full year 2017, a change from the second quarter projection of a slight surplus. The improvement is mostly because of the planned and actual curtailments in Chinese smelting capacity as well as increased Chinese demand.
Global markets for both bauxite and alumina are expected to remain in relative balance for the year, according to the company.