Alcoa reports revenue down 5 percent in Q3
Australia alumina refining.

Alcoa reports revenue down 5 percent in Q3

Company announces review of smelting, refining capacity and potential asset sales to drive lower costs and sustainable profitability.

October 18, 2019

Alcoa Corp., the aluminum producer based in Pittsburgh, has reported its third-quarter 2019 revenue totaled $2.6 billion, down 5 percent sequentially due to lower alumina prices.

“Revenues are down 5 percent as higher bauxite and alumina shipments were more than offset by lower realized prices for alumina and aluminum,” says William Oplinger, executive vice president and chief financial officer. “Revenues declined $823 million, again on lower alumina and aluminum prices.”

The company’s second-quarter 2019 net loss totaled $221 million, which included $134 million in charges associated with divestiture of the Alcoa’s Spanish aluminum plants Avilés and La Coruña and a $37 million restructuring charge for severance costs related to implementing a new operating model.

The new model, which goes into effect Nov. 1, will result in annual savings of approximately $60 million in operating costs and in a leaner corporate structure through the elimination of the company’s business unit structure and consolidation of sales, procurement and other commercial capabilities at an enterprise level.

Alcoa reports an adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $388 million, down $67 million from the prior quarter due to lower alumina pricing that was partially offset by higher alumina sales volume and lower production costs. The company generated $174 million in cash from operations during the third quarter of 2019. The company used $81 million in cash flow for financing and $76 million in investing activities.

The company also reports a record quarterly production of bauxite and alumina since the company’s 2016 launch.

“Our bauxite and alumina segments reached new quarterly production records since our launch in 2016, and our aluminum business continued to rebound,” says Alcoa President and Chief Executive Officer Roy Harvey.

In addition, Alcoa reports a multi-year portfolio review to drive lower costs and sustainable profitability.

“Since our inception as a public company in 2016, we have relentlessly focused on strengthening our company through portfolio and balance sheet actions,” Harvey says. “Just last month, we introduced a new operating model to create a leaner, more operator-centric organization, and today we are announcing a significant review of our portfolio that demonstrates a drive for continued improvement.”

Over the next 12 to 18 months, Alcoa intends to pursue non-core asset sales expected to generate an estimated $500 million to $1 billion in net proceeds. Based on annualized 2019 year-to-date results, the company estimates approximately $50 million to $100 million in reduced adjusted EBITDA due to asset sales.

Over the next five years, Alcoa plans to realign its operating portfolio, and is placing 1.5 million metric tons of smelting capacity and 4 million metric tons of alumina refining capacity under review. The review will consider opportunities for significant improvement, potential curtailments, closures or divestitures “with a focus on increasing margins across the value chain.”

“We must take actions to strengthen our company further given the current market conditions,” Harvey says. “At this time, it's appropriate to refresh our strategic priorities to better define our destination.”

After the portfolio transformation, the company expects to be the lowest emitter of carbon dioxide among all global aluminum companies per ton of emissions in both smelting and refining. In addition, Alcoa anticipates that up to 85 percent of its smelting portfolio will be powered by renewable energy, building upon the company’s existing sustainability profile.