Alcoa reports revenue growth in 2017

Pittsburgh-headquartered Alcoa Corp., a producer of bauxite, alumina and aluminum products, has reported its financial results for the fourth quarter and full year of 2017. The company closed 2017 with $1.36 billion in cash, up $239 million sequentially and $505 million year over year.

The quarter and the full-year reflect ongoing strength in alumina and aluminum pricing, the company says, adding that its management team “continued to execute on its strategic priorities to reduce complexity, drive returns and strengthen the balance sheet.”

Roy Harvey, Alcoa president and chief executive officer, says, “Solid market fundamentals allowed us to deliver our strongest adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) quarter since our launch as an independent, publicly traded company. With a series of operating and asset decisions, we also purposefully delivered against our strategic priorities.”

Alcoa became an independent, publicly traded company Nov. 1, 2016.

“Our first full year has been truly remarkable,” Harvey says. “By continuously focusing on our strategic priorities, and supported by favorable markets, we’ve been able to accelerate our plan to strengthen Alcoa’s foundation for an even brighter tomorrow. As we enter 2018, we will continue to execute on our objectives and look forward to delivering more in the new year.”

Based on January 2018 market assumptions, Alcoa is projecting full-year 2018 adjusted EBITDA, excluding special items, to range from $2.6 billion to $2.8 billion.

The company also announced changes to retirement benefits for its salaried employees in the U.S. and Canada, with Harvey saying they were indented to “strengthen the balance sheet.”  He adds, “The decisions were difficult and affect current employees who have been part of our Alcoa family the longest. But to reduce our liabilities, change is necessary; it will enable us to better prepare for an uncertain and cyclical environment as we position our company for the future.”

The retirement changes are effective Jan. 1, 2021. Salaried employees in the U.S. and Canada will cease accruing retirement benefits for future service under defined benefit pension plans, Alcoa says. However, participants already collecting benefits under the pension plans and those currently covered by collective bargaining agreements are not affected by these changes.

In connection with this change, approximately 800 affected employees will be transitioned to country-specific defined contribution plans, Alcoa says.

Also, effective Jan. 1, 2021, Alcoa will no longer contribute to pre-Medicare retiree medical coverage for U.S. salaried employees and retirees.

With these and other changes to its retirement benefits, Alcoa says it expects to reduce its net pension and other postemployment benefits (OPEB) liability by $35 million and record noncash nonoperating income of approximately $20 million in the first quarter of 2018.

In fourth quarter 2017, Alcoa reported a net loss of $196 million, or $1.06 per share, compared with net income of $113 million, or 60 cents per share, in third quarter 2017. The 2017 fourth quarter results include $391 million of special items primarily arising from previously announced actions relating to the early termination of the power agreement at its Rockdale (Texas) Operations and to the divestiture of the Portovesme smelter in Italy, which the company fully curtailed in 2012 and closed in 2014. Alcoa says these are aligned with its strategic priorities to streamline and strengthen the company.

Other special items included charges for income tax valuation allowance and tax rate change adjustments, as well as certain impacts from new U.S. income tax legislation and costs for the partial restart of the Warrick smelter in Indiana. These items were slightly offset by the reduction in a previously established reserve from the settlement of an Italian energy tariff dispute, the company says.

Excluding the impact of special items, fourth quarter 2017 adjusted net income was $195 million, or $1.04 per share, up 44 percent sequentially from $135 million, or 72 cents per share. Adjusted EBITDA excluding special items rose 38 percent to $775 million in the fourth quarter of 2017 from $561 million in the third quarter of 2017. The improvement was primarily driven by increased pricing for alumina and aluminum, somewhat offset by higher energy costs, the company says.

Alcoa reported fourth-quarter 2017 revenue of $3.2 billion, up 7 percent sequentially, largely because of improved alumina and aluminum prices and increased alumina shipments.

Cash from operations in fourth quarter 2017 was $455 million and free cash flow was $305 million. Cash used for financing activities and investing activities was $53 million and $170 million, respectively, in the fourth quarter of 2017.

Alcoa says it ended fourth quarter 2017 with cash on hand of $1.36 billion and with $1.41 billion of debt, for net debt of $0.05 billion.

For full-year 2017, Alcoa reported net income of $217 million, or $1.16 per share, compared with a $400 million net loss, or $2.19 per share, for full-year 2016. Excluding special items, the company reported adjusted net income of $563 million, or $3.01 per share, compared with a $227 million adjusted net loss, or $1.24 per share, in 2016.

Adjusted EBITDA excluding special items was $2.35 billion, more than double the $1.11 billion earned in 2016. Strong alumina and aluminum pricing drove the increase, which was slightly offset by higher costs for energy and raw materials and unfavorable movements in foreign currency exchange rates, the company says.

Revenue in 2017 was $11.7 billion, up 25 percent from 2016, reflecting higher alumina and aluminum pricing.

Cash from operations in 2017 was $1.2 billion and free cash flow was $0.8 billion. In 2017, cash used for financing activities and investing activities was $506 million and $226 million, respectively. Alcoa says it invested $118 million in return-seeking capital projects and controlled sustaining capital expenditures to $287 million in 2017.

For 2018, Alcoa says it projects balanced global bauxite and alumina markets and a global aluminum deficit of 300 thousand to 700 thousand metric tons. Alcoa projects 2018 global aluminum demand growth of 4.25 to 5.25 percent, following the company’s final 2017 global demand growth rate of 5.25 percent.