Arconic benefits from increase in automotive manufacturing in Q3

Aluminum sheet, plate and extrusions provider Arconic Corp., headquartered in Pittsburgh, has announced third-quarter 2020 results, reporting revenue of $1.4 billion, which is a 19 percent increase from the prior quarter owing to strength in automotive end-market volumes, which the company says recovered fully from the second quarter and exceeded third quarter 2019 levels. Year over year, the company’s revenue was down 22 percent, reflecting weaker volumes across all end markets other than automotive primarily because of the impact of the pandemic, according to Arconic. The company reports net income of $5 million, or 5 cents per share, for the quarter compared with a net loss of $24 million, or 22 cents per share in the third quarter of 2019.

Arconic reports third-quarter adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $165 million, which the company says was affected by the pandemic and partly mitigated by cost reduction actions. Adjusted EBITDA margin was 11.7 percent primarily because of its proactive cost reduction actions. Cash provided from operations totaled $240 million, resulting in quarter-end cash on hand of $802 million. Arconic says it ended the quarter with total available liquidity of approximately $1.5 billion.

“This quarter demonstrated the positive impact our strategic and financial actions made in response to ongoing macro challenges,” says Arconic Chief Executive Officer Tim Myers of the third quarter ended Sept. 30. “Our continued execution on cash conservation and productivity measures instituted earlier in the year combined with recovery in North American automotive production resulted in the large sequential increase in adjusted EBITDA and operating cash flow compared to the prior quarter.”

Myers adds that the steps Arconic took to strengthen its financial position combined with the recovery of automotive demand and its employees’ hard work allowed the company to end temporary salary reductions and reinstate the 401(k) match for those employees affected by these measures. “While there is uncertainty in the global economy, we demonstrated our agility in responding to challenges quickly and effectively. I appreciate the sacrifices made by our employees, and I’m grateful for their continued commitment during these last two quarters to strengthen our company,” he says.

Performance by segment

Revenue

Rolled Products

Q3 2020: $1,092 million

Q3 2019: $1,397 million

Building and Construction Systems

Q3 2020: $241 million

Q3 2019: $282 million

Extrusions

Q3 2020: $82 million

Q3 2019: $126 million

Adjusted EBITDA

Rolled Products

Q3 2020: $138 million

Q3 2019: $160 million

Building and Construction Systems

Q3 2020: $40 million

Q3 2019: $39 million

Extrusions

Q3 2020: ($6) million

Q3 2019: ($8) million

Subtotal

Q3 2020: $172 million

Q3 2019: $191 million

Corporate

Q3 2020: ($7) million

Q3 2019: ($9) million

Total adjusted EBITDA

Q3 2020: $165 million

Q3 2019: $182 million

Outlook

In a news release announcing its third-quarter financials, Arconic says it expects full-year 2020 revenue to range from $5.6 billion to $5.7 billion (assuming  London Metal Exchange aluminum price of $1,660 per metric ton and a Midwest Premium of $270 per ton for the full year). The company says it expects adjusted EBITDA for the full-year 2020 to range from $610 million to $630 million. Cumulative free cash flow for Q2 2020 through Q4 2020 is expected to range from $150 million to $200 million.

During the third quarter, Arconic says it changed its inventory cost method to average cost for all U.S. inventories previously carried at last-in, first-out (LIFO) cost to better reflect its aluminum converting operations. The company says its management believes the average cost method more closely reflects the physical flow of inventories, improves the comparability of its operating results with its industry peers and provides an increased level of consistency in the measurement of inventories in its consolidated financial statements. The effect of this change in accounting principle as reported under average cost in third-quarter 2020 compared with the amount had it continued to be reported under LIFO was a decrease of $14 million to cost of goods sold, comprised of a $26 million benefit for the elimination of the incremental LIFO cost associated with inventory sold during the period and a $12 million charge to establish the incremental cost on an average cost basis for inventory sold during the period, Arconic says. Accordingly, effective in the third quarter of 2020, management refined the company’s adjusted EBITDA measure and segment adjusted EBITDA measure to remove the impact of metal price lag, which was negative $16 million in the third quarter. This change was made to further enhance the transparency and visibility of the underlying operating performance of each segment by removing the volatility associated with metal prices, Arconic says.