Novelis posts decrease in net sales in Q1 of its 2024 fiscal year

Atlanta-based aluminum rolling and recycling company Novelis Inc., a subsidiary of Hindalco Industries Ltd. and the metals flagship company of Mumbai, India-based Aditya Birla Group, has reported results for the first quarter of its 2024 fiscal year, which were down on a year-over-year basis.

Net sales decreased 20 percent from the prior-year period to $4.1 billion for the first quarter of the company’s 2024 fiscal year, which concluded June 30. The company says the decline primarily was the result of lower average aluminum prices and a 9 percent decrease in total flat-rolled product shipments to 879,000 metric tons. These factors were offset partially by increased product pricing and favorable product mix. Novelis attributes the decrease in shipments to lower beverage can shipments and unfavorable economic conditions that affected some specialties markets, mainly in building and construction. However, the company says demand for premium automotive sheet remains strong and led to record automotive shipments in the quarter.

Net income attributable to Novelis’ common shareholder decreased 49 percent compared with the prior year to $156 million in the quarter, which the company attributed mainly to lower adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), higher interest expense and significantly higher gains on unrealized derivatives in the prior year that did not recur. Adjusted EBITDA decreased 25 percent versus the prior year to $421 million in the recently completed quarter, primarily driven by lower shipments, cost inflation and less favorable metal benefit from recycling, the company says. These factors were partially offset by higher product pricing and a favorable product mix.

Despite the year-over-year declines, Novelis posted sequential increases in quarterly adjusted EBITDA and higher adjusted EBITDA per ton at $421 million in the recently completed quarter compared with $403 million in the final quarter of its 2023 fiscal year.

"Novelis' diverse product portfolio and lower input costs delivered another sequential increase in quarterly adjusted EBITDA and a higher adjusted EBITDA per [metric ton] than expected, even as inventory reduction activity across the beverage packaging supply chain continued in the quarter," says Steve Fisher, Novelis president and CEO, in a news release about the company’s earnings. "We believe this can destocking activity is nearly complete and remain focused on strengthening and expanding Novelis' capabilities to support our customers' growing demand for sustainable aluminum sheet."

The company’s adjusted free cash flow was an outflow of $349 million in the first quarter of the current fiscal year, which was higher than the prior-year period outflow of $73 million because of a planned three-fold increase in capital expenditures as Novelis ramps up strategic investments in its rolling and recycling capacity and lower adjusted EBITDA.

"We expect a steady recovery in shipments to drive continued improvement in adjusted EBITDA over the remainder of this fiscal year," says Devinder Ahuja, executive vice president and chief financial officer, Novelis. "This will enable continued capital deployment in support of our growth investments underway to meet growing customer demand."

Regarding customer demand, in the Beverage Packaging segment, the company says underlying demand fundamentals are unchanged, with fundamental sustainable packaging preferences, product innovation and growing consumption trends driving long-term demand for a compound annual growth rate (CAGR) of 3 percent from 2022 to 2031. In the Automotive segment, Novelis says demand is strong is the near and long-term, with pent-up demand increasing vehicle production. Additionally, the increasing share of electric vehicles in the production mix favors aluminum use. These combined give the segment a CAGR of 11 percent from its 2023 to 2028 fiscal years. Aerospace demand also is strong, with strong original equipment manufacturer build rates and order backlogs and sustainability of growing importance, Novelis says. However, its Specialty segment is seeing near-term softness in cyclical end markets owing to inflation and interest rate pressure.

Novelis reports a strong total liquidity position of $2.4 billion, consisting of $1 billion in cash and cash equivalents and $1.4 billion in availability under committed credit facilities, as of June 30.

In its earnings presentation, Novelis also shared an update on its Bay Minette, Alabama, project, which is a 600,000 metric ton fully integrated recycling, rolling and finishing facility that will supply the North American beverage can and automotive markets. The company says it has secured long-term customer commitments for beverage packaging capacity and all main equipment supply. Commissioning of the facility is expected in the company’s 2026 fiscal year, with earthworks complete and building piking and foundation work underway. Steel delivery for the site is expected to being in the third quarter of Novelis’ fiscal year, according to the company.