Alcoa Corp Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Safety: No fatal or serious injuries in Q3; continued positive trend in leading and lagging safety indicators.
• Operational Stability: Aluminum production increased for eight straight quarters; Mosjoen smelter in Norway achieved fourth consecutive quarterly production record; Alumar smelter in Brazil operating at nearly 80% capacity.
• Acquisition of Alumina Limited: Completed on August 1st, accretive to Q3 results, eliminated non-controlling interest, consolidated tax structure for ~$100M cash tax savings over 12-18 months; sale of 25.1% stake in Ma’aden joint ventures expected to close in first half of 2025.
• Financials: Revenue flat at $2.9B; Q3 net income attributable to Alcoa $90M, adjusted net earnings $135M; adjusted EBITDA $455M; cash balance $1.3B.

Segment Performance

• Aluminum Segment: Third-party revenue increased 9% on higher average realized third-party price, partially offset by lower shipments; third-party revenue decreased 5% primarily due to lower shipments.
• Alumina Segment: Increased $181 million, primarily as higher alumina prices more than offset higher production costs, raw material, energy, and other costs.

Guidance

• Full year outlook adjustments: Increased alumina shipments to 12.9-13.1 million tons; transformation expense to improve $10-$70M; other corporate expense to increase $20-$160M; depreciation expense changes; return-seeking capital changes; environmental and ARO payments improve.
• Fourth quarter outlook: Alumina segment expected favorable impact ~$30M; Aluminum segment flat; higher alumina price to increase adjusted EBITDA but unfavorable alumina cost in Aluminum segment $80M; additional $30M expense due to inventory profit; other expenses increase ~$20M; operational tax expense ~$120-130M; net income attributable to non-controlling interest zero.

Risks

• Alumina Supply: Disruptions in Australia, Jamaica, Guinea; potential for continued tightness.
• Spain Operations: Dependence on government and union cooperation for viability of San Ciprian smelter; power costs remain a challenge.
• Market Volatility: Impact of alumina price on aluminum smelter profitability; potential for demand cuts.

Question and Answer

• Q: About Spain, progress on partnership with IGNIS, plan B if not achieved.

A: Working on partnership, conditional on stakeholder cooperation; need CO2 compensation, access to restricted cash.

• Q: On San Ciprian investment, endgame.

A: Need government support, access to restricted cash; aim to make site viable.

• Q: Alumina market supply disruptions.

A: Tight alumina market; disruptions in Australia, Jamaica, Guinea; need growth in Indonesia, India for balance.

• Q: Capital allocation, delevering.

A: Priority to delever and reposition debt; focus on releasing equity value by reducing debt.

• Q: Ma’aden stake.

A: Selling 25.1% stake, lockup period; value increase, will decide on shares later.