Alcoa Corporation — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Alcoa produces bauxite, alumina, and aluminum, reported through Bauxite, Alumina, and Aluminum segments. Financial amounts below are in U.S. dollars; millions unless stated otherwise.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Sales | $3,293 | $2,870 |
| Income before taxes | $763 | $312 |
| Net income attributable to Alcoa | $469 | $175 |
| Diluted EPS | $2.49 | $0.93 |
| Cash provided from operations | $34 | $6 |
| Capital expenditures | $74 | $75 |
- Sales increased 15% year over year; attributable net income rose to $469 million. Higher realized aluminum and alumina prices and stronger value-added product sales were key contributors.
- Cost of goods sold was $2,181 million, or about 66% of sales. Management said cost of goods sold as a percentage of sales declined 14 percentage points year over year, primarily reflecting higher realized prices and value-added sales.
- Total Segment Adjusted EBITDA was $1,013 million, up from $569 million. By segment, Adjusted EBITDA was $38 million for Bauxite, $262 million for Alumina, and $713 million for Aluminum. This is a non-GAAP measure and is not a substitute for GAAP results.
- Operating cash flow was modest despite higher earnings, principally because working capital absorbed cash: inventories increased $479 million, and receivables increased $120 million. Cash and cash equivalents were $1,554 million at quarter-end, versus $1,814 million at year-end 2021.
- At March 31, total current assets were $5,598 million and current liabilities $3,466 million. Long-term debt was $1,727 million, with $1 million due within one year. The notes also report $75 million of short-term borrowings. The $1.5 billion revolving facility was undrawn and available; Alcoa reported covenant compliance.
- Alcoa paid an $18 million common dividend and repurchased 1.04 million shares for $75 million. The remaining repurchase authorization was $425 million.
Changes versus comparable periods
- Year over year, primary aluminum’s average realized price rose to $3,861 per metric ton from $2,308; the alumina average realized price rose to $375 from $308. Aluminum segment Adjusted EBITDA increased to $713 million from $283 million, while Alumina rose to $262 million from $227 million and Bauxite declined to $38 million from $59 million.
- Third-party shipments were lower: alumina shipments fell to 2,277 kmt from 2,472 kmt, and aluminum shipments to 634 kmt from 831 kmt. Alcoa cited Australian refinery output and North American outbound transport constraints; the year-over-year comparison also reflects the 2021 Warrick Rolling Mill divestiture.
- Q1 2022 included $125 million in restructuring and other charges, mainly a $77 million offer to settle Spanish facility-related disputes and a $58 million impairment tied to the MRN investment sale. Q1 2021 had $7 million of such charges.
- Interest expense declined to $25 million from $42 million, largely because of early redemptions of senior notes in 2021. Q1 2021 also included a $27 million gain related to the Warrick Rolling Mill sale.
Outlook, commentary, and risks
- Bauxite: Alcoa lowered its 2022 shipment projection by 2 million dry metric tons, to 46–47 million. Ending business with Russian companies is expected to reduce Juruti mine production by about 1.1 million dry metric tons and may affect Atlantic-market shipments by about 1 million dry metric tons. The estimated Q2 pretax impact from these changes was approximately $9 million.
- Alumina: For Q2, management expected higher energy and raw-material costs, particularly at San Ciprián, with higher shipments expected to offset higher maintenance and other costs.
- Aluminum: For Q2, management expected higher shipments as North American transport constraints ease, while inflation, energy, and maintenance costs remain pressures. Alumar’s restart was expected to begin initial metal production in Q2, with full capacity expected by year-end; Portland restart production was expected in Q3.
- San Ciprián’s 228,000-metric-ton-per-year smelter capacity was curtailed for two years because of high Spanish energy prices; the casthouse continued operating. Alcoa expected to pay approximately $41 million in Q2 to repay 2018–2019 Spanish carbon-dioxide compensation credits and interest after a court rejected its suspension request.
- Alcoa stopped purchasing raw materials from and selling products to Russian businesses. The filing reported no material Q1 financial impact, but warned that the Russia-Ukraine conflict, inflation, energy prices, supply-chain disruption, logistics, and sanctions could affect costs, production, sales, and financing.
- Derivative liabilities totaled $2,309 million at quarter-end, including $2,023 million of power-contract hedges. A $830 million net cash-flow-hedge loss was recorded in other comprehensive income; assuming March 31 market rates persist, a $386 million realized loss related to power contracts was expected to be recognized in sales over the following 12 months.
- Contingencies: An Australian tax dispute involves assessments of approximately $160 million tax, $530 million interest, and proposed $96 million penalties. Alcoa had paid approximately $74 million toward assessed tax and recorded no tax expense, stating it expects to prevail; the filing says the ultimate loss cannot be predicted. In Spain, workers accepted Alcoa’s settlement offer, but remaining conditions were required before a formal agreement. Environmental remediation reserves were $310 million.
- Management stated that cash, expected operating cash flows, and available liquidity were adequate for operating and investing needs, while noting that future financing access, commodity conditions, and macroeconomic events remain uncertain. The filing provides segment outlooks, not a consolidated earnings forecast.
Key facts for investors to verify
- Whether cash generation improves as elevated inventory and shipment delays unwind.
- Actual 2022 bauxite shipments and the production, cost, and sales effects of ending Russian business.
- Progress, cost, and timing of the Alumar and Portland restarts, and San Ciprián’s curtailed operations and power arrangements.
- Resolution and potential financial exposure from the Australian tax assessment and Spanish worker settlement, including whether settlement conditions are completed.
- Realized impacts of power-contract hedges and the expected $386 million loss recognition, alongside commodity and energy price changes.