Alcoa Corporation — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Amounts are in millions of U.S. dollars except per-share data, prices, and shipment volumes. Alcoa operates Bauxite, Alumina, and Aluminum segments.
Financial performance and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Sales | $2,851 | $3,109 | $9,788 | $8,812 |
| Income (loss) attributable to Alcoa | $(746) | $337 | $272 | $821 |
| Diluted EPS | $(4.17) | $1.76 | $1.47 | $4.32 |
| Cash provided by operations | Not provided for quarter | Not provided for quarter | $704 | $355 |
- Q3 gross profit was $183, or approximately 6.4% of sales, compared with $787, or approximately 25.3%, a year earlier. These figures are calculated from reported sales less cost of goods sold.
- Q3 total Segment Adjusted EBITDA was $236, down from $784. Segment results were Bauxite $15, Alumina $69, and Aluminum $152.
- Nine-month capital expenditures were $309; cash from operations less capital expenditures was approximately $395. Investing activities used $324.
- At September 30, cash and cash equivalents were $1,432; restricted cash was an additional $109. Debt included $1,725 of long-term debt and $1 of current maturities; a separate financial-instruments disclosure reports $75 of short-term borrowings. The $1,250 revolving facility was undrawn, and the company reported covenant compliance.
- Total current assets were $5,350 and current liabilities $2,954. Inventories rose to $2,400 from $1,956 at year-end 2021.
Changes versus comparable periods
- Q3 sales fell 8% year over year, as lower aluminum and alumina prices, reduced trading activity, lower shipments, and unfavorable currency effects outweighed other factors. Nine-month sales rose 11%, principally on higher realized aluminum and alumina prices and value-added product sales.
- Alcoa reported a Q3 loss versus profit a year earlier, principally reflecting $652 in restructuring and other charges, lower realized prices, weaker derivative mark-to-market results, and higher energy and raw-material costs. Nine-month net income attributable to Alcoa fell to $272 from $821.
- Q3’s $652 restructuring charge included a $626 noncash pension settlement loss and $29 for the Addy facility closure. The nine-month total of $702 also included a $79 charge for the Spain worker settlement and a $58 impairment related to the MRN investment sale, partly offset by an $83 Brazil VAT valuation-allowance reversal.
- Cash from operations increased to $704 from $355 for the nine-month period. The filing cites lower pension contributions as a major contributor; cash was also used for share repurchases, dividends, and increased inventories.
Outlook, commentary, and risks
- For Q4 versus Q3, Bauxite expected higher sequential profitability and shipments; Alumina anticipated lower San Ciprián energy costs, with curtailment benefits partly offsetting other cost pressures. Aluminum expected lower Lista energy costs to offset higher raw-material costs and lower Warrick power-plant sales and value-added premiums.
- 2022 shipment projections were reduced to 43.0–44.0 million dry metric tons for Bauxite and 13.1–13.3 million metric tons for Alumina. Aluminum shipments were expected at 2.5–2.6 million metric tons, unchanged from the prior projection.
- High European energy prices drove curtailments: one-third of Lista smelter capacity, about half of San Ciprián refinery capacity, and previously announced San Ciprián smelting capacity. Warrick also curtailed one potline due to labor shortages. Alumar and Portland restarts were progressing; most Alumar capacity was expected to be operational by end-Q1 2023.
- Management said cash, future operating cash flow, and available liquidity were adequate for operating and investment needs, and noted no significant debt maturities until 2027. It cautioned that commodity markets, inflation, energy and input costs, supply-chain disruption, foreign exchange, geopolitical developments, and financing conditions could affect results and liquidity.
- Potentially material contingencies include the Australian tax dispute: assessed income tax of approximately $139, interest claims of approximately $460, and proposed penalties of approximately $83; the company disputes the assessment and says the outcome and potential loss range cannot be predicted. The Brazil VAT disputes also remain unresolved. Environmental remediation reserves totaled $310.
- A proposed Norwegian carbon-compensation change could require an approximately $25 Q4 reversal and an estimated $35 impact on full-year results if approved. The filing did not provide a consolidated earnings forecast.
Most important facts for investors to verify
- Whether the $626 million pension settlement charge is treated as nonrecurring in assessing underlying profitability, and the related effects on pension obligations and future cash funding.
- Actual Q4 and full-year shipment volumes, restart progress, and the duration and financial impact of European energy-related curtailments.
- Developments in the Australian tax dispute, including interest accumulation, and the status of Brazil VAT and environmental matters.
- Whether operating cash generation, inventory levels, and available credit remain sufficient amid weaker metals prices and elevated energy and input costs.
- Execution of the $500 million repurchase authorization and dividend policy; the Board declared a further $0.10-per-share dividend for November 2022.