Alcoa Corporation — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Alcoa produces bauxite, alumina, and aluminum through its Alumina and Aluminum segments. Amounts are in U.S. dollars, millions, unless noted.
Financial performance and position
| Metric | Q1 2024 | Comparable period |
|---|---|---|
| Sales | $2,599 | $2,670 in Q1 2023 |
| Net loss attributable to Alcoa | $252 loss; diluted EPS $(1.41) | $231 loss; diluted EPS $(1.30) in Q1 2023 |
| Segment Adjusted EBITDA | $189 total: Alumina $139; Aluminum $50 | $287 total: Alumina $103; Aluminum $184 in Q1 2023 |
| Operating cash flow | $223 used | $163 used in Q1 2023 |
| Capital expenditures | $101 | $83 in Q1 2023 |
| Cash and cash equivalents | $1,358 at March 31 | $944 at December 31, 2023 |
| Debt | $2,548 long-term debt, including $79 due within one year; plus $52 short-term borrowings | $1,811 long-term debt, including $79 due within one year; plus $56 short-term borrowings at December 31, 2023 |
Cost of goods sold was $2,404, equivalent to approximately 92.5% of sales, versus approximately 90.0% a year earlier; derived gross margin was approximately 7.5% versus 10.0%. Alcoa reported a tax benefit of $18 on a pretax loss of $325. The reported annualized effective tax rate was negative 8.9%; losses in certain jurisdictions generated no tax benefit due to valuation allowances.
Cash from financing was $754, principally reflecting $737 net proceeds from new notes and $55 of net contributions from Alumina Limited, partly offset by dividends. Cash used for investing was $117. Cash and restricted cash totaled $1,455 at quarter-end, including $97 restricted.
Changes versus prior periods
- Year over year, sales fell $71 and Alcoa-attributable net loss widened $21. Lower realized aluminum prices, higher restructuring charges, unfavorable currency impacts, and higher production costs were partly offset by lower raw-material and energy costs.
- Segment results diverged: Alumina Adjusted EBITDA rose to $139 from $103, while Aluminum fell to $50 from $184. Aluminum’s lower realized price and reduced value-added product sales weighed on results.
- Compared with Q4 2023, sales were nearly flat, but Alcoa-attributable net loss widened from $150 to $252, mainly due to restructuring charges, currency effects, production costs, and lower aluminum prices.
- Cash used for operations increased by $60 year over year, with receivables growth and the larger net loss among the drivers. Long-term debt increased following the March notes issuance.
Outlook, management commentary, and material items
- Alumina Limited transaction: Alcoa agreed to acquire all Alumina Limited shares for 0.02854 Alcoa shares per Alumina Limited share. Alumina shareholders would own 31.25% of the combined company. Alcoa expected closing in Q3 2024, subject to shareholder, court, and regulatory approvals. The filing cites transaction costs, termination fees, and execution and approval risks.
- Kwinana refinery: Full curtailment was announced, with completion expected in Q2 2024. Alcoa recorded a $197 restructuring charge and expects approximately $215 of related cash outlays through 2025, including about $140 in 2024.
- San Ciprián: Alcoa restarted approximately 6% of smelter pots but said the complex remained economically unviable under current and forecast assumptions. A sale process was underway. Internal credit lines had less than $100 available, and absent an acceptable solution, funding was expected to be exhausted in H2 2024; Alcoa said it would not provide additional funding after that point.
- Productivity: A company-wide program targets approximately 5% savings in operating costs excluding raw materials, energy, and transportation, or about $100 on a run-rate basis by Q1 2025.
- Production guidance: 2024 alumina production is projected at 9.8–10.0 million metric tons and shipments at 12.7–12.9 million. Aluminum production is projected at 2.2–2.3 million metric tons and shipments at 2.5–2.6 million. Management said these projections were unchanged.
- New debt: Alcoa issued $750 of 7.125% senior notes due 2031, receiving $737 net. Proceeds are intended for qualifying Green Finance Framework projects and general cash needs, including portfolio actions.
- Other risks and contingencies: Three major rating agencies downgraded Alcoa or subsidiary debt in March. The Australian tax dispute includes an assessed tax claim of about $139, plus assessed interest and proposed penalties; Alcoa disputes the assessment and says the potential loss cannot be predicted. Environmental remediation reserves totaled $261. Management cited commodity prices, energy and input costs, currency, financing access, transaction completion, and legal and environmental matters as risks.
Most important facts for investors to verify
- Progress, approvals, final terms, and expected timing of the Alumina Limited acquisition, including transaction costs and any AWAC shareholder-loan requirements.
- San Ciprián’s sale or viability outcome, remaining funding, and the implications if available funding is exhausted in H2 2024.
- Delivery of the Kwinana curtailment, restructuring cash costs, and the targeted productivity savings.
- Aluminum and alumina price, shipment, production, and segment EBITDA trends against management’s 2024 projections.
- Liquidity, debt and covenant headroom after the notes issuance and ratings downgrades, as well as cash conversion and receivables trends.
- Developments in the Australian tax dispute and environmental remediation obligations, including any changes to estimated exposure.