Alcoa Corporation — Q1 2023 Form 10-Q
Business context and period. Unaudited results for the three months ended March 31, 2023, compared with Q1 2022 and, where available, Q4 2022. Alcoa produces bauxite, alumina and aluminum. Beginning in 2023, it reported two segments: Alumina and Aluminum; prior-period segment data was recast.
Financial and operating performance
- Revenue: $2.670 billion, down 19% from $3.293 billion in Q1 2022; approximately flat versus Q4 2022.
- Profitability: Net loss attributable to Alcoa was $231 million, or $1.30 per diluted share, versus net income of $469 million, or $2.49 per diluted share, a year earlier. Loss before tax was $180 million. Cost of goods sold was $2.404 billion, up from $2.181 billion.
- Segment results: Alumina Adjusted EBITDA was $103 million, down from $302 million; Aluminum Adjusted EBITDA was $184 million, down from $713 million. Combined Segment Adjusted EBITDA fell to $287 million from $1.015 billion.
- Shipments and prices: Third-party alumina shipments were 1.929 million metric tons (down from 2.277 million); aluminum shipments were 600,000 metric tons (down from 634,000). Average realized prices were $371/ton for alumina and $3,079/ton for aluminum, versus $375 and $3,861, respectively, in Q1 2022.
- Cash flow: Operations used $163 million, compared with $34 million provided in Q1 2022. Investing used $102 million, including $83 million of capital expenditures. Financing provided $40 million. Cash and cash equivalents were $1.138 billion at quarter-end; cash, cash equivalents and restricted cash totaled $1.251 billion, down from $1.474 billion at year-end 2022.
- Balance sheet and liquidity: Total debt was approximately $1.832 billion, including $25 million of short-term borrowings and $1.807 billion of long-term debt. The $1.25 billion revolving facility was undrawn and available; Alcoa reported covenant compliance. Management said available resources should fund operating and investing needs for at least 12 months and the foreseeable future.
- Other: The company paid a $0.10-per-share quarterly dividend, totaling $18 million, and made no share repurchases in the quarter. Total liabilities were $8.073 billion and equity was $6.296 billion at March 31, 2023.
Material changes and unusual items
- Year-over-year results reflected lower realized aluminum and alumina prices, lower shipments and trading activity, reduced value-added product sales, and higher maintenance, labor, direct material and inflation-related costs. Favorable currency effects partly offset these pressures.
- Restructuring and other charges were $149 million, including $101 million for permanently closing the previously curtailed Intalco smelter and $47 million for employee obligations under the updated San Ciprián restart agreement. Intalco closure-related charges also included a $16 million inventory write-down in cost of goods sold.
- Alcoa recorded a $41 million share of an expected utility-dispute settlement at its Ma’aden aluminum joint venture; its total share of the dispute was $62 million, including $21 million recorded in Q4 2022. Equity losses and lower joint-venture earnings also weighed on results.
- Despite a pretax loss, the company recorded $52 million of income tax expense. The filing attributes this in part to losses in jurisdictions where no tax benefit was recognized. It reports an estimated annualized effective tax rate of 141.4%.
- Other comprehensive loss was $101 million, including a $122 million after-tax loss on cash-flow hedges, partly offset by currency translation gains.
Outlook, commentary and risks
- Alcoa maintained its 2023 shipment projections: 12.7–12.9 million metric tons of alumina and 2.5–2.6 million metric tons of aluminum.
- For Q2 versus Q1, Alumina expected higher costs from lower-grade bauxite use at Kwinana and Pinjarra, increased maintenance and Alumar conveyor recovery effects, partly offset by favorable input prices. Aluminum expected lower raw-material and production costs and higher Alumar-related shipments to more than offset lower value-added premiums.
- San Ciprián’s phased smelter restart is planned to begin in January 2024, with all pots targeted to restart by October 1, 2025. The company expects minimum production of 75% of capacity from then through 2026. The agreement includes $78 million of additional capital commitments; employee-related cash outlays are expected in 2024–2025.
- Western Australian mine-plan approvals were taking longer than historically. Alcoa began mining lower-grade bauxite in permitted areas in April; the company said this increases caustic and energy use and reduces alumina output, with impacts expected at least through Q1 2024. The Kwinana refinery kept one of five digesters offline. A third-party referral of mine plans to the state environmental authority could further delay approvals.
- Alumar’s ship-to-shore conveyor failure temporarily halted bauxite discharge; initial repairs were completed April 8, 2023. Portland operated at about 75% of capacity after production instability. Alcoa said operations had regained stability at Portland.
- Intalco closure cash outlays are expected to be about $85 million over three years, including approximately $25 million in 2023. Environmental remediation reserves were $291 million at quarter-end; amounts and timing may change as plans develop.
- Key risks include commodity-price and demand volatility, energy and raw-material availability and cost, mine approvals and permits, operational interruptions, inflation and financing conditions, foreign exchange, environmental obligations, and legal and tax disputes. Management cautioned that forward-looking statements are subject to uncertainty.
- In April 2023, Alcoa entered a $250 million, one-year revolving credit facility available in Japanese yen. Also in April, it transferred about $235 million of Canadian pension obligations and assets to an insurer and expected to record an approximately $18 million non-cash settlement loss in Q2.
Important facts for investors to verify
- Whether Alcoa can restore operating levels and meet shipment projections amid Western Australian approvals delays, lower-grade bauxite use and the Alumar disruption.
- Progress, costs and timing for the Intalco closure and San Ciprián restart, including the related cash commitments.
- Future operating cash flow, liquidity and working-capital needs following the $163 million quarterly operating cash outflow.
- Developments in the Australian Taxation Office dispute: assessed tax was approximately $143 million, with assessed interest of approximately $474 million and proposed penalties of approximately $86 million; the company said the ultimate loss or range could not be predicted. Alcoa had paid about $74 million toward the assessed tax and was contesting the matter.
- Changes in environmental remediation obligations and the fair value and earnings effects of power-related derivatives; derivative liabilities totaled $1.329 billion, including $1.316 billion classified as Level 3.
- Whether the Ma’aden utility settlement estimate, other contingencies, and tax effects develop as disclosed; the filing notes that certain outcomes could materially affect results or financial condition.