AA

Alcoa Corp. 10-Q Summary: Second Quarter 2026

Business Context and Reporting Period

This report covers the quarterly period ended June 30, 2026. Alcoa Corp. operates as a global producer of bauxite, alumina, and aluminum products through two reportable segments: Alumina and Aluminum. The period was defined by strong operational performance in the Aluminum segment, driven by capacity restarts and higher metal prices, contrasted with challenges in the Alumina segment due to lower prices and operational instability at the Pinjarra refinery. A major strategic development was the announcement of an agreement to acquire South32 Limited's equity interests in its bauxite, alumina, and aluminum assets (AliGroup).

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Sales increased 31% sequentially and 12% year-over-year (YTD), primarily driven by a 15% increase in average aluminum prices and higher aluminum shipments due to capacity restarts (San Ciprián, Lista, Portland).
• Profitability: Net income attributable to Alcoa surged 148% in Q2 2026 compared to Q2 2025. This was largely due to higher aluminum realized prices and volumes, partially offset by unfavorable mark-to-market results on Ma'aden shares and derivative instruments.
• Segment Performance:
  • Aluminum: Recorded record Segment Adjusted EBITDA of $1,073 million in Q2 2026, up from $97 million in Q2 2025.
  • Alumina: Reported a Segment Adjusted EBITDA loss of $96 million in Q2 2026, compared to a profit of $139 million in Q2 2025, driven by lower API prices and higher energy costs.
• Other Expenses: "Other expenses (income), net" swung from a $112 million gain in Q2 2025 to a $200 million expense in Q2 2026. This was primarily due to a $123 million mark-to-market loss on Ma'aden shares and unfavorable derivative mark-to-market results.

Guidance, Outlook, and Risks

• AliGroup Acquisition: On June 30, 2026, Alcoa agreed to acquire South32's AliGroup assets for approximately $4.1 billion ($3.1 billion cash + ~$1 billion stock). The transaction is expected to close in the first half of 2027, subject to regulatory and shareholder approvals. Alcoa has secured $3.1 billion in bridge financing commitments.
• Production Guidance:
  • Alumina: 2026 production guidance lowered to 9.5–9.6 million metric tons (down 0.2–0.3 million) due to instability at the Pinjarra refinery. Shipments guidance lowered to 11.5–11.6 million metric tons.
  • Aluminum: 2026 production guidance remains 2.4–2.6 million metric tons; shipments guidance remains 2.6–2.8 million metric tons.
• Operational Updates: The San Ciprián smelter restart was completed in April 2026. The Alumar smelter in Brazil is operating at ~93% capacity. The Pinjarra refinery recovered stability in Q2 following Cyclone Narelle disruptions.
• Risks: Key risks include the potential delay or failure of the AliGroup transaction, volatility in aluminum and alumina prices, rising energy costs linked to Middle East conflicts, and regulatory approvals for new mine regions in Australia (Myara North and Holyoake).

Investor Verification Checklist

• Transaction Closing Conditions: Verify progress on South32 shareholder approval and regulatory clearances for the AliGroup acquisition, which is critical for future growth.
• Derivative Exposure: Review the impact of mark-to-market losses on derivative instruments (particularly power contracts) and Ma'aden shares on future earnings volatility.
• Pinjarra Refinery Stability: Monitor operational reports to confirm sustained stability at the Pinjarra refinery, which currently impacts alumina production guidance.
• Debt Financing: Confirm the conversion of the $3.1 billion bridge financing into permanent debt prior to the transaction closing to assess long-term leverage.
• Energy Costs: Track energy price trends, specifically fuel oil and diesel, given the Middle East conflict's impact on the Alumina segment's cost structure.