- Alumina and aluminum pricing drive growth in annual results
Fourth Quarter 2018
• Net income of $43 million, or $0.23 per share
• Excluding special items, adjusted net income of $125 million, or $0.66 per share
• $749 million of adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) excluding special items
• Revenue of $3.3 billion
• $535 million cash from operations; $387 million free cash flow
• $1.1 billion cash balance and $1.8 billion of debt, for net debt of $0.7 billion, as of December 31, 2018
• Company repurchased 1.7 million shares of its common stock for $50 million

Full-Year 2018
• Net income of $227 million, or $1.20 per share and adjusted net income of $675 million, or $3.58 per share
• Adjusted EBITDA excluding special items of $3.1 billion
• Revenue of $13.4 billion
• $448 million cash from operations; $49 million free cash flow
• Net pension and other postretirement employee benefits liability of $2.3 billion at December 31, 2018, down from $3.5 billion at year-end 2017
• Final 2018 global market balances: deficit for both alumina and aluminum, surplus for bauxite

PITTSBURGH--(BUSINESS WIRE)--Alcoa Corporation (NYSE: AA), a global leader in bauxite, alumina, and aluminum products, today reported fourth quarter and full-year 2018 results.

"Our 2018 results reflect how we’ve made Alcoa stronger".

M, except per share amounts 4Q17 3Q18 4Q18 FY17 FY18
Revenue $ 3,174 $ 3,390 $ 3,344 $ 11,652 $ 13,403
Net (loss) income attributable to Alcoa Corporation $ (196 ) $ (41 ) $ 43 $ 217 $ 227
Earnings per share attributable to Alcoa Corporation $ (1.06 ) $ (0.22 ) $ 0.23 $ 1.16 $ 1.20
Adjusted net income $ 195 $ 119 $ 125 $ 563 $ 675
Adjusted earnings per share $ 1.04 $ 0.63 $ 0.66 $ 3.01 $ 3.58

Adjusted EBITDA excluding special items1
$ 796 $ 795 $ 749 $ 2,437 $ 3,101

1
On January 1, 2018, Alcoa Corporation adopted guidance issued by the Financial Accounting Standards Board to the presentation of net periodic benefit cost related to pension and other postretirement benefit plans. This guidance requires the non-service cost components of net periodic benefit cost to be reported separately from the service cost component in an entity’s income statement. Additionally, this guidance is required to be applied retrospectively. Accordingly, previously reported amounts for Cost of goods sold, Selling, general administrative, and other expenses, and Other expenses (income), net on Alcoa Corporation’s consolidated income statement have been recast to reflect these changes. As a result, previously reported amounts for Adjusted EBITDA on both a consolidated basis and for each of the Company’s three segments have been updated to reflect these changes. See the financial schedules to this release for additional information.

“Our 2018 results reflect how we’ve made Alcoa stronger,” said President and Chief Executive Officer Roy Harvey. “We’ve built upon the progress we made since our launch, and by executing our strategic priorities to reduce complexity, drive returns, and strengthen the balance sheet, we’re now better positioned to thrive through market cycles.”

Harvey added: “Despite sequentially weaker commodity prices, we had a strong fourth quarter with higher profits in our Bauxite and Alumina segments. With the help of higher market prices earlier in the year, we increased annual profits, addressed liabilities, significantly strengthened our balance sheet, and began returning cash to stockholders. With markets likely to remain dynamic in 2019, we will focus on what we can control to continue improving our operations, addressing challenges with agility, and making the most of opportunities in the year ahead.”

Fourth Quarter 2018 Results

In fourth quarter 2018, Alcoa reported net income of $43 million, or $0.23 per share, compared to a net loss of $41 million, or $0.22 per share, in third quarter 2018. The 2018 fourth quarter results include a negative impact of $82 million for special items, primarily due to a $50 million non-cash charge to establish an allowance on state value-added tax credits in Brazil.

Excluding the impact of special items, fourth quarter 2018 adjusted net income was $125 million, or $0.66 per share, up 5 percent sequentially from $119 million, or $0.63 per share.

Adjusted EBITDA excluding special items fell 6 percent to $749 million in fourth quarter 2018 from $795 million in third quarter 2018. The sequential decline was primarily due to lower aluminum prices and a decrease in the price of energy sales in Brazil, partially offset by increased shipments across all three segments.

Alcoa reported fourth quarter 2018 revenue of $3.3 billion, down 1 percent sequentially, mainly attributable to lower realized prices for primary aluminum, alumina, and Brazil energy sales. These negative impacts were partially offset by increased shipments across all three segments.

Cash from operations in fourth quarter 2018 was $535 million and free cash flow was $387 million. Cash used for financing activities and investing activities was $294 million (includes $50 million for stock repurchases) and $148 million, respectively, in the fourth quarter of 2018.

Alcoa ended fourth quarter 2018 with cash on hand of $1.1 billion and debt of $1.8 billion, for net debt of $0.7 billion. The Company reported 22 days working capital, an 11-day increase year-over-year, reflecting higher raw material prices, lower buy/resell activities, and timing of vendor payments.

Full-Year 2018 Results

For full-year 2018, Alcoa reported net income of $227 million, or $1.20 per share, compared to net income of $217 million, or $1.16 per share, for full-year 2017. Excluding special items, the Company reported adjusted net income of $675 million, or $3.58 per share, compared to $563 million, or $3.01 per share, in 2017.

Adjusted EBITDA excluding special items was $3.1 billion, up 27 percent from the $2.4 billion earned in 2017. The year-over-year improvement was largely due to higher alumina and aluminum prices, partially offset by higher costs for raw materials and energy and increased maintenance expense.

Revenue in 2018 was $13.4 billion, up 15 percent from 2017, mainly attributable to higher realized prices for alumina and aluminum products.

Cash from operations in 2018 was $448 million and free cash flow was $49 million, both of which reflect $725 million in additional contributions made to certain U.S. and Canadian defined benefit pension plans. In 2018, cash used for financing activities was $288 million and cash used for investing activities was $405 million. Alcoa invested $92 million in return-seeking capital projects and controlled sustaining capital expenditures to $307 million in 2018.

Throughout 2018, management initiated several actions related to Alcoa’s employee defined benefit plans to strengthen the Company’s balance sheet, which included voluntary contributions and annuitizations. As a result of these actions, along with favorable discount rates used to remeasure the plans as of December 31, 2018, the Company’s net pension and other postretirement employee benefits liability at the end of the year was $2.3 billion, down from $3.5 billion at year-end 2017.

Market Update

For 2019, Alcoa projects a global aluminum deficit ranging between 1.7 million and 2.1 million metric tons with global demand growth in a range of 3 to 4 percent. The Company’s final global aluminum demand growth rate estimate for 2018 was 4 percent with a deficit of 1.7 million metric tons.

The global alumina market closed 2018 with a deficit of 0.6 million metric tons, which fell within Alcoa’s last estimate of a 0.4 million to 1.2 million metric ton deficit. In 2019, the Company expects the alumina market to move to a surplus that is projected to range between 0.2 million and 1 million metric tons, which assumes ongoing, third-party supply disruptions in the Atlantic region. The projected alumina surplus is driven by China, where refining expansions are expected to outpace demand growth from smelting.

The bauxite market is expected to remain in surplus with global stockpile growth projected to continue in 2019, ranging between 7 million and 11 million metric tons. The stockpile is driven by China, which strategically holds bauxite due to uncertain sourcing within and outside of the country.

2019 Outlook

In 2019, the Company projects total bauxite shipments to range between 47.0 and 48.0 million dry metric tons. Total alumina shipments are expected to be between 13.6 and 13.7 million metric tons with anticipated operational improvements and higher year-on-year production. Aluminum is expected to ship between 2.8 and 2.9 million metric tons, which reflects the expiration of a can sheet tolling agreement in the flat-rolled business. The tolling agreement’s expiration should have a negligible impact on Adjusted EBITDA for the year.

Alcoa anticipates favorable impacts from spot prices for raw materials to be fully offset by higher energy costs in the first quarter, and to be partially offset for the remainder of the year.

Based on current alumina and aluminum market conditions, the Company expects an annual operational tax rate ranging from 45 to 55 percent.

For the first quarter of 2019, Alcoa expects moderate benefits from both improvements in customer-specific alumina pricing and lower alumina costs to the Aluminum segment. These are partially offset by increased maintenance activities.

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