Company Announces $200 million Stock Repurchase Program
Wednesday, October 17, 2018 4:10 pm EDT
PITTSBURGH--(BUSINESS WIRE)--Alcoa Corporation (NYSE: AA):
• Net loss of $41 million, or $0.22 per share, includes previously announced actions on pension and other postemployment benefits (OPEB)
• Excluding special items, adjusted net income of $119 million, or $0.63 per share
• $795 million of adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) excluding special items
• Revenue of $3.4 billion
• $1.0 billion cash balance and $1.8 billion of debt, for net debt of $0.8 billion, as of September 30, 2018
• Continuing to reduce complexity, drive returns, and strengthen the balance sheet; used $194 million in available cash in third-quarter to reduce net pension liability and debt; pension and OPEB obligations now at $2.2 billion, down from $3.5 billion at year-end 2017
• Tightened the range for full-year 2018 projection of adjusted EBITDA excluding special items to between $3.1 billion and $3.2 billion, from the prior quarter’s estimate of $3.0 billion to $3.2 billion
• Projecting full-year global deficits for both alumina and aluminum in 2018; surplus for bauxite
• Launched formal consultation process for collective dismissals of employees at two Spanish smelters
• Strengthening organization to support operator-centric approach

M, except per share amounts 3Q17 2Q18 3Q18
Revenue $ 2,964 $ 3,579 $ 3,390
Net income (loss) attributable to Alcoa Corporation $113 $75 $(41)
Earnings per share attributable to Alcoa Corporation $0.60 $0.39 $ (0.22)
Adjusted net income $ 135 $ 286 $ 119
Adjusted earnings per share $ 0.72 $ 1.52 $ 0.63
Adjusted EBITDA excluding special items2) $ 582 $ 904 $ 795


1
Based on actual YTD 2018 results; outlook for unpriced sales at $2,000 LME, $500 API, $0.20 Midwest premium and updated regional premiums, and currencies.

2
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.

Alcoa Corporation (NYSE: AA), a global leader in bauxite, alumina, and aluminum products, today reported third quarter 2018 results and announced a $200 million common stock repurchase program as part of the Company’s 2018 capital allocation framework.

In the third quarter of 2018, Alcoa also used $194 million in available cash to further reduce its net pension liability and debt and finished the quarter with a cash balance of $1.0 billion on September 30, 2018. This year, the Company has reduced its net pension and OPEB liability to $2.2 billion as of September 30, down from $3.5 billion at year-end 2017.

“Today’s stock buyback announcement, our smaller net pension and OPEB liability, and our results since launching Alcoa Corporation nearly two years ago all point to the success of our strategic priorities,” said President and Chief Executive Officer Roy Harvey.

“By reducing complexity, driving returns, and strengthening the balance sheet, we’ve made Alcoa a much stronger company even as commodity markets remain volatile,” Harvey said. “We’re pleased to announce a program to return cash to stockholders, and we look forward to improving our Company further as 2018 comes to an end.”

Alcoa tightened the Company’s projection for full-year adjusted EBITDA excluding special items to range between $3.1 billion and $3.2 billion.1 The low end of the forecast is $100 million higher than the prior quarter’s estimate. The updated outlook reflects recent market prices, including regional premiums, costs of raw materials, energy, and expected operational performance.

In third quarter 2018, Alcoa reported a net loss of $41 million, or $0.22 per share, compared to net income of $75 million, or $0.39 per share, in second quarter 2018. The third quarter results include a negative impact of $160 million for special items, due primarily to a $174 million net settlement charge (non-cash) from additional actions on U.S. pension and OPEB obligations.

Excluding the impact of special items, third quarter 2018 adjusted net income was $119 million, or $0.63 per share, down 58 percent sequentially from $286 million, or $1.52 per share.

In third quarter 2018, Alcoa reported $795 million of adjusted EBITDA excluding special items, down 12 percent from $904 million in second quarter 2018, primarily due to lower aluminum prices.

Alcoa reported third quarter 2018 revenue of $3.4 billion, down 5 percent sequentially, primarily due to lower realized aluminum prices and decreased aluminum product shipments, somewhat offset by higher realized alumina prices and favorable pricing for energy sales.

Cash from operations was $288 million and free cash flow was $206 million; both reflect $100 million in additional contributions made to certain U.S. defined benefit pension plans in the quarter. Also in the third quarter of 2018, cash used for financing activities was $280 million, which includes $94 million for the early repayment of the majority of the remaining outstanding loans from Brazil’s National Bank for Economic and Social Development, and cash used for investing activities was $83 million.

Alcoa ended the quarter on September 30 with cash on hand of $1.0 billion and debt of $1.8 billion, for net debt of $0.8 billion. The Company reported 26 days working capital, a 9-day increase from third quarter 2017, reflecting higher raw material costs in inventory and lower days payable outstanding.

Common Stock Repurchase Program

The Company today announced that its Board of Directors authorized a common stock repurchase program under which Alcoa may purchase up to $200 million of its outstanding common stock, depending on cash flow availability, market conditions, and other factors. This program does not have a predetermined expiration date.

The Company intends to retire the repurchased shares of common stock. As of September 30, 2018, the Company had 186,490,966 issued and outstanding shares of common stock.

Market Update

The Company continues to project a full-year 2018 global deficit for both aluminum and alumina and a surplus for bauxite.

In aluminum, the Company expects a global deficit ranging between 1.0 million and 1.4 million metric tons, down from last quarter’s estimate of between 1.1 million and 1.5 million metric tons. Global aluminum demand growth is projected to be between 3.75 and 4.75 percent in 2018, down from the second quarter estimate of between 4.25 and 5.25 percent, driven by China.

In alumina, Alcoa is projecting a higher global deficit of between 400 thousand and 1.2 million metric tons, compared to last quarter’s deficit expectation of between 200 thousand and 1.0 million metric tons.

The global market for bauxite is expected to be in a surplus for full year 2018 with increased stockpile growth despite higher demand from China.

Spain Collective Dismissal Process

Alcoa today announced its intention to begin a formal consultation process for collective dismissals that would affect all employees at its Avilés and La Coruña aluminum plants in Spain, which are the least productive within the Alcoa system due to their inherent structural issues. Avilés employs 317 employees and La Coruña 369. Per Spanish law, Alcoa will initiate a mandatory 30-day consultation period with the workers’ representatives to achieve the best possible outcome for the Company and its workforce.

An analysis of Alcoa’s operations in Spain found that organizational improvements could be achieved if the Company ceased production at its Avilés and La Coruña facilities and reorganized production at a single plant in San Ciprián, which produces both alumina and aluminum.

Organizational Changes

To further support Alcoa’s operations and the Company’s operator-centric approach, Alcoa announces that, effective November 1, 2018, the presidents of its Bauxite, Alumina, and Aluminum segments will report to Harvey.

As of the same date, Tómas Sigurðsson will assume the role of Senior Vice President, Strategic Alliances. Sigurðsson, who will continue to report to Harvey, will have primary responsibility for managing and developing the Company’s key strategic relationships. Sigurðsson will no longer serve as the Company’s Chief Operating Officer, and the role will be eliminated.

Conference Call

Alcoa will hold its quarterly conference call at 5:00 p.m. Eastern Daylight Time (EDT) on Wednesday, October 17, to present third quarter 2018 financial results and discuss the business, the capital allocation program and market conditions.

The call will be webcast via the Company’s homepage on www.alcoa.com. Presentation materials for the call will be available for viewing on the same website at approximately 4:15 p.m. EDT on October 17. Call information and related details are available under the “Investors” section of www.alcoa.com