Portfolio Transformation is on Course

1Q 2015 Financial Highlights
Net income of $195 million, or $0.14 per share; excluding special items, net income of $363 million, or $0.28 per share
Revenue of $5.8 billion, up 7 percent year-over-year driven principally by organic growth in automotive and aerospace
Record Engineered Products and Solutions first quarter after-tax operating income of $191 million
Global Rolled Products shipped record amount of automotive sheet to meet growing demand
Alumina after-tax operating income more than doubled year-over-year
Primary Metals after-tax operating income up $202 million year-over-year
Upwardly revised final 2014 global aluminum demand growth from 7 percent to 9 percent, to 54 million metric tons; Continue to project approximately 3.5 million metric tons of new demand growth in 2015, or 6.5 percent, for a record 57.5 million metric tons


1Q 2015 Portfolio Transformation Highlights


Firth Rixson integration on track, enhancing leadership in jet engine components
TITAL acquisition completed ($204 million), expanding titanium and aluminum structural castings for aerospace in Europe
Announced plans to acquire RTI International Metals to further grow titanium offerings, complementing mid and downstream value chain
Opened expanded wheels manufacturing plant in Hungary to capture growing demand for Alcoa’s proprietary lightweight wheels in Europe
Sold Belaya Kalitva, Russia facility to optimize rolling mill portfolio
Announced a strategic review of 500,000 metric tons of smelting capacity and 2.8 million metric tons of refining capacity
Curtailing 74,000 metric tons of smelting capacity in Brazil by April 15 and 443,000 metric tons of refining capacity in Suriname by April 30
Converted San Ciprian alumina refinery in Spain to natural gas


NEW YORK--(BUSINESS WIRE)--Lightweight metals leader Alcoa (NYSE:AA) today reported strong first quarter 2015 profits. The Company’s strategy of building its value-add portfolio and creating a globally competitive commodity business is delivering results.

Alcoa reported first quarter 2015 net income of $195 million, or $0.14 per share, including $158 million in restructuring-related charges (approximately 90 percent non-cash), mostly to optimize the Company’s portfolio. Year-over-year, first quarter 2015 results compare to a net loss of $178 million, or $0.16 per share.

Excluding the impact of all special items, first quarter 2015 net income jumped to $363 million, or $0.28 per share, from $98 million, or $0.09 per share, in the year-ago period.

First quarter 2015 revenues rose 7 percent to $5.8 billion, from $5.5 billion in first quarter 2014. The revenue increase resulted principally from organic growth, driven by strong automotive and aerospace volume. Positive market effects in the quarter were offset by capacity reductions and portfolio changes.

“First quarter results show our transformation is moving at ongoing high speed and is fully on course,” said Klaus Kleinfeld, Alcoa Chairman and Chief Executive Officer. “We are organically and inorganically broadening our innovative, multi-material value-add businesses, bringing new capabilities and materials to our aerospace and automotive offerings, and taking swift action in the upstream, making it more competitive. We are pulling on all levers to create sustainable shareholder value.”

End Market Growth Remains Steady

Alcoa is holding steady its 2015 growth projections for the aerospace, automotive, building and construction, industrial gas turbine and packaging end markets.

The Company expects robust global aerospace sales growth of 9 to 10 percent in 2015 driven by strong deliveries across the large commercial aircraft, regional jet and business jet segments. Alcoa estimates a global automotive production increase of 2 to 4 percent for the year, with a 1 to 4 percent rise in North America. The Company is also projecting 5 to 7 percent global sales growth in the commercial building and construction market, 1 to 3 percent global airfoil market growth in the industrial gas turbine market, and a 2 to 3 percent global sales increase in the packaging market.

Alcoa sees increasing orders in the North American heavy duty truck and trailer market, and projects 6 to 8 percent growth for 2015, up from 3 to 7 percent in the previous forecast. However, with weakness in China, Europe and Brazil, the global heavy duty truck and trailer market is projected to decline 2 to 4 percent for the year.

Given final 2014 worldwide aluminum demand, Alcoa has upwardly revised its view of global aluminum demand growth in 2014 to 9 percent, an increase from the prior forecast of 7 percent. This results in global consumption of 54 million metric tons, or 1.2 million metric tons higher than previously forecast. Alcoa continues to project further robust global aluminum demand growth in 2015 of approximately 3.5 million metric tons, equaling 6.5 percent growth and reaching a new record high of 57.5 million metric tons.

Value-Add Portfolio Transformation

Alcoa advanced its strategy to build its innovative value-add portfolio, both organically and inorganically, in the first quarter.

Alcoa acquired TITAL, expanding the Company’s titanium casting capabilities into Europe, with strong customer relationships. TITAL’s titanium revenues are expected to increase by 70 percent over the next five years; approximately 70 percent of TITAL’s revenues are expected to come from commercial aerospace sales in 2019.

The Company’s integration of Firth Rixson is fully on track. Firth Rixson is expected to increase Alcoa’s revenues by $1.6 billion with an additional $350 million EBITDA in 2016.

Alcoa announced it is acquiring titanium leader RTI International Metals to further grow its titanium offerings and to complement its mid and downstream value chain. RTI will grow Alcoa’s advanced technologies for greater innovation power and broaden the Company’s multi-material product suite to meet growing aerospace demand for titanium. RTI will increase Alcoa’s 2014 pro forma aerospace revenues by 13 percent to $5.6 billion. It is also expected to contribute $1.2 billion in revenues in 2019, up from $794 million that RTI generated in 2014. RTI’s profitability is expected to reach 25 percent EBITDA margin in 2019. Alcoa expects to complete the acquisition in two to five months upon obtaining all required regulatory clearances and RTI shareholder approval.

To meet growing European demand for the Company’s innovative wheels, Alcoa doubled capacity in Hungary to produce lightweight, durable, low-maintenance Dura-Bright® EVO surface-treated aluminum truck wheels. The wheels, which were launched on March 27 in North America after the successful European debut, are 10 times more corrosive resistant than their predecessor, the Dura-Bright wheel with XBR® technology, easier to clean and look newer longer. The total global aluminum commercial vehicle wheel market is expected to increase from 30 percent of the total market in 2010 to 50 percent in 2018.

In the midstream, Alcoa continued to take steps to further optimize and improve the competitiveness and profitability of its rolling mill business. To focus the rolled products segment on selling highly differentiated products in growth markets, the Company sold its Belaya Kalitva, Russia facility to a wholly-owned subsidiary of Stupino Titanium Company. All regulatory approvals were obtained and the sale closed on March 31. Terms of the transaction were not disclosed. In North America, Alcoa’s automotive expansion in Davenport, IA fully ramped up and shipped record amounts of automotive sheet to meet growing customer demand. Alcoa’s automotive expansion in Tennessee is on track to be completed by mid-2015.

Upstream Portfolio Transformation

In the upstream, Alcoa remains on course to lower the cost base of its commodity businesses through upgrades and smelting and refining capacity reductions. In the first quarter, the Company announced:


A strategic review over the next 12 months of 500,000 metric tons of smelting capacity and 2.8 million metric tons of refining capacity for possible curtailment, closure or sale;
Plans to curtail the remaining 74,000 metric tons of smelting capacity in Brazil at São Luís (Alumar) by April 15, increasing the amount of smelting capacity offline to 21 percent;
Plans to curtail 443,000 metric tons of refining capacity at the Suralco facility by April 30, and pursue a transaction for a Suriname government-owned entity to acquire the Suralco operations; and
It converted its San Ciprian alumina refinery in Spain to natural gas from fuel oil to increase its competitiveness.


Additionally, Alcoa of Australia Limited today secured a new 12-year gas supply agreement to power its alumina refineries in Western Australia (WA). Combined with a number of smaller agreements, Alcoa of Australia now has secured approximately 75 percent of its WA natural gas requirement, replacing existing long-term contracts which expire at the end of the decade. The agreement is conditional on a consortium comprising Brookfield Asset Management Inc. and Macquarie Capital Group Limited completing the acquisition of Apache Energy Limited’s WA oil and gas assets from Apache Corporation. As part of the gas supply arrangements, Alcoa of Australia will make a prepayment of $500 million in two installments—$300 million on financial close of the Apache asset sale in 2015 and $200 million in 2016.

All of the above actions support Alcoa’s goal of lowering its position on the global aluminum cost curve to the 38th percentile and the global alumina cost curve to the 21st percentile by 2016.

Financial Performance

Alcoa achieved $238 million in year-over-year productivity gains against a $900 million annual target, driven by process improvements and procurement savings across all businesses. Alcoa managed return-seeking capital of $150 million against a $750 million annual target and controlled sustaining capital expenditures of $101 million against a $725 million annual plan.

Free cash flow for the quarter was a negative $422 million, with cash used for operations of $175 million, driven by the normal build in working capital, semi-annual interest payments, and pension contributions. Alcoa ended the quarter with cash on hand of $1.2 billion.

The Company achieved an average of 33 days working capital for the quarter, 3 days higher than first quarter 2014 due to the impact of acquisitions. Alcoa’s debt-to-adjusted EBITDA ratio on a trailing twelve months basis was 2.22.

Segment Performance

Engineered Products and Solutions

After-tax operating income (ATOI) was a first quarter record of $191 million, up $2 million, or 1 percent, year-over-year, and up $26 million, or 16 percent, sequentially. Year-over-year, productivity improvements and higher volumes in aerospace, commercial transportation and North American non-residential construction markets were offset by unfavorable price/mix and unfavorable foreign currency exchange rates. Adjusted EBITDA margin was 20.1 percent in first quarter 2015 compared to 22.2 percent in the year-ago quarter.

Global Rolled Products

ATOI in the first quarter was $34 million compared to $59 million in the first quarter of 2014, and $71 million in the fourth quarter of 2014. Year-over-year, this segment’s profits decreased by 42 percent as market pressures in packaging and metal price lag more than offset record shipments in automotive. Strong productivity, higher volumes in the North American packaging market and record shipments in the automotive market from the Davenport expansion were more than offset by lack of metal premium pass-through in the Russia packaging market and pricing headwinds in global packaging. The segment also experienced increased research and development costs for the MicromillTM and ramp-up costs for the rolling mill in Saudi Arabia. Adjusted EBITDA per metric ton was $280 in first quarter 2015 compared to $315 in first quarter 2014.

Alumina

ATOI in the first quarter was $221 million, up $43 million sequentially from $178 million, and up $129 million year-over-year from $92 million. The increase in sequential ATOI was due to favorable foreign currency exchange rates and energy costs, partially offset by lower volumes and unfavorable London Metal Exchange (LME)-linked pricing. Adjusted EBITDA per metric ton increased $17 from fourth quarter 2014 to $102 per metric ton in first quarter 2015.

Primary Metals

ATOI in the first quarter was $187 million, down $80 million sequentially from $267 million, but up $202 million from negative $15 million in first quarter 2014. Third-party realized price in first quarter 2015 was $2,420 per metric ton, down 6 percent sequentially, but up 10 percent year-over-year. Sequential earnings declined due to a lower LME aluminum price, lower energy sales, mostly due to new rate caps in Brazil, and higher alumina costs. These factors were partially offset by favorable foreign currency exchange rates, lower energy costs in Spain and productivity improvements. Adjusted EBITDA per metric ton was $499, $130 per metric ton lower than fourth quarter 2014.

Alcoa will hold its quarterly conference call at 5:00 PM Eastern Daylight Time on April 8, 2015 to present quarterly results. The meeting will be webcast via alcoa.com. Call information and related details are available at www.alcoa.com under “Invest.” Presentation materials used during this meeting will be available for viewing at 4:15 PM EDT at www.alcoa.com