Release Date: July 17, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Alcoa Corp (AA, Financial) is nearing completion of the Alumina Limited acquisition, expected to close on August 1, which is anticipated to bring significant benefits.
- Safety programs are showing positive results, with improvements in both leading and lagging indicators.
- Revenue increased to $2.9 billion due to higher alumina and aluminum prices, with net income improving to $20 million from a prior quarter loss.
- Adjusted EBITDA increased by $193 million to $325 million, driven by higher average realized prices for alumina and aluminum.
- Operational stability is evident with production records at Canadian smelters and Mosjoen, and improving stability at the Alumar smelter.
Negative Points
- Higher alumina costs are expected to negatively impact the aluminum segment by $60 million in the third quarter.
- San Ciprián operations face challenges with competitive energy solutions and potential sale processes, with no immediate resolution in sight.
- Corporate costs increased due to labor-related expenses, and further increases are expected in the third quarter.
- Interest expense is projected to rise due to debt assumed from the Alumina Limited acquisition.
- Working capital changes and capital expenditures were significant uses of cash in the first half of 2024, impacting free cash flow.
Q & A Highlights
Q: What is the expected pace of synergies following the Alumina Limited acquisition?
A: Molly Beerman, CFO: Overhead savings of $12 million will start immediately. Capital allocation framework improvements will take time, with debt being moved over a period of time to jurisdictions with tax advantages.
Q: Why did Alcoa decide not to participate in the funding of the ELYSIS first industrial plant?
A: William Oplinger, CEO: The current construct allows for a balanced partnership. Alcoa will build anodes and cathodes and has the option to take 40% of the offtake, giving access to the lowest carbon metal in the world.
Q: Can you provide more color on the unfavorable impact from bauxite grade in Australia?
A: Molly Beerman, CFO: We are seeing additional maintenance costs due to lower bauxite quality. Higher caustic, energy, and bauxite usage are contributing factors.
Q: How does the current aluminum market environment compare to past environments with capacity issues?
A: William Oplinger, CEO: The aluminum industry is in a unique situation with a global deficit. The market will only balance if supply issues are resolved or smelters curtail production.
Q: Are there smelters that can't operate due to alumina shortages?
A: William Oplinger, CEO: Inventory levels are tight, but no smelters have been unable to operate yet. The areas of exposure are India, Southeast Asia, and the Middle East.
Q: What are the potential exit costs for San Ciprián if the smelter and refinery were off the books?
A: William Oplinger, CEO: The losses in 2023 were approximately $150 million in EBITDA. We are working on making the plant competitive and pursuing a potential sale.
Q: What are the options for deleveraging following the Alumina Limited acquisition?
A: Molly Beerman, CFO: We are looking at placing debt in Australia and other options to delever. We will evaluate based on cash flows over the next quarter or two.
Q: Is the fate of the San Ciprián smelter and refinery tied together?
A: William Oplinger, CEO: It is difficult to sell them separately due to their interconnected operations. We are exploring all options, including potential curtailment.
Q: What is the expected annual cost saving from the vessel purchase in Brazil?
A: Molly Beerman, CFO: The savings are just over $30 million per year. This strategic investment addresses high cost structures in Brazil.
Q: Can you clarify the $60 million unfavorable impact of higher alumina costs in the aluminum segment?
A: Molly Beerman, CFO: The $60 million is not within usual sensitivities and is due to higher alumina prices. It is purely a price sensitivity impact.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
