Alcoa Reports Another Quarterly Loss with Falling Aluminum Prices and Pressured Margins

The largest US Aluminum producer Alcoa reported a second consecutive quarterly loss as expected for the fourth quarter on Wednesday but missed on revenue. The company has been squeezed by higher energy and raw material costs and restructuring charges putting pressure on margins. $AA projects 2023 total alumina shipments of 12.7-12.9 million metric tons and aluminum shipments between 2.5-2.6 million metric tons. $AA traded down 5.5% after the release. Aluminum is down roughly 40% from a record high of approximately $4,000 in March amid persistent fears of a demand-sapping global recession triggered by an aggressive tightening campaign from major central banks.

Alcoa Smelting

Alcoa Corp NYSE: AA Reported Earnings After Close Wednesday

Alcoa Q4 2022 Earnings

  • Fourth-quarter loss of $374 million from $392 million year over year and after losing $746 million in the third quarter.
  • On a per-share basis, the loss was $2.12 compared with $2.11 a year earlier. Adjusted loss was 70 cents a share, compared with earnings per share of $2.50 in the year-ago quarter. Analysts polled by FactSet expected an adjusted loss of 81 cents a share.
  • Loss included a $217 million charge related to a tax expense.
  • Revenue fell to $2.66 billion, from $3.34 billion. Analysts polled by FactSet expected $2.65 billion.
  • Shipments of aluminum were up 3% from the prior quarter with factory restarts in Brazil and Australia.
  • In 2023, Alcoa expects to ship between 2.5 million and 2.6 million metric tons of aluminum.
  • Paid a cash dividend of $0.10 per share of common stock, totaling $17 million
  • Alcoa ended the quarter with cash on hand of $1.4 billion, including restricted cash.

Market Reaction

  • Shares of Alcoa after hours $50.50 -2.95 (-5.52%) after already being down to $53.45-1.41 (-2.57%) today at the close.
  • AA at $53.45 was down -6.18 (10.36%) for one year.

Production

  • Alumina segment production decreased 2 percent to 3.0 million metric tons, primarily due to the partial curtailment at the San Ciprián refinery.
  • In Aluminum, Alcoa produced 516,000 metric tons, a sequential increase of 4 percent above the third-quarter’s strong output.
  • Additional volume from the restarts at the Alumar and Portland aluminum smelters more than offset lower production at the Lista smelter, which was partially curtailed in the third quarter 2022 to mitigate high energy costs.

Leadership Changes

Alcoa announced executive leadership changes last week, effective Feb. 1, that include Chief Financial Officer William Oplinger’s reassignment to chief operations officer in addition to his executive vice president role. Additionally, Senior vice president and controller Molly Beerman was appointed executive vice president and CFO. John Slaven departs as EVP and chief operating officer and Benjamin Kahrs as EVP and chief innovation officer, among other changes.

A punt on Alcoa is basically a punt on aluminum.

Commodity aluminum prices were down around 40% over the past year at the end of 2022. That’s a powerful headwind for Alcoa results. Lower aluminum prices are also a powerful headwind for the stock. Alcoa shares rose over 160% in 2021. Much of this growth could be attributed to those aluminum prices rising yr/yr and sequentially due to tight availability and a recovering global economy that saw a ramp-up in manufacturing. Then demand fell away, energy prices soared, and it was clear like the majority of commodities before the bubble popped in March and April after the war premium it was way overpriced on speculative fervor.

Aluminum needs solid demand, a continual relative tightness in supply to push aluminum prices higher. Alcoa in 2021 we posted their highest ever annual net income, rising aluminum higher. A punt on Alcoa is basically a punt on aluminum.

Outlook

 “We will address current challenges while maintaining our future focus, as the long-term outlook for our industry remains strong,” Chief Executive Roy Harvey said.

  • In 2023, the Company projects total alumina shipments, including externally sourced alumina, to range between 12.7 and 12.9 million metric tons, a decrease of 0.5 million metric tons from 2022 due to the partial curtailment of the San Ciprián refinery and lower bauxite quality at the Australian refineries.
  • The Aluminum segment is expected to ship between 2.5 and 2.6 million metric tons, consistent with 2022 as additional shipments from the restart of the Alumar and Portland smelters are offset by lower anticipated trading volume.
  • For Alumina Segment Adjusted EBITDA, the Company expects approximately $25 million higher costs from a Western Australia gas supply disruption to be offset by the non-recurrence of the Alumar refinery ARO adjustment.

Demand for aluminum products is driven by strong construction and housing markets, rising new electric vehicle production, and government sponsored infrastructure projects. We have seen aluminum inventories higher lately with moves from China in particular, that said they remain at historically low levels.

China diverted production to reduce carbon emissions and to reduce energy consumption from the trade war with Australia and freezing temperatures. Everything being equal a favorable supply and demand environment gives a positive outlook for Alcoa. Since then, we have seen housing markets hit walls as mortgage rates soar. The major risk is market risk, we saw that with aluminum sell off and equities sell off heavily since January with geopolitical and monetary policy risks threatening.

The risk with commodity companies is they are highly exposed to the cyclicality of its end markets. These industries are undergoing a robust turbulence, which clearly hurts AA while aluminum prices remain offered. 

About Alcoa

Alcoa is a global industry leader in the production of bauxite, alumina and aluminum, a position enhanced by a portfolio of value-added cast products and select energy assets. Since developing the aluminum industry more than 130 years ago, Alcoa has built a legacy of breakthrough innovations and best practices that have led to efficiency, safety, sustainability and stronger communities wherever we operate.

Source: Alcoa

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