Aluminum producer Alcoa reported better than expected fourth quarter earnings on Wednesday. Aluminum has seen prices rise 50% yr/yr. AA reporting quarterly records for adjusted net income and adjusted EBITDA. Revenue rose 38% yr/yr, Alcoa’s highest growth rate in over five years.
Alcoa Corp NYSE: AA Reported Earnings After Close Wednesday
$2.50 Beat $1.93 EPS AND $3.30 Billion Beat $3.30 Billion Forecast in Revenue
Alcoa reported $896 million in Ebitda in line with estimates. Adjusted earnings of $2.50 a share from $3.3 billion in revenue. Forecasts were for $1.93 in per-share earnings from $3.3 billion in sales. The results are up from a year ago, when Alcoa earned $361 million in Ebitda and 26 cents a share from $2.4 billion in sales.
Commodity aluminum prices are up around 50% over the past year. That’s a powerful tailwind for Alcoa results. Higher aluminum prices are also a powerful tailwind for the stock. Alcoa shares have gained about 160% over the past 12 months. Much of this growth can be attributed to those aluminum prices rising yr/yr and sequentially due to tight availability and a recovering global economy that is seeing a ramp-up in manufacturing. Along with solid demand, a continual relative tightness in supply is also helping push aluminum prices higher.
“We had a transformative year in 2021; we posted our highest ever annual net income, returned cash to our stockholders and significantly reduced our debt and pension obligations,” said CEO Roy Harvey in the company’s news release.
This was AA’s fifth consecutive quarter beating by double-digits.
Last quarter the group declared a quarterly dividend of 10 cents per share, the first since its ‘downstream’ split in 2016 and unveiled plans for a $500 million boost to its share repurchase program, taking the total to $650 million. With the Alcoa initiated dividend last quarter at $0.10 quarterly or $0.40 annually gives a yield of 0.65% with shares trading near $60.
AA provided strong upside guidance for 1Q22 adjusted net income to match 4Q21 levels. That’s better than analysts are projecting. Wall Street currently expects $870 million in Ebitda and $1.63 in per-share earnings from $3.2 billion in sales for the first quarter. The expectation is for the strong market conditions to persist. Inflationary pressures, especially surrounding energy and raw materials are expected to continue into FY22. AA believes high metal prices will largely offset those demand headwinds. Costs have been the headwind and Alcoa has tightened up its production costs through plant shutdowns and facility divestitures.
For all of 2022, analysts project $3.2 billion in Ebitda and $6.52 in per-share earnings from $13.1 billion in sales.
Since Alcoa implemented a multi-year review of its operating assets in October 2019 and has achieved ~75% of its 1.5 mln metric ton goal in its smelting portfolio assessment from that date. AA closed the facility at Wenatchee Works in Washington and a two-year curtailment for the San Ciprián aluminum smelter in Spain.
Alcoa paid back around $1.3 billion in bonds during 2021, added $500 million to the company’s U.S. pension plans, and spent $150 million buying back stock.
Demand for aluminum products has been 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 the favorable supply and demand environment gives a positive outlook for Alcoa. The major risk is market risk as we have seen equities sold off heavily in January with geopolitical and monetary policy risks threatening.
The base metal price index remained essentially flat m-o-m, with mixed movement across groupOPEC January MOMR
components. The index was carried by an increase in aluminium prices, which was offset by declines in
copper (1.8%) and lead (1.2%). Aluminium prices rebounded by 2.2% following a decline the previous month.
Inventories went up 4.2% at the London Metal Exchange (LME) following coal production increases for power
generation in Asian markets. The 2021 inventory, however, remained lower compared with 2020. The LME
registered 400,000 tons less in December 2021 compared with December 2020, which represents a 30%
decline in inventories
The risk with commodity companies is they are highly exposed to the cyclicality of its end markets. These industries are undergoing a robust recovery, which clearly supports AA while aluminum prices remain elevated.
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.
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