Alcoa Corporation Reports Fourth Quarter and Full Year 2022 Results

PITTSBURGH–(BUSINESS WIRE)–Alcoa Corporation (NYSE: AA) today reported fourth quarter and full year 2022 results, ending a year in which Alcoa maintained a strong balance sheet, provided capital returns to stockholders, and advanced sustainably through strategic restarts of capacity and progression of its breakthrough technologies.

The Company also worked to mitigate challenging market conditions throughout the year that included high costs for raw materials and energy and lower sequential pricing in the Alumina and Aluminum segments in the fourth quarter.

Fourth Quarter 2022

• Generated revenue of $2.7 billion
• Recorded net loss of $374 million, or $2.12 per share; adjusted net loss of $123 million, or $0.70 per share; Adjusted EBITDA excluding special items of $29 million
• Generated $118 million in cash from operations
• Paid a cash dividend of $0.10 per share of common stock, totaling $17 million
• Finished the fourth quarter with a cash balance of $1.4 billion
• Announced additional power purchase agreement to support future restart of San Ciprián smelter in Spain
• Completed planned restart of smelting capacity at the Portland Aluminium joint venture in Australia
• Named top-tier aluminum industry performer in annual S&P Dow Jones Sustainability Indices

Full Year 2022

• Generated revenue of $12.5 billion
• Recorded net loss of $102 million, or $0.57 per share, and adjusted net income of $890 million, or $4.83 per share; Adjusted EBITDA excluding special items of $2.2 billion
• Generated $822 million in cash from operations
• Returned cash to stockholders through $500 million in share repurchases and $72 million in quarterly dividend payments
• Completed a $1 billion pension annuity transaction

Financial Results

“We are beginning 2023 with a clear set of priorities, building on the strategic work we’ve progressed over these past several years that has provided a strong balance sheet,” said Alcoa President and CEO Roy Harvey. “Last year, global turbulence negatively influenced costs for energy and raw materials, and we saw significant variance on product pricing between the first and second halves of 2022.

“We are taking actions to further improve, and we have the experience, rigor, and skill to drive excellence across our global operations with disciplined cost management,” Harvey said. “We will address current challenges while maintaining our future focus, as the long-term outlook for our industry remains strong. Aluminum is rising in importance as a material of choice, and we are excited about the development of our transformative technologies that have the potential to reinvent the industry.”

Fourth Quarter 2022 Results

• Revenue: The Company’s total third-party revenue decreased 7 percent sequentially to $2.7 billion primarily due to lower prices for both alumina and aluminum. In the Alumina segment, the average realized third-party price of alumina decreased 8 percent sequentially. In the Aluminum segment, the average realized third-party price of aluminum decreased sequentially by 10 percent.
• Shipments: In Alumina, third-party shipments decreased 2 percent sequentially primarily due to the partial curtailment at the San Ciprián refinery in Spain, which was initiated in the third quarter 2022 to offset high natural gas prices.

  In Aluminum, total shipment volume increased 3 percent sequentially due to higher volumes from the restarts at the Alumar smelter in Brazil and the Portland smelter in Australia. Of the total aluminum shipments, value add products (slab, foundry, billet and rod) decreased 9 percent sequentially, primarily related to lower production of billet and slab from the partial curtailment at the Lista smelter in Norway, reduced casting at San Ciprián in Spain due to high energy prices, and a planned maintenance outage at a casting facility in Canada.

• 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.
• Net loss attributable to Alcoa Corporation was $374 million, or $2.12 per share. The results include a $217 million charge to tax expense to record a valuation allowance on Alcoa Alumínio’s (Brazil) deferred tax assets, and reflect lower aluminum and alumina prices, higher costs for raw materials (primarily caustic and carbon), and higher production cost sequentially.
• Adjusted net loss was $123 million, or $0.70 per share, excluding the impact from net special items of $251 million. Notable special items include $215 million in discrete and other tax items primarily related to recognition of the Brazil tax valuation allowance discussed above, $31 million related to mark-to-market energy contracts, and $30 million related to the restart costs at the Alumar and Portland smelters.
• Adjusted EBITDA excluding special items was $29 million, a decrease from the prior quarter due primarily to lower sequential prices for aluminum and alumina, higher raw material costs, and higher production costs. Also in the fourth quarter, the Company recorded a $25 million charge to cost of goods sold to establish an asset retirement obligation (ARO) for estimates of expected work on impoundments at the Alumar refinery in Brazil.

  Additionally, the Norwegian government recently approved an updated budget proposal that limits carbon dioxide compensation to be paid in 2023 based on 2022 power purchased and used in production.

  The unfavorable sequential impact is $35 million, which includes amounts previously accrued through September 30, 2022 and the absence of any accruals for the fourth quarter 2022.
  

• Cash: Alcoa ended the quarter with a cash balance of $1.47 billion, including restricted cash of $111 million. Cash provided from operations was $118 million. Cash used for financing activities was $25 million, primarily related to $17 million of cash dividends on common stock. Cash used for investing activities was $171 million related to capital expenditures. Free cash flow was negative $53 million.
• Working capital: The Company’s days working capital balance decreased sequentially by $111 million. Days working capital remained 50 days at the end of the fourth quarter.

Full Year 2022 Results

• Revenue: The Company’s total third-party revenue increased 2 percent to $12.5 billion, driven primarily by higher aluminum and alumina prices, and higher premiums for value add products, partially offset by decreased shipments in the Alumina and Aluminum segments. Annually, the average realized third-party price of alumina increased 18 percent and the average realized third-party price of primary aluminum increased 20 percent.

• Shipments: In Alumina, third-party shipments decreased 5 percent on a year-over-year basis as the Australian refineries produced lower volumes for sale due to reduced bauxite grade and extended and unplanned maintenance.

  In Aluminum, total shipment volume decreased 15 percent annually due to lower trading volumes, the San Ciprián smelter curtailment completed in 2022, and the absence of first quarter 2021 shipments due to the divestiture of the Warrick rolling mill in April 2021. Most of the volume reduction was commodity grade aluminum on lower trading volume; shipments of value add products decreased 1 percent sequentially.

• Production: Alumina segment production decreased 5 percent annually primarily due to lower production at the Australian refineries and the partial curtailment of the San Ciprián refinery. Aluminum production decreased 8 percent annually, primarily due to the curtailment of the San Ciprián smelter that more than offset the increase from the Alumar and Portland restarts.
• Net loss attributable to Alcoa Corporation of $102 million, or $0.57 per share, was a decline from the prior year’s net income of $429 million, or $2.26 per share. Higher aluminum and alumina pricing in the first half of 2022 yielded $1 billion in net income attributable to Alcoa despite high raw materials, energy, and production costs. As sales prices fell in the second half of 2022, these high costs persisted. Combined with restructuring and tax items mentioned below, the second half yielded $1.1 billion of net loss.

  The 2022 result include $696 million in restructuring related charges, primarily related to noncash pension settlement charges of $631 million, as well as a $217 million charge to tax expense to record a valuation allowance on Alcoa Alumínio’s deferred tax assets.

• Adjusted net income decreased in 2022 to $890 million, or $4.83 per share, excluding the impact from net special items of $992 million. Notable special items include charges of $631 million for various pension related actions, $216 in discrete and other tax items primarily related to recognition of the tax valuation allowance discussed above, $87 million in costs related to the restart processes at the Alumar and Portland smelters, and tax and noncontrolling interest impacts on above items of $22 million.
• Adjusted EBITDA excluding special items decreased 20 percent sequentially to $2.2 billion, primarily due to year over year higher costs for raw materials of approximately $750 million, higher costs for energy of approximately $650 million, and higher production costs of approximately $450 million.
• Cash: Alcoa ended 2022 with a cash balance of $1.47 billion, including restricted cash of $111 million. Cash provided from operations was $822 million. Cash used for financing activities was $768 million, primarily related to $500 million in share repurchases, $165 million net distributions to noncontrolling interest, and $72 million in cash dividends on common stock. Cash used for investing activities was $495 million primarily due to $480 million in capital expenditures. Free cash flow was $342 million.
• Working capital: The Company ended 2022 with days working capital balance of $1.4 billion, an increase of approximately $400 million from year end 2021. Days working capital of 50 days was 21 days higher than the prior year end, primarily due to higher value in raw materials and finished goods primarily on higher costs.

Key Strategic Actions

Financial

• Pension: In August 2022, the Company completed its fifth pension annuity transaction for a total transfer of approximately $3.3 billion in pension obligations and assets since 2018.
• Revolving Credit Facility: Alcoa announced in June that it amended and restated its existing Revolving Credit Facility into a $1.25 billion revolving credit facility with improved terms, including the addition of sustainability-linked metrics.
• Business Segments: Beginning in January 2023, the Company will combine its Bauxite and Alumina segments and will report its financial results in the following two segments: (i) Alumina, and (ii) Aluminum. Segment information for all prior periods presented in future reports will be updated to reflect the new segment structure.

Operational

• Wind power purchase agreements: On October 6, 2022, Alcoa announced it now has two power purchase agreements that would provide up to 75 percent of the needed power to support the planned restart of the San Ciprián smelter.
• Restarts: The Company continues to progress the restart of the Alumar smelter in São Luís, Brazil. Production began in the second quarter 2022, and it is anticipated that it will ship approximately 34,000 metric tons in the first quarter 2023 (Alcoa share).

  In December, Portland Aluminium successfully completed the restart of 35,000 metric tons per year (mtpy) of curtailed capacity at the joint venture smelter in Victoria, Australia. Now that the restart is complete, approximately 95 percent of Portland Aluminium’s total capacity of 358,000 mtpy is operating, including approximately 186,000 mtpy of Alcoa’s consolidated capacity.

Innovation

• Technology roadmap: The Company is progressing its breakthrough R&D programs, including the ELYSIS^TM technology that eliminates all direct carbon-dioxide emissions from the traditional smelting process, emitting instead pure oxygen. In March 2022, the ELYSIS joint venture announced that it had sold metal from the breakthrough technology for use in Apple’s iPhone SE.
• Alloy development and deployment: A world leader in alloy development, the Company introduced in September its latest innovation — A210 ExtruStrong™ high-strength, 6000 series alloy for a wide range of extruded applications, including transport, construction, industrial, and consumer goods.

Advance Sustainably

• Dow Jones Sustainability Indices: On December 14, the Company announced its inclusion in the S&P Dow Jones Sustainability Indices (DJSI). Alcoa received an ESG score in the 96th percentile, placing it in the top tier of all global companies in Alcoa’s industry peer group.
• Aluminum Stewardship Initiative: Alcoa continues to maintain and gain certifications from the Aluminium Stewardship Initiative (ASI), the aluminum industry’s most comprehensive third-party program to validate responsible production practices. Alcoa has 17 global sites certified to ASI’s standards and has also earned ASI’s Chain of Custody certification, which allows the company to globally market and sell ASI-certified aluminum.
• Bauxite residue filtration: Alcoa successfully completed the installation of press filtration technology at its Poços de Caldas refinery in Brazil. The technology, which is the Company’s third such installation, saves water and reduces land use for bauxite residue.

2023 Outlook

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.

In early January 2023, in response to a domestic natural gas shortage in Western Australia due to production challenges experienced by key gas suppliers, Alcoa’s Kwinana and Pinjarra refineries converted to diesel as an immediate and temporary fuel source for some operational needs. Alcoa reduced production by approximately 30 percent at the Kwinana refinery by taking one production unit offline and reducing process flows. While gas supply has improved, and both refineries have reverted to full gas use, the Kwinana refinery continues to operate at a reduced production rate due to ongoing uncertainty in the gas market. Alcoa continues to monitor the situation and will consider the need for additional actions as the situation evolves.

For Aluminum Segment Adjusted EBITDA, Alcoa expects Norwegian smelter costs to be favorable by $70 million from the non-recurrence of carbon dioxide credit adjustments and lower energy costs. Additionally, the Company expects $15 million lower raw material costs and $15 million lower production costs.

Other expense is expected to be unfavorable by approximately $45 million sequentially on lower equity income results.

Based on current alumina and aluminum market conditions, Alcoa expects first quarter tax expense to approximate $5 million to $15 million, which may vary with market conditions and jurisdictional profitability.

In regard to outlook beyond the first quarter 2023, the annual mine plan approvals process in Western Australia is currently taking longer than it has traditionally. Alcoa is working cooperatively in Western Australia with State regulators to address increasing expectations for environmental management to support these approvals.

Considering the delays, the Company is reducing the bauxite grade at the Huntly mine beginning in April 2023. The reduction in grade will extend the ore supply available under existing approvals and provide more time to work through the next set of approvals.

Operating the refineries with lower quality bauxite decreases alumina output and increases input costs, primarily caustic, energy, and bauxite usages. This grade change is isolated to the Huntly mine that supplies the Pinjarra and Kwinana refineries. It does not impact the Willowdale mine that supplies our Wagerup refinery.

The Company expects lower Alumina Segment Adjusted EBITDA of approximately $55 million per quarter in comparison to the fourth quarter 2022, after excluding $35 million of non-recurrence for the Alumar refinery ARO adjustment and certain other non-recurring expenses from the fourth quarter 2022, starting in the second quarter 2023 and continuing through the fourth quarter 2023.

Conference Call

Alcoa will hold its quarterly conference call at 5:00 p.m. Eastern Standard Time (EST) on Wednesday, January 18, 2023, to present fourth quarter and full year 2022 financial results and discuss the business, developments, 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. EST on January 18, 2023. Call information and related details are available under the “Investors” section of www.alcoa.com.

Dissemination of Company Information

Alcoa intends to make future announcements regarding company developments and financial performance through its website, www.alcoa.com, as well as through press releases, filings with the Securities and Exchange Commission, conference calls and webcasts. The Company does not incorporate the information contained on, or accessible through, its corporate website into this press release.

About Alcoa Corporation

Alcoa (NYSE: AA) is a global industry leader in bauxite, alumina and aluminum products with a vision to reinvent the aluminum industry for a sustainable future. Our purpose is to turn raw potential into real progress, underpinned by Alcoa Values that encompass integrity, operating excellence, care for people and courageous leadership. Since developing the process that made aluminum an affordable and vital part of modern life, our talented Alcoans have developed breakthrough innovations and best practices that have led to improved safety, sustainability, efficiency, and stronger communities wherever we operate.

Discover more by visiting www.alcoa.com. Follow us on our social media channels: Facebook, Instagram, Twitter, YouTube and LinkedIn.

Forward-Looking Statements

This press release contains statements that relate to future events and expectations and as such constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include those containing such words as “aims,” “ambition,” “anticipates,” “believes,” “could,” “develop,” “endeavors,” “estimates,” “expects,” “forecasts,” “goal,” “intends,” “may,” “outlook,” “potential,” “plans,” “projects,” “reach,” “seeks,” “sees,” “should,” “strive,” “targets,” “will,” “working,” “would,” or other words of similar meaning. All statements by Alcoa Corporation that reflect expectations, assumptions or projections about the future, other than statements of historical fact, are forward-looking statements, including, without limitation, forecasts concerning global demand growth for bauxite, alumina, and aluminum, and supply/demand balances; statements, projections or forecasts of future or targeted financial results, or operating or sustainability performance (including our ability to execute on strategies related to environmental, social and governance matters); statements about strategies, outlook, and business and financial prospects; and statements about capital allocation and return of capital. These statements reflect beliefs and assumptions that are based on Alcoa Corporation’s perception of historical trends, current conditions, and expected future developments, as well as other factors that management believes are appropriate in the circumstances.

Forward-looking statements are not guarantees of future performance and are subject to known and unknown risks, uncertainties, and changes in circumstances that are difficult to predict. Although Alcoa Corporation believes that the expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that these expectations will be attained and it is possible that actual results may differ materially from those indicated by these forward-looking statements due to a variety of risks and uncertainties. Such risks and uncertainties include, but are not limited to: (a) current and potential future impacts to the global economy and our industry, business and financial condition caused by various worldwide or macroeconomic events, such as the COVID-19 pandemic and the ongoing conflict between Russia and Ukraine, and related regulatory developments; (b) material adverse changes in aluminum industry conditions, including global supply and demand conditions and fluctuations in London Metal Exchange-based prices and premiums, as applicable, for primary aluminum and other products, and fluctuations in indexed-based and spot prices for alumina; (c) changes in global economic and financial market conditions generally, such as inflation, recessionary conditions, and interest rate increases, which may also affect Alcoa Corporation’s ability to obtain credit or financing upon acceptable terms or at all; (d) unfavorable changes in the markets served by Alcoa Corporation; (e) the impact of changes in foreign currency exchange and tax rates on costs and results; (f) unfavorable changes in cost, quality, or availability of key inputs, including energy and raw materials, or uncertainty of or disruption to the supply chain including logistics; (g) the inability to execute on strategies related to or achieve improvement in profitability and margins, cost savings, cash generation, revenue growth, fiscal discipline, environmental- and social-related goals and targets (including due to delays in scientific and technological developments), or strengthening of competitiveness and operations anticipated from portfolio actions, operational and productivity improvements, technology advancements, and other initiatives; (h) the inability to realize expected benefits, in each case as planned and by targeted completion dates, from acquisitions, divestitures, restructuring activities, facility closures, curtailments, restarts, expansions, or joint ventures; (i) political, economic, trade, legal, public health and safety, and regulatory risks in the countries in which Alcoa Corporation operates or sells products; (j) labor disputes and/or work stoppages and strikes; (k) the outcome of contingencies, including legal and tax proceedings, government or regulatory investigations, and environmental remediation; (l) the impact of cyberattacks and potential information technology or data security breaches; (m) risks associated with long-term debt obligations; (n) the timing and amount of future cash dividends and share repurchases; (o) declines in the discount rates used to measure pension and other postretirement benefit liabilities or lower-than-expected investment returns on pension assets, or unfavorable changes in laws or regulations that govern pension plan funding; and, (p) the other risk factors discussed in Alcoa Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, the Quarterly Report on Form 10-Q for the quarters ended March 31, 2022 and September 30, 2022, and other reports filed by Alcoa Corporation with the U.

Contacts

Investor Contact: James Dwyer +1 412 992 5450 James.Dwyer@alcoa.com
Media Contact: Jim Beck +1 412 315 2909 Jim.Beck@alcoa.com

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