Alcoa Corporation Reports Fourth Quarter and Full Year 2021 Results

Alcoa Corporation (NYSE: AA) today reported fourth quarter and full year 2021 results that included the Company’s highest annual net income and earnings per share, driven by continued strength in alumina and aluminum pricing and solid operational performance.

Fourth Quarter Highlights

• Increased revenue to $3.3 billion, a 7 percent sequential increase and highest quarterly result since 4Q18
• Generated $565 million in cash from operations; finished the quarter with a cash balance of $1.9 billion, including restricted cash of $110 million
• Recorded quarterly net loss of $392 million and loss per share of $2.11, which includes $1.1 billion of restructuring charges, primarily related to pension actions
• Realized quarterly records for adjusted net income and Adjusted EBITDA excluding special items of $475 million and $896 million, respectively
• Returned capital to stockholders through $150 million in share repurchases; paid the Company’s first cash dividend of $19 million
• Sold the Rockdale site in Texas for $240 million
• Reached agreement to curtail the San Ciprián smelter in Spain for two years; announced permanent closure of Wenatchee smelter in United States

Full Year Highlights

• Posted highest annual net income of $429 million and earnings per share of $2.26
• Generated revenue of $12.2 billion, an increase of 31 percent from 2020 and the highest since 2018
• Realized a 140 percent annual increase in Adjusted EBITDA excluding special items to $2.8 billion
• Improved the balance sheet by eliminating long term debt maturities until 2027; redeemed $750 million and $500 million in higher interest rate notes and issued $500 million in lower interest rate notes
• Reduced debt; finished year with total debt of $1.8 billion and net cash of $12 million; reduced adjusted proportional net debt from $3.4 billion at end of 2020 to $1.1 billion on December 31, 2021
• Reduced pension liabilities through annuitization actions; gross U.S. qualified pension liabilities fell to $2.6 billion on December 31, 2021, from $4.5 billion at year end 2020
• Generated net cash proceeds of $966 million from noncore asset sales
• Advanced progress on five-year portfolio review of operating capacity in the Aluminum segment

Financial Results

“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 Alcoa President and Chief Executive Officer Roy Harvey. “Our performance demonstrates that our long-term strategies are delivering value and strengthening Alcoa, so we can be successful through all phases of the commodity cycle.

“Thanks to the dedication and excellent performance of Alcoa employees across the globe, we are now stronger than ever and well positioned to realize our vision to reinvent the aluminum industry for a sustainable future,” Harvey continued. “We have a talented workforce, a portfolio of strategically located assets, a suite of low-carbon products, and innovative technologies with the potential to transform our industry.”

Fourth Quarter 2021 Results

• Revenue: Higher alumina and aluminum prices drove a 7 percent sequential increase in revenue to $3.3 billion. On a sequential basis, the average realized third-party price of alumina increased 30 percent and the average realized third-party price of aluminum increased 8 percent.
  
  
  
  
• Shipments: In Aluminum, total third-party shipments decreased 5 percent sequentially due primarily to a strike action at the San Ciprián smelter, which blocked shipments in the fourth quarter. The reduced shipments were partially offset by increased shipments in the fourth quarter from other European and Canadian smelters. Shipment volume for value add aluminum products, which includes specific shapes and alloys such as billet, slab, foundry, and rod, increased 9 percent sequentially, after removing the impact of the strike at the San Ciprián smelter. In Alumina, third-party shipments decreased 5 percent sequentially primarily due to impacts of a strike at the San Ciprián refinery reducing production in the fourth quarter.
  
  
  
  
• Production: Aluminum production increased 2 percent sequentially, following the third quarter’s strong output. Alumina segment production was up 1 percent with higher production at the Alumar refinery, after that facility’s recovery from the outage of a bauxite unloader in the third quarter, offsetting negative impacts to alumina production at San Ciprián refinery during strike actions at the facility.
  
  
  
  
• Net loss attributable to Alcoa Corporation of $392 million, or $(2.11) per share, a decline from the prior quarter’s net income of $337 million, or $1.76 per share. The loss is primarily due to restructuring related charges recorded in the fourth quarter, including $921 million for noncash pension settlement charges, $90 million for the permanent closure of the Wenatchee aluminum smelter, and $62 million for the curtailment of the San Ciprián aluminum smelter. The pension charges relate primarily to the purchase of approximately $1.5 billion of annuity contracts for certain U.S. pension plans. The fourth quarter of 2021 also includes a $97 million discrete tax expense to record a valuation allowance on the Company’s Spanish alumina subsidiary’s deferred tax assets. The loss was partially offset by strong operational performance, continued strength in aluminum and alumina prices, and gains from noncore asset sales.
  
  
  
  
• Adjusted net income increased 21 percent sequentially to $475 million, or $2.50 per share, excluding the impact from net special items of $867 million. Notable special items include restructuring charges of $1.05 billion (primarily pension actions, San Ciprián and Wenatchee as discussed above), the discrete tax expense of $97 million (discussed above), partially offset by gains from noncore asset sales of $222 million, including the sale of the Rockdale site, and the non-controlling partner’s share of special items of $63 million.
  
  
  
  
• Adjusted EBITDA excluding special items increased 23 percent sequentially to $896 million, primarily due to higher aluminum and alumina prices.
  
  
  
  
• Cash: Alcoa ended the quarter with cash on hand of $1.9 billion, including restricted cash. In connection with the agreement to temporarily curtail the San Ciprián aluminum facility in Spain, the Company committed to restrict cash of $103 million for capital expenditures and future restart costs. This restricted cash is recorded within the other noncurrent assets line on the Company’s balance sheet.
  
  
  
  Cash provided from operations was $565 million. Cash used for financing activities was $192 million, primarily related to $150 million in share repurchases and $19 million in cash dividends on common stock. Cash provided from investing activities was $94 million with $251 million in proceeds from asset sales, primarily Rockdale, partially offset by $153 million in capital expenditures. Free cash flow was $412 million.
  
  
  
  
• Working capital: The Company reported 29 days working capital, consistent with the third quarter of 2021. Changes in sequential working capital include a three-day unfavorable impact for the workers’ strike at San Ciprián, which blocked over 50,000 metric tons of metal shipments, fully offset by lower days on hand inventory and favorable receivables collection terms which more than offset higher realized aluminum and alumina sales prices.

Full Year 2021 Results

• Revenue: Higher aluminum and alumina prices, and higher premiums for value add products, drove a 31 percent increase in revenue in 2021 to $12.2 billion. Annually, the average realized third-party price of primary aluminum increased 50 percent and the average realized third-party price of alumina increased 19 percent.
  
  
  
  
• Shipments: In Aluminum, total third-party shipments were flat on a year-over-year basis, primarily due to changes at three smelting facilities: Aluminerie de Bécancour Inc. (ABI) smelter in Québec, San Ciprián and Intalco. ABI had a full year of production in 2021, after finishing a full restart in the third quarter of 2020; San Ciprian had 2021 sales of accumulated inventory from a 2020 strike action, which helped offset the reduction from the Intalco curtailment completed in the third quarter of 2020. Shipment volume for value add aluminum products increased 18 percent in 2021 due to higher demand and the restart of ABI. In Alumina, third-party shipments were flat.
  
  
  
  
• Production: Aluminum production decreased 3 percent annually, primarily due to the curtailment of the Intalco smelter in the third quarter of 2020 more than offsetting the increase from the ABI restart also in the third quarter of 2020. Alumina segment production decreased 2 percent annually primarily due to lower production at the Alumar refinery related to damage to a bauxite unloader in the third quarter of 2021.
  
  
  
  
• Net income attributable to Alcoa Corporation of $429 million, or $2.26 per share, was an improvement from 2020 net loss of $170 million, or $0.91 per share. The strong results are primarily due to higher pricing for aluminum and alumina, partially offset by $1.1 billion of restructuring charges, as well as higher raw materials and energy costs.
  
  
  
  
• Adjusted net income increased significantly in 2021 to $1.3 billion, or $6.83 per share, excluding the impact from net special items of $868 million. Notable special items include charges of $968 million for the various pension related actions, $90 million for the permanent closure of the Wenatchee aluminum smelter, $62 million for the curtailment of the San Ciprián aluminum smelter, $54 million in debt redemption expenses, and $97 million to establish a deferred tax asset valuation allowance on the Company’s Spanish alumina subsidiary. These charges were partially offset by gains from noncore assets sales of $352 million, primarily related to the sale of the Warrick rolling mill, the Rockdale site, and the sale of the Eastalco site, as well as $66 million for the non-controlling partner’s share of special items.
  
  
  
  
• Adjusted EBITDA excluding special items increased 140 percent sequentially to $2.8 billion, primarily due to higher aluminum and alumina prices.
  
  
  
  
• Cash and debt: Alcoa ended 2021 with cash on hand of $1.9 billion, including restricted cash of $110 million. Significant cash uses during the year included the early redemption of $750 million aggregate principal amount of 6.75 percent senior notes due in 2024 and $500 million aggregate principal amount of 7.00 percent senior notes due in 2026, a contribution of $500 million to the U.S. pension plans, share repurchases of $150 million and cash dividends on common stock of $19 million. Significant cash sources included proceeds of $966 million from noncore asset sales and $493 million in net proceeds from the March 2021 debt issuance.
  
  
  
  The debt activity moves the Company’s total debt to $1.8 billion and proportional adjusted net debt to $1.1 billion. The Company ended the year with positive net cash of $12 million.
  
  
  
  Cash provided from operations was $920 million. Cash used for financing activities was $1.16 billion, primarily related to the early debt redemptions offsetting the debt issuance and capital returns. Cash provided from investing activities was $565 million due to $966 million in cash proceeds from noncore asset sales offset by $390 million of capital expenditures. Free cash flow was $530 million.

• Working capital: The Company reported 29 days working capital, up 9 days from the end of 2020. Working capital in 2021 increased as higher sales decreased days payable despite higher production input costs, partially offset by a decrease in inventory days on hand. Days receivable remained consistent with sales, on higher aluminum and alumina prices. Both 2021 and 2020 year-end working capital amounts include the impact of strike actions at San Ciprián, which blocked over 50,000 metric tons of metal shipments, representing approximately 3 days working capital in both periods.

Portfolio Review

In 2021, Alcoa continued to make progress against its five-year review of its operating portfolio. First announced in October of 2019, the portfolio review considers options for improvement, curtailment, closure or divestiture. The Company has now achieved approximately 75 percent of its 1.5 million metric ton goal in its smelting portfolio review through announced actions that include: The permanent closure of the Wenatchee smelter in the United States, announced energy improvements and restarts at Portland Aluminium in Australia and Alumar in Brazil, the curtailment of the Intalco smelter in Washington State, and the planned, two-year curtailment for the San Ciprián aluminum smelter in Spain.

On December 29, 2021, Alcoa reached an agreement with the workers’ representatives at the San Ciprián aluminum smelter in Spain to fully curtail for two years the site’s 228,000 metric tons of annual capacity. As part of the agreement, the Company has agreed to restart of the smelter in January 2024 and will seek competitive, long-term power purchase agreements that would begin in 2024. During the curtailment, the casthouse and the San Ciprián alumina refinery will continue to operate.

Advancing Sustainably

In November 2021, Alcoa hosted a virtual Investor Day and announced a technology roadmap that supports the Company’s vision to reinvent the aluminum industry for a sustainable future. The roadmap includes a series of research and development programs that have the potential to drive value by reducing costs, improving efficiency, and reducing carbon emissions in both alumina refining and aluminum smelting.

The technology roadmap also supports Alcoa’s pathway to achieve its ambition for net zero greenhouse gas (GHG) emissions by 2050 across global operations, including Scope 1 and Scope 2 emissions. The net zero ambition, which the Company announced in October of 2021, aligns with Alcoa’s strategic priority to advance sustainability.

Alcoa continues to pursue additional certifications from the Aluminum Stewardship Initiative (ASI), the aluminum industry’s most comprehensive third-party program to validate responsible production practices. The Company, which is consistently recognized via the Dow Jones Sustainability Indices, currently has 15 global sites certified to ASI and has also earned ASI’s Chain of Custody certification, which allows Alcoa to continue marketing globally ASI-certified bauxite, alumina and aluminum.

2022 Outlook

In 2022, the Company projects total bauxite shipments to range between 48.0 and 49.0 million dry metric tons, consistent with 2021. Total alumina shipments are expected to be between 14.2 and 14.4 million metric tons, an increase from 2021 with the resolution of the San Ciprián strike and recovery from the outage of a bauxite unloader at Alumar. The Aluminum segment is expected to ship between 2.5 and 2.6 million metric tons, a net decrease from 2021 primarily related to the divestiture of the Warrick Rolling Mill and changes in the smelting portfolio.

Alcoa anticipates Adjusted EBITDA and Adjusted net income levels for the first quarter of 2022 to be similar to the fourth quarter of 2021 based on current pricing. Alcoa expects that current metal index price benefits will roughly offset the raw materials and energy challenges, and that improvements from portfolio actions and sales contract pricing will mitigate other seasonal changes and headwinds.

Outside of the market changes, in the first quarter of 2022, Alcoa anticipates lower quarterly performance results in the Bauxite segment due primarily to seasonally lower volumes and higher maintenance, and favorable annual true ups that do not recur in the first quarter. In the Alumina and Aluminum segments, the Company expects improvements related to the San Ciprián strike resolution and smelter curtailment, as well as higher raw materials and energy costs and the non-recurrence of value added tax credits (Brazil).

Based on current alumina and aluminum market conditions, the Company expects first quarter tax expense to approximate $165 million to $170 million, which may vary with market conditions and jurisdictional profitability.

The COVID-19 pandemic is ongoing, and its magnitude and duration continue to be unknown. The Company continues to take appropriate measures to protect its employees and business from the risks of the pandemic by following all appropriate health-based protocols. Uncertainty around the pandemic’s impact on the Company’s business, financial condition, operating results, and cash flows could cause actual results to differ from this outlook.

Conference Call

Alcoa will hold its quarterly conference call at 5:00 p.m. Eastern Standard Time (EST) on Wednesday January 19, 2022, to present first quarter 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. EDT on January 19, 2022. 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 news 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 “anticipates,” “endeavors,” “working,” “potential,” “ambition,” “develop,” “reach,” “believes,” “could,” “estimates,” “expects,” “forecasts,” “goal,” “intends,” “may,” “outlook,” “plans,” “projects,” “seeks,” “sees,” “should,” “targets,” “will,” “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; 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 of the coronavirus (COVID-19) pandemic and related regulatory developments on the global economy and our business, financial condition, results of operations, or cash flows and judgments and assumptions used in our estimates; (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) deterioration in global economic and financial market conditions generally and 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) increases in energy or raw material costs or uncertainty of energy supply or raw materials; (g) 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; (h) the inability to achieve improvement in profitability and margins, cost savings, cash generation, revenue growth, fiscal discipline, sustainability targets, or strengthening of competitiveness and operations anticipated from portfolio actions, operational and productivity improvements, technology advancements, and other initiatives; (i) 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; (j) political, economic, trade, legal, public health and safety, and regulatory risks in the countries in which Alcoa Corporation operates or sells products; (k) labor disputes and/or work stoppages and strikes; (l) the outcome of contingencies, including legal and tax proceedings, government or regulatory investigations, and environmental remediation; (m) the impact of cyberattacks and potential information technology or data security breaches; (n) risks associated with long-term debt obligations; (o) the timing and amount of future cash dividends and share repurchases; and (p) the other risk factors discussed in Part I Item 1A of Alcoa Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 and other reports filed by Alcoa Corporation with the U.S. Securities and Exchange Commission. Alcoa Corporation disclaims any obligation to update publicly any forward-looking statements, whether in response to new information, future events or otherwise, except as required by applicable law. Market projections are subject to the risks described above and other risks in the market.

Non-GAAP Financial Measures

Some of the information included in this release is derived from Alcoa Corporation’s consolidated financial information but is not presented in Alcoa Corporation’s financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). Certain of these data are considered “non-GAAP financial measures” under SEC regulations. Alcoa Corporation believes that the presentation of non-GAAP financial measures is useful to investors because such measures provide both additional information about the operating performance of Alcoa Corporation and insight on the ability of Alcoa Corporation to meet its financial obligations by adjusting the most directly comparable GAAP financial measure for the impact of, among others, “special items” as defined by the Company, non-cash items in nature, and/or nonoperating expense or income items. The presentation of non-GAAP financial measures is not intended to be a substitute for, and should not be considered in isolation from, the financial measures reported in accordance with GAAP. Reconciliations to the most directly comparable GAAP financial measures and management’s rationale for the use of the non-GAAP financial measures can be found in the schedules to this release.

Net income (loss) attributable to Alcoa Corporation – as adjusted is a non-GAAP financial measure. Management believes this measure is meaningful to investors because management reviews the operating results of Alcoa Corporation excluding the impacts of restructuring and other charges, various tax items, and other special items (collectively, “special items”). There can be no assurances that additional special items will not occur in future periods. To compensate for this limitation, management believes it is appropriate to consider both Net (loss) income attributable to Alcoa Corporation determined under GAAP as well as Net income (loss) attributable to Alcoa Corporation – as adjusted.