July 8, 2009
Alcoa Second Quarter 2009 Results – Solid Cash Performance
- $328 million cash from operations, a $599 million improvement from 1Q09.
- Free cash flow improvement of $652 million from 1Q09.
- Performed well against every operational cash sustainability target.
- Loss from continuing operations of $312 million, or $0.32 per share, a $168 million improvement over 1Q09.
- Excluding restructuring, loss was $256 million, or $0.26 per share.
- Revenues of $4.2 billion, up 2% from 1Q09, but down 41% from 2Q08 on economic downturn and 49% drop in metal price.
- Strong liquidity with $851 million of cash on hand.
- Debt-to-Capital ratio down 80 basis points from 1Q09 to 39.8%.
NEW YORK--(BUSINESS WIRE)--Alcoa (NYSE: AA) today announced it generated cash from operations in the second quarter of 2009 of $328 million, a $599 million improvement from the first quarter. This improvement was driven by the Company’s wide-ranging financial and operational initiatives to reduce costs, increase cash, and strengthen its balance sheet.
The second quarter of 2009 showed a loss from continuing operations of $312 million, or $0.32 per share. Excluding restructuring charges, the loss was $256 million, or $0.26 per share. The loss from continuing operations showed a $168 million improvement in the second quarter of 2009 compared with the first quarter loss from continuing operations of $480 million, or $0.59 per share. Earnings from continuing operations in the second quarter of 2008 were $553 million, or $0.67 per share.
Revenues for the quarter were $4.2 billion, a two percent increase from the first quarter of 2009, but a decrease from the $7.2 billion in the second quarter of 2008, as a result of the impact of lower metal prices and the Company’s curtailment of aluminum and alumina production in response to reduced demand. The average price of aluminum on the London Metal Exchange in the second quarter of 2009 was $1,485 per metric ton (mt), a nine percent increase from the first quarter of 2009, but a 49 percent decrease from the second quarter of 2008. The economic downturn has affected most of Alcoa’s end markets – automotive, commercial transportation, building and construction, and aerospace.
“Our cash generation initiatives, productivity improvements, and portfolio changes are working. Now Alcoa has the staying power and reduced cost base to withstand the most serious downturn in the history of the aluminum industry,” said Klaus Kleinfeld, Alcoa President and Chief Executive Officer. “Our operational and financial initiatives also provide Alcoa with the focus and flexibility to compete and grow in the most profitable segments of the industry as the economy recovers.”
The Company has achieved approximately $1.0 billion in procurement savings through the first half of the year, or approximately two-thirds of the full year target. Overhead savings year-to-date are approximately $270 million, or 134 percent of the full year target for 2009. And, rigorous management of working capital has generated $680 million in cash, or 85 percent of the 2009 target of $800 million.
Capital expenditures in the quarter were $418 million and are on target to reach the 2009 goal of a nearly 50 percent reduction from 2008; the capital plan for 2010 calls for a further 50 percent reduction to $850 million. The Juruti bauxite mine in Brazil and the Alumar alumina refining upgrade and expansion are both in the process of being commissioned. First shipment of bauxite from Juruti is expected to occur within the next ninety days. The Alumar refinery has already begun to produce its first alumina and is on target for ramp-up to full production during the second half of the year. The upgrade and expansion project will increase the output of the refinery from approximately 1.5 million mt to a total production capacity of 3.5 million mt per year for the Alumar consortium.
The Company’s debt-to-capital ratio stood at 39.8 percent at the end of the quarter, an 80 basis point reduction from the first quarter of 2009. Free cash flow in the quarter was a negative $90 million, but was a $652 million improvement from the first quarter of 2009. As the Company continues to implement its cash generation programs, it finished the quarter with $851 million of cash on hand.
Discontinued operations for the second quarter of 2009 had a loss of $142 million, or $0.15 per share, primarily reflecting the impact of exiting the electrical and electronics solutions business, which was completed in June. The first quarter of 2009 had a loss of $17 million, or $0.02 per share.
The second quarter of 2009 had a net loss of $454 million, or $0.47 per share, compared with a net loss for the first quarter of 2009 of $497 million, or $0.61 per share. Net income in the second quarter of 2008 was $546 million, or $0.66 per share.
Revenues for the first half of 2009 were $8.4 billion, compared to $14.2 billion in the first half of 2008. For the first half of 2009, income from continuing operations showed a loss of $792 million, or $0.89 per share, compared with income of $852 million, or $1.03 per share, in the first half of 2008. The first half of 2009 showed a net loss of $951 million, or $1.06 per share, compared to net income of $849 million, or $1.03 per share, in the first half of 2008.
After-tax operating income (ATOI) was a loss of $7 million, a decrease of $42 million from the prior quarter. Production declined 136 thousand mt, or four percent sequentially, mainly due to curtailments at Point Comfort and Suriname. Unfavorable currency and lower LME-based pricing was partially offset by productivity gains.
ATOI was a loss of $178 million, an improvement of $34 million from the prior quarter, which included a non-cash gain related to the Orkla ASA exchange of $112 million. Realized pricing increased six percent, or $100 per mt sequentially. Benefits from productivity gains more than offset the impact of unfavorable currency. Production increased by 26 thousand mt in the quarter due to record production in Iceland as well as the addition of the Norway smelters, which more than offset the effects of the Tennessee and Massena East curtailments.
ATOI was a loss of $35 million, an improvement of $26 million from the prior quarter. Revenues declined five percent sequentially driven by significant volume declines in all end markets except automotive and packaging. Benefits from productivity gains more than offset the impacts of unfavorable currency and volume declines in all other markets.
Engineered Products and Solutions
ATOI was $88 million, a decrease of $7 million or seven percent from the prior quarter. Weakening conditions in the aerospace and building and construction markets were partially offset by productivity gains. Revenues declined six percent from the prior quarter due to weak end markets. This segment was expanded to include the hard alloy extrusions business which had previously been included in the Flat-Rolled Products segment.
Alcoa will hold its quarterly conference call at 5:00 PM Eastern Time on July 8, 2009 to present the quarter's results. The meeting will be webcast via alcoa.com. Call information and related details are available at www.alcoa.com under "Invest.”
Alcoa is the world leader in the production and management of primary aluminum, fabricated aluminum, and alumina combined, through its active and growing participation in all major aspects of the industry. Alcoa serves the aerospace, automotive, packaging, building and construction, commercial transportation, and industrial markets, bringing design, engineering, production, and other capabilities of Alcoa's businesses to customers. In addition to aluminum products and components, including flat-rolled products, hard alloy extrusions, and forgings, Alcoa also markets Alcoa® wheels, fastening systems, precision and investment castings, and building systems. The Company has been named one of the top most sustainable corporations in the world at the World Economic Forum in Davos, Switzerland, and has been a member of the Dow Jones Sustainability Index for seven consecutive years. Alcoa employs approximately 63,000 people in 31 countries across the world. More information can be found at www.alcoa.com.
Certain statements in this release relate to future events and expectations and, as such, constitute forward-looking statements involving known and unknown risks and uncertainties that may cause actual results, performance, or achievements of Alcoa to be different from those expressed or implied in the forward-looking statements. Alcoa 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. Important factors that could cause actual results to differ materially from those in the forward-looking statements include: (a) material adverse changes in economic or aluminum industry conditions generally, including global supply and demand conditions and fluctuations in London Metal Exchange-based prices for primary aluminum, alumina, and other products; (b) material adverse changes in the markets served by Alcoa, including automotive and commercial transportation, aerospace, building and construction, distribution, packaging, industrial gas turbine, and other markets; (c) Alcoa's inability to mitigate impacts from energy supply interruptions or from increased energy, transportation, and raw materials costs or other cost inflation; (d) Alcoa’s inability to achieve the level of cash generation, return on capital improvement, cost savings, or earnings or revenue growth anticipated by management in connection with its restructuring, portfolio streamlining, and liquidity strengthening actions; (e) Alcoa's inability to complete its Brazilian growth projects and portfolio streamlining projects or achieve efficiency improvements at newly constructed or acquired facilities as planned and by targeted completion dates; (f) unfavorable changes in laws, governmental regulations or policies, foreign currency exchange rates or competitive factors in the countries in which Alcoa operates; (g) significant legal proceedings or investigations adverse to Alcoa, including environmental, product liability, safety and health, and other claims; and (h) the other risk factors summarized in Alcoa's Form 10-K for the year ended December 31, 2008, Form 10-Q for the quarter ended March 31, 2009, and other reports filed with the Securities and Exchange Commission.