Alcoa Corp (AA) Q2 2024 Earnings Summary

Executive Summary

• Q2 2024 delivered sequential improvement: revenue $2.91B (+12%), GAAP EPS $0.11, adjusted EPS $0.16, and adjusted EBITDA ex-special items $325M on higher alumina and aluminum prices and lower production/raw material costs .
• Versus prior year (Q2 2023), revenue rose 8%, EPS improved from $(0.57) to $0.11, and adjusted EBITDA ex-special items more than doubled from $137M to $325M, reflecting market tailwinds and internal profitability programs .
• Guidance maintained for 2024 production/shipments; Q3 outlook calls for Alumina segment EBITDA headwind ($10M) from bauxite grade in Australia, Aluminum segment tailwind ($10M) from raw materials, higher interest expense (+$5M), and operational tax $60–$70M .
• Strategic catalysts: closing of Alumina Limited acquisition (expected Aug 1), full curtailment of Kwinana, and ELYSIS’s industrial-scale demonstration plan with Rio Tinto; dividend maintained at $0.10/share .

What Went Well and What Went Wrong

• What Went Well

  • Pricing tailwinds and execution: “continuous improvement focus… along with positive markets, led to stronger results” with revenue +12% q/q and adjusted EBITDA ex-specials +$193M q/q .
  • Segment performance: Aluminum segment adjusted EBITDA surged to $233M (+$183M q/q) on higher metal prices and lower production costs; Alumina segment adjusted EBITDA increased to $186M (+$47M q/q), led by price strength .
  • Cash generation and working capital: Free cash flow turned positive ($123M) and days working capital improved to 41 (−6 q/q) .

• What Went Wrong

  • Energy and alumina input costs: Higher energy costs pressured results; Q3 Aluminum segment expected to see $60M alumina cost headwind despite overall EBITDA benefit from higher alumina pricing .
  • Bauxite quality in Australia: Management flagged ~$10M unfavorable Alumina segment impact in Q3 due to lower bauxite grade-driven maintenance .
  • San Ciprián uncertainty: Losses persisted; sale process advancing but outcome depends on government/union support; cash likely exhausted by end-2024 without resolution .

Financial Results

Segment breakdown

KPIs

Non-GAAP adjustments and impacts

• Q2 special items netted $10M: $26M mark-to-market energy gains offset by $18M restructuring, plus tax/NCI impacts; adjusted EPS $0.16 vs GAAP $0.11 .

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “Our continuous improvement focus remains high and, along with positive markets, led to stronger results for the second quarter.” — CEO William Oplinger .
• “The alumina industry today is in a fairly unique situation… we exited the second quarter in a deficit… about a 3 million metric ton deficit [full year].” — CEO William Oplinger .
• “We are not going into the global shipping business… this is almost like having a conveyor belt… on the water.” — CEO William Oplinger on Brazil vessel savings .
• “Other corporate costs [Q3]… changing from approximately $120 million to approximately $140 million… interest expense [to] approximately $160 million related to Alumina Limited debt.” — CFO Molly Beerman .

Q&A Highlights

• Alumina deficit and pricing: Tight inventories and elevated alumina prices (~$480/mt cited in discussion) could pressure marginal smelters in SE Asia/Middle East/India if sustained .
• Bauxite grade impact: ~$10M Q3 Alumina segment headwind from maintenance required to operate at lower bauxite quality; teams defining spend levels .
• Logistics savings: Brazil vessel strategy delivers just over $30M annual savings; framed as targeted logistics optimization, not a broader move into shipping .
• Deleveraging approach: Utilize free cash flow and targeted debt placement/paydowns post acquisition; no signal of asset sales; focus on debt mix and location .
• 45X scope: Inclusion of direct materials could add $30–$40M; timing uncertain; current 45X cadence benefits Warrick/Massena .

Estimates Context

• Wall Street consensus (S&P Global) for Q2 2024 EPS/revenue was not accessible due to a temporary SPGI request limit; thus, estimate comparisons are unavailable at this time. Values retrieved from S&P Global.*

Key Takeaways for Investors

• Operational momentum plus pricing tailwinds drove a clean sequential inflection: adjusted EBITDA margin expanded to 11.2% from 5.1% q/q; continued focus on cost, logistics, and working capital supports cash generation .
• Aluminum segment leverage is re-asserting: shipments +7% q/q, average realized price +9%, segment EBITDA +$183M q/q—key upside driver into stronger metal markets .
• Near-term mix: Q3 setup is balanced—Alumina segment maintenance headwind ($10M) vs Aluminum raw material tailwind ($10M), plus higher interest (+$5M) and elevated operational taxes ($60–$70M) .
• Strategic optionality: Alumina Limited acquisition enhances integration and capital flexibility; ELYSIS demo by 2027 positions Alcoa for low-carbon metal premium capture .
• Watch risks: Energy costs and alumina input pass-throughs, San Ciprián resolution timing, and bauxite quality impacts in Australia could introduce volatility .
• Trading implications: Positive pricing/mix trajectory and EBITDA expansion argue for near-term momentum; monitor Q3 tax/interest drag and alumina/aluminum price paths for sensitivity .
• Medium-term thesis: Structural low-carbon premiums, integrated alumina/aluminum positioning, and cost programs (~$645M target by YE 2025, >$350M on track) support margin normalization into upcycle .