Strong productivity, solid value-add profitability, and Alumina strength

3Q 2015 Highlights

  • Net income of $44 million, or $0.02 per share;
    excluding special items, net income of $109 million, or $0.07 per share
  • $5.6 billion revenue down approximately 11 percent year-over-year, reflecting a 21 percent decline from divestitures, closures and market headwinds, partially offset by a 10 percent revenue increase from aerospace and automotive organic growth, acquisitions and Alumina sales
  • $3.4 billion revenue, after-tax operating income of $257 million, and adjusted EBITDA of $508 million for combined Value-Add businesses
    • Engineered Products and Solutions record revenue of $1.4 billion;
      aerospace revenue up 39 percent year-over-year
    • Global Rolled Products automotive revenue up 133 percent year-over-year
  • $2.2 billion revenue, after-tax operating income of $153 million, and adjusted EBITDA of $379 million for combined Upstream businesses
    • Best Alumina profitability year-to-date since 2007, offset by Primary Metals as Midwest transaction price declined $641 per metric ton, or 27.2 percent, year-to-date
  • $287 million year-over-year productivity gains; year-to-date productivity gains of $849 million, as compared to annual 2015 target of $900 million
  • $420 million cash from operations and free cash flow of $152 million; $1.7 billion cash on hand

3Q 2015 Portfolio Transformation Highlights

  • Announced that Alcoa’s Board of Directors unanimously approved plan to create two independent, public companies—a Value-Add Company and an Upstream Company— resulting from successful multi-year transformation
  • Completed RTI International Metals acquisition growing titanium offerings and advanced manufacturing technologies; signed approximately $1.1 billion Lockheed Martin contract that draws on new titanium capabilities gained through RTI
  • Signed an approximately $1 billion contract with Airbus for high-tech, multi-material fastening systems
  • Announced $60 million Alcoa Technical Center investment to deepen additive manufacturing capabilities for aerospace and other high growth markets
  • Reached joint development agreement with Ford Motor Company to collaborate on next-generation aluminum alloys using Alcoa MicromillTM technology; Alcoa Micromill® material to debut on 2016 Ford F-150; signed letter of intent with Danieli Group to commercialize Micromill technology in worldwide licensing deal
  • Began shipments from newly expanded Alcoa, Tennessee automotive facility and announced plan to restart Texarkana, Texas casthouse to meet higher aluminum demand from automotive industry
  • Received approval from Government of Western Australia to export trial bauxite shipments from Willowdale and Huntly mines, targeting early 2016
  • Saudi Arabia Ma’aden-Alcoa joint venture mine completed; smelter on track to produce nameplate capacity of 740,000 metric tons of aluminum, and refinery projected to produce 1 million metric tons of alumina, both in 2015
  • Announced curtailment of remaining capacity at Suralco refinery in Suriname; permanently closed Anglesea coal mine and power station in Australia

NEW YORK–(BUSINESS WIRE)–Lightweight metals leader Alcoa (NYSE:AA) today reported a third quarter profit as its value-add and upstream portfolios delivered solid results in the face of strong market and currency headwinds. Alcoa has been transforming by building its value-add portfolio for profitable growth and creating a globally competitive upstream business. The Company’s successful multi-year transformation will culminate with the launch of two Fortune 500 companies, one value-add focused and the other upstream focused, expected in the second half of 2016.

“The third quarter brought economic headwinds and significant volatility in some of our markets”

Alcoa reported third quarter 2015 net income of $44 million, or $0.02 per share, including $65 million in net unfavorable special items. Special items included restructuring-related costs to optimize the upstream portfolio and transaction costs, partially offset by gains on asset sales. Third quarter 2015 results compare to net income of $149 million, or $0.12 per share, in third quarter 2014.

Excluding special items, third quarter 2015 net income was $109 million, or $0.07 per share, led by strong productivity gains and solid midstream and downstream profitability, offset by lower metal prices. The Midwest transaction price was down $641 per metric ton, or 27.2 percent, year-to-date through September 30, 2015. Third quarter 2015 results, excluding special items, compare to net income of $370 million, or $0.31 per share, in third quarter 2014.

Third quarter 2015 revenue totaled $5.6 billion, down approximately 11 percent year-over-year. Divesting and closing lower-margin businesses and market headwinds caused third quarter revenue to fall 21 percent. This decrease was partially offset by a 10 percent third quarter revenue increase from organic growth in aerospace, automotive and alumina, combined with acquisitions.

“The third quarter brought economic headwinds and significant volatility in some of our markets,” said Klaus Kleinfeld, Chairman and Chief Executive Officer. “We continue to be laser focused on the things we can control. We have successfully made our Upstream businesses less vulnerable to commodity downswings. We have intensified innovation and growth in the Value-Add businesses, and it shows through the solid underlying performance despite currency movements and market fluctuations. Our productivity performance was strong combined with good cash generation. While we cannot control external factors, we do remain focused on what we can control—making our businesses more resilient.”

2015 End Market Forecasts

In its global end markets, Alcoa maintained 2015 estimates for global aerospace sales growth of 8 to 9 percent. In industrial gas turbines, Alcoa increased its 2015 forecast for global airfoil market growth of 3 to 4 percent, up from 1 to 3 percent.

In North America, Alcoa tightened 2015 estimates for automotive production to up 2 to 4 percent, from up 1 to 4 percent; maintained its 2015 estimate for heavy duty truck and trailer production growth of 9 to 11 percent; held steady its 2015 projection for commercial building and construction sales growth at 4 to 5 percent; and kept its 2015 packaging estimate unchanged at down 1 to 2 percent.

In Europe, the Company updated its projection for 2015 automotive production growth to up 1 to 3 percent, from down 1 to up 3 percent; raised its 2015 heavy duty truck and trailer production forecast to up 1 to 3 percent, from down 2 percent to flat; maintained its 2015 commercial building and construction sales growth estimate at down 2 to 3 percent; and kept its 2015 packaging estimate unchanged at up 1 to 2 percent.

In China, Alcoa lowered its estimate for 2015 automotive production growth to up 1 to 2 percent, from up 5 to 8 percent; reduced its projection for 2015 heavy duty truck and trailer production growth to down 22 to 24 percent, from down 14 to 16 percent; reduced its 2015 commercial building and construction sales growth to up 4 to 6 percent from up 6 to 8 percent; and kept its 2015 packaging estimate unchanged at up 8 to 12 percent.

In addition, Alcoa reaffirmed its projections that global aluminum demand is expected to increase 6.5 percent in 2015 and double between 2010 and 2020; so far this decade, global demand growth is tracking ahead of this projection. Alcoa is also projecting a global aluminum deficit for 2016.

Value-Add Portfolio Transformation

After the separation, the innovation and technology-driven Value-Add Company will include Global Rolled Products, Engineered Products and Solutions, and Transportation and Construction Solutions. In the third quarter, these combined business segments reported revenue of $3.4 billion, after-tax operating income (ATOI) of $257 million, and adjusted EBITDA of $508 million.

In the third quarter, the Company acquired RTI International Metals. Earlier this month, Alcoa announced an approximately $1.1 billion contract with Lockheed Martin that draws on new titanium capabilities gained through RTI. Under the contract, Alcoa becomes the titanium supplier for airframe structures for

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