Executive Vice President & Chief Financial Officer, ALCOA CORP
Alcoa (AA) EVP & CFO on Aluminum Prices’ Impact on Earnings
Alcoa's (AA) 1Q adjusted EPS came in at -$0.81 and revenue came in at $2.60B. EVP and CFO Molly Beerman joins Diane King ...
About Molly Beerman
Molly Beerman, Executive Vice President and Chief Financial Officer of Alcoa, discussed the company's quarterly results and strategic initiatives in a September 2024 interview. She described the quarter as "action packed," citing three major initiatives: the announcement of Alcoa's acquisition of Alumina Limited, improvements in market demand recovery, and actions to improve the company's portfolio. Beerman stated that the acquisition would give Alcoa 100% control of the entity at a 13.1% premium for Alumina Limited shareholders, and that it would simplify the joint venture structure and accelerate decision-making. She also noted that Alcoa would gain full economic interest in five of the 20 largest bauxite mines and five of the 20 largest alumina refineries outside of China. Beerman reported that Alcoa was seeing raw material prices decline, particularly caustic soda, coke, and pitch, which had been high in 2022 and 2023. She said the company had locked in another quarter of savings and expected to exceed its goal of $310 million in year-over-year raw material improvements. Beerman also noted that Alcoa had introduced a competitiveness and productivity program with a goal of achieving $100 million in run rate savings by the first quarter of 2025, and that the program was on track. Regarding demand, she stated that Alcoa was seeing growth across the board in North America and Europe, with the exception of building and construction in Europe, which was down slightly. Beerman added that further interest rate cuts could help the building and construction markets, which were still facing high interest costs.
Transcript (19 segments)
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Diane King Hall0:03
Live, I'm Diane King Hall. We want to dive into Alcoa after the aluminum giant released its latest quarterly report card. Stock is taking a little bit higher in the early action. Joining us now to discuss the latest report is CFO Molly Bierman. Molly, thank you so much for joining us this morning. First up, I just want to set the stage a little bit here. Alcoa, I have been covering markets long enough to remember when it was the first up at bat in terms of reporting numbers, and was talking to some of the guys down here. We missed that aspect of that was the kickoff of earnings season. But let's talk big picture first. What's the big picture takeaway from your results that we should be paying attention to?
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Molly Beerman0:47
Thanks, Diane. It was an action packed quarter for Alcoa. We had three major initiatives in the quarter. The first was our announcement of our acquisition of Alumina Limited. That is our JV partner in the Alcoa world, Alumina and Chemicals. They have a 40% share, and we're buying the full ownership of that. We also see improvements in our market demand recovery. So that's good news as well. And we're taking actions to improve our portfolio. So lots of activities for us to report an exciting quarter. And I'll be happy to talk about any more of those in more detail.
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Diane King Hall1:23
Well, let's talk specifically about actions to improve the portfolio. So can you expand on that?
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Molly Beerman1:30
So last quarter we guided to a list of initiatives to improve our near-term profitability. So the first was raw materials. We outlined a goal to deliver year over year improvements of 310 million. Fortunately we've locked in another quarter of savings. And we're actually going to exceed that on a year over year basis in 2024 versus the 23 raw material performance. We also introduced a competitiveness and productivity program, and that has a goal to achieve 100 million in run rate savings by the first quarter of 2025. That program is now deployed, and we're on track to deliver that. Last, we listed a series of portfolio actions that we're taking, and each of those is designed also to deliver improved profitability.
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Diane King Hall2:19
And speaking of raw materials, talk to us about the impact of inflation on materials for you all.
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Molly Beerman2:26
So fortunately, we are seeing our raw material prices come down primarily in our aluminum business. We use caustic soda. Those had extremely high levels at the end of 22 that carried over into 2023, but in the second half of 23, those prices started to come down. With our lag in inventory, we're seeing great PNL reductions in raw materials. They're similarly in our smelting operations, we use coke and pitch. Those have a nice trajectory downward as well. Since those highs that were reached at the end of 22, that spilled into 23. And those are continuing to come down even today.
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Diane King Hall3:10
And then so you anticipate a further pullback in terms of kind of the price of commodities in general?
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Molly Beerman3:16
Well, for us on the raw materials side, in our primaries, again, I think caustic will probably stay at about the same level it is now. But we expect continuing declines in prices and coke and pitch. When we look at our commodities, fortunately both alumina the API as well as aluminum priced on the LME, we're seeing price increases there. Alumina has reached its highest price in about two years, and aluminum just reached a one year high.
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Diane King Hall3:49
And then let's talk about just what the demand picture looks like for aluminum. What does it look like for the quarter ahead?
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Molly Beerman3:59
Yeah. So in the markets that we serve primarily North America and your European customers for our metal, we are seeing demand growth across the board. The only slight exception there is building and construction in Europe, that is down slightly, but we're seeing a lot of growth in auto as well as electrical.
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Diane King Hall4:19
And then when you say the, oh, go ahead, I apologize. Finish your thought.
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Molly Beerman4:23
No problem at all. If you look at how this shows up for us, it's in our value add product sales. So these are our products that are aluminum shapes with alloys added. And we see a lot of strength in both foundry and rod. And that does align again with that growth. And particularly strong in auto and electrical.
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Diane King Hall4:46
And then how are you accounting for any potential weakness then in Europe and in the demand picture there?
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Molly Beerman4:51
We're continuing to supply, we don't, we're able to adjust production to meet the demand. Again, we see a turning positive. And we're not at this point pulling back at all.
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Diane King Hall5:08
And then let's talk about your acquisition of Alumina, and tell us a little bit more about the expected kind of impact and the expectations for the growth picture there.
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Molly Beerman5:22
Okay, great. So Alumina Limited is the JV partner for the Alcoa World Alumina and Chemicals business. They own 40%. This acquisition will give us 100% control of the entity. It's at a 13.1% premium for the Alumina Limited shareholders. And we do expect that this will bring value to both sets of shareholders. We will be simplifying the JV structure. We'll have a much more cost effective structure. We'll be able to accelerate decision making as one owner. And that will be with a view to maximize value for the shareholders. We'll also be gaining full economic interest in five of the 20 largest bauxite mines and five of the 20 largest alumina refineries outside of China.
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Diane King Hall6:13
And then one, let's talk big picture kind of macro impact. How are you all preparing as a company for the potential for, let's say, potentially no more than one rate cut, if any, this year? We understand that demand right now is good again in North America and Europe. Further rate cuts we do believe will help us, particularly in the business. Building and construction markets. Those are still facing the high interest costs there. So we see that that would be an improvement for us.
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Molly Beerman6:50
And then any final thoughts on your latest quarterly numbers and guidance ahead? Know it's a very exciting time for Alcoa again. Our acquisition of Alumina Limited, the improving markets and really taking action on our portfolio to improve our financial strength in the future. I appreciate your time and the opportunity to speak with you, Diane.
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Diane King Hall7:11
All right. Molly Biermann is great to see you.