Previously in this series, we’ve seen how the upstream company would look after Alcoa’s (AA) split. In this part, we’ll explore the value-add company’s structure. The company will have three business segments, as you can see in the graph below.
Currently, Alcoa forms 2.74% of the Materials Select Sector SPDR ETF (XLB).
Global Rolled Products
The Global Rolled Products (or GRP) segment will be further divided into Aerospace Transportation and Industrial Rolled Products and Packaging Rolled Products. Please note that the GRP segment will be catering to the fast-growing auto sheet market. Alcoa currently is a leading supplier in this space.
Engineered Products and Solutions
The Engineered Products and Solutions (or EPS) segment will be the “priced asset” of the value-add company. The segment will compete with the likes of Precision Castparts (PCP) to capture the strong demand from the aerospace sector. The segment will supply high-precision components to the fast-growing aerospace market. Alcoa has grown its aerospace portfolio over the last year and has made several acquisitions in this space. The EPS segment will be divided as follows.
- Power and Propulsion
- Fastening System and Rings
- Forgings and Extrusions
- Titanium Engineered Products
Aerospace will be a major contributor to the value-add company’s revenues and EBITDA (earnings before interest, taxes, depreciation, and amortization).
Transportation and Construction Solutions
The Transportation and Construction Solution (or TCS) segment will mainly supply to the nonresidential construction industry and commercial transportation. Please note that Alcoa is the market leader in commercial architectural systems in the North American market. It’s also a leading producer of commercial vehicle wheels.
Markets might value the upstream and value-add companies differently, as we’ll explore later in this series. But, before that, in the next part, we’ll learn about the value-add company’s pro forma financials.