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Why Alcoa’s Net Income Took a Nosedive in 3Q15

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Alcoa’s net income

Alcoa (AA) reported adjusted net income of $109 million in 3Q15, which represents a huge 70% year-over-year decline. In this part of the series, we’ll explore what factors impacted Alcoa’s plummeting income in 3Q15.

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Lower aluminum prices

  • Falling aluminum prices had a huge impact on Alcoa’s 3Q15 net income, which was negatively impacted by $219 million due to lower aluminum prices.
  • Alcoa’s net income was negatively impacted by $144 million due to pricing and product mix. According to Alcoa, lower regional aluminum premiums contributed $138 million of this charge.
  • On a consolidated basis, Alcoa’s net income was positively impacted by $99 million by a strong US dollar. It’s worth noting that while Alcoa gets more than half of its revenues from US markets, most of its production facilities are located outside the United States (SPY) (VTI). So it benefits when the US dollar appreciates.
  • Volume growth contributed $19 million to Alcoa’s 3Q15 earnings.

Cost increases

  • Higher operating costs negatively impacted Alcoa’s 3Q15 net income by $102 million. According to Alcoa, “Cost increases for the quarter were due to higher costs for maintenance, labor and benefits, and growth projects such as the Micromill and the LaPorte expansion.”
  • Higher energy costs in Spain and lower energy sales in Brazil had a negative impact of $72 million on Alcoa’s 3Q15 adjusted earnings.
  • Alcoa was able to realize productivity-related gains of $186 million in the quarter, which offset the negative impact from higher costs.

Alcoa’s upstream segment has been hit the most by falling aluminum prices. In the next part, we’ll discuss Alcoa’s upstream segment’s 3Q15 financial performance.

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