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Alcoa’s 2Q16 Earnings Compared to Other Aluminum Producers

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Aluminum producers’ earnings

Aluminum producers’ earnings have been on a falling trend for many quarters. Lower commodity prices have taken a toll on miners across the board. We saw a YoY (year-over-year) decline in aluminum producers’ 2Q16 earnings. However, earnings improved on a sequential basis. Note that the YoY decline in profitability isn’t a surprise—commodity prices fell steeply last year.

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2Q16 earnings

Alcoa’s upstream business generated an adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of $358 million in 2Q16. To put this into context, the business generated an adjusted EBITDA of $185 million in 1Q16 and $577 million in 2Q15. The ATOI (after tax operating income) also rose from $22 million to $150 million between 1Q16 and 2Q16.

The sequential increase in ATOI was mainly due to Alcoa’s Alumina segment. Its ATOI increased from $8 million to $109 million as the alumina price rose sharply during the quarter. Note that integrated producers like Alcoa and Rio Tinto (RIO) also have alumina refining operations along with aluminum smelting plants. However, Century Aluminum procures aluminum from third parties.

According to Alcoa, in the upstream business, the Alumina segment’s 3Q16 ATOI is expected to increase by $5 million over 2Q16. The Primary Metals segment’s ATOI is expected to be flat. This assumption excludes any impact from metal prices (DBC) and currency movements.

Other producers

Century Aluminum’s (CENX) 2Q16 EBITDA was $21 million. This significantly higher from EBITDA of $2 million that it posted in the sequential quarter. Norsk Hydro’s (NHYDY) underlying EBIT (earnings before interest and tax) was krone 1.6 billion (~$188 million) in 2Q16—compared to krone 1.5 billion (~$176 million) in 1Q16.

Along with the profitability metrics, investors should also keep an eye on cash flows. In the next part, we’ll look at different aluminum producers’ 2Q16 cash flows.

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