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Analyzing Aluminum Producers’ 4Q16 Cash Flows

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Mar. 14 2017, Published 11:04 a.m. ET

Aluminum producers’ 4Q16 cash flows

So far in this series, we looked at aluminum companies’ 4Q16 earnings. Given the current situation, the market is also interested in cash flows.

Generating negative free cash flow could lead to cash burn. As a result, companies might have to borrow to fund their deficits. Negative free cash flow would only make things worse for some companies.

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Alcoa

Alcoa (AA) generated $200 million in cash in November and December 2016. However, it’s also important to consider the impact of working capital on Alcoa’s 4Q16 cash flows. Alcoa managed to reduce its days working capital to 13 in the quarter. Although the metric sounds remarkable after looking at industry standards, it still should be taken with a grain of salt. Alcoa typically sees a seasonal reduction in working capital in the fourth quarter, while the company adds working capital in the first quarter.

Looking at the yearly performance, Alcoa generated free cash flows of -$715 million in 2016. We don’t have comparable free cash flows for previous periods due to Alcoa’s split.

Century Aluminum

Century Aluminum (CENX) managed to post free cash flows of $13.8 million in 4Q16—compared to free cash flows of -$13.4 million in 3Q16. The company posted free cash flows of $16.2 million in 2016—compared to free cash flows of -$22.8 million in 2015. We should note that Century Aluminum streamlined its operations in 2015 to survive the slump in commodity prices (NHYDY) (RIO) (XME).

In the next part, we’ll look at aluminum producers’ leverage ratios.

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