3Q 2016 Consolidated Highlights


Alcoa completed a 1-for-3 reverse stock split of its common stock; per share amounts in this announcement reflect the reverse stock split
Net income of $166 million, or $0.33 per share; excluding special items, adjusted net income of $161 million, or $0.32 per share
Revenue of $5.2 billion, down 6 percent year over year, largely due to the impact of curtailed and closed operations, lower alumina pricing as well as other pricing pressures
Sales of non-essential assets expected to total $1.2 billion during 2016; $935 million received year-to-date, strengthening the balance sheet
$1.9 billion cash on hand
Strong productivity gains of $377 million, year over year, across all segments


Overview of Arconic and Alcoa Corporation Segments 1 :

3Q 2016 Arconic Segments


Revenue of $3.4 billion, down 1 percent year over year
Reflects customer adjustments to delivery schedules in the aerospace industry, softness in the North America commercial transportation and pricing pressures, partially offset by strong North America automotive volume
After-tax Operating Income (ATOI) of $267 million, up 4 percent year over year
Global Rolled Products: $58 million of ATOI, up 23 percent excluding the $18 million impact of transforming the Warrick rolling mill into a cold metal plant; record quarter for automotive sheet shipments, up 49 percent year over year
Engineered Products and Solutions: record third quarter ATOI of $162 million, up 7 percent year over year
Transportation and Construction Solutions: $47 million of ATOI, up 7 percent year over year
Achieved $187 million in productivity savings; $547 million year-to-date, on track to deliver $650 million in 2016
Adjusted segment targets for 2016 to reflect near-term industry challenges


3Q 2016 Alcoa Corporation Segments


Total revenue of $2.3 billion, flat sequentially, reflecting continued low alumina prices and the impact of curtailed and closed operations
Third-party revenue of $1.8 billion, up 1 percent sequentially
ATOI of $128 million, down 15 percent sequentially, improved metal price more than offset by lower alumina pricing and unfavorable currency impacts
New third-party bauxite contracts valued at $53 million over the next two years; $468 million in third-party bauxite contracts year-to-date in 2016
Met or exceeded three-year cost curve targets:
Alumina: 17th percentile, 4 points better than target, 13-point improvement from 2010
Aluminum: 38th percentile, 13-point improvement from 2010
Achieved $190 million in productivity savings ($569 million year-to-date), surpassing the $550 million 2016 target


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1 The Arconic segments described in this release consist of Alcoa’s existing Value-Add segments: Global Rolled Products, Engineered Products and Solutions, and Transportation and Construction Solutions. The Alcoa Corporation segments described herein consist of the existing Upstream segments: Alumina and Primary Metals. Until the separation is effected, financial information about the future Arconic and Alcoa Corporation companies herein relates solely to the Value-Add and Upstream segments, respectively, and does not include any of the corporate-related items that are currently presented in Alcoa’s Reconciliation of Total Segment ATOI to Consolidated Net Income. Following the separation, the rolling mill operations in Warrick, IN and Saudi Arabia (which are currently in the Global Rolled Products segment) will belong to Alcoa Corporation.

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NEW YORK--(BUSINESS WIRE)--Lightweight metals leader Alcoa (NYSE:AA) today reported third quarter 2016 results. In spite of near-term market challenges, Arconic segments reported combined year-over-year profit growth, and Alcoa Corporation segments, Alumina and Primary Metals, maintained profitability sequentially despite continued low alumina and aluminum pricing by proactively managing costs and capacity. The Company’s separation is scheduled to become effective before the opening of the market on November 1, 2016.

”Alcoa steered steady and showed resilience in spite of near-term market challenges,” said Klaus Kleinfeld, Alcoa Chairman and Chief Executive Officer. “Profits grew in the combined Arconic segments, and Alcoa Corporation segments managed successfully to stay profitable in a low pricing environment. Productivity across the portfolio was exceptional, and paired with non-essential asset sales, further strengthened our cash position. Arconic’s results underline its strong position in higher margin markets where innovation, technology, process skills and cost focus pay off even under demanding circumstances, whereas Alcoa Corporation proved to be successful in spite of challenging market conditions. The strength of both future companies is the result of our multi-year strategy and allows us to launch two strong, independent entities.”

Kleinfeld continued, “Alcoa Corporation segments have met or exceeded their respective 2016 global cost curve goals. The aluminum business now sits at the 38th percentile – from the 51st percentile in 2010, 43rd in 2013 - and the alumina business has moved down to the 17th percentile – from the 30th percentile in 2010, 27th in 2013. The Arconic segments are adjusting their targets to reflect current economic realities in their relevant industries. Looking ahead, fundamentals in key markets remain very solid; commercial aerospace demand is strong with an order book in excess of nine years and the aluminization in automotive continues. We are well positioned to further increase our market position and profitably grow.”

Alcoa reported third quarter 2016 net income of $166 million, or $0.33 per share, including a net $5 million in income related to special items primarily associated with the sale of non-essential land offset by separation costs and associated tax impacts. Year over year, third quarter 2016 results compare to net income of $44 million, or $0.06 per share in the third quarter of 2015.

Excluding the impact of special items, third quarter 2016 net income was $161 million, or $0.32 per share. Year over year, all segments contributed a combined $246 million (after-tax) in productivity gains, partially offset by lower alumina pricing, cost increases, unfavorable price and product mix, and unfavorable currency impacts. In third quarter 2015, Alcoa reported net income excluding special items of $109 million, or $0.21 per share.

The third quarter effective tax rate of 44 percent was affected by special items during the quarter, including certain non-deductible expenses related to the separation and tax costs associated with the previously-completed sale of the company-owned life insurance policies. Excluding the impact of all special items, the quarterly tax rate on operating results was 30 percent.

Year over year, the impact of curtailed and closed operations, lower alumina pricing and an unfavorable price and product mix resulted in third quarter 2016 revenue of $5.2 billion, down 6 percent year over year from $5.6 billion in the third quarter of 2015.

Asset Sales

In the third quarter, Alcoa completed the sale of the Intalco smelter wharf and other excess property, in the state of Washington, for $120 million.

In the fourth quarter of 2016, the Company expects other potential asset sales of approximately $250 million. Gross proceeds from Company asset sales completed in 2016 are expected to total approximately $1.2 billion.

Cash Flows

Alcoa ended third quarter 2016 with cash on hand of $1.9 billion. Cash from operations was $306 million; free cash flow for the quarter was $31 million. Cash used for financing activities totaled $154 million in the third quarter; cash used for investing activities was $220 million.

Market Update

Aerospace

The global aerospace market continues to undergo a transition as new aero engine launches accelerate demand, outpacing near-term demand for airframe components, which is being partially absorbed through de-stocking. As a result, Alcoa forecasts full-year 2016 aircraft deliveries to be flat to up 3 percent. Strong market fundamentals continue to drive long- term demand.

Automotive

Alcoa continues to forecast global automotive production growth of 1 to 4 percent in 2016, unchanged from the prior quarter. This includes 1 to 2 percent growth in North America, where overall sales are up slightly, and a strengthening outlook in China.

Commercial Transportation

Growth in the heavy duty truck, trailer and bus market in Europe and China is expected to be mostly offset by continued production declines in North America, setting the global production outlook at flat to 2 percent growth in 2016. This marks an improvement over the negative 4 to negative 1 percent forecast in the second quarter of 2016.

Packaging, Building & Construction

The 2016 global packaging market is projected to be up slightly for the year, with growth of 2 to 3 percent, up slightly from the prior quarter’s forecast of 1 to 3 percent. The global building and construction market is projected to grow 4 to 6 percent in 2016, unchanged from the second quarter.

Industrial Gas Turbines

Low natural gas prices in North America and the adoption of new, high-efficiency industrial gas turbine models continue to drive orders for both heavy-duty gas turbines and spare parts. Alcoa projects global airfoil market growth to be 2 to 4 percent for 2016, unchanged from the prior quarter.

Alumina & Aluminum

For 2016, Alcoa projects a global alumina deficit of 1.6 million metric tons. The Company also continues to project a global aluminum deficit of 615 thousand metric tons in 2016 as 5 percent global aluminum demand growth surpasses 3 percent global aluminum supply growth.

Arconic Overview

After the Company’s separation, the innovation and technology-driven Arconic will include Global Rolled Products (other than the rolling mill operations in Warrick, Indiana, and Saudi Arabia, which will move to Alcoa Corporation), Engineered Products and Solutions and Transportation and Construction Solutions. In third quarter 2016, these Arconic segments reported combined revenue of $3.4 billion, ATOI of $267 million and adjusted EBITDA of $517 million.

ATOI and adjusted EBITDA increased 4 percent and 2 percent, respectively, year over year. The combined Arconic segments also generated $187 million in productivity as part of their business improvement programs, announced in the first quarter of 2016. Arconic segments are on track to deliver $650 million productivity savings in 2016.

Arconic Segments Target Update 2

Alcoa is providing new full-year 2016 goals to reflect near-term industry challenges and foreign exchange impacts. In aerospace, this includes an unprecedented industry ramp-up to new platforms, destocking and supply chain optimization in airframes.


Global Rolled Products targets revenue of $4.8 billion to $5.0 billion for full year 2016. This is revised from $5.0 billion to $5.2 billion for full year 2016, a target adjusted from the earlier $6.0 billion to $6.2 billion to reflect the transfer of the rolling mill in Warrick, Indiana, to the future Alcoa Corporation; the impact of a tolling arrangement between Alcoa Corporation and Arconic for can body sheet at Tennessee Operations; and the updated impact for changes in both the London Metal Exchange aluminum price and foreign currency exchange rate assumptions versus 2013. The goal for adjusted EBITDA per metric ton remains unchanged at or above average historical highs of $344.
Engineered Products and Solutions targets revenue of $5.6 billion to $5.8 billion for full year 2016, revised from $5.9 billion to $6.1 billion, and an adjusted EBITDA margin of approximately 21 percent, revised from 21 to 22 percent.
Transportation and Construction Solutions targets revenue of $1.7 billion to $1.8 billion, revised from $2.1 billion, and an adjusted EBITDA margin of approximately 15 percent, which remains unchanged.


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2 With respect to the information under “Arconic Segments Target Update”, no reconciliation of the forecasted range for adjusted EBITDA per metric ton or adjusted EBITDA margin on a segment basis for fiscal 2016 to the most directly comparable financial measures prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) is included in this release because we are unable to quantify certain amounts that would be required to be included in the GAAP measure without unreasonable efforts and we believe such reconciliations would imply a degree of precision that would be confusing or misleading to investors. In particular, reconciliation of guidance for adjusted EBITDA per metric ton and adjusted EBITDA margin to the most directly comparable GAAP measure is not available without unreasonable efforts on a forward-looking basis due to the variability and complexity with respect to the charges and other components excluded from these non-GAAP measures, such as the effects of the Warrick cold metal plan, foreign currency movements, equity income, gains or losses on sales of assets, and taxes. These reconciling items are in addition to the inherent variability already included in the GAAP measure which includes, but is not limited to, price/mix, volume, and the impact of the impending separation of Alcoa Inc.
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