Alcoa Corporation 2026 Q3 Earnings Call

Please go ahead. Thank you, and good day, everyone.

I am joined today by William Oplinger, Alcoa Corporation President and Chief Executive Officer, and Molly Beerman, Executive Vice President and Chief Financial Officer. We will take your questions after comments by Bill and Molly. As a reminder, today's discussion will contain forward-looking statements relating to future events and expectations that are subject to various assumptions and caveats. Factors that may cause the company's actual results to differ materially from these statements are included in today's presentation and in our SEC filings. In addition, we have included some non-GAAP financial measures in this presentation. For historical non-GAAP financial measures, reconciliation to the most directly comparable GAAP financial measures can be found in the appendix to today's presentation. We have not presented quantitative reconciliations of certain forward-looking non-GAAP financial measures for reasons noted on this slide.

Any reference in our discussion today to EBITDA means adjusted EBITDA. Finally, as previously announced, the earnings press release and slide presentation are available on our website. Now I would like to turn over the call to Bill.

Thank you, Louis, and welcome to our third quarter 2026 earnings conference call. Before discussing our results, I want to address the tragic fatality that occurred on September 16th at our Alumar smelter in Brazil. The loss of one of our colleagues has deeply affected all of us at Alcoa, and our thoughts remain with his family, friends, and coworkers. We are a company grounded in our values, act with integrity, operate with excellence, care for people, and lead with courage. Safety is fundamental to our values, and it guides how we run our business. There is no production target, financial result, or business objective that is more important than ensuring every employee and contractor returns home safely every day. Over many years, we have strengthened our safety systems and dedicated significant resources to improving safety performance. Those efforts have resulted in meaningful progress in many areas of our business.

But when we lose a colleague, progress is not enough. I am personally committed to ensuring we learn from this event and take the actions necessary to strengthen our safety culture, reduce risk across our operations, and hold ourselves accountable to the highest safety standards. This tragedy reinforces that safety requires relentless focus, constant vigilance, and an unwavering commitment from every one of us every day. With that commitment firmly in mind, I'll now turn to our third quarter results. We continued to build operational momentum and delivered strong third quarter performance. We achieved six year-to-date production records, increased aluminum production by approximately 15,000 metric tons sequentially, completed the Alumar smelter restart, and delivered a significant performance recovery at the Pinjarra refinery. Together, these results demonstrate improving stability and disciplined execution across the portfolio.

We reached a definitive agreement for the sale of a portion of the Massena East Site with potential cash proceeds of up to $315 million. We expect to receive the first $50 million-$65 million at closing, which is anticipated within six months, subject to customary permitting, regulatory approvals, key development, and closing conditions. We expect to receive the remaining cash consideration before the end of the decade, although the agreement provides up to seven years for commissioning. This is the first transaction supporting our target to generate $500 million-$1 billion from asset monetization by 2030. The AliGroup acquisition continues to advance. The asset's strong first half 2026 performance reinforces our confidence in the strategic and financial rationale for the transaction.

South32 shareholders approved the transaction, bringing us another step closer to our expected closing in the first half of 2027. Let me now provide an update on our progress toward transaction closing. Since announcing the AliGroup acquisition on June 30th, we have made meaningful progress towards closing. In September, we completed the $2.6 billion debt financing and canceled the bridge facility. Completing the financing early reduced execution risk and provides certainty around funding the cash consideration. We estimate that the locked box value was more than $300 million at the end of the quarter, based on publicly available information, including production guidance provided by South32. The regulatory approval process is progressing well across the relevant jurisdictions. Earlier this month, I met with President Ramaphosa and other key stakeholders in South Africa.

Our engagement with stakeholders has been positive, and we remain confident in securing the required approvals to meet our expected first half of 2027 closing timeline. Our transition and integration teams are actively preparing for ownership of the assets. This work spans the organization and is focused on maintaining operational continuity, positioning us to capture the value of the combined portfolio, and ensuring we are ready to execute following closing and beginning delivering synergies and broader benefits of the transaction. Until then, the businesses will continue to operate independently. Now I'll turn it over to Molly to review the financial results.

Thank you, Bill. Third quarter revenue was $3.7 billion, with a sequential change primarily reflecting lower metal prices.

In the alumina segment, third-party revenue increased by 7% to $680 million, resulting from higher realized alumina prices and higher alumina shipping volumes. In the aluminum segment, third-party revenue was $3 billion, primarily reflecting lower metal prices and normalized shipment levels following the second quarter's inventory repositioning, partially offset by higher value-add product premiums. Third quarter net income attributable to Alcoa was $483 million versus the prior quarter of $407 million, with earnings per common share increasing to $1.81 per share. On an adjusted basis, net income attributable to Alcoa remained strong at $485 million, compared with $562 million in the second quarter. Let's discuss the factors affecting adjusted EBITDA. Adjusted EBITDA was $789 million, as strong operational performance and higher alumina prices partially offset lower metal prices.

The alumina segment adjusted EBITDA increased $95 million on higher realized alumina prices and improved operational performance at Pinjarra as we regained stability in the third quarter. The aluminum segment continued to deliver productivity gains, including higher molten production, improved stability, and disciplined cost performance. These benefits were more than offset by the impact of lower metal prices, lower shipments, and higher carbon costs, resulting in segment adjusted EBITDA of $862 million. Moving to cash flow activities for the third quarter of 2026. We ended the third quarter with a cash balance of $4.4 billion, which includes $2.6 billion of cash proceeds from the bond issue completed in September. Together with cash on hand, the net proceeds from the bond issue will be used to fund the $3.1 billion cash consideration to the AliGroup acquisition at closing.

Securing the financing now avoids access and pricing risks in a volatile bond market. The quantum issued also reflects the strength of our balance sheet and cash position, resulting from consecutive quarters of robust free cash flow generation. In the third quarter, cash from operations was $643 million, and free cash flow was $472 million, supported by strong EBITDA in the aluminum segment, where the company was able to deliver metal prices to the bottom line. Turning to our key financial metrics for the third quarter and year-to-date 2026. Return on equity through the first nine months of 2026 was 25.3%. Year-to-date, we have returned $80 million in cash to shareholders through our regular quarterly dividend. The company generated free cash flow of approximately $600 million in the first nine months of the year.

As we look toward closing the AliGroup acquisition, our strengthened balance sheet, secured financing, and substantial cash position provide ample capacity to fund the transaction. This is the result of disciplined capital allocation, strong cash generation, and consistent operating performance. Moving on to the outlook. For the full-year outlook shown here, we have made only minor adjustments for transformation expenses, depreciation, interest expense, and capital expenditures. For the fourth quarter, we continue to expect strong operating performance across both segments, continuing the momentum from the third quarter. We are expecting higher production and shipments in both segments as the improved refining system stability is maintained and the smelting portfolio continues to deliver productivity through incremental output and cost discipline.