Alcoa's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Alcoa (AA)

Q1 2012 Earnings Call

April 10, 2012 5:00 pm ET

Executives

Kelly Pasterick - Director of Investor Relations

Charles D. McLane - Chief Financial Officer and Executive Vice President

Klaus Kleinfeld - Chairman, Chief Executive Officer, Chairman of Executive Committee and Chairman of International Committee

Analysts

Michael F. Gambardella - JP Morgan Chase & Co, Research Division

Anthony B. Rizzuto - Dahlman Rose & Company, LLC, Research Division

Timna Tanners - BofA Merrill Lynch, Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the First Quarter 2012 Alcoa, Incorporated Earnings Conference Call. My name is Jeff, and I'll be your coordinator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Ms. Kelly Pasterick, Director of Investor Relations. And you have the floor, ma'am.

Kelly Pasterick

Thank you, Jeff. Good afternoon, and welcome to Alcoa's First Quarter 2012 Earnings Conference Call. I'm joined by Klaus Kleinfeld, Chairman and Chief Executive Officer; and Chuck McLane, Executive Vice President and Chief Financial Officer. After comments by Chuck and Klaus, we will take your questions.

Before we begin, I would like to remind you that today's discussion will contain forward-looking statements related to future events and expectations. You can find factors that cause the company's actual results to differ materially from these projections listed in today's press release and presentation and in our most recent SEC filings.

In addition, we have included some non-GAAP financial measures in our discussion. Reconciliations to the most directly comparable GAAP financial measures can be found in today's press release in the appendix to today's presentation and on our website at www.alcoa.com under the Invest section. Any reference in our discussion today to EBITDA means EBITDA or adjusted EBITDA for which we have provided calculations and reconciliations in the appendix.

And with that, I'd like to hand it over to Chuck McLane.

Charles D. McLane

Yes, thanks, Kelly. Welcome, everyone, and thanks for taking the time and joining us today. Look, before we dive into the slides, I'd just like to make a few introductory comments, if I could. And we think we started the year with an excellent first quarter, and I say that from both an earnings perspective as well as a cash perspective. On the earnings front, as we go through this, it will become evident, but our business performance was outstanding in that all of the businesses generated significant productivity. And on the cash side where we experienced the usual first quarter use of funds, we set a first quarter record on days working capital, and we funded 1/3 of this year's pension contributions in cash. And lastly, as you'll see from both mine and Klaus' presentations, we're making meaningful progress on our strategic 3- and 5-year targets.

So with that said, let's dive into the slides. First, a financial overview. Our income from continuing operations of $94 million was $0.09 a share. If you exclude the impact of restructuring and other special items, that bumps that up to $105 million or $0.10 a share. Our adjusted EBITDA was $624 million. That's up 40% sequentially. We had a free cash flow of negative $506 million, and as I alluded to, we had certain payments that are made in the first quarter that are annual or semiannual payments. We also had pension contributions of over $200 million in that number, and we had a working capital use of funds, albeit, as you can see on the next bullet point, that was a days low record in the first quarter at 32 days.

Our debt-to-cap was at 35.6%, which is a slight increase over the fourth quarter, yet our cash on hand remains at $1.7 billion. Lastly, we set several records in both our midstream and downstream businesses, and I'll highlight those for you right now.

In our Global Rolled Products segment, we had a record first quarter ATOI of $96 million. We had EBITDA per metric ton, which is our margin measure in this business, at $430 a metric ton, which was an all-time high. And the days working capital in this business was down 3 days year-over-year for a record first quarter of 42 days.

If we move to the Engineered Products and Solutions segment, we had a record first quarter ATOI of $155 million. We achieved our quarterly EBITDA margins of 19.2%, and that, too, was an all-time high. And we lowered days working capital 4 days to another first quarter low. One other point to mention in Engineered Products and Solutions is that ATOI now represents 52% of our total segment ATOI.

Let's move on to the income statement. Okay, there's 3 items I'd really like to hit on the income statement before moving on, and the first has to do with revenue. Revenue was up slightly, both sequentially and year-over-year as you can see. On a sequential basis, we had alumina pricing down 8%, but that was more than overcome by primary prices being up 2%. And aerospace revenue, automotive, industrial and commercial transportation all showing increases, with automotive, industrial and commercial transportation up double digits.

On a year-over-year basis, alumina pricing was down 13%, primary pricing was down 9%, aerospace, automotive, industrial and commercial transportation here again were up. If you go to COGS as a percent of sales, you can see that it's an improvement, or down 240 basis points on a sequential basis, and that's all attributed to volume, productivity and product mix.

And lastly, the effective tax rate for the quarter stood at 28.3%. And if we're looking at an annual rate right now, it would be right at 27.5% would be our expectation for the full year. So that gave us a $0.09 a share before special items.

Let's move on to the next slide and we'll check out the special items. We really only had 2 this quarter, and they were fairly immaterial. We had additional severance costs related to the Spanish curtailments, and that was $7 million, and then we had $4 million of non-cash mark-to-markets. So the total of those 2 were special items of $11 million, and they took our $94 million income from ops up to $105 million, which is the $0.10 a share.

Let's move on now to the sequential bridge. And this sequential bridge pretty much tells the story from an earnings perspective, in looking at the green here in what our businesses were able to achieve. In fact, we went from a loss of $34 million before special items in the fourth quarter to a profit of $105 million. So that's up $139 million sequentially.

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