Alcoa's downstream segments show productivity gains though offset by cost headwinds

Lightweight metals leader Alcoa reported fourth-quarter and full-year 2015 results, ending the year on solid operational footing. Fourth quarter 2015 revenue was $5.2 billion, down 18 percent from $6.4 billion in fourth quarter 2014. Organic growth in aerospace and acquisitions increased revenue 7 percent, which was more than offset by a 25 percent revenue decline from lower alumina and aluminum prices, the impact of divested, curtailed or closed facilities, and unfavorable currency.

Segment Information:

Global Rolled Products

ATOI in the fourth quarter was $52 million, flat as compared to the year-ago quarter. Strong productivity and automotive shipment growth of 18 percent were offset by cost increases, volume declines in aerospace from fewer spot opportunities and packaging, portfolio actions, and investments for ramping up growth projects, including the Tennessee automotive expansion and Micromill commercialization. Adjusted EBITDA per metric ton was $312 in fourth quarter 2015, up 19 percent, or $50, from $262 in the year-ago quarter.

Engineered Products and Solutions

In the fourth quarter, this segment reported record revenue of $1.41 billion, up 26 percent year-over-year; a 34 percent increase in aerospace sales; and ATOI of $123 million, essentially flat year-over-year from $124 million. The RTI acquisition contributed $7 million of ATOI to the quarter, which is net of $6 million of an unfavorable impact attributable to purchase accounting adjustments. Compared to 2014, 2015 revenue was $5.3 billion, up 27 percent, ATOI was $595 million, up 3 percent, and adjusted EBITDA was $1.1 billion, up 9 percent.

Transportation and Construction Solutions

ATOI was $40 million in the fourth quarter, up $2 million, or 5 percent, year over year. The increase was mostly driven by productivity gains, partially offset by cost headwinds. This segment delivered a fourth quarter record adjusted EBITDA margin of 14.6 percent, compared to 12.6 percent in the year-ago quarter.

Aerospace

Alcoa secured approximately $9 billion in aerospace contracts in 2015, more than double the amount in 2014, as recent aerospace growth investments delivered value. The company also opened its state-of-the-art jet engine parts facility in La Porte, Indiana in the fourth quarter.

Alcoa projects another strong year for global aerospace sales. The company expects 2016 global aerospace sales to increase 8 to 9 percent over 2015 on continued robust demand for large commercial aircraft and jet engines. In automotive, the company forecasts global production growth of 1 to 4 percent, including 1 to 5 percent growth in North America driven by strong sales.

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