Alcoa (AA) Earnings & Analysis

Latest quarter

Alcoa reported third-quarter revenue of $3.7 billion, above the consensus estimate of $3.6 billion. Its adjusted earnings of $1.82 per share also exceeded the consensus estimate of $1.65.

Revenue rose from $3.0 billion a year earlier, while diluted earnings per share increased to $1.81 from $0.88. Alcoa’s filing attributed a favorable change in nine-month net income primarily to higher aluminum prices, partly offset by lower alumina prices, currency effects and higher costs, among other factors.

Gross margin rose to 23.8% from 10.0%, and operating margin was 15.7%, compared with −27.8% a year earlier. Alcoa generated $475.0 million of free cash flow in the quarter, compared with −$63.0 million a year earlier.

Against the preceding quarter, CFO Molly Beerman said revenue declined primarily because of lower metal prices. She said higher realized alumina prices and shipments increased alumina third-party revenue, while aluminum revenue reflected lower metal prices and normalized shipments after inventory repositioning.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

CEO William Oplinger said alumina markets tightened outside China during the quarter and he expects further tightening into 2027 as announced curtailments and project delays affect supply. He said new refinery capacity had increased Chinese production and inventories, creating different conditions inside and outside China.

For aluminum, Oplinger said supply was recovering as Middle East smelters restarted and Indonesian capacity ramped up, although the timing of a full Middle East recovery remained uncertain. He said packaging and electrical markets led demand, transportation remained resilient and construction, particularly in Europe, was the softest end market. On the call, he described the order book: “Most products are sold out or tightly committed.”

CFO Molly Beerman said productivity gains in aluminum were more than offset by lower metal prices, lower shipments and higher carbon costs. Asked about inputs, she said carbon costs had affected third-quarter results and she expected about 10 million more in the fourth quarter, while the earlier increase in caustic prices was not producing a material sequential impact.

Beerman said Alcoa expects higher production and shipments in both segments in the fourth quarter, along with some higher input and planned maintenance costs. In response to an analyst, she said improved shipments would offset maintenance changes in alumina performance; Oplinger clarified that the performance guidance does not include pricing.

Oplinger said shareholders had approved the acquisition of South32’s asset interests and Alcoa expected to close in the first half of 2027. He said the company had completed $2.6 billion in debt financing and would prioritize debt reduction after closing. He also said Western Australia mining approvals were taking longer than expected and Alcoa had added six months of mining in current areas to its plans.

Oplinger opened the call by reporting a fatality at the Al-Yamar smelter in Brazil. He said he was committed to learning from the event and strengthening safety culture and risk controls.

Guidance

In her discussion of the outlook, CFO Molly Beerman said Alcoa had made minor adjustments to its full-year guidance for transformation expenses, depreciation, interest expense and capital expenditures.