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Alcoa (AA)

Participants
James Dwyer VP, IR
Roy Harvey CEO, President and Director
William Oplinger CFO and EVP
Timna Tanners Bank of American Merrill Lynch
Curtis Woodworth Crédit Suisse
David Gagliano BMO Capital Markets
Piyush Sood Morgan Stanley
Alexander Hacking Citigroup
Novid Rassouli Cowen and Company
Christopher Terry Deutsche Bank
David Lipschitz Macquarie Research
Arjun Chandar JPMorgan Chase & Co.
Call transcript
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Operator

Good afternoon, and welcome to the Alcoa Corporation Fourth Quarter 2017 Earnings Presentation and Conference Call. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to James Dwyer, Vice President of Investor Relations. Please go ahead.

James Dwyer

good and Austin, you, day, everyone. Thank today Chief Executive joined and Financial by Executive Roy and President Chief Corporation Alcoa Officer. Officer; President Harvey, Vice I'm and Oplinger, William

your and take We by after Roy will Bill. questions comments

and As in a forward-looking to caveats. our to events materially in future results Factors subject these will today's that expectations are are the assumptions from statements to company's that actual relating filings. and various today's reminder, discussion presentation contain and included may statements SEC cause differ

In XXXX, have Because Also, company Corporation presentation. actual XXXX our be November statements in carved part today's we part from results, Alcoa X, note a Corporation financial a entirely Inc. directly of included addition, carve-out to XXXX measures results some statements reference actuals. results actual while stand-alone of EBITDA. as operations are a commenced can in November Reconciliations comparable and discussion on financial financials to the fourth non-GAAP quarterly today this found measures Alcoa public and quarter most appendix combination Accordingly, Any financial in to the to methodology. XXXX, the EBITDA results out financial the presentation. prior adjusted GAAP are on the are thereafter. X, Alcoa means

here's as release the available and that, earnings website. previously With Roy. announced, on Finally, slide presentation our are

Roy Harvey

strategic grew profits benefit as the million. income per adjusted fourth decisions I'd to segment of adjusted basis, $XXX share from our the to like net Alcoa due welcome in or priorities. an million an Jim. loss commodity you, $X.XX significantly most to reported favorable We Thank net to On our prices. notably everyone aligned with quarter, continue our we was Alumina largely in $XXX call.

generated on alumina $XXX represent special our prices. sequentially since primarily adjusted million year over just a results our higher ago. million quarter excluding items, EBITDA adjusted up launch $XXX highest We in fourth Our EBITDA,

were million While this X and the than $XX about our impacts from X is equal were things results stated impact. Those contributed in short-term prior up quarter, lower nearly XX% operational that roughly financial to expectations.

in that acute bauxite our with our mine our River Juruti washing drought shortage follow-on an refinery. water to Amazon Brazilian Brazil. beginning experience constrained impacts First, capacity on Luís A São caused to the

Second, that same affected the from drought also hydropower Brazilian profits system.

in Spain, system our power experienced market are higher prices. we to power exposed smelting Third, where significantly pricing,

we have delays Finally, global with and lower-than-expected shiploading. weather to shipments alumina due difficulties

these shifts operating others the While impacts improve some unforeseen our system. in were market, of opportunities to highlight

those days recurring. million our and We capital generated within taken cash actions working to perspective, this control and address items avoid our from in cash $XXX reduced to have From XX a days we position from priorities on aggressively just and reduce drive over strategic operations, increasing returns continued to complexity, our our year-end This we execute sheet. $X.X to the quarter, strengthen balance past cash billion. to

execute exciting our issues our also and we we And grew legacy strategy. been us. to actions balance, year our U.S. to position, took decisive we revolving first quarter cash As successfully Italy. in capital for gained greater in has address the due full stronger allocation and It renegotiated agreement and credit flexibility an our to smelting

more disciplined to Strong markets, strong over back XXXX. year. with to focus both very favorable look we our compared had significantly earnings first environment market a on and full XXXX, A I revenue an helped future and combined As a increase we had us of for for EBITDA position than earned our than in the adjusted faster billion, We anticipated. amount enabled the priorities, $X.XX XXXX. what twice strengthen to company strategic year we achieved

XXXX. were very also operations in cash and from flow Our free cash strong

refocused the liabilities flow our course to global $XXX cash our balance year. and grew than some our and we of debt, over by driving We decision-making. accountability more still and faster cash with invested company eliminate million While long-term of operations we the

on year. produced Bauxite, of initiated of our capital key in Aluminum records Australia major and Buttressed largest made production had and for refineries. projects In X internal Alumina businesses. exports objective strengthen In by records excellence to segments and progress we segments. Bauxite, for energy operations. global our mining production product-focused that Our across operational our will our this Western sales third-party X our our Each we records at initiated from achieved from stockholders, annual we completed XXXX, all efficiency and, efforts our drive returns Alumina,

venture. simplified our the nameplate move our restart achieved of part This operations. Portland second we in profitable Indiana. a the Aluminum, to Australia the however, also organizational of to X of and smelter partial quickly, and Arabian commitment aluminum in we to Warrick easy. And smelter track successfully on moving for decisions, our perhaps joint In restructured our It the project Pittsburgh. back of is headquarters capacity our in a been structure, and at quarter all and Saudi our we're month structure change, global the goal as to the restart in decided successful our demonstrates and smaller complete Not year We began the on to and end overhead complexity, focus most visible XXXX. clear-sided reduce have restarted

our today Canada. pension States we our in important announced in decision and earnings plans the United saw you regarding As an release,

have decisions with change far especially making those First, by our largest the are pension postretirement been our other difficult. affect benefits who necessary. directly employees, liability, longest, The that and Alcoa are

the wages toward of under retirement accrue XXXX, company to in X% the that and through plans. to pension its retiree used receive offers. X match future. offer already contribution employees other at in by salaried defined final affected Beginning now the employees will end the no the dynamics Management balance details and compensation liabilities X we have after to in We we out while and contribute lock and Québec for to address market will recently for OPEB provide benefits medical strengthen will addition clear to are rejected union need contribution the In in in insurance retirement So are Canada changes savings for also decided XXX Canada, it to existing current instead January X beginning making. U.S. our already which benefits liability our employees. this years, membership best in additional plans, provided and of potlines benefits eligible our sheet, retirement regarding are approximately the union plans the operating our of Becancour XXXX, employees these the the the to benefit affected taking that made in Alcoa into The strengthen salaried savings Also defined smelter of Becancour, the and labor Bill the Alcoa union pre-Medicare employees pension will that ABI account reduce and would will the the competitive location. proposed contract. longer U.S.

operate management we related emphasize both are stronger all decisions stockholders stakeholders I'll to with always provides support and as call that, the have discuss to of considered employees. through to operate end real and this the we that facility plant one operational on would the I make do succeed. focused allows financial like We Becancour a safely stated further. Now providing turn the market our discuss Bill capacity. to that financial our these we and the and to not a return goal Alcoa, on our financial our within to certain resilient reduced outlooks, values within building lightly, our employees impact Bill at With they X the is with cycles, results. made adjustments We've will over

William Oplinger

Alcoa termination was segments. aluminum are announced revenues of higher an the and take-or-pay to with Combined Rockdale closure, countries I'll to million contract the Compared cost $XXX in million Rockdale on are of million, discrete the previously last $XXX $XXX briefly tax from across financials. the or Rockdale year, $XX amount contracts Warrick and for slightly Roy Corporation $X.XX $XXX largest primarily to but energy restructuring Out estimated, U.S. of in an higher of XX% attributable million $XX is have legislation. restart smelter contract the X%, and that asset items termination, -- In for the the restructuring COGS the Roy. as comprised restart project as for segment less quarter, curtailed closure Energy all for previously. $XXX lastly, with to unfavorable Thanks, resolution and net $XX associated with due items run Special a in And plant of U.S. higher been in than closure million Rockdale of through Rockdale execution to pretax revenues per Sequentially, foreign associated a primarily and had Italian track are up totaled billion decision. matter. the higher items the operations. quarter the million quarter share well up our XXXX. resulting smelters, of tax a and that alumina related million revaluations second on the contract completion shipments new reserve costs their mentioned higher deferred of remains the the the aluminum $X.X loss special the of alumina Warrick and power us tax we million of charge reversal the Alumina and on prices shipments prices. increasing X

after Now full let's special statement look at our the adjusted EBITDA and income items.

XX% increased R&D alumina is prior Year-over-year, than per adjusted Adjusted higher in to quarter, million margin the up points $XXX EBITDA XX fourth of flowed net improved $XXX third of our quarter, Adjusted revenue X.X% higher the the and sequentially On year. excluding to earnings to revenue. our $X.XX on of diluted versus quarter. through share Adjusted couple sequential XX.X% quarter points improved notes. share adjusted increase basis, our segment. per Alumina $XXX $X.XX reached million. the net totaled $XXX sequentially to higher our third million per percentage million $XXX $X.XX the EBITDA year, the year-over-year. at percentage and over fourth prices. and Compared is items entire X.X special million A margin in the sequential aluminum million SG&A $XXX grew primarily adjusted In earnings EBITDA. income improved expenses due prior Our to up income a EBITDA share as

expense million due below Other at and in improvements the movements. amortization depreciation, to depletion equity $X primarily declined due $XX line, improved items income. million income sequentially million For $X currency and primarily sequentially to EBITDA

rate where have noncontrolling of profits Our losses. to the the rate depends operational on to million Net tax the we percentage attributable higher in increased our sequentially In fourth AWAC interest heavily points. $XX million jurisdictions quarter, improvement venture. to due $XXX earnings earnings was an XX.X%, and joint X.X

offsetting than factors material unfavorable energy look Sequentially, $XXX higher EBITDA adjusted the parts driving and this key Let's improvements deeper at with EBITDA. up X adjusted million are take to more raw pricing There and quarter's a costs. other is story.

and First, higher market added currency prices alumina metal million. unfavorable and $XXX

headwinds, earnings prices market and and by due unfavorable carbon in increased said, decreased to as energy materials Spanish refining. driven, smelting $XX The higher materials million raw had and $XXX for was million Roy Second, Brazil of performance raw power caustic and drought energy inflation conditions materials prices. for and

Third, in net primarily mix improvements segment. productivity else. other price than everything and Net offset more the productivity Alumina offset weaker

As far performance. the business the as turn let's -- to segment

totaled Our segment earnings. million Alumina our adjusted adjusted sequentially. $XXX segments total million, drove up EBITDA up $XXX EBITDA, XQ improved XXX%, segment's in 'XX

Roy at $X for The to by million million Alumina our million currency at lower primarily issues raw had segment. as mine. issues higher offset and favorable Aluminum, also raw look cost in carbon and of price business. an were mix impact index material on alumina partially adjusted productivity for million. metal prices. higher Bauxite Productivity and closer a increased improvements. Brazil due as EBITDA higher hydro to and mine the improvements, operational partially material higher primarily take unfavorable declined well adjusted adjusted In EBITDA by Alumina cost and Spain $X Juruti The sequential volumes $XXX earnings Juruti the comparison due unfavorable EBITDA offset $XXX impact. increased energy prices was mentioned each Let's the the

results. look million and $XX a items nonsegment nonsegment line our take adjusted Combined, changed EBITDA adjusted our $XXX million. at EBITDA Let's X totaled sequentially

due this as Our alumina of we legacy contract. our million price higher and to segments. Rising line prices the of lag If increased and value partially corporate generation of our quarter Rockdale cash the increased the impacted item, transformation inventory was year. $XX smelters. our at pension power other which held the the $XX due unfavorable at $XX improved look entities prices and alumina intercompany OPEB the again eliminations sequentially million Aluminum and primarily metal due also end and profit costs between expenses million Alumina quarter increased to of rising LIFO termination plus cost to in the

$X.XX This flow the is had balance contract cash cash making settlement $XXX in billion Our and $X.XX $XXX the Rockdale grown primarily cash in quarter payment free balance billion million the million $XXX to to of due after for million year-to-date. fourth quarter. the

move the other metrics. Now to let's financial

Our in the steadily the outlook. spending capital was financial our metrics in anticipated start recognizing And a $XXX days the XX expenditures key continue with the million. fourth Days we to to balance the million of strengthen. benefits to working days Return-seeking during improved credit BB and as end $XXX at capital mentioned, was rating days the in sheet-related quarter capital now XXXX, We of positive to totaled upgraded XXXX. December, compared Capital XX XX million. quarter, some has the and third S&P million, Roy quarter course these of in of at Fourth fourth quarter had spend XXXX. are sustaining spend spending $XX projects. accelerate $XXX was and pleased to in

Our points to liability the once and The percentage basis the we $XXX the continues X is compared net nearly year-end, effect adjusted return rates million on of net and of and debt of annual slide. is pension Recall increase liability I'll OPEB with of $XX million each address to at improvement debt point Leverage the pension net are a remeasurement this was in in EBITDA year remeasure that quarter. The that billion, seeing $X.X drop discount year-over-year our up driver XX increase. X. next XXXX the we X.X% in at capital full main causing plans XXXX. so

in of on addition, liability million In couple that actions a of a increase expected Roy mentioned X.X% of we're the let those. some causing X% the asset lower returns liability. were our approximately highlight side, than so taking return me net $XXX

portfolio we to we defined and will was expected. a and When strategy closely First, more restructured defensive unwound returns plan hasn't the portfolio, group. peer also first align to which our asset the quarter By investment we investment asset had separation, number have strategy with our and U.S. that of company's provided strategy the our change complex prior the managers. XXXX, of

medical management. $XX reduce eliminating and made also and Freezing hard million in U.S. the first salary sub-fees regarding Canadian we XXXX. will mentioned, by quarter our the decisions Roy the liability plans As the liability retiree of

the us expect of that Given generation, position our in strong to X,XXX cash we're will risk planning increasing discretionary required contributions most XXXX. we retirees. annuity purchases contributions. without would $XXX cost possible discretionary minimum will the our into plans the With million annuitize and for contributions transfer over These of funding,

allocation slide. capital the next our defined further have model We on

As that a we've we price mentioned markets a commodity previously, take company operating volatility, so we're sector conservative to in capital allocation. see approach significant

$X billion. generate or set reserve, to market downturns target assets at without stability cash. roughly weather cash This sacrificing have selling provides the which flexibility we operating to cash a we First, healthy balance

Next, we invest operations roughly sustain $XXX as page, million expect value to $XXX capital projects mentioned in and our to return-seeking the asset prior to spend drive current million base creation. and on

balance dividends returns and the funding billion targeted for or between shareholders through approximately reductions. sheet to we are buybacks. -- reducing capital stock $X focused make weighted After additional further liability, future $XXX capital structure these cash liability flexibility our our split delevering payments pension improved plan focused balance to We optimizing reduce of expect any into also either on of we our XXXX, to to average above excess annuitization our and requirements. plans payments, cost In completing through position and of million our cash

in some a Here's projects. of creation return-seeking occurs substantial multiple honed years, our on so update on brief capital XXXX. projects XXXX in over value completion capital projects and reaching on Spending most we've

for million $XX major project For for Their our return projects spend XXXX, substantially world. XX%. units capital our approximately for return-seeking the of million. over $XXX expected and million, combined show million life XXXX. XXXX, $XXX were our Those return-seeking in estimated were approximately return total spend, of X/X to XX%. roughly that Similarly, of IRR an was of in is expenditures projects returns completed The expected is projects that across are substantially major $XX combined projects high XXXX. business of all completed estimated be nearly around roughly Over

let So for to me turn outlook the XXXX.

For This LME on of EBITDA. XXXX, billion is raw with the outlook based we headwind. between key an of deliver included $X.X million material adjusted expect $X.X in as billion price cost and $X,XXX $XXX $XXX API of price increases to to EBITDA

in is quarter first headwind. XXXX maintenance days primarily sequential ABI actual for aluminum a quarter due Each with to and year, shipment due lower except the curtailment. results, quarter outlook fewer in our to scheduled shipments slightly $XX line be tends to shipments Our lowest for XXXX the the creating million

seen of $XXX of is full understanding As anticipate of We tax the expense AWAC our $XX to $XX several on uses between both second XXXX, minimum first flow XX% rate earnings a jurisdictions, changes. payments change. by in reflect the approximately rate improving segments, and and of primary roughly result noncontrolling net funding contract XXXX on to legacy primarily we the be the for for current outlook and that FASB stronger prices be improving and pension, Outside interest million. is operational discretionary an Transformation the half. line, fronts. and will operational and Resolving of alumina million This update XX% is year tax $XXX Rate million. $XX XXXX joint XX%. inventory accounting half U.S. in income our our tax OPEB this with Rockdale Below and finally, and which LIFO depends the Cash market reason than expect expenses are in XX% many Bauxite EBITDA was and levels. with increase Other segments, expect the and on eliminations, and prices. will incorporates million lower rate. in our standards but earnings of is depending intercompany OPEB this nonoperating vary benefits. XXXX still vary metal and the corporate price be million venture retirement million $XX $XXX have decreasing of prices pension profit as will to compensation pension law XXXX the approximately consistent will And we the lag unfavorable to to our XX% Alumina a be estimated to requirements and be change and is on million. metal tax

We expect month we estimated And expenditures the SEC at payments DOJ return-seeking combined sustaining stable of levels will last million. $XX a of make million our January. and $XXX in capital and of

this month, behind that and be will So us. done

a environmental and we million. of in the $XXX spending consistent of million $XXX Finally, expect ARO level to range

Roy. Let it over you, me back turn to

Roy Harvey

Bill. enter much, the very I'll you fundamentals-based markets an aluminum with as for alumina bauxite, outlook begin XXXX. Thank of and and overview our we

For grow imported stockpiles appetite refineries continue ended balanced growth likely bauxite, increased Chinese an have will supported for XXXX to XXXX by bauxite as and production in continued we seek Guinea. with market. exports a Chinese and Indonesian

ended market. estimate For we XXXX balanced alumina, that we a in

remains XXXX, balanced. forecast our For also

heating refining For and season curtail have XX, environmental again we seen next winter. reasons, the will we November so capacity between do some and they March XX that China anticipate winter for

even and to in primary growth are higher driven last smelter the in XXXX use China strong we balance of X.XX% impact in growth ex incorporated demand relative improvements. world above demand the see macroeconomic we aluminum, in also and to at year market the Outside end to China, demand the In We Becancour we alumina by X.XX%. continue aluminum expecting with XXXX finished strong of growth range disruption X%, have from our figures. XXXX

the policy-driven expected to capacity is permitting driven also and end of smelter lower also surplus curtailments by as In robust framework. disruption expect China we due China, supply saw We start in see still reductions to we impact supply and lower-than-expected enforces are Supply remain in growth this the relatively in at growth driven Becancour. year. we XXXX by the to disciplined part growth its a demand and than forecasting XXXX

government the exchanged. policy for of fact, announcement this In framework XXXX today smelter commitment Chinese permits reaffirmed operating to to earlier for deadline the be enforcing a end in a and its set

industry. China balance be While the this reform alumina deadline XXXX about signaling to is in and is XXXX. supply ended projected the in the impact open, sum, In that market remains exact in serious is a of in deficit aluminum it

side a policy Now let China. me activities few spend minutes the supply in describing

learn the are where season key especially the year. industry those the X.X smelters. policies cement, capacity. the our curtailments mixed program only curtailments X.X enforcement alumina impact And capacity which in levels today, of policy-led a recently curtailments refining driver of And heating million MEP air is last were that governments previous transfer announcements which targeted XXXX, requires the for the provided second, of presentation, saw there tonnes less two implied of earnings discussed to result guidance we record be broader NDRC and industries tonnes First, limited slightly this we desired this the across capacity winter reduced impacted steel, As capacity curtail X.X provincial the of but of targeting must last To Chinese provincial number. its existing also of quality policy, program on end In million this on China. been XXXX specific seen in aluminum XXXX completed permits, quarter, reasons, in aluminum we by curtailments and it market million been the since not areas. overlap. government appears has Nonetheless, aluminum the In heating season, alumina more other having we curtailments of in curtailment markets by than improving and coal NDRC of MEP aluminum enforced unlicensed restart, as has both winter and as smelting a transfer of of capacity. The have a tonnes

this this to provinces intention in Henan, that province, program well. will With to in such, winter least continue As program winter heating other continue XXXX expect we curtailment XXXX as the one next mind, has announced that targeted example at season. into its

cost Now key of let's and indicators market profitability. look at aluminum a few

many Smelters toward have possible the be XXXX. curtailments of in Costs risen faced on have focused also driven increasing smelting and alumina, we outside anticipate increases While China industry based analysts economic by end on in additional China China, of curtailments that pressure more steeper could in prices solely in policy-driven economic than carbon. China of energy factors.

the significant China, Additionally, price during recovery the ex experienced a quarter fourth more world, than did China.

As factors, a Chinese margins have result smelting these significant of pressure. been under

fact, more of in estimate that than half fourth In Chinese smelting quarter. was the unprofitable we production

have smelter more the that market. could the smelters start increased. Chinese While curtail we Chinese that economics some to XXXX, curtailments would economics Also, preserve At to more forced economics surplus has economically and be this stability China as Chinese brought driven to in in the of dictated see cash projected it margins policy this of improved combination January, additional in like XXXX. somewhat make likely

curtailments where progressed, more focus and year occur. This orderly new on market these the As China's determined China. management and in a supply should stable aluminum to how contributed

surplus China still we be in earlier, mentioned we aluminum As XXXX. to anticipate in

positive However, the China supply new to continue today's to grows economics developments into supply. including and with continues announcement, strongly, year, as pressure apply there are in reform demand

agreement We maximize in in portfolio to whatever cycle objectives, generation years. through and Throughout market our our our cash complexity, the returns holding sheet this to quarter our to move balance our can production achieved EBITDA process, in $X.X this results, our growth we the and our either of the future. special the Pittsburgh, create Our doing billion. the $X.X some foundation. accountable the us XXXX, hear excluding they profit helped to profitability, to on continuously to With balance more strengthened actions drivers and brings operate Alcoa's employees invest Everything credit upon for of and our questions solid sheet. items stronger will I'd the add With cash Bill ways balance we adjusted coming out steadfast strategic businesses drive and there new and strong continue simple In project the and In year ourselves foundation first a year. in returns drive headquarters focused strong for our our year, through we prepare accomplished And blocks this ultimately identifying or priorities. stockholders remain strengthen and building pre-projects that, months generation. sheet. And strengthen our savings, restarts I. we've new our the records, of we three reduce XXXX, this for following to the while year Alcoa priorities, revolving portfolio, billion and anticipate we'll so, love and to financial closures, to

Operator

And Instructions]. of with our Timna first question Bank comes Tanners Lynch. from [Operator America Merrill

Timna Tanners

worried there wondering, of producer your And lower mentioned, prices in alumina online? coming certainly But ask means China to first up the or seem appreciate China on in going tonnes million I margin about alumina one on bit I'm alumina So U.S. back downs analysts AMM in I is And the an to was two making be article a perspective prices are X questions. aluminum aluminum and talk producers, the step capacity as capacity are and are was But just starting new a morning in capacity this again. of a new not These China. the you new high potentially inviting compelling.

capacity issue So materially new the about us if it's risk going be you're on of to you what seeing an think can forward? you talk going

Roy Harvey

me that. Yes, and address Timna, let try

that restarts likely new construction online. come and for there know, new and expectation coming that been number So incorporate and we be are online, will aware capacities a likely are our under we you try refineries as of and that have

the but opportunity change underlying impact because of that's balances the supply/demand end, have us thing has in or and, a also aluminum Now alumina we also supply/demand bonus the sell to between because it on a for positive the tends bauxite, economics. to

balanced a online. in -- pretty or to view and, refinery be and is really credibly we we fact, a refinery possible try So to by try to restart do take review think turned see brought what to

that is supply/demand the And so are answer prove pull think those your Timna, economics the I help through. question, main going economics how to to

have the in So in pricing in seen changes pretty quickly is reacts to scenarios. what China -- that the market we the

now a balanced you market and impact a continue where on right you've and seen so downstream. And smelters see demand the to we supply alumina, see and in

coming the the portions think going and China our with in new new -- policy says those back us then also even of balanced of that less restarted even keep market to of more the capacity condition I is economics and a both So side online. with or view

Timna Tanners

bit guidance. Okay. a Great. more And your then on color if you little could provide

missing clearly, if at us are understand we there alumina volumes? seems some your takes. off, biggest like, and and then coming flat is guidance can So But else it it, coming down, on? any Wenatchee And it Is you am buckets quarter in Is look the anything below why puts items? that there? prices Becancour I and coming fourth big assumption and EBITDA just help the implicitly annualize in guidance

William Oplinger

Yes, so I'll handle that one, Timna.

take simply raw guidance you in material you If the higher to it, cost. and the factor fourth have quarter around annualize

than impact in assumption also, higher that ride -- weakening, And the and alumina then major fourth we've prices to are currencies I currencies a impacts, the the negative alumina other lines, quarter. higher -- approximately metal of the million is guidance. also what would then costs. are the same $XXX dollar raw the other the guess, fourth prices, quarter and in material saw we guiding along with in So And so seen built lower the we have

the But curtailment alumina as seeing in in for far goes, built we've incremental aluminum and built -- bauxite side, year. we've the pick some question volume we're in side, the creep so both volume as to the up the we're Becancour full going on on the also there. So

that of the which loses tonnes XXX,XXX of So at essentially out we running X volume have line, numbers.

Operator

question Woodworth comes Our next Crédit with from Curt Suisse.

Curtis Woodworth

also the I of question hit the Yes, about you some Bill, then you had impact operational million drought quarter the and million a $XX on also LIFO this $XX a a from and had too, talked because guidance, issues.

maybe a $XXX million. think, And is But that and your a then above $X.X assumptions it closer feel you you hear talk give be like the put like and you'd billion. run $X.X that in was And you're alumina what somewhat price the this it conservative So quarter, FX is of would what impact are I basis, being that -- LME So seems on guidance? your I the the another for And you, lower. assumption's, closer would like-for-like you about EBITDA what rate incorrect? that billion it run XXX on Is to do your tonne rate? can to like, math was guide?

William Oplinger

alumina prices to, a big guess, some little the discussed, The bit quarter, impacts Roy the I that what looking at as I won't sure. would is, from impacts in were the you're one-time alluded recur. Yes, higher. of fourth we say

billion $X.X costs, get range we'll So basis. you if $XXX quarter, higher you Then run-rate the the of we were of the it and to up during that to you a around we to you fourth down if I'd million, should look billion $X.X roughly incremental year, gets made that take million to the of material million way. course the million do $XXX $XXX back you -- say raw at $XXX get currency on higher costs

Curtis Woodworth

I for on helpful. you were this against return discretionary Okay, $XXX total payment think million carryover had, plus just the that I you into the capital from payment roughly this pension. count renegotiated think, so... of which capital that when I think had your year, revolver, then basket that's you year, you so return benefit capital million you year provided a gave $XXX And Does the last

William Oplinger

capital that for account not does million $XXX The return.

that that math our the to $XXX be a clear the And any billion at revolver. be doing do delevering, split billion. payment thinking right further will above in sure delevering, next then is make that, you're $X.XX $X between question currently that discretionary this people cash shareholders. is and We to we pensions. So just on sit ask shareholders. returns cash to million the with how the incremental to we return so And And logical I'm

announce going how we the it. we're to We do those, we'll to haven't of decided yet. get And point doing when

Curtis Woodworth

a think year? policy you Do this likely it's initiate you'll dividend

William Oplinger

It's to this likely shareholders return that will we year. cash

a it's dividend, whether decided special or share at haven't this dividend we a So a point. buyback

Operator

next David Our BMO Capital with Gagliano question Markets. from comes

David Gagliano

to want questions but clarify, of keep up Bill, of I the lines some just adding some me. still I mentioned along to earlier. not same it's to Just you apologize, numbers, the just

million XQ, range. And EBITDA which back, the that a assumption? the $XXX obviously, high So financial $X.X else for $XXX much then million, tonnes? million $X.X end gave is $XXX that's a you that What add negative, the million in What's example, impact how $XX billion. is for of of billion, which XXX,XXX annualizes, so -- like it Becancour, for for

William Oplinger

good something numbers back in have you point, out a Yes. Becancour. those included to is Becancour And Dave. so for that's

situation we're you Now that Becancour, impact of how and guidance us. the idea is, the the given of impact negatively that the at the in financial that on we're of the but you give an impacts providing should not much tonnes can what specific see lockout, fact midst

David Gagliano

billion $X.X billion to Becancour, okay. $X.X before So is

William Oplinger

includes sorry, I'm it Becancour.

So to billion the billion. in to the Becancour negative built impact is of $X.X $X.X

Operator

Piyush with Sood The next Stanley. question comes Morgan from

Piyush Sood

First question, starting have to prices like seems soften caustic recently.

the or your understand So maybe can from is the caustic kind costs, another that of of $XXX of ask so just that higher to we the caustic? that question the flex way want. price how assumptions much to underlying want guidance million price is, Or as we change

William Oplinger

Yes.

evenly So between broken cost, that $XXX it's of down Piyush, great, caustic. question. higher of million great higher Out pretty

the on the So XX% roughly of products is higher XX% is caustic, and side. that smelting other carbon

those. assumption's think and $XXX each million And so I for sake, for can million you of use $XXX

Piyush Sood

associated any appears helpful. the cost with transformation settlements. to exclude That's guidance Wenatchee And

the make one So seems I what's to year. would, generation decision way to impact this the just or time cash decision. the understand And line a it other, want

magnitude of should we kind get to a at. sense look the timing the want that and Just of

William Oplinger

Yes.

believe, is whether So the of be with $XX June running year. in I first and not we the It this on of Chelan middle be around discussions amount through made this point, And timing the or we'll million. PUD this and numbers the restart around, decision July. is year. a quarter at would the We've Wenatchee part would

Piyush Sood

get XXX. every and from for after in from XXX back, queue gone last All And $XXX back in one I'll down the the change me it's right. that. to sensitivity The aluminum

So the some probably is in? there additional baked ABI, is or just difference cost

William Oplinger

It's ABI, ABI.

Operator

with next Citi. is Hacking from Alex Our question

Alexander Hacking

Bill, if couple I it's a clarifications of and have Roy okay.

or million Can just is Is you that increase. clarify on one versus that? XXXX cost levels? $XXX for First the what's projected the versus that baseline XQ is FY

William Oplinger

FY 'XX.

Alexander Hacking

year are full Will how assess guess basis. periodically And -- then the question of a around X on you the do timing there? that of quarter, I want what's you'll so something is when just with to this? year do going second cash, you'll shareholders. know you the Okay, timing potential the every every be this to months? will I excess at capital return to end something the

William Oplinger

position are quarter, the assume the of Alex, we'll believe but that we analysis best at be that second it a of make the would shareholders, it a to half return to each end doing be would in I year. if be this to in

in So of we flow during will cash watch the the come course year.

it second we we a know to the of cash billion return of strength half. will in the in to during like And sheet, the of shareholders, keep if just You so course the it watch make $X for come balance we'll year. the be

Alexander Hacking

year back then versus for then there. where Again, million be I going? if an the -- annualize versus we year. first question, I $XXX Okay. was that I quarter, rising will is to X.X that increase see kind Like 'XX? about may? fourth less inconsistency I'm right, kind if the should if do guide of take said know the of XQ, That's than I million You of you in $XXX were you But you because don't full talking see go clear. you -- right, cost guide, the off sort $XXX Actually, can when just what's sorry, of all the cost. But million

William Oplinger

I Yes, see where you're going.

year the of take for billion back for metal million, billion $XXX the range clear, to rising if forex the get be that guidance. $X.X then prices, of So full very, back close out to raw of API, materials impact and adjust just adjust currencies in $X.X should you 'XX you to out very

Operator

is Company. question and Cowen from Our next from Novid Rassouli

Novid Rassouli

The first just Slide XX. one your is on

just the licensing. capacity. and rights like the -- looks kind you mentioned the to of you us the if Maybe you just are how lion's frame permits, I it could is. curtailed the it's coming for NDRC that through If maybe possible, what wanted the walk curtailments from share acquiring walk even operating So could look. if through time this of might us see procedure

there. trying that get Just sticky to is how a sense of

Roy Harvey

Sure, Novid.

in Let a shot it, can me Bill at and give chime as well.

and is policy originally permitted. what during they enforcement, reviews were XXXX and plants into was and operational this was that and really in see -- environmental it real we included see So essentially what put on-the-ground to real place started whether running XXXX, that a to that were actually happens

And So we game the all capacity actually was they unpermitted saw changer that XXXX real took instead in of -- allowing they come action. actually excuses, off-line.

big the changer So XXXX. that's really in

X Now going different let's forward, let's say, situations. take

you permit. that but say built have an that Let's have capacity operational already does you've that not

routes a per in the for permit that as that You have been order find have two rules established. to

a acquire first out permit and route market somebody actually go into to The the is from else.

sell be So that would the to that would another those plant mean willing Chinese of rights. closure

you're those pretty rights, seeing price those you increase significantly. as rights, imagine, operating can Now in

for would to ratio says order Chinese has production. essentially, other a you own method permit, in they've be what capacity. So aluminum tonnes done older gain is that the And government to to close that have you of curtail your established the need a X.XX specifically

that market it or new So corresponding you're your online in a portfolio bringing that curtailment portfolio. doesn't tonnes a have else's curtailment inside the and ensures having not that own on somebody purchasing

over course of have a these capacity of So -- that's of result if the or closures off-line curtailments as the so you come XXXX. new example that's

the some -- online, want new back in XXXX. to If you you have of bring some new permitted there a be was smelter production that will that XXXX,

would being go And permits that and will see you the some to that the need of growth capacity new result then curtailed so granted. of requirements prior has. set prior which actions capacity year, added this is through Any same

need way to somebody their So need to close portfolio. either to find some or in acquire from they their else, own they smelting capacity it

the policies, see enforces So its to Does and that into that to Chinese China traction some declaration and, a it process. It restrictive is oversupplied, therefore, get the that them is more government's more really that condition. pretty we a Novid? start make at balanced back aluminum have the reduce ties surplus sense, point, to

Novid Rassouli

That does.

permit. swaps their game, first the clearly is option so a And zero-sum someone

saying The a every just I'm X.X is zero-sum the second tonnes to you're can a option you get cut older restart for works. also -- that sense second then trying if capacity, option, you how or of

Roy Harvey

coming It's just also were permits already now online that exception, granted. one few are that that smelters which there's is with have zero-sum a that

that's our legacy a supply-demand all So to a bit that's of just balances. issue into coming And it's incorporated bear now.

Novid Rassouli

Got it.

then that. time, can I stabilizing speak you inventories -- prices, seeing inventories, aluminum just how going far then And been to maybe up briefly to you inventories. inventory about relative same alumina the as levels declining see guys maybe been looks into guys and setting how at in my to are just entered second it thinking if we're somewhat we've what as rising wanted XXXX and ingot China. And we've seeing XXXX question, how Okay. last like, on and we port

Roy Harvey

Novid, balances you following supply-demand Yes, close. at back step realistically inventories and pretty are it, the look when and

deficit we're structural what inventories is continuing China, decline to outside then seeing of that been year-over-year. when have So you're a running

what so those inventories we're some at down. And crisis. XXXX, already built of of to over those XXXX the seeing see starting we're is during relief the end to from have continued the come beginning financial -- large And inventories up great

whether and again have a it's a that at we are warrant. surplus, inventories, running that's growing. very on that welcome inventories structural are off China, looks So story, or all warrant what seen In

less And we've period last see than so up. particularly had we inventories those expected, where continued to curtailments over this winter were creep

So such that what industry China support you is about smelting to relatively still order large and is when necessary on news the intricate -- light inventory a large intricate in in inside the of and think China. we're story aluminum good

stop supply to versus their and fix generating surplus, they're a demand they inventories issue unless to going continue increase. see those However,

Operator

is from Terry Our with question next Chris Deutsche Bank.

Christopher Terry

couple questions me. A from of

not in in the the more this on Or pay do seems how the throughout business liability you'd like we terms two throughout sustaining in about half-weighted? buyback versus CapEx million? of the value It year creation of the bit many $XXX angle. and going dividends But to it million that. too XQ. you hints terms more spending away You've about that? you're talked said the $XXX on Is profile the quite think What's give a think just I XXXX,

William Oplinger

traditionally Yes, second half. than more first it's half-weighted

how If it it's dissimilar you look spent at to how we 'XX, in 'XX. not be will in spent

ramp typically more we So the in the during up the year of spend the and projects second course half.

anticipating we're plan million sustaining, to $XXX contribution the $XXX return-seeking. be that the $XXX The made $XXX that is million won't to clear, make necessarily in we So of pension all of of CapEx. million in is million that the first quarter. discretionary be

to you want away don't that in I quarter. So come thinking the with make we first that contribution

best the that into to quarter. the would half, during make in be, it look But over bit a of time spilling to course when year see will is the anticipate I first third little the the and contribution. maybe We

Christopher Terry

a different mercy be just it the future you the And $XXX of forward lock the to way to going mitigate the more of be potentially is of of Or carbon, negotiate Sure. are -- the how additional for costs you the at terms then and other million, the with going the look in periods, going caustic that? at suppliers and it in into and that terms just going to forward you'd Okay. more in same market?

Roy Harvey

have going question, we to Yes. That's quite necessarily procurement it's not a To one Chris, very I'm honest, that a active group. great be answer. but

strategy is are how We from read determined see our happening and focused the that. we very we market, in on what

caustic be honest, as Frustrating one to to we so is X -- to necessarily thing we make I points would go bring through months P&L. takes our up we it or along, wouldn't flow very suppliers. And X to our for that it and telegraph couple the caustic. very a to adjustments specific quite on for market that

our That's is they that our a business we larger of to impact that silica, lower some side, case unfortunate even frankly very have we a to ago impact see impact, started more that caustic on caustic that for tonne. bauxite The can supply the because make we our per competitors our it means just have caustic because that usage what the coming thing right our it and now. to while for large seeing to really a reactive that an thing. we're pay higher of them. have strong supplies means a on the we customers consider And the is about it's So positive financials X increases months or bauxite, because in bauxite

particularly So are never welcome. caustic raw material price increases

in it competitive and businesses. think I both is advantage that bauxite However, Alcoa alumina has our a

Christopher Terry

Becancour. sense. one from the last makes Okay, just And me,

you to keep you terms in potlines at meantime? that it off In workforce those the once two are the allows pretty able Or quickly those of how do the moment, in? will restart the back be

Roy Harvey

can. fact, is we've real in the through Yes, part we been restart everything two done can shape restart to that and effort so best control sure we as put That of those negotiations, it line instability does there is that in has these in for involved. take the to and cost some good a we order them, we we possibly the And prepare some that reasoning for said, it essentially, that restart lines into we wanted Chris, to make as was can. our behind there lockout, it

and it do money. it cost some as possible, takes does as can we time, easily some while So it

William Oplinger

from We're restarted process we this bit, to think of in little X a it Warrick. us I it months Portland in finish, bookend And to Portland. the about restarting took And start year.

Now worse to while in not was finish in down nine a to compare and to shape, going for from us take had been Warrick it. but Warrick. months Warrick Becancour would to I it's restart start

those, newer. it's is but also bigger both of Becancour than So

Operator

Our next Lipschitz question David is Macquarie. from with

David Lipschitz

Two have my questions of been answered. quick follow-ups. Most

you're to guidance basically production for in that's is sure the year, your potline ABI, done want the of considered that included. how make and you've saying, terms forecast? It's clear. not that's just it, and So X was the production the I

William Oplinger

say Yes, we not have at running we ABI. potline included when included -- X

is 'XX, we've that tonnes to due out in there's That shipments couple dip in if And a at you fact taken of a ABI. capacity aluminum. so hundred the the thousand to see actually 'XX

David Lipschitz

sure. make to want just I on My and following up a previous Okay, quickly second question.

In at do if that you I the is it what into XXXX, that I terms and either is of he this next at like get quarter that something you past buybacks of get look play of it or half how in was we second second year, be year? think Or to specials the trying to starting Or it will the a once quarter? dividends, out, going just do it every the more of think, the half year? is

William Oplinger

Yes.

So the that go prices on capital XXXX. generation will as cash be that looks market based We'll XXXX, what today into is discussed reevaluate like. like the for and and framework in that look we call what we

we'll are half, again, So will cash be around you we strong, and second in assuming those the making return, flows capital the decisions let know.

Operator

Arjun JPMorgan. from comes question with next Our Chandar

Arjun Chandar

Just on again. once front the allocation capital

if delevering. I news was wondering plan and to above leverage benefit billion? your when change that specific shareholders pension a defined you pension the splitting that there's cash cash mentioned half-and-half excess $X billion You would excess on between liabilities target the closer today's to around allocation above $X returns to as including if

William Oplinger

Yes.

We million contribution of our weighted debt. to have that be the of framework, the pension So year. we're that fundamentally looking or the discretionary going WACC underfunded leverage look optimized at is is that deficit pension variable we allocation at capital. liability, and make suboptimal, and by today, key believe with paying debt $XXX could our we're the the cost we this either average When between that that and the the further our it OPEB down a part capital

how structure capital and to towards to million the would debt suggest be so reduction you counting And this billion we $XXX $XXX So of that. sorry, the $X cycle the question that for probably ballpark enough. is pension -- at is million in -- point I'm much to debt and not the us OPEB it, I if were optimal I'm would

million go million. the $XXX the So $XXX would towards

the an additional in mean would reduction $XXX to million overall $XXX So few debt next over years. million it

Operator

our Roy session. would back I for the to conference question-and-answer Harvey like concludes turn closing any over to remarks. This

Roy Harvey

work was on priorities, I'd of pivotal to Jim as as a very We've for well. much, and year progress operator, first full we're Bill Alcoa a and like amount in strategic It that our questions. than and Thank still thank a standalone you everybody's Back made lots of to a XXXX today Corporation. our and company. was year significant and look stronger launched year ago. and you, forward we appreciate We beyond. done, over a position be to time just when recognize all there to the is today I Operator. XXXX we

Operator

The for now Thank has presentation. concluded. attending you conference today's

You may now disconnect.