Alcoa Inc
(AA-NYSE)
Buy Recommendation
Overview
Alcoa is the world's largest producer of aluminum,
miner of bauxite, and refiner of alumina. Along with
inventing the modern-day aluminum industry, Alcoa is a
major player in the aerospace, automotive, packaging,
building and construction, commercial transportation,
consumer electronics, and industrial industries. This
wide exposure helps give Alcoa the ability to traverse
these tough economic times profitably and as the world
economy continues to strengthen and grow they are
well positioned to capitalize.
Catalysts
• Demand increases around the world, especially in
emerging economies
• Increasing aluminum prices
• End of cheap Chinese power availability
Risks
• Global growth slows and/or a double dip recession
• Increase in energy costs
• Over supplied market; Watching for increasing
Student Inves tment Ma na gement Res ea rch
May 25, 2011
Recommendation
Current Price:
12 Month Price Target:
Upside Potential:
Ticker:
Sector:
Industry:
BUY
$16.48
$20.00
21.36%
AA
Materials
Aluminum
Analyst Information
Fund Manager: Chris Henneforth, CFA
Analyst:
Kevin Bush
(303) 916-5676
bush.243@buckeyemail.osu.edu
Stock Summary
52 Week Range
One Year Return (%)
Average Daily Volume
$9.81-18.47
41.58%
26.2M
Market Capitalization
Diluted Shares Outstanding
Short Interest Ratio (days)
Institutional Ownership (%)
$17.53B
1.02B
2.4
59.60%
Cash Dividend
Dividend Yield (%)
$0.12
0.70%
Financial Summary
Enterprise Value
Trailing P/E (ttm)
Forward P/E
Price/Sales (ttm)
25.97B
22.98
10.63
0.79
Earnings Data
2010
Sales
$21.1B
EBIT
$1.0B
Net Inc.
$0.3B
EPS
$0.55
2011E
$23.1B
$3.0B
$1.4B
$1.40
2012E
$25.2B
$3.3B
$1.7B
$1.64
Table of Contents
Company Overview and Description……………………………………………………………………….……2
Segments………………………………………………………………………………………………………………..……4
Alumina……………………………………………………………………………………………………………4
Primary Metals…………………………………………………………………………………………………5
Flat-Rolled Products…………………………………………………………………………………………6
Engineered Products and Solutions………………………………………………………………….7
Competitive Advantages……………………………………………………………………………………………….8
Investment Thesis…………………………………………………………………………………………………………10
Macroeconomic Overview…………………………………………………………………………….…10
Sector Overview…………………………………………………………………………………………….…11
Risks to Investment Thesis……………………………………………………………………………….12
Financial Analysis………………………………………………………………………………………………….………12
Competitor Comparison………………………………………………………………….………….……13
Multiples Valuation……………………………………………………………………………………..……15
DCF Modeling Assumptions…………………………………………………………………………….…16
Technical Analysis………………………………………………………………………………………………….....……18
Conclusion…………………………………………………………………………………………………………………….…20
Appendix……………………………………………………………………………………………………………………......21
Sources……………………………………………………………………………………………………………………......…23
1
Company Overview and Description
Alcoa is the worlds largest aluminum company. They cover all
aspects of the creation of aluminum from mining to fabriacating
the end product. Aloca has a market cap over $17 billion and
employs nearly 59,000 people. Their nearest competitors are
Aluminum Corporation of China (ACH), Rio Tinto Alcan, and
RUSAL. They are a truly worldwide company that operates in 31
countries with 50% of sales coming from the United States and
the rest from overseas. Alcoa also has made sustainability and
environmental care a top priority. They have been a member of
the Dow Jones Sustainability index for nine consecutive years.
Although the recession hit Alcoa and its stock price
hard, the company is coming back leaner and
meaner than ever. In 2008, three strategic
priorities were implemented by Klaus Kleinfeld
(Chairman and CEO) to help guide the company to a
more profitable future. The priorities included
profitable growth, the Alcoa Advantage, and
Disciplined Execution. The design of the program
was to basically focus the company on the segments in which they were one or two in the market,
highlight five main competitive advantages, and execute these across the entire Alcoa family. This
program has been extremely successful and actually helped strengthen their cost structure and cash
position during the crisis.
2
For Q1 of 2011 Alcoa reported income from continuing operations of $309 million and $0.27 per share.
This is up 20% over fourth quarter 2010 and $503 million greater than Q1 2010. There was a small
negative impact from restructuring and acquisition of TransDigm (aerospace fastener business). The
strong performance was driven by higher realized prices for alumina and aluminum, growing demand
for aluminum products buy major end markets, and productivity improvements. This was partially
offset by a weaker USD and higher energy and material cost. Alcoa has reaffirmed their projections that
aluminum demand would grow 12% worldwide in 2011.
3
Segments
Alcoa is split into four business segments:
 Alumina – engages in mining of bauxite which is then refined
into alumina
 Primary Metals – produces aluminum
 Flat-Rolled Products – engages in the production and sale of
aluminum plate, sheet, and foil
 Engineered Products and Solutions – produces and sells
titanium, aluminum, and super alloy investment castings, hard
alloy extrusions, forgings and fasteners, aluminum wheels,
integrated aluminum structural systems, and architectural
extrusions
Alumina
Alumina is part of Alcoa’s upstream operations which is
the mining of bauxite and the process of refining into
alumina. This segment makes up approximately 13% of
revenues and runs with a historical average of 30% profit
margin. About 50% of the Alumina mined is sold for
internal consumption and the rest is sold to third-party
customers who process it into industrial chemical
products. This segment is highly correlated to aluminum
price which is traded on the London Metals Exchange.
The heavy declines seen in 2008 were caused mainly by
lower prices and only marginally lower demand.
In Q1 of 2011 realized third-party alumina prices were up
15% which allowed Alcoa to achieve $71 EBITDA/tonne
which is better than the 10 year average of $66.
Although, higher natural gas, fuel oil, and caustic prices are hurting results and expected to stay high
into Q2. Prices are also in the process of being switched from two-month lagged LME to spot or prior
month indexed. About 20% of third-party shipments in Q2 will be spot or prior-month.
4
Primary Metals
Primary Metals is also part of Alcoa’s upstream operations
and consists of the worldwide smelter system. This
division receives alumina from the Alumina segment and
uses the material to produce primary aluminum. This
product is used by Alcoa’s fabricating business as well as
sold to third-party customers. These third-parties include
external customer, aluminum traders, and commodity
markets. The results from the sales of powder, scrap,
excess power, and derivative contracts are grouped with
the earnings of this segment. 90% of third-party sales
come from actual primary aluminum. All products sold
internally are sold to the other divisions at prevailing
market prices as determined by the LME. Primary Metals
makes up approximately 34% of revenues and runs at an
average 20% profit margin.
Operational aluminum capacity is distributed with
64% in the Americas, 27% in Europe, and the
remainder in Australia. Coming into 2011 about
20% of Alcoa’s capacity was sitting idle. Although
it is a good thing to have availability to increase
production, 20% is historically high. The company
expects this to drop as demand picks up in the
next few years.
In Q1 of 2011 primary realized 7% higher prices
over Q4 and achieved $438 ADITA/tonne which
is larger than the 10 year average of $390.
Higher energy and materials costs continue, but
productivity gains increased. For Q2, the pricing
is expected to follow a 15-day lag to LME and
higher energy and raw material costs should
continue.
5
Flat-Rolled Products
This segment is part of Alcoa’s midstream operations
and business is to produce aluminum plate and sheet.
Alcoa has mostly divested itself of foil production over
the past few years as this was not a core business and
part of the new strategic priorities. Half of the thirdparty sales consist of rigid container sheet which is
used to produce aluminum beverage cans. There is a
broad customer base for these products, but the vast
majority is sold to just a handful of customers. The
other half of third-party sales is used in the aerospace,
commercial transportation, building and construction,
and distribution markets. This segment is responsible
for 30% of revenues.
Q1 of 2011 showed excellent performance in FlatRolled Products. Record Q1 ATOI ($81) and
adjusted EBITA (Up 17% from 2010 and 241% from
2008) were achieved. This was realized by
strengthened demand in most end markets and
improved pricing, though like with most other
segments cost pressures are apparent. Looking to
Q2 seasonal demand and productivity will increase
while cost pressures will remain elevated.
6
Engineered Products and Solutions
This division is known as downstream operations and
includes the productions of titanium, aluminum, and
super alloy investment castings; forgings and
fasteners; aluminum wheels; integrated aluminum
structural systems; and architectural extrusions used
in the aerospace, automotive, building and
construction, commercial transportation and power
generation markets. In July 2010, Alcoa acquired
Traco which produces commercial building supplies.
All of the assets and liabilities are included in this
division. This division represents about 22% of
revenues.
In Q1 of 2011 Engineered Products and Solutions
saw 16% revenue growth from Q1 2010 and 15%
sequential improvement in ATOI. Adjusted EBITDA
margin rose to a record (18% up 30% form Q1 2010)
and the Transdigm Fasteners acquisition was
finalized and included. Looking to Q2, the building
and construction segment are expected to stay weak
though most end markets are showing incremental
improvements. Product innovations are supporting
revenue growth as well as attracting new marketing
share in several core businesses of this segment.
7
Competitive Advantages
In 2008, Alcoa implemented three strategic priorities to guide the company to a more profitable future.
The first was Profitable growth in which they will restructure their cost base and restructure the
portfolio to focus on businesses that they are number one or two in their markets. Next, the Alcoa
Advantage highlights five corporate levers that provide distinct competitive advantages to their business
which are talent, technology, customers, procurement, and operating system. Finally, Disciplined
Execution focuses on using those advantages to create a high performance culture across Alcoa. Several
of the most important positive and negative drivers of growth will be discussed.
Advantages
Portfolio and Cost Base Reshuffling
While aluminum smelting continues to be one of the most
energy intensive processes in the world, Alcoa has recently
guaranteed that 80% of its smelting power would be under
contract or self-generated thru 2028. Starting in 2008, Alcoa
divested several businesses that it was not a market leader.
This generated over $1.1 billion from asset sales. Goals have
been set in the upstream segments to reduce cost by
dropping the percentile rank on the cost curve. This will be
done by new innovative technologies as well as improved
operations that will increase productivity. These goals are
proceeding on pace. Midstream and downstream
operations will continue with improved margins and growth
by utilizing the strategic corporate levers.
8
Cash Sustainability Program
In 2009, the price of aluminum had dropped over 50%
from the peak. Demand was being destroyed in all key
end markets and credit had dried up almost entirely, so
bold actions were taken to weather the crisis. That year
Alcoa instituted the Cash Sustainability program in an
attempt to hold on to market share. They set seven
financial and operational goals that were intended to
strengthen their balance sheet, conserve cash, and
improve liquidity. All of these goals were completed and
in most cases over-delivered what was promised. These
goals have continued and woven themselves into how the
company is run today. There is a new company wide
discipline in cash and cost management that was instilled
through the downturn and this will ensure Alcoa’s longterm viability and success.
Alcoa instituted these measures during 2009 and continue to lever them today:
 Divested non-core assets and business
 Reduced dividend
 Reduced workforce
 Issued equity and debt
 Suspended the share repurchase program
 Froze non-critical capital expenditures
 Focused on completing projects with high growth potential and low cost position
 Instituted program to identify procurement efficiencies, overhead rationalization, and working
capital improvements
 Reduced additional capacity at refineries and smelters
9
Investment Thesis
The fundamental drivers for Alcoa are very straight forward and simple:
 Alumina/Aluminum pricing – Prices have risen considerably since the lows of 2009 and prices
are well supported at current levels with the possibility to rise further
 Improving exposure to spot pricing – As the transition continues to spot pricing (from lagged)
Alcoa will better be able to realize more accurate prices
 Global growth – Global growth continues at a strong clip and this will directly affect Alcoa with
stronger demand and better pricing, especially from the BRIC nations
 Portfolio and Cost Base Reshuffle – The move out of small low margin business to concentrate
on segments that Alcoa is a world leader in and dropping costs to increase profitability
Macroeconomic Overview
The global economy remains strong and is improving with every passing month. Global GDP growth
exceeded 5% last year and is estimated to be somewhere in the 4-4.5% range in 2011. Conditions
around the world continue to improve from the depths of the global financial crisis and the market has
proven its resilience this year. From spiking commodity prices to major shocks such as the Japanese
earthquake, the global economy has absorbed every problem that has come its way. Hiring has
continued in the US, although still at depressed levels, and corporate and personal balance sheets have
improved from the overleveraged peak of the credit bubble. Monetary and fiscal conditions are still
expansionary across the globe, but you are starting to see tightening across certain markets which is a
sign of economic improvement. One problem that has been plaguing the developing world much more
than the developed is inflation, which has been running at a 4% rate globally.
10
Sector Overview
Alcoa is part of a highly cyclical sector and is reliant directly on spot aluminum pricing, therefore is
usually directly correlated with current economic conditions. As aluminum prices, like most base
metals, increase during good times and decrease during slow times Alcoa’s main business is dependent
on these prices to continue profitable growth in the future. Because of these factors the US economic
growth is normally a close proxy for Alcoa’s business outlook.
As of now I believe that we are in stage four of the graphic
to the left. The business cycle has turned from the depths
of the recession and the economy is expanding.
Commodities usually perform well in stage three, four and
five, so I would attribute the last rally we have seen in
commodity prices to fall into the stage three phase. Now
we are taking a breather to consolidate the gains of the last
two years so we can continue with the bull market and
riding the classic Wall Street “wall of worry”. There is so
much macro uncertainty right now from global debt
worries to nuclear radiation and food shortages and yet the
markets continue to trend higher. The materials sector as a
whole is known for overshooting tops and I do not believe
that it will be different this time. These companies are lean from cost cutting during the recession and
are still somehow trading at a discount historically.
The sector also trades with a very high
correlation to the S&P 500. As you can
see, with a 90% correlation it tracks the
overall trends well as it should, just
how the market trades up during good
economic times when demand for
goods and services is high and down
when demand is low. It is worth
noteing how the sector reacts at tops
and bottoms. As we are in the middle
of a bull cycle I fully expect to see
commodities and the materials sector
in particular outperform the market as
whole which will bode extremely well
for Alcoa.
11
Risks to Investment Thesis








Global recovery becomes derailed and growth slows to a standstill
Weak commodity prices
Energy prices continue to rise which would directly damper profitability as mining and smelting
are so energy intense
Slowdown of key markets such as China as the government is putting the brakes on the
economy to fight inflation
Credit rating downgrades as large amounts of fixed capital are necessary to fund Alcoa’s
business
Major foreign currency fluctuations and inflation
Exogenous political, economic, and environmental (natural disasters) event risk
Government regulation
Financial Analysis
Alcoa Financial Ratios
2008
2009
P/E
11.0
-20.3
EV/EBITDA
7.6
40.9
Div Yield
6.0%
1.6%
ROE
5.2% -6.3%
ROC
1.5% -3.2%
Debt-to-Equity Ratio
2.20
2.10
2010
32.3
12.0
0.7%
4.5%
2.9%
1.90
The past three years have been all over the board for Alcoa, but the most important thing to note is they
traversed a credit crisis, global recession, and 50% drop in aluminum without getting their credit rating
downgraded. Alcoa management took extreme measures in 2008 to insure the financial stability for the
company while still preparing the balance sheet for the quick V-shaped recovery that we have seen to
this day.
12
Competitor Comparison
Liquidity
Alcoa has taken drastic steps to increase liquidity over the past three years. The cash sustainability
program was the main initiative in this effort and it has proven to be successful, but just by the nature of
the type of business that Alcoa is in they will never be an extremely liquid corporation.
Liquidity
Competitior Liquidity
2.5
1.5
2.0
1.0
0.5
Quick Ratio
1.5
Quick Ratio
Current Ratio
1.0
Current Ratio
0.5
0.0
0.0
2008
2009
2010
AA
PXK
MT
X
Asset Management
Within this industry asset management is very important because of how capital intensive the aluminum
business is. Alcoa has been consistent over the past three years managing inventory even through the
crisis as demand fell off a cliff.
Asset Management
Competitior Asset Management
100.0
60.0
40.0
Days in
Inventory
20.0
Avg Collection
Period
0.0
80.0
Days in
Inventory
60.0
40.0
Avg Collection
Period
20.0
0.0
2008 2009 2010
AA
PXK
MT
X
13
Debt Management
Just from the fact that Alcoa keep its credit rating through the downturn proves that their debt
management has been above average. Again, it is in the nature of this industry and especially the
aluminum business to need high amounts of fixed capital to finance projects. The debt-to-equity levels
have been dropping steadily over the past three years and that is expected to continue marginally for
the next few.
Competitior Debt Management
Debt Management
2.50
2.50
2.00
2.00
1.50
Debt-toEquity Ratio
1.50
Debt-to-Equity
Ratio
1.00
Debt Ratio
1.00
Debt Ratio
0.50
0.50
0.00
0.00
2008 2009 2010
AA
PXK
MT
X
Profitability
During the crisis of 2008 and 2009 Alcoa’s profits took a hit as the price of aluminum fell over 50%. As
the price has comeback strongly over the past two years so have Alcoa’s profits. Net profit margin
jumped in 2010 and has shown strong results into Q1 of 2011. As long as aluminum prices remain at a
similar level or go higher from here profits will improve greatly over the next few years.
Profitability
30.00%
25.00%
20.00%
15.00%
EBITDA Margin
10.00%
Net Profit Margin
5.00%
0.00%
-5.00%
2008
2009
2010
-10.00%
14
Multiples Valuation
Absolute and relative multiples were used to value the price of Alcoa. These were combined with the
results from the DCF analysis to come up with a final price target for the stock one year from today.
Absolute Valuation
On an absolute level, Alcoa is still cheap compared to historic levels. The most important absolute
valuation to pay attention to with Alcoa is P/Forward Earnings which on a 10-year basis is trading at a
discount.
Absolute
Valuation
High
A.
P/Forward E
P/S
P/B
P/EBITDA
P/CF
B.
115.1
1.6
3.3
64.43
39.6
Low
C.
8.2
0.2
0.4
1.57
2.3
Median
D.
14.8
1.0
1.9
7.57
9.8
Current
E.
#Your
Target
Multiple
F.
12.0
0.8
1.3
6.18
8.0
14.8
1.0
1.9
7.5
9.8
*Your
Target E,
S, B,
etc/Share
G.
1.33
20.81
12.8
2.7
2.08
Your
Target
Price
(F x G)
H.
19.68
20.81
24.32
20.21
20.38
Relative Valuation
On a relative basis we see a similar picture but it appears the company is priced more in line with
historical norms. If global growth continues and the world recovers well you will see Alcoa getting bid
up to the historically high levels versus the S&P again as demand and prices rise.
Relative to S&P 500
P/Trailing E
P/Forward E
P/B
P/S
P/CF
High
3.1
7.0
0.9
1.0
3.7
Low
0.48
0.59
0.3
0.3
0.3
Median
1.1
0.88
0.7
0.7
0.9
Current
1.5
0.86
0.6
0.6
0.8
15
DCF Modeling Assumptions
Revenue Forecasts
 Revenue forecasts were done on a segment basis for a more accurate veiw
 Each was calculated based on the outlook from Alcoa and historical performance
 As 2008 and 2009 were extremes, assumptions were made that Alcoa will slowly return to levels
seen in prerecession times of 2006 (this has proved to be true so far)
Income Statement
 Net sales were calculated from the segments projections sheet
 Operating expenses were then forecast as a percentage of sales according to company forecasts
and historical performance
 Taxes are assumed to stay at 30%
Other Inputs
 Terminal discount rate of 10.5%
 Terminal FCF rate of 3.0%
 Implied terminal P/E multiple of 13.0 which is in line historically
16
Alcoa (AA)
Analyst: Kevin Bush
5/29/2011
Terminal Discount Rate =
Terminal FCF Growth =
Year
2011E
Revenue
23,075
% Grow th
2012E
25,205
9.2%
Operating Income
3,034
Operating Margin
Interest and Other
Interest % of Sales
Taxes
3,340
2013E
27,395
8.7%
3,630
2014E
29,450
7.5%
3,092
2015E
31,364
6.5%
3,293
10.50%
3.50%
2016E
33,089
5.5%
3,474
2017E
34,578
4.5%
3,804
2018E
35,788
3.5%
3,937
2019E
37,041
3.5%
4,075
2020E
38,337
3.5%
4,217
2021E
39,679
3.5%
4,365
13.2%
13.3%
13.3%
10.5%
10.5%
10.5%
11.0%
11.0%
11.0%
11.0%
11.0%
542
504
548
589
627
662
692
716
741
767
794
2.4%
2.0%
2.0%
2.0%
2.0%
2.0%
2.0%
2.0%
2.0%
2.0%
2.0%
751
800
844
934
966
30.0%
910
30.0%
30.0%
30.0%
30.0%
30.0%
30.0%
30.0%
30.0%
30.0%
30.0%
Minority Interest
152
166
181
194
207
218
228
236
244
253
262
Interest % of Sales
0.7%
0.7%
0.7%
0.7%
0.7%
0.7%
0.7%
0.7%
0.7%
0.7%
0.7%
Tax Rate
Net Income
1,429
% Grow th
1,615
% of Sales
Plus/(minus) Changes WC
% of Sales
1,472
1,659
6.5%
1,568
1,750
5.5%
1,654
1,950
11.4%
1,729
2,018
3.5%
1,789
2,089
3.5%
1,852
2,162
3.5%
1,917
2,238
3.5%
1,984
5.0%
5.0%
5.0%
5.0%
5.0%
5.0%
(272)
(192)
(197)
(353)
(314)
(298)
(277)
(251)
(259)
(268)
(278)
-0.8%
1,260
5.0%
1,728
6.7%
9,678
10,678
20,356
9.65%
11.7
14.2
8.1
8.8
Shares Outstanding
-14.0%
5.0%
1,619
Current P/E
Projected P/E
Current EV/EBITDA
Projected EV/EBITDA
1,370
1,558
1,071
5.0%
% Grow th
NPV of Cash Flows
NPV of terminal value
Projected Equity Value
Free Cash Flow Yield
8.7%
1,035
5.0%
5.0%
Free Cash Flow
1,812
1,000
6.0%
1,154
Capex % of sales
1,512
1,089
7.0%
-1.2%
Subtract Cap Ex
Debt
Cash
Cash/share
1,667
16.6%
Add Depreciation/Amort
Current Price
Implied equity value/share
Upside/(Downside) to DCF
1,002
-0.7%
1,370
5.0%
1,615
-6.5%
48%
52%
100%
-1.2%
1,472
5.0%
1,204
-25.4%
-1.0%
1,568
5.0%
1,346
11.7%
-0.9%
1,654
5.0%
1,453
8.0%
-0.8%
1,729
5.0%
1,674
15.2%
-0.7%
1,789
5.0%
1,768
5.6%
-0.7%
1,852
5.0%
1,830
3.5%
-0.7%
1,917
5.0%
1,894
3.5%
Terminal Value
Free Cash Yield
10.1
12.2
7.7
8.5
9.3
11.2
7.5
8.2
-0.7%
1,984
5.0%
1,960
3.5%
28,982
6.76%
Terminal P/E
13.0
Terminal EV/EBITDA
7.8
1,018
$
$
16.48
20.00
21.3%
22,207
1,543
1.52
17
Technical Analysis
The technical outlook for Alcoa is a BUY. Since the 2009 bottom the stock has been making higher highs
and higher lows while showing positive relative strength compared to the S&P 500. On the daily chart,
you can get a good view of why Alcoa has been struggling at the $16-18 range as it is trying to break
through old highs in 2010. There is strong support at the 200 day moving average as well as the rising
trend line. The weekly chart (2nd chart) is a better gauge in our case because of our long term
timeframe. The 200 week moving average has acted as overhead resistance since the beginning of
2011, but the more times it bumps up to that level the more likely it is the break on the upside. The
stock has now had plenty of time to digest the gains from the last leg up from the summer of 2010 and
should breakout soon. The dotted blue line on the weekly chart shows what a normal move would look
like out of the consolidation pattern that has been building. One last note to make is on the weekly
chart a cup and handle pattern is forming. Once the pattern breaks out it has long term targets of the
distance from the breakout line to the bottom of the bowl (pictured in the last weekly chart). This
produces a price target of $30.00, though this is longer than our 12-month horizon.
18
19
Conclusion: BUY
With operations in 31 countries and diversification across 10 industries Alcoa is the world’s largest
aluminum company and one that should be owned. They have proven themselves over the long haul to
be able to adapt and innovate to changing market conditions. Strong results over the past two years
along with recovering aluminum prices have driven this company and will continue to drive it over the
next year. With a 12-month fundamental target of $20.00 and a longer term technical target of $30.00
Alcoa’s 21.3% upside is a conservative target with the risk being on the upside. These results are
assuming that aluminum prices will be sustained near current levels, but the high levels of inventory will
damper further gains in the near term and demand from key markets will continue by showing global
economic growth of approximately 4.0%. Alcoa has been producing aluminum for over 100 years and
will continue to lead the market for many years to come.
20
Appendix
Alcoa (AA)
Segments
(Millions)
Net Sales
Primary Metals
Flat-Rolled Products
Engineered Products and Solutions
Alumina
Segment Revenues
Eliminations and Other
Total
FY
FY
FY
FY
FY
FY
FY
FY
2013E
2012E
2011E
2010
2009
2008
2007
2006
8,660
8,819
6,101
3,545
8,170
7,874
5,547
3,344
7,636
7,030
5,042
3,097
7,070
6,277
4,584
2,815
5,252
6,069
4,689
2,161
8,021
8,966
6,199
2,924
6,576
9,171
5,725
2,709
6,171
8,297
5,456
2,785
27,125
270
24,935
270
22,805
270
20,746
267
18,171
268
26,110
791
24,181
6,567
22,709
7,670
27,395
25,205
$1.47
23,075
$1.35
21,013
18,439
26,901
30,748
30,379
1,949
529
732
1,241
1,634
433
638
1,087
1,336
352
555
929
488
220
415
301
(612)
(49)
315
112
931
(3)
533
727
1,445
200
316
956
1,760
255
331
1,050
4,451
3,792
3,171
(1,000)
(1,000)
(1,000)
1,424
0
(1,170)
(234)
0
(917)
2,188
11
(2,273)
2,917
257
(610)
3,396
155
(1,303)
3,451
2,792
2,171
254
(1,151)
(74)
2,564
2,248
6.00%
12.00%
10.00%
6.00%
8.78%
7.00%
12.00%
10.00%
8.00%
9.34%
8.00%
12.00%
10.00%
10.00%
9.92%
34.62%
3.43%
-2.24%
30.26%
14.17%
-0.37%
-34.52%
-32.31%
-24.36%
-26.09%
-30.41%
-66.12%
21.97%
-2.24%
8.28%
7.94%
7.98%
-87.95%
6.56%
10.53%
4.93%
-2.73%
6.48%
-14.38%
8.69%
9.23%
9.81%
13.96%
-31.46%
-12.51%
1.21%
22.50%
2.50%
6.00%
0.50%
12.00%
0.50%
35.00%
2.50%
16.41%
1.20%
-3.65%
0.32%
12.60%
1.52%
20.00%
2.50%
5.50%
0.50%
11.50%
0.50%
32.50%
2.50%
15.21%
1.30%
-3.97%
0.37%
11.08%
1.67%
17.50%
10.60%
5.00%
1.50%
11.00%
1.95%
30.00%
19.31%
13.91%
7.04%
-4.33%
1.23%
9.41%
8.20%
6.90%
18.56%
3.50%
4.31%
9.05%
2.34%
10.69%
5.51%
6.86%
8.15%
-5.57%
-0.59%
1.21%
7.45%
-11.65%
-23.26%
-0.81%
-0.77%
6.72%
-1.88%
5.18%
-19.68%
-1.29%
-9.67%
-4.97%
3.48%
-6.24%
-5.97%
11.61%
-10.37%
-0.03%
-2.21%
8.60%
3.08%
24.86%
-10.43%
8.38%
-3.68%
-8.45%
-6.47%
-0.28%
-8.61%
21.97%
-6.55%
2.18%
-0.89%
5.52%
-0.55%
35.29%
-2.41%
12.06%
-2.89%
-1.98%
2.31%
8.34%
0.94%
Consensus
Guidance
Operating Income (After Tax)
Primary Metals
Flat-Rolled Products
Engineered Products and Solutions
Alumina
Segment Profits
Eliminations and Other
General Corp Expenses
Total Operating Profit
Net Sales Growth
Primary Metals
Flat-Rolled Products
Engineered Products and Solutions
Alumina
Segment Profits
Eliminations and Other
Total Company
Operating Margin
Primary Metals
Flat-Rolled Products
Engineered Products and Solutions
Alumina
Segment Revenues
General Corp Expenses
Total Company
28.52%
3.07%
6.07%
37.70%
14.95%
-4.29%
7.40%
21
Alcoa (AA)
Income Statement
(Millions)
FY
FY
FY
FY
FY
FY
FY
FY
2013E
2012E
2011E
2010
2009
2008
2007
2006
Net Sales
Consolidated Sales
27,395
25,205
23,075
25,735
(4,989)
267
21,013
Operating Expenses
Cost of goods sold
SG&A
R&D
depreciation, depletion, and amortization
Restructuring and other charges
Other (expenses) income, net
(Loss) income from discontinued operations
20,820
1,233
205
1,370
274
137
0
19,156
1,134
189
1,260
252
126
0
17,537
1,038
173
1,154
231
115
(23)
17,174
961
174
1,450
207
(5)
(8)
16,902
1,009
169
1,311
237
161
(166)
22,175
1,167
246
1,234
939
59
(303)
24,248
1,472
249
1,268
399
1,780
(7)
23,318
1,402
213
1,280
543
193
87
3,630
3,340
3,034
1,034
(1,194)
896
4,885
3,903
Interest expense
Income before income taxes
548
3,082
504
2,836
542
2,492
494
540
470
(1,664)
407
489
401
4,484
384
3,519
Provision (benefit) for income taxes
Net income
Net income attributable to noncontrolling interests
Net income (loss) attributable to Alcoa
1,089
1,993
181
1,812
1,002
1,834
166
1,667
910
1,582
152
1,429
148
392
138
254
(574)
(1,090)
61
(1,151)
342
147
221
(74)
1,555
2,929
365
2,564
835
2,684
436
2,248
$1.58
$1.54
$1.52
$1.48
$1.36
$1.33
$0.25
$0.25
($1.23)
($1.23)
($0.09)
($0.09)
$2.98
$2.95
$2.59
$2.57
1,150
1,175
1,100
1,125
1,050
1,075
1,018
1,025
935
935
810
813
861
869
869
875
$1.47
$1.35
9.23%
9.81%
-31.46%
8.34%
-9.23%
5.47%
1.13%
7.11%
2.52%
-9.02%
-10.84%
34.50%
2.55%
0.33%
-12.51%
17.57%
-3.57%
4.34%
-0.45%
4.59%
0.46%
1.82%
-12.77%
69.94%
1.51%
0.82%
1.21%
21.14%
-2.10%
4.79%
0.17%
4.12%
-0.09%
14.58%
3.00%
34.68%
1.30%
1.19%
82.43%
4.34%
0.91%
4.59%
3.49%
0.22%
-1.13%
1.51%
38.17%
78.86%
4.79%
0.81%
4.12%
1.30%
5.79%
-0.02%
1.30%
31.83%
76.76%
4.62%
0.70%
4.21%
1.79%
0.64%
0.29%
1.26%
21.39%
762
483
2.83%
1.57%
1,883
2,602
7.00%
8.46%
3,238
3,326
12.04% 10.82%
2,518
2,787
9.36%
9.06%
538
620
2.00%
2.02%
-15.98% 166.01%
506
1.67%
2,788
9.18%
3,380
11.13%
2,407
7.92%
(3,761)
-12.38%
Total Sales
Eliminations of intersegment sales
Corporate
Operating Profit
EPS Basic
EPS Diluted
Ave shs basic
Ave shs weighted
Consensus
21,654
(3,483)
268
18,439
33,574
(6,948)
275
26,901
38,486
(7,771)
33
30,748
39,060
(8,697)
16
30,379
Guidance
Sales Growth
Gross Margin
Chg YoY
SG&A to Sales
Chg YoY
DD&A to Sales
Chg YoY
Operating Margin
Chg YoY
Tax Rate
Interest Expense
Minority Expense
6.00%
6.00%
6.00%
27.50%
2.35%
0.66%
27.50%
2.35%
0.66%
27.50%
2.35%
0.66%
13.96%
18.27%
9.93%
4.57%
-0.90%
6.90%
-0.21%
2.57%
11.59%
27.41%
2.35%
0.66%
Operating Expense Forecasts (% of Sales)
Cost of goods sold
SG&A
R&D
depreciation, depletion, and amortization
Restructuring and other charges
Other (expenses) income, net
(Loss) income from discontinued operations
Interest expense
Provision (benefit) for income taxes (% Op Profit)
76.00%
4.50%
0.75%
5.00%
1.00%
0.50%
0.00%
2.00%
30.00%
76.00%
4.50%
0.75%
5.00%
1.00%
0.50%
0.00%
2.00%
30.00%
76.00%
4.50%
0.75%
5.00%
1.00%
0.50%
-0.10%
2.35%
30.00%
81.73%
4.57%
0.83%
6.90%
0.99%
-0.02%
-0.04%
2.35%
14.31%
91.66%
5.47%
0.92%
7.11%
1.29%
0.87%
-0.90%
2.55%
48.07%
1,481
8.03%
1,529
8.29%
2,328
12.63%
1,954
10.60%
700
3.80%
-12.07%
Cash & Equiv
% of Sales
Accounts Receiv-Net
% of Sales
Inventories
% of Sales
Accounts Payable
% of Sales
Chg in WC
% of Sales
% of Sales/% of Growth
8.69%
23.24%
4.62%
4.21%
11.58%
23.73%
1.26%
1.44%
2,192
8.00%
3,013
11.00%
2,740
10.00%
(197)
-0.72%
-8.28%
2,016
8.00%
2,899
11.50%
2,647
10.50%
(192)
-0.76%
-8.24%
1,846
8.00%
2,769
12.00%
2,538
11.00%
(272)
-1.18%
-12.00%
1,543
7.34%
1,565
7.45%
2,562
12.19%
2,322
11.05%
98
0.47%
3.34%
Depreciation & Amortization
% of Sales
1,370
5.00%
1,512
6.00%
1,615
7.00%
1,450
6.90%
1,311
7.11%
1,234
4.59%
1,268
4.12%
1,280
4.21%
Capital Expenditures
% of Sales
1,370
5.00%
1,260
5.00%
1,154
5.00%
1,015
4.83%
1,617
8.77%
3,413
12.69%
3,636
11.83%
3,201
10.54%
22
Sources
Alcoa
Morgan Stanley Research
World Bureau of Metal Statistics
Infomine.com
Investmenttools.com
Stockcharts.com
Thompson Baseline
Yahoo Finance
Bloomberg
Wall Street Journal
23