3rd Quarter 2026 Earnings Presentation & Conference Call - ALCOA CORP

Financial Performance:

• Third-quarter 2026 revenue was $3.7 billion, driven by higher realized alumina prices and volumes in the alumina segment (up 7% to $680 million), while the aluminum segment saw $3 billion in revenue due to lower metal prices and normalized shipments following Q2 inventory repositioning.
• Net income attributable to Alcoa was $483 million ($1.81 per share), up from $407 million in the prior quarter; adjusted net income was $485 million versus $562 million in Q2.
• Adjusted EBITDA was $789 million; the alumina segment saw a $95 million increase due to higher prices and Pinjarra refinery stability, while the aluminum segment's $862 million EBITDA was offset by lower metal prices, reduced shipments, and higher carbon costs.
• Cash flow remained robust with $643 million in operating cash flow and $472 million in free cash flow for the quarter.
• The company ended the quarter with $4.4 billion in cash, including $2.6 billion from a September bond issuance used to fund the Alley Group acquisition.
• Return on equity through the first nine months of 2026 was 25.3%, and year-to-date free cash flow totaled approximately $600 million.
• Shareholder returns included $80 million in dividends paid in the first nine months.

Guidance and Future Outlook:

• Full-year 2026 guidance remains largely unchanged, with only minor adjustments for transformation expenses, depreciation, interest, and capital expenditures.
• Q4 2026 outlook expects strong operating performance with higher production and shipments in both segments, supported by improved refining stability and smelter productivity.
• Q4 costs are expected to rise due to elevated market input prices and planned maintenance, though underlying performance remains strong.
• The Alley Group acquisition is targeted for closing in the first half of 2027, with regulatory approvals progressing well across jurisdictions.
• Alumina prices are expected to remain tight outside China through Q4 2026 and into 2027 due to curtailments and project delays, while China remains well-supplied.
• Indonesia is expected to add approximately 1.5 million metric tons of new smelting capacity in 2027, which the market is projected to absorb.
• Western Australia mine plan approvals are delayed into 2027 (up from earlier expectations), but six months of contingency mining inventory have been incorporated to maintain supply stability.

Business Segments and Product Lines:

• Alumina: Third-party revenue increased 7% to $680 million driven by higher realized prices and shipping volumes; Pinjarra refinery performance has recovered significantly after stability issues.
• Aluminum: Revenue of $3 billion reflects lower metal prices and normalized shipments; segment productivity gains included higher molten production and disciplined cost management.
• Asset Monetization: A definitive agreement reached to sell a portion of the Messina East site for up to $315 million, with $50–$65 million expected at closing within six months; this supports the $500 million–$1 billion monetization target by 2030.
• M&A (Alley Group): $2.6 billion debt financing secured to fund the $3.1 billion cash consideration; SAL 32 shareholders approved the transaction; estimated locked-box value exceeds $300 million.
• Operations: Completed restarts at San Ciprian and Alumar smelters; Alumar smelter production increased by 15,000 metric tons sequentially; Alumar smelter safety incident addressed with renewed commitment to safety protocols.

Market and Competitive Landscape:

• Alumina market tightened outside China with API rising to ~$370/mt, driven by supply curtailments and delays; Indonesia and Middle East recovery supports further demand.
• Bauxite prices increased to ~$73/metric ton, primarily due to higher freight costs.
• Global aluminum inventories remain historically low at ~42 days of consumption, creating tightness in North America and Europe.
• Regional premiums (Midwest, Rotterdam, Japan) remain elevated due to supply deficits, though pricing has moderated from recent highs.
• Demand remains strongest in packaging and electrical markets, while transportation is resilient and construction (particularly Europe) is the softest segment.
• Middle East smelter recovery is gradual but uncertain regarding full pre-conflict production levels; shipping through the Strait of Hormuz remains a persistent constraint.
• China's aluminum production is slightly above the nominal cap (approx. 45.8 million mt) but not showing massive capacity creep.

Risks and Challenges:

• Safety: A fatal accident occurred at the Alumar smelter in Brazil in September; management emphasized a renewed commitment to safety culture and risk reduction.
• Regulatory Delays: Western Australia mine plan approvals extended into 2027 due to appeals and ministerial decisions; contingency plans are in place to mitigate supply impact.
  Commodity Price Volatility: Exposure to fluctuations in metal prices, carbon costs, and input costs (caustic, freight).
• Geopolitical/Trade: Uncertainty regarding US-Canada aluminum tariffs and the potential impact on North American premiums; ongoing disruptions in the Strait of Hormuz affecting Middle East supply chains.
• Acquisition Execution: Regulatory approval risks and integration complexities associated with the $3.1 billion cash consideration for Alley Group.

Management Commentary and Tone:

• Tone was confident and focused on operational excellence, emphasizing "disciplined execution" and strong cash flow generation.
• Management reiterated safety as the top priority following the Alumar incident, stating no production target is more important than employee safety.
• Emphasis on strategic discipline: growth only where long-term shareholder value is clear (Alley Group), with a commitment to deleveraging post-closing.
• Leadership expressed confidence in securing WA approvals and successfully integrating Alley Group, noting a significant integration management office is already operational.
• Management declined to speculate on future M&A beyond the immediate focus on closing the Alley deal.

Analyst Questions and Answers:

• Guidance Nuances: Clarified that Q4 guidance for alumina is "flat" regarding operational performance but excludes pricing; pricing movements flow through to the P&L.
• Inventory Shifts: Explained Q3 lower shipments vs. higher production was due to not repeating Q2's inventory repositioning sell-off.
• Tariffs: US-Canada aluminum tariff discussions are ongoing; Alcoa supports governments but believes marginal supply will remain non-North American, keeping premiums high.
• Indonesian Supply: Analyst questioned Indonesia's aggressive ramp-up risks; Management expects 1.5m mt new capacity in 2027 to be absorbed by the market.
• Capital Allocation: Share repurchases are paused; priority is closing Alley Group and rapid deleveraging (targeting ~1.5x leverage pro forma).
• Messina East Deal: Structure is not a template; each site has unique complexities. Remediation responsibilities remain with Alcoa; buyer gets land free of legacy liabilities.
• Cost Guidance: Clarified Q4 cost increases: Alumina costs are flat (offsetting maintenance), while Aluminum costs rise ~$30m, driven by ~$10m in higher carbon costs and other inputs.
• Working Capital: Expected release of ~10 days of working capital in Q4 due to seasonal patterns and price levels.
• Integration Prep: 18-month transition service agreement in place with South32; integration team is ready to run assets from Day 1.

Other Key Points:

• The company aims to update its adjusted net debt target after the Alley Group transaction closes, reflecting the combined portfolio's stronger through-cycle cash flow.
• Two additional assets are identified for potential quick monetization following the Messina East transaction.
• The Alley Group acquisition includes a "locked-box" value of over $300 million, which will be applied to the cash consideration.
• Management confirmed no requirement for Chinese regulatory approval for the Alley Group transaction.
• The company's order book for aluminum products is solid, with significantly less volume available for sale compared to the prior year.