Edited Transcript of Alcoa Q4 2014 Earnings Conference Call…
Alcoa Inc. (NYSE:AA) hosted a conference call with investors and analysts to discuss Q4 2014 earnings results on January 12, 2015 at 5:00 p.m. ET. The following are the webcast audio and the associated transcript of the event…
Operator: Good day ladies and gentlemen and welcome to the fourth quarter 2014 Alcoa earnings conference call. My name is Tia and I will be your operator for today. As a reminder, today’s conference is being recorded for replay purposes.
I would now like to turn the conference over to your host for today, Ms. Kelly Pasterick, Vice President of Investor Relations. Please proceed.
Kelly Pasterick – Director, IR
Thank you, Tia. Good afternoon and welcome everyone to Alcoa’s fourth quarter 2014 earnings conference call. I’m joined by Klaus Kleinfeld, Chairman and Chief Executive Officer; and William Oplinger, Executive Vice President and Chief Financial Officer. After comments by Klaus and Bill, we will take your questions.
Before we begin today, I would like to remind you that today’s discussion will contain forward-looking statements relating to future events and expectations. You can find factors that could cause the company’s actual results to differ materially from these projections listed in today’s press release and presentation and in our most recent SEC filings.
In addition, we have included some non-GAAP financial measures in our discussion. Reconciliations to the most directly comparable GAAP financial measures can be found in today’s press release, in the appendix of today’s presentation and on our website at www.alcoa.com under the Invest section. Any reference in our discussion today to EBITDA means adjusted EBITDA for which we’ve provided calculations and reconciliations in the appendix.
And with that, I’d like to turn it over to Klaus Kleinfeld.
Klaus Kleinfeld – Chairman and CEO
Well, thank you Kelly and welcome everybody on the phone. So let me in the usual fashion summarize this quarter for you. I would say the transformation is delivering results, profitability is up year-over-year.
So talking about the operational performance, I think there is only one word: strong operational performance, starting with the downstream 19th consecutive quarter year-over-year profit growth, that’s excluding Firth Rixson midstream, profitability up substantially, more than 200%; upstream, improved performance 13 consecutive quarters.
Look at the Alumina segment. Profitability stands at $178 million; primary metals, profitability at $267 million.
Look at the fourth quarter cash from ops $1.5 billion, highest quarter in history. Fourth quarter free cash flow, highest quarter since the fourth quarter 2010.
Look at the full year productivity that we’ve been able to generate, stands at $1.2 billion and it’s really coming from all across the company and all segments, all functions. And then when you look at the free cash flow, we’ve been able to generate $455 million, 18% improvement versus the year before.
And if you look at the second point here is the accelerated portfolio transformation. When we put the slide together, actually it was quite – and listed what had been going on in the fourth quarter, we were kind of surprised ourselves, that that all fell into the fourth quarter. It almost had too few days to get that all done. And so we closed the Firth Rixson $3 billion acquisition. We announced the TITAL acquisition. We expected to close this one in this quarter, first quarter here.
We unveiled the Micromill, exciting with its world’s most advanced aluminum alloys that it allows. I think we’re only scratching the surface. I’ll talk more about it later. We finalized the sale of our three European rolling mills. We safely executed the Australian rolling mills closures. We sold the Jamalco interest in Jamaica. The Saudi Arabia refinery is now fully operational. It’s making first alumina from Saudi Arabian bauxite. That is a historic first in Kingdom, and really fantastic achievement by the whole team there. And we sold the stake in our Mount Holly smelter to Century. So those are the highlights.
And with this, why don’t we go straight, Bill, over to the numbers, so that you can guide everybody through this?
Bill Oplinger – EVP and CFO
Sure, thanks Klaus. Let’s quickly walk through the income statement.
Revenue increased $138 million on a sequential quarter basis. On a year-over-year basis revenue increased over $790 million or 14% on higher sales in our mid and downstream businesses, the inclusion of Firth Rixson in the quarter, higher pricing in the upstream and favorable energy sales. Versus last year we recorded strong revenue growth in all of our segments.
Cost of goods sold percentage decreased by 60 basis points sequentially and was down over 6% compared to a year ago quarter basis, both driven primarily by productivity gains, better prices and a stronger U.S. dollar, somewhat offset by cost increases.
Overhead costs are up versus both periods, primarily driven by the addition of Firth Rixson. EBITDA was over $1 billion for the second consecutive quarter, resulting in EBITDA of $3.6 billion for the year, $1 billion higher than 2013.
Full year 2014 net income was $268 million. Our effective tax rate for the quarter is 51% and for the full year it’s 64%. These rates are higher than our expected operational rates, primarily due to discrete charges related to tax rate changes and the fact that some of our special items had little or no tax benefits associated with them. Our operational tax rate for the year was 31%. Looking forward we estimate our operational tax rate for 2015 to be at that same level.
Overall results for the quarter are net income of $0.11 per share, but excluding special items we have net income of $0.33 per share, $0.02 higher than the third quarter and $0.29 higher than the fourth quarter of last year.
Let’s take a closer look at the special items. Included in net income is an after-tax charge of $273 million or $0.22 per share, primarily for restructuring. As Klaus said, during the quarter we took several actions to accelerate the company’s transformation. We sold three rolling mills in Europe for an after tax charge of $115 million. We also divested our share of the Jamalco mine and refinery in Jamaica, which accounts for $95 million of the restructuring-related charges. Other charges related to the completion of closure activities at the low rolling mills in Australia, and other actions taken across the organization.