Aleris Reports First Quarter 2016 Results
OREANDA-NEWS. Aleris Corporation today reported results for the three months ended March 31, 2016.
First Quarter Summary
- Adjusted EBITDA of $45 million, down from $55 million in the first quarter of 2015
- Global automotive volumes up 23 percent; global aerospace volumes up 20 percent from prior year
- Regional plate and sheet volumes in Europe up 9 percent from prior year
- Positive Adjusted EBITDA generated by Asia Pacific
- Unfavorable impact of $19 million from challenging metal spreads and a weakening U.S. dollar
- Pro forma liquidity of $469 million as of March 31, 2016, after giving effect to the April 2016 issuance of $550 million of 9?% Senior Secured Notes due 2021 and the repayment of the Senior Notes due 2018
Second Quarter Outlook
- Year-over-year performance expected to improve despite negative scrap spread and foreign currency impacts
- Global automotive and aerospace volumes expected to exceed prior year
- Improved North America building and construction and distribution volumes
- Order patterns for regionally-based Europe plate and sheet products expected to outpace prior year
- Aleris Operating System expected to drive favorable productivity as operating performance improves
"Strong demand in the global automotive and aerospace industries and positive trends in our regional businesses, especially in North America building and construction, helped to offset the impact of headwinds from metal spreads and currencies, as well as some operational issues early in the quarter that impacted our ability to maximize results," Aleris President & CEO Sean Stack said. "We are now gaining traction on a number of operational excellence initiatives that will enable us to capture the full benefit of this strong demand going forward.
"In addition, we are pleased with the steady progress we have made on our strategic growth projects including the Lewisport, Kentucky autobody sheet project and the ramp-up of our Zhenjiang, China aerospace plate facility. We believe these will significantly strengthen our position over the long-term to serve these growing industries."
First Quarter 2016 Results
Adjusted EBITDA totaled $45 million for the first quarter of 2016 compared to $55 million for the first quarter of 2015. First quarter results were impacted by the following:
- unfavorable year-over-year scrap spreads in North America caused by continued low aluminum prices and reduced scrap availability, as well as the increased use of purchased slab in Europe, decreased Adjusted EBITDA by approximately $12 million;
- changing currency exchange rates decreased Adjusted EBITDA by approximately $9 million. The U.S. dollar weakened 4 percent in the first quarter of 2016 while it strengthened 11 percent in the first quarter of 2015. This resulted in $3 million of losses on the remeasurement of U.S. dollar working capital in Europe during the first quarter of 2016 and $5 million of gains in the prior year;
- an increase in volumes, including 23 percent higher global automotive volumes and 20 percent higher global aerospace volumes, increased Adjusted EBITDA approximately $6 million; and
- improved rolling margins in Europe and North America increased Adjusted EBITDA approximately $5 million.
Losses from continuing operations totaled $6 million for the first quarter of 2016 compared to $26 million for the first quarter of 2015. The change was primarily related to the following:
- a $29 million favorable change in unrealized gains on derivative financial instruments as a result of aluminum price movements and derivative settlements;
- a $10 million decrease in depreciation and amortization expense resulting primarily from the closure and sale of certain North America segment facilities in 2015;
- a $9 million reduction in interest expense due to lower debt levels and increased capitalized interest;
- a $2 million reduction in business development costs as a result of the finalization of the sale of the recycling and specification alloys and extrusions businesses in the first quarter of 2015;
- a $2 million decrease in restructuring charges; and
- a $1 million decrease in stock based compensation resulting from the departure of certain senior executives in 2015.
Partially offsetting these favorable items was the decrease in Adjusted EBITDA discussed above as well as:
- an $11 million unfavorable change in the provision for income taxes;
- a $10 million unfavorable variation in currency exchange losses/gains on debt;
- a $3 million increase in start-up costs resulting from our North America autobody sheet project; and
- a $2 million unfavorable variation in metal price lag ($4 million favorable in the first quarter of 2016 compared to $6 million favorable in the first quarter of 2015). Metal price lag represents the difference between the price of primary aluminum included in our revenues and the price of aluminum impacting our cost of sales net of hedge gains and losses.
In the first quarter of 2016, capital expenditures were $122 million, the majority of which was spent on our North America autobody sheet project at our Lewisport, Kentucky facility and related spending to upgrade critical equipment and capabilities at the facility. That project continues to progress on schedule with shipments anticipated to commence in 2017.
As of March 31, 2016, Aleris had liquidity of $379 million, which consisted of approximately $317 million of availability under our 2015 ABL Facility plus $62 million of cash on hand. In April 2016, Aleris issued $550 million of 9?% Senior Secured Notes due 2021. Net cash received totaled $90 million after the repayment of the Senior Notes due 2018 plus the payment of accrued and unpaid interest, prepayment premiums, fees and expenses.
North America
North America segment income decreased to $24 million in the first quarter of 2016 from $32 million in the first quarter of 2015. Segment Adjusted EBITDA decreased to $21 million in the first quarter of 2016 from $29 million in the first quarter of 2015. Performance drivers included:
- unfavorable scrap spreads resulting from low aluminum prices and the related tightening of supply decreased segment Adjusted EBITDA approximately $10 million;
- improved rolling margins increased segment Adjusted EBITDA approximately $1 million; and
- favorable cost absorption more than offset a weaker mix of products sold, resulting in an increase to segment Adjusted EBITDA of approximately $1 million. Total shipment volumes were consistent with the prior year as improved building and construction and distribution volumes were offset by lower truck trailer volumes.
Europe
Europe segment income decreased to $33 million in the first quarter of 2016 compared to $41 million in the first quarter of 2015. Segment Adjusted EBITDA decreased to $33 million in the first quarter of 2016 from $39 million in the first quarter of 2015. Performance drivers included:
- increases in volumes, including 15 percent, 9 percent and 9 percent increases in automotive, aerospace and regional plate and sheet volumes, respectively, increased segment Adjusted EBITDA approximately $5 million. This increase was partially offset by unfavorable cost absorption, resulting in a net increase of approximately $1 million. In the first quarter of 2015, increasing quantities of finished goods resulted in additional production costs being capitalized. This did not recur in the first quarter of 2016;
- changing currency exchange rates decreased segment Adjusted EBITDA approximately $7 million primarily as a result of the unfavorable impact that the weakening U.S. dollar had on the U.S. dollar working capital balances in the current year compared to the favorable impact of the strengthening U.S. dollar in the prior year;
- an increased use of purchased slab decreased segment Adjusted EBITDA approximately $2 million; and
- improved rolling margins resulting from strong demand increased segment Adjusted EBITDA approximately $4 million.
The decrease in segment income was further impacted by a $2 million unfavorable variance in metal price lag, in addition to the factors that drove the increase in segment Adjusted EBITDA.
Asia Pacific
Our Asia Pacific segment reported segment income and segment Adjusted EBITDA of $1 million in the first quarter of 2016 as compared to segment loss and segment Adjusted EBITDA of $2 million in the first quarter of 2015. The increase was primarily due to an improved mix of product sold, including a substantial increase in aerospace volumes, that offset the impact of a temporary shut-down to expand the horizontal heat treat furnace.
Second Quarter Outlook
We estimate second quarter 2016 segment income and Adjusted EBITDA will be higher than both the first quarter of 2016 and the second quarter of 2015. Factors influencing anticipated second quarter 2016 performance include:
- Global automotive and aerospace volumes expected to exceed prior year;
- Improved North America building and construction and distribution volumes expected to more than offset lower truck trailer volumes;
- Order patterns for regionally-based Europe plate and sheet products will continue to outpace prior year;
- Unfavorable metal spreads, tight scrap supply and a weaker U.S. dollar will continue to impact results, although the year-over-year impact is expected to be less significant than in the first quarter; and
- Aleris Operating System expected to drive favorable productivity and improved operating performance to capitalize on strong demand.
Capital expenditures during the second quarter of 2016 are expected to be higher than the second quarter of 2015. We expect capital spending of approximately $350 million to $375 million in 2016, including the amounts spent in the first quarter of the year.
About Aleris
Aleris is a privately held, global leader in aluminum rolled products production. Headquartered in Cleveland, Ohio, Aleris operates 13 production facilities in North America, Europe and Asia.
|
Aleris Corporation |
||||
|
For the three months ended |
||||
|
March 31, 2016 |
March 31, 2015 |
|||
|
Revenues |
$ 662.5 |
$ 746.2 |
||
|
Cost of sales |
589.0 |
689.4 |
||
|
Gross profit |
73.5 |
56.8 |
||
|
Selling, general and administrative expenses |
50.3 |
61.3 |
||
|
Restructuring charges |
0.8 |
2.9 |
||
|
(Gains) losses on derivative financial instruments |
(1.0) |
9.1 |
||
|
Other operating expense, net |
0.4 |
1.0 |
||
|
Operating income (loss) |
23.0 |
(17.5) |
||
|
Interest expense, net |
18.1 |
26.6 |
||
|
Other expense (income), net |
2.5 |
(16.2) |
||
|
Income (loss) from continuing operations before income taxes |
2.4 |
(27.9) |
||
|
Provision for (benefit from) income taxes |
8.7 |
(2.3) |
||
|
Loss from continuing operations |
(6.3) |
(25.6) |
||
|
Income from discontinued operations, net of tax |
— |
131.1 |
||
|
Net (loss) income |
(6.3) |
105.5 |
||
|
Net income from discontinued operations attributable to noncontrolling interest |
— |
0.1 |
||
|
Net (loss) income attributable to Aleris Corporation |
$ (6.3) |
$ 105.4 |
||
|
Aleris Corporation |
|||
|
For the three months ended |
|||
|
March 31, 2016 |
March 31, 2015 |
||
|
Segment income (loss): |
|||
|
North America |
$ 24.2 |
$ 32.0 |
|
|
Europe |
32.9 |
41.4 |
|
|
Asia Pacific |
0.9 |
(1.9) |
|
|
Total segment income |
58.0 |
71.5 |
|
|
Depreciation and amortization |
(26.3) |
(36.6) |
|
|
Other corporate general and administrative expenses |
(13.1) |
(17.9) |
|
|
Restructuring charges |
(0.8) |
(2.9) |
|
|
Interest expense, net |
(18.1) |
(26.6) |
|
|
Unallocated gains (losses) on derivative financial instruments |
9.2 |
(19.6) |
|
|
Unallocated currency exchange (losses) gains |
(0.1) |
10.4 |
|
|
Start-up costs |
(6.3) |
(3.8) |
|
|
Other expense, net |
(0.1) |
(2.4) |
|
|
Income (loss) from continuing operations before income taxes |
$ 2.4 |
$ (27.9) |
|
|
Aleris Corporation |
||||
|
For the three months ended |
||||
|
March 31, 2016 |
March 31, 2015 |
|||
|
Metric tons of finished product shipped: |
||||
|
North America |
119.8 |
120.0 |
||
|
Europe (1) |
82.0 |
75.0 |
||
|
Asia Pacific |
4.9 |
5.1 |
||
|
Intersegment shipments |
(1.4) |
(0.4) |
||
|
Total metric tons of finished product shipped |
205.3 |
199.7 |
||
|
Revenues: |
||||
|
North America |
$ 334.1 |
$ 409.8 |
||
|
Europe |
312.7 |
333.5 |
||
|
Asia Pacific |
21.3 |
21.5 |
||
|
Intersegment revenues |
(5.6) |
(18.6) |
||
|
Total revenues |
$ 662.5 |
$ 746.2 |
||
|
Commercial margin: |
||||
|
North America |
$ 138.6 |
$ 154.9 |
||
|
Europe |
144.8 |
139.2 |
||
|
Asia Pacific |
10.1 |
7.7 |
||
|
Total commercial margin (2) |
$ 293.4 |
$ 301.8 |
||
|
Commercial margin per metric ton: |
||||
|
North America |
$ 1,156.6 |
$ 1,291.0 |
||
|
Europe |
1,766.4 |
1,854.3 |
||
|
Asia Pacific |
2,066.8 |
* |
||
|
Segment Adjusted EBITDA: |
||||
|
North America |
$ 20.7 |
$ 28.8 |
||
|
Europe |
32.6 |
39.1 |
||
|
Asia Pacific |
0.9 |
(1.9) |
||
|
Corporate |
(9.7) |
(11.0) |
||
|
Total Adjusted EBITDA |
$ 44.5 |
$ 55.0 |
||
|
Segment Adjusted EBITDA per metric ton: |
||||
|
North America |
$ 172.9 |
$ 239.9 |
||
|
Europe |
397.9 |
520.5 |
||
|
Asia Pacific |
180.9 |
* |
||
|
Aleris Corporation |
216.8 |
273.4 |
||
|
* Result is not meaningful. |
||||
|
(1) Finished product shipped excludes slab and billet sales from the Voerde and Koblenz cast houses. |
||||
|
(2) Amounts may not foot as they represent the calculated totals based on actual amounts and not the rounded amounts presented in this table. |
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|
Aleris Corporation |
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|
ASSETS |
March 31, 2016 |
December 31, 2015 |
||
|
Current Assets |
||||
|
Cash and cash equivalents |
$ 61.9 |
$ 62.2 |
||
|
Accounts receivable (net of allowances of $8.1 and $7.7 at March 31, 2016 and December 31, 2015, respectively) |
278.1 |
216.2 |
||
|
Inventories |
485.5 |
480.3 |
||
|
Prepaid expenses and other current assets |
34.1 |
28.7 |
||
|
Total Current Assets |
859.6 |
787.4 |
||
|
Property, plant and equipment, net |
1,225.8 |
1,138.7 |
||
|
Intangible assets, net |
38.4 |
38.9 |
||
|
Deferred income taxes |
112.6 |
112.6 |
||
|
Other long-term assets (1) |
81.9 |
82.9 |
||
|
Total Assets (1) |
$ 2,318.3 |
$ 2,160.5 |
||
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
||||
|
Current Liabilities |
||||
|
Accounts payable |
$ 269.4 |
$ 223.2 |
||
|
Accrued liabilities |
210.2 |
233.8 |
||
|
Current portion of long-term debt |
18.0 |
8.7 |
||
|
Total Current Liabilities |
497.6 |
465.7 |
||
|
Long-term debt (1) |
1,211.9 |
1,109.6 |
||
|
Deferred income taxes |
6.0 |
2.5 |
||
|
Accrued pension benefits |
152.3 |
149.1 |
||
|
Accrued postretirement benefits |
38.0 |
38.8 |
||
|
Other long-term liabilities |
67.6 |
67.6 |
||
|
Total Long-Term Liabilities (1) |
1,475.8 |
1,367.6 |
||
|
Stockholders' Equity |
||||
|
Common stock; par value $.01; 45,000,000 shares authorized and 31,892,441 and 31,768,819 shares issued and outstanding at March 31, 2016 and December 31, 2015, respectively |
0.3 |
0.3 |
||
|
Preferred stock; par value $.01; 1,000,000 shares authorized; none issued |
— |
— |
||
|
Additional paid-in capital |
423.0 |
421.9 |
||
|
Retained earnings |
81.4 |
87.7 |
||
|
Accumulated other comprehensive loss |
(159.8) |
(182.7) |
||
|
Total Equity |
344.9 |
327.2 |
||
|
Total Liabilities and Equity |
$ 2,318.3 |
$ 2,160.5 |
||
|
(1) The retrospective first quarter adoption of Accounting Standards Update 2015-03 "Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs" decreased both "Other long-term assets" and "Long-term debt" by $2.3 million and $2.6 million at March 31, 2016 and December 31, 2015, respectively. |
||||
|
Aleris Corporation |
||||
|
For the three months ended |
||||
|
March 31, 2016 |
March 31, 2015 |
|||
|
Operating activities |
||||
|
Net (loss) income |
$ (6.3) |
$ 105.5 |
||
|
Adjustments to reconcile net (loss) income to net cash provided (used) by operating activities: |
||||
|
Depreciation and amortization |
26.3 |
36.6 |
||
|
Provision for deferred income taxes |
3.3 |
78.7 |
||
|
Stock-based compensation expense |
1.7 |
2.7 |
||
|
Unrealized (gains) losses on derivative financial instruments |
(9.2) |
17.4 |
||
|
Currency exchange gains on debt |
(0.4) |
(11.3) |
||
|
Net gain on sale of discontinued operations |
— |
(205.3) |
||
|
Other |
2.0 |
(8.1) |
||
|
Changes in operating assets and liabilities: |
||||
|
Change in accounts receivable |
(55.9) |
(161.6) |
||
|
Change in inventories |
5.1 |
19.7 |
||
|
Change in other assets |
4.3 |
(3.3) |
||
|
Change in accounts payable |
46.1 |
19.4 |
||
|
Change in accrued liabilities |
(5.8) |
(10.7) |
||
|
Net cash provided (used) by operating activities |
11.2 |
(120.3) |
||
|
Investing activities |
||||
|
Payments for property, plant and equipment |
(122.0) |
(65.2) |
||
|
Proceeds from the sale of businesses, net of cash transferred |
— |
518.0 |
||
|
Other |
(0.1) |
(0.4) |
||
|
Net cash (used) provided by investing activities |
(122.1) |
452.4 |
||
|
Financing activities |
||||
|
Proceeds from revolving credit facilities |
110.0 |
159.5 |
||
|
Payments on revolving credit facilities |
(0.2) |
(377.6) |
||
|
Net (payments on) proceeds from other long-term debt |
(0.3) |
0.9 |
||
|
Debt issuance costs |
(0.4) |
— |
||
|
Other |
(0.4) |
(0.8) |
||
|
Net cash provided (used) by financing activities |
108.7 |
(218.0) |
||
|
Effect of exchange rate differences on cash and cash equivalents |
1.9 |
(4.0) |
||
|
Net (decrease) increase in cash and cash equivalents |
(0.3) |
110.1 |
||
|
Cash and cash equivalents at beginning of period |
62.2 |
36.0 |
||
|
Cash and cash equivalents at end of period |
$ 61.9 |
$ 146.1 |
||
|
Aleris Corporation |
|||||
|
For the three months ended |
|||||
|
March 31, 2016 |
March 31, 2015 |
||||
|
Adjusted EBITDA |
$ 44.5 |
$ 55.0 |
|||
|
Unrealized gains (losses) on derivative financial instruments of continuing operations |
9.2 |
(19.5) |
|||
|
Restructuring charges |
(0.8) |
(2.9) |
|||
|
Unallocated currency exchange gains on debt |
0.1 |
9.8 |
|||
|
Stock-based compensation expense |
(1.7) |
(2.7) |
|||
|
Start-up costs |
(6.3) |
(3.8) |
|||
|
Favorable metal price lag |
3.8 |
5.6 |
|||
|
Other |
(2.0) |
(6.3) |
|||
|
EBITDA |
46.8 |
35.2 |
|||
|
Interest expense, net |
(18.1) |
(26.6) |
|||
|
(Provision for) benefit from income taxes |
(8.7) |
2.3 |
|||
|
Depreciation and amortization |
(26.3) |
(36.6) |
|||
|
Income from discontinued operations, net of tax |
— |
131.1 |
|||
|
Net (loss) income attributable to Aleris Corporation |
(6.3) |
105.4 |
|||
|
Net income from discontinued operations attributable to noncontrolling interest |
— |
0.1 |
|||
|
Net (loss) income |
(6.3) |
105.5 |
|||
|
Depreciation and amortization |
26.3 |
36.6 |
|||
|
Benefit from deferred income taxes |
3.3 |
78.7 |
|||
|
Stock-based compensation expense |
1.7 |
2.7 |
|||
|
Unrealized (gains) losses on derivative financial instruments |
(9.2) |
17.4 |
|||
|
Currency exchange gains on debt |
(0.4) |
(11.3) |
|||
|
Net gain on sale of discontinued operations |
— |
(205.3) |
|||
|
Other |
2.0 |
(8.1) |
|||
|
Change in operating assets and liabilities: |
|||||
|
Change in accounts receivable |
(55.9) |
(161.6) |
|||
|
Change in inventories |
5.1 |
19.7 |
|||
|
Change in other assets |
4.3 |
(3.3) |
|||
|
Change in accounts payable |
46.1 |
19.4 |
|||
|
Change in accrued liabilities |
(5.8) |
(10.7) |
|||
|
Net cash provided (used) by operating activities |
$ 11.2 |
$ (120.3) |
|||
|
Aleris Corporation |
||||
|
For the three months ended |
||||
|
March 31, 2016 |
March 31, 2015 |
|||
|
North America |
||||
|
Segment income |
$ 24.2 |
$ 32.0 |
||
|
Favorable metal price lag |
(3.4) |
(3.2) |
||
|
Segment Adjusted EBITDA (1) |
$ 20.7 |
$ 28.8 |
||
|
Europe |
||||
|
Segment income |
$ 32.9 |
$ 41.4 |
||
|
Favorable metal price lag |
(0.3) |
(2.4) |
||
|
Segment Adjusted EBITDA (1) |
$ 32.6 |
$ 39.1 |
||
|
Asia Pacific |
||||
|
Segment income |
$ 0.9 |
$ (1.9) |
||
|
Segment Adjusted EBITDA (2) |
0.9 |
(1.9) |
||
|
(1) Amounts may not foot as they represent the calculated totals based on actual amounts and not the rounded amounts presented in this table. |
||||
|
(2) There was no difference between segment income and segment Adjusted EBITDA for this segment. |
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|
Aleris Corporation |
|||||
|
For the three months ended |
|||||
|
March 31, 2016 |
March 31, 2015 |
||||
|
North America |
|||||
|
Revenues |
$ 334.1 |
$ 409.8 |
|||
|
Hedged cost of metal |
(192.1) |
(251.7) |
|||
|
Favorable metal price lag |
(3.4) |
(3.2) |
|||
|
Commercial margin |
$ 138.6 |
$ 154.9 |
|||
|
Europe |
|||||
|
Revenues |
$ 312.7 |
$ 333.5 |
|||
|
Hedged cost of metal |
(167.6) |
(191.9) |
|||
|
Favorable metal price lag |
(0.3) |
(2.4) |
|||
|
Commercial margin |
$ 144.8 |
$ 139.2 |
|||
|
Asia Pacific |
|||||
|
Revenues |
$ 21.3 |
$ 21.5 |
|||
|
Hedged cost of metal |
(11.2) |
(13.8) |
|||
|
Commercial margin |
$ 10.1 |
$ 7.7 |
|||
|
Aleris Corp |
|||||
|
Revenues |
$ 662.5 |
$ 746.2 |
|||
|
Hedged cost of metal |
(365.3) |
(438.8) |
|||
|
Favorable metal price lag |
(3.8) |
(5.6) |
|||
|
Commercial margin |
$ 293.4 |
$ 301.8 |
|||
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