Alcoa (NYSE: AA) reported Q2 EPS of $0.15, $0.05 better than the analyst estimate of $0.10. Revenue for the quarter came in at $5.3 billion versus the consensus estimate of $5.2 billion.

2Q 2016 Arconic Segments (Value-Add)

• Revenue of $3.5 billion, up 1 percent year-over-year, reflects:
  • 5 percent revenue increase related to acquisitions, mostly offset by a 4 percent revenue decline predominately from metal price impacts
  • Record Engineered Products and Solutions revenue of $1.5 billion, up 15 percent year-over-year
• After-tax operating income of $294 million, up 3 percent year-over-year
  • Global Rolled Products: $68 million after-tax operating income;
    
    record quarter for automotive sheet shipments, up 17 percent year-over-year
  • Engineered Products and Solutions: Record after-tax operating income of $180 million, up 9 percent year-over-year
  • Transportation and Construction Solutions: $46 million after-tax operating income, up 5 percent year-over-year

• Signed a multi-year contract with Embraer valued at approximately $470 million
• Opened state-of-the-art, 3D printing metal powder production facility to develop and produce proprietary titanium, nickel and aluminum powders
• Achieved $176 million in productivity savings ($360 million year-to-date), on target to deliver $650 million in 2016

2Q 2016 Alcoa Corporation Segments (Upstream)

• Total revenue of $2.3 billion, up 7 percent sequentially
  • Predominately due to 22 percent higher alumina prices, 2 percent higher aluminum pricing and organic growth, slightly offset by the impact of curtailed, divested and closed operations
• Third-party revenue of $1.8 billion, up 9 percent sequentially
• After-tax operating income of $150 million, up sequentially, as improved pricing, productivity savings and the realized benefit of a more competitive portfolio lifted Alumina and Primary Metals segments profits
• Alcoa World Alumina and Chemicals secured $60 million of new third-party bauxite sales over the next two years
• Reached power agreement to improve competitiveness of Intalco smelter in Washington State and curtailed Pt. Comfort, Texas refinery
• Achieved $199 million in productivity savings ($379 million year-to-date), on target to deliver $550 million in 2016

Separation Update

On June 29, 2016, Alcoa Upstream Corporation (to be renamed Alcoa Corporation prior to separation) filed an initial Registration Statement on Form 10 with the U.S. Securities and Exchange Commission. The initial Form 10 filing is a major milestone in Alcoa’s pending separation into two strong standalone, publicly-traded companies. The Value-Add segments (other than the rolling mill operations in Warrick, IN and Saudi Arabia) will remain in the existing company, which will be named Arconic Inc. The separation is on track to be completed in the second half of 2016.

The separation remains subject to the satisfaction of certain conditions, including obtaining final approval from the Alcoa Board of Directors; receipt of a favorable IRS ruling and an opinion from Alcoa’s tax advisors regarding certain U.S. federal income tax matters; and the effectiveness of the Form 10.

Market Update

In the global aerospace market, 2016 continues to be a transition year for original equipment manufacturers. Within jet engines, new launches are accelerating demand, outpacing near-term demand for structural airframe components, which is being partially absorbed through de-stocking.

The Company is forecasting improvement in the second half of 2016 as new platforms ramp up, and a strong 2017. Large commercial aircraft deliveries declined approximately 1 percent year-over-year in the first half of 2016, but are expected to rise 6 percent in the second half of 2016 compared to the first. As a result, Alcoa forecasts full-year 2016 deliveries to be flat to up 3 percent, followed by strong double-digit growth in 2017.

In automotive, Alcoa continues to forecast global automotive production growth of 1 to 4 percent. This includes 1 to 4 percent growth in North America, where the United States continues to record strong sales, particularly in the light truck segment. The global outlook is driven by a variety of factors, including low fuel prices, sustained demand, stable consumer confidence and recovery of global economies.

Alcoa also projects solid growth in other end markets. Low natural gas prices in North America and the adoption of new, high-efficiency industrial gas turbine models continue to drive orders for both heavy-duty gas turbines and spare parts. Alcoa projects global airfoil market growth to be 2 to 4 percent for 2016. The 2016 packaging market is projected to grow 1 to 3 percent and the global building and construction market, 4 to 6 percent.

Growth in the heavy duty truck, trailer and bus market in Europe and China is expected to be offset by continued production declines in North America, setting the global production outlook for the commercial transportation market at negative 4 to negative 1 percent for the year.

In 2016, Alcoa projects an approximately 775 thousand metric ton global aluminum deficit as 5 percent global aluminum demand growth outweighs 2.5 percent global aluminum supply growth. In addition, the Company projects a global alumina deficit of 1.5 million metric tons.

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