Alcoa Corporation (NYSE:AA) Q3 2017 Earnings Conference Call - Final Transcript

Oct 18, 2017 • 05:00 pm ET

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Alcoa Corporation (NYSE:AA) Q3 2017 Earnings Conference Call - Final Transcript

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Q & A
Operator
Operator

Thank you, Mr. Harvey. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] And your first question will be from David Gagliano of BMO Capital Markets. Please go ahead.

Analyst
David Gagliano

Okay, great. Thanks for taking my questions. I just have a couple of kind of nit-picky or numbers type of questions behind some of the assumptions. You may have touched on the first one in your prepared remarks. I just want to clarify a little bit on the outlook, the text says the outlook is based on alumina price of -- API price of $470 for unpriced sales for the fourth quarter. And what I'm wondering is, we've got the 30 to 60-day lags for your prices, so does that $470 assumption mean for the remainder of the quarter or does that mean for all of Q4 volumes priced at $470?

Executive
William Oplinger

It's a great question Dave, and we tried to make it as clear as we could in the release but let me try to clarify it even further. That means that, we have a lag on pricing so we have approximately a 30-day lag on alumina pricing and at this point, approximately half of the quarter is already priced. And so, that would be the assumption around the remainder of the quarter. So that's what's baked into that $2.4 billion estimate.

Analyst
David Gagliano

All right, perfect. Thanks for clarifying. And then just on Slide 15, there is all of the line items. The -- we did notice the other corporate expenses which have been running $30 million per quarter the number is expected to be closer, it looks like closer to $100 million in the fourth quarter. So the two-part question there, what's behind the jump and is that factored into that $2.4 billion EBITDA target as well?

Executive
William Oplinger

It is absolutely factored into that $2.4 billion. So that -- just to be clear, that $2.4 billion includes all of the things we've discussed today. And again, really great question around other corporate expenses, let me make that very clear. We do segment eliminations in corporate. And so, as profitability runs up in our upstream parts of our business, bauxite and alumina, as they sell to the aluminum segments, we eliminate that profitability if that product has not shipped. So any inventory that still sits there for aluminum that has alumina content, you have to eliminate the profitability. So the sole reason for that higher other corporate expense, it is due to higher profitability in our alumina segment that sits in inventory.

Analyst
David Gagliano

So -- but just to clarify, so then that would continue at that rate, the sort of the fourth quarter rate moving forward if the profitability stayed at that level or would it start to come down again?

Executive
William Oplinger

Well, it depends on what inventory does in 2018, and we will give you good guidance starting in 2018 for full-year 2018. But that is, like I said, it's based on the fact that alumina prices have run up so quickly