Alcoa Earnings: Improved Cost Performance; Tariffs Now a Factor

Key Morningstar Metrics for Alcoa

• Fair Value Estimate: $42.50
• Morningstar Rating: ★★★★★
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: High

What We Thought of Alcoa’s Earnings

Alcoa reported a 105% increase in first-quarter 2025 underlying NPAT to $568 million, or $2.15 per share, against the previous quarter. Adjusted EBITDA increased by 26% to $855 million. Reduced operating costs more than countered softer alumina production, shipments, and pricing.

Why it matters: We increased our 2025 earnings per share forecast by 90% to AUD 3.87 following the strong first quarter. Alumina costs decreased primarily due to nonrecurrence of inventory writedowns in the fourth quarter. There was also a net benefit from lower alumina prices flowing to aluminum.

• Alcoa maintains 2025 production guidance, including 9.5 million-9.7 million metric tons of alumina and 2.6 million-2.8 million metric tons of aluminum. We remain at the midpoint for both. Based on current market conditions, Alcoa expects a second-quarter 2025 tax benefit of approximately $50 million-$60 million.
• Alcoa’s Canadian-produced aluminum sent to US customers is now subject to a 25% tariff. The aluminum segment will consequently suffer unfavorable second-quarter impact of $90 million due to US tariffs on Canadian imports.

The bottom line: Our $42.50 fair value estimate stands. We assume a negative five-year EBITDA CAGR of 1.1% to $1.45 billion by 2029. The decline anticipates pullbacks in alumina and aluminum price to $337 per metric ton and $0.83 per pound nominally by 2029.

• We assume a midcycle adjusted EBITDA margin of 13.1%, close to 2024’s 12.9%. Alcoa says the net annual tariff impact is approximately $100 million for its business. This assumes a higher Midwest premium offsets most of the anticipated $400 million-$425 million annual tariff-associated cost.

Long view: We don’t expect tariffs on aluminum to remain indefinitely. Canadian source aluminum remains the most competitive in the supply chain to the United States, even with tariffs. The cost to US industry is likely to be too high for tariffs to persist.