Moments before the Alcoa results were reported kicking off Q1 earnings season, we tweeted:
Alcoa GAAP earnings to be a disaster. Non-GAAP to be a tiny beat.
— zerohedge (@zerohedge) April 8, 2014
Guess what? We were spot on.
While Q1 GAAP EPS was indeed a disaster, printing at $(0.16), yes, a loss, one naturally has to add back hundreds of millions of "one time, non-recurring" charges to get the non-GAAP number which was, you guessed it, a tiny beat of the consensus Q1 EPS print of $0.05, coming at $0.09. All this happened as the company's revenues not only tumbled from $5.83 billion a year ago to just $5.454 billion this quarter (down from $5.585 billion in Q4), but also missed expectations of $5.55 billion.
Of course, looking at the EPS "beat" over the past year reveals something quite scary - in April of last year the forecast was for a $0.20 EPS number. It ended up being less than half that with all the bells and whistles added back.
By the way the chart above is not among the two we would like to highlight. But before we get there, two more highlights:
in Q1, Alcoa burned through $760 million in negative Free Cash Flow, compared to $498 million in positive FCF quarter ago, and even worse than the $305 million a year ago.
So on to the charts.
Remember what we said about one-time, non-recurring restructuring charges? We dare you to point them out to us in the following table which shows not only recurring, non only non-one time restructuring charges, but constantly increasing ones at that.
A curious fact: in the past 12 months, Alcoa has had $1.236 billion in "one-time" charges. This amount is four times greater than the adjusted, non-GAAP net income during the same period of $333 million! Too bad Alcoa can't pull a JPMorgan and also add back loan loss reserve releases. Here is what Alcoa did add back:
- a net benefit for a number of small items ($6);
- a tax benefit representing the difference between Alcoa’s consolidated estimated annual effective tax rate and the statutory rates applied to restructuring and other charges ($72),
- an unfavorable tax impact related to the interim period treatment of operational losses in certain foreign jurisdictions for which no tax benefit was recognized ($56),
- the write-off of inventory related to the permanent closure of a smelter and two rolling mills in Australia and a smelter in the United States ($20),
- an unfavorable impact related to the restart of one potline at the joint venture in Saudi Arabia that was previously shut down due to a period of pot instability ($13),
- a gain on the sale of a mining interest in Suriname ($11),
- and a loss on the writedown of an asset to fair value ($2);
But saving the best for last, we dare anyone to point the CapEx renaissance that everyone is talking about, on this chart of Alcoa quarterly CapEx. We can wait - we have all day.