How Alcoa Just Converted A Half A Billion LTM Loss Into Half A Billion Profit

Some companies are notorious for buying back billions in stock in order to mask the decline in their earnings by reducing the number of shares outstanding. Alcoa, which still has a major debt overhang from the last financial crisis, is unable to do that as it simply does not have the free cash flow to dedicate to shareholder friendly activities: in fact, in the second quarter Alcoa's Free Cash Flow tumbled to just 55 million down from $205 million a year ago.

Instead, Klaus Kleinfeld's company is forced to resort to an even more primitive form of EPS fudging: massive quarterly EPS addbacks.

And as we showed last quarter, and the quarter before that, and the one prior, and so on, AA's addbacks continue to be the gift that keeps on giving.

Last quarter we were curious if as a result of this "bathwater" quarter, Alcoa would finally cease this deceptive practice.

The answer: not even close.

Moments ago, Alcoa reported adjusted EPS of $0.15, or $213 million in adjusted net income, handily beating consensus expectations of $0.09, even as sales tumbled 10% Y/Y.

There is, alas, a problem with these adjusted "earnings", because on a actual, GAAP basis, Alcoa actually reported EPS of $0.09... precisely in line with expectations,

How did Alcoa "fill the gap?" Simple: with its usual millions in "one-time" charges, addbacks, adjustments and other non-GAAP components, in this case $78 million.


But it is once again on an LTM basis that the company has absolutely outdone itself. Here, things get downright comical, because whereas Alcoa's GAAP Net Income for the LTM period ended December 31 was a net loss of $506 million, when one adds back all the charges incurred over the past 12 months, the "net income", on a non-GAAP Basis of course, soars to a whopping $495 million. The plug? "One-time, non-recurring" addbacks and various other restructuring charges amounting to over $1 billion for the LTM period!


Said otherwise, more than all of Alcoa's earnings in the last 12 months were the result of "non-recurring" addbacks, "one-time" charges, and other proforma changes to the non-GAAP net income number.

And that, ladies and gentlemtn, is non-GAAP accounting magic 101.

Oh, we almost forgot: here is the history of Alcoa's $0.09 EPS "consensus" which the company had to take another massive addback in order to "beat."