Novelis quarterly earnings affected by lower beverage packaging shipments

Mumbai-based Hindalco Industries Ltd. subsidiary Novelis Inc., an aluminum recycling and rolling company headquartered in Atlanta, has reported its financial results for the third quarter of its 2023 fiscal year, revealing some year-over-year losses.

Compared with the previous year, net income attributable to the company's common shareholder decreased 95 percent to $12 million primarily because of factors driving lower adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) and unfavorable metal price lag from falling aluminum local market premiums, according to the company. Excluding special items in both years, third-quarter fiscal year 2023 net income from continuing operations decreased 60 percent relative to the prior year to $96 million largely because of lower adjusted EBITDA.

"As expected, our results were pressured by continued unprecedented inflationary headwinds but were also further impacted by lower shipments resulting from significantly larger than anticipated customer inventory reduction actions in the beverage packaging market,” says Novelis President and CEO Steve Fisher. "We will continue to address these short-term challenges while remaining focused on building for our future in a prudent manner. Importantly, we believe the underlying demand fundamentals driven by increasing consumer preferences for lightweight, sustainable aluminum solutions in all our key end markets remains unchanged."

"We are navigating a challenging period of intensified inflationary headwinds and continuing to implement cost control measures and work with our customers to share these extraordinary inflation impacts," says Novelis Executive Vice President and Chief Financial Officer Dev Ahuja. "We see some of these inflated costs gradually settling down, however, we are applying a disciplined approach to capital expenditures and working capital that will allow us to maintain a strong balance sheet through these near-term headwinds while strategically investing in projects to drive future growth."

The company's net sales for the quarter decreased 3 percent to $4.2 billion compared with $4.3 billion in the prior-year period. Novelis attributes this to lower average aluminum prices and a 2 percent decrease in total flat-rolled product shipments to 908,000 tons. The lower prices were offset somewhat by increased product pricing and favorable product mix. Novelis reports shipping fewer beverage cans as customers reduced inventories and adjusted to more normalized levels of can demand postpandemic and softer demand for specialty products in this weaker macroeconomic environment. Conversely, easing supply chain constraints, including higher semiconductor availability, resulted in higher automotive shipments compared with the prior year.

Adjusted EBITDA decreased 33 percent to $341 million for the quarter compared with $506 million in the prior-year period as a result of what Novelis says was "an extraordinary inflationary environment and higher energy costs" arising from geopolitical instability. Less favorable metal benefits from recycling, unfavorable foreign exchange and lower volume also negatively affected its third-quarter results. Providing some relief were higher product pricing, including some higher cost pass-through to customers, and favorable product mix, the company says.

Adjusted free cash flow from continuing operations was an outflow of $158 million for the first nine months of fiscal year 2023 compared with generation of $217 million in the prior-year period. The company attributes the decrease largely to unfavorable metal price lag in the current year compared with a favorable lag in the prior year, lower adjusted EBITDA and higher capital expenditures. The company says it had a net leverage ratio of 2.6x at the end of the third quarter of fiscal year 2023 compared with 2.3x in the prior-year period.

Novelis says it had a total liquidity position of $2.1 billion as of Dec. 31, 2022.

In its earnings presentation slides, the company notes that its capital expenditure growth projects remain on track, including its $2.5 billion greenfield rolling and recycling facility in Bay Minette, Alabama, and its $365 million automotive recycling center in Guthrie, Kentucky.