Alcoa Inc Type Of Business

Aluminum giant Alcoa Inc. (AA) and specialty parts maker Arconic Inc (HWM 2.06%) split apart in late 2016. That'southward brought Alcoa back to its roots, so to speak, as an aluminum producer. However, there's more to understand, here, as Alcoa charts its ain course into the futurity. Here'south a quick primer on Alcoa today and how it makes most of its money.

The build-upward and interruption-upwards

Leading up to the Nov 2016 split of Aloca and Arconic, "sometime" Alcoa was aggressively acquiring specialty parts business organization similar RTI Metals, which expanded its exposure to both aerospace parts and titanium. But that $ane.5 billion deal is but a single example; at that place were plenty of other acquisitions made as "erstwhile" Alcoa attempted to manage through a difficult commodity market place by shifting up the value chain.

Liquid aluminum being poured into ingots

Image source: Getty Images.

Along the way, though, "quondam" Alcoa was too rightsizing the article aluminum business. That included selling assets and shutting downwardly older production facilities. The cease goal was to cutting costs and improve the efficiency of a struggling concern. In other words, on the mode to the separate the company, it was besides upgrading its aluminum business so it could stand up on its ain.

It made a great deal of headway. Alcoa went from the 51st percentile on the aluminum toll bend to the 38th percentile betwixt 2010 and 2016, and from the 30th to the 17th in Alumina. When the late 2016 breakdown finally took identify, the new Alcoa was a much better business than it had been only a few years earlier.

Back to basics, sort of

So, Alcoa has gotten dorsum to its roots every bit a commodity producer. That means its peak and lesser lines will by and large go upwardly and downwardly with the prices of the commodities it produces. That list includes aluminum, alumina, and bauxite -- the unabridged aluminum value chain. It has material positions in each business organization, including being the largest bauxite miner in the earth (the commencement stride in the value chain).

About 15% of the bauxite Alcoa produces goes to 3rd parties, with the residue consumed internally. Roughly 70% of the alumina information technology makes, meanwhile, goes to outsiders, with the rest feeding Alcoa's own needs. And since Alcoa isn't a consumer of aluminum, it sells all of the aluminum it produces.

A list of Alcoa's facilities that have been shut or had production curtailed

A lot of hard work went into trimming downwardly Alcoa prior to its break-up with Arconic. Image source: Alcoa Inc.

Notably, Alcoa isn't just large, information technology'southward globally diversified. Information technology owns or is a joint owner of facilities in North America, Southward America, Europe, Africa, and the Centre E. In other words, it'south positioned to provide products across the aluminum value chain and across the earth.

Information technology's also of import to annotation that Alcoa isn't completely focused on commodity products. Arconic took the loftier-end businesses, like plane parts, but Alcoa nevertheless produces rolled and bandage products. Rolled products go into things like soda cans and food containers, while cast products are bought past industries equally varied equally auto manufacturing and construction. That's a far cry from what Arconic does, but Alcoa is still adding value to some of what it sells. That's differentiated from just selling raw commodities. It'south non the biggest part of the business, and Alcoa doesn't break it out, but yous shouldn't forget well-nigh information technology, either.

Alcoa today

If you were looking at Alcoa a few years ago, it was a much different company than it is today. Later the late 2016 split from Arconic, Alcoa has returned to its roots equally an aluminum producer. Just information technology touches every level of the process from bauxite to the aluminum sheets used to make food containers. And information technology's important to note that Alcoa has made a great deal of progress on the cost front, placing it in a solid position within the aluminum industry. That said, article prices will be the driving force on the top and bottom lines. Simply if y'all have a positive outlook for aluminum, you should make sure you accept the time to exercise a deep dive on Alcoa.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in whatever of the stocks mentioned. The Motley Fool has a disclosure policy.