Rising scrap costs negatively impact Novelis profits despite strong demand

Novelis Inc., a sustainable aluminum solutions provider, reported results for the third quarter of fiscal year 2025. Despite a strong demand for beverage packaging sheets, the reduction in automotive and special orders resulted in less overall sales. 

Third quarter fiscal year 2025 financial highlights

Net sales for the third quarter of fiscal year 2025 increased 4 percent versus the prior year to $4.1 billion. This increase was mainly driven by higher average aluminum prices as the total rolled product shipments of 904 kilotonnes are largely comparable to the prior year period. The continued strong demand for beverage packaging sheets was offset by lower automotive and special shipments.

Net income attributable to the common shareholder decreased 9 percent versus the prior year to $110 million in the third quarter of fiscal year 2025. Net income attributable to the common shareholder, excluding special items, was down 32 percent year-over-year to $119 million, and Adjusted EBITDA decreased 19 percent to $367 million in the third quarter of fiscal year 2025. 

The decreases in net income attributable to the common shareholder, excluding special items, and Adjusted EBITDA are primarily driven by higher aluminum scrap prices and unfavorable product mix. Adjusted EBITDA per tonne was down 19 percent year-over-year to $406. 

Net cash flow provided by operating activities was $263 million in the first nine months of fiscal year 2025 compared to $420 million in the prior fiscal year period, primarily due to lower net income and unfavorable changes in working capital. 

Adjusted free cash flow was an outflow of $915 million in the first nine months of fiscal year 2025, higher than the prior year period outflow of $517 million due to higher capital expenditures and lower cash flow from operating activities. Total capital expenditures were $1.2 billion for the first nine months of fiscal year 2025; a 22 percent increase versus the prior year period, primarily attributed to strategic investments in new rolling and recycling capacity under construction, most notably in the U.S. for Bay Minette.

"Novelis is leading the industry in first-mover investments to capture growing market opportunities," said Devinder Ahuja, executive vice president and CFO, Novelis Inc. "We intend to fund those investments largely through internally generated cash flow while maintaining balance sheet discipline to ensure we stay in a net leverage ratio of approximately 3.5 times during this strategic investment cycle."

The company had a total liquidity position of $1.6 billion, consisting of $791 million in cash and cash equivalents and $790 million in availability under committed credit facilities, as of December 31, 2024. In January 2025, the company issued $750 million in senior unsecured notes due January 2030, with the proceeds primarily used to repay outstanding borrowings under the ABL revolver.

Third quarter fiscal year 2025 earnings conference call

Novelis will discuss its third quarter fiscal year 2025 results on an upcoming webcast and conference call for investors. 

"We continue to see strong demand across our markets as customers increasingly ask for lower-carbon, higher-recycled-content aluminum solutions as a way to reduce their carbon footprint," said Steve Fisher, president and CEO, Novelis Inc. 

"With a leading industry average of 63 percent recycled content in our products in our last fiscal year, Novelis has been a pioneer in using recycled inputs to drive down carbon emissions. As others have begun to follow suit, competition for scrap aluminum has intensified and is creating significant pressure on scrap pricing, which is impacting our financial results. We believe we are well-positioned to face these challenges and have operational and cost-efficiency initiatives underway to offset some of the pressures. At the same time, we are also developing new technologies that will allow us to expand the types of scrap inputs we can purchase for use in our system."