BLBG:Alcoa Beats Estimates As Carmakers Buy More Aluminum
Alcoa Inc. (AA), the largest U.S. aluminum producer, reported second-quarter earnings and revenue that beat analysts’ estimates after an increase in orders from the auto and aerospace industries.
Profit excluding charges related to a proposed settlement of Aluminium Bahrain BSC (ALBH)’s bribery lawsuit and other items was 6 cents a share, compared with the 5-cent average of 19 estimates compiled by Bloomberg, Alcoa said yesterday in a statement. Sales fell 9.4 percent to $5.96 billion, exceeding the $5.81 billion average of 11 estimates.
Chief Executive Officer Klaus Kleinfeld reiterated Alcoa’s forecast for global aluminum demand to rise 7 percent this year and exceed supply. The company’s units that fabricate the metal for customers including Boeing Co. and Ford Motor Co. have seen profitability rise, helping to offset the performance of its aluminum-smelting business. The primary metals unit posted an after-tax $3 million operating loss following a decline in the price of the metal.
“Alcoa is still holding the line and keeping their head above water,” Jorge Beristain, a Greenwich, Connecticut-based analyst with Deutsche Bank AG who has a hold rating on the stock, said yesterday in a telephone interview. “The pilot light has kind of gone out on aluminum prices.”
Alcoa was unchanged at $8.76 at 7:57 p.m. yesterday in New York after the close of regular trading. The company is typically the first in the Dow Jones Industrial Average to report results. Alcoa has fallen 47 percent in the past year, the worst performance on the index after Hewlett-Packard Co. (HPQ)
Lighter Vehicles
Car and truck manufacturers are building lighter vehicles and planemakers face record backlogs as airlines refurbish aging fleets. Global aluminum demand in the auto industry will increase 4 percent to 8 percent this year, with U.S. demand rising as much as 14 percent, Kleinfeld said yesterday in a conference call with analysts and investors. That’s higher than growth of 3 percent to 7 percent projected three months earlier.
Alcoa also said it will gain from 2012 demand for blades used in gas turbines and jet engines growing 3 percent to 5 percent. That compares with an estimate made in the first- quarter for growth of as much as 2 percent.
Downstream operations are a focus for Alcoa. The company is spending $300 million to expand auto-parts fabricating in Iowa. In May it reported the start of a $90 million expansion of a plant in Indiana to produce of aluminum-lithium alloys used in aircraft.
Margin Expansion
“In their downstream business and midstream business, those two pieces we are seeing margin expansion,” Brian Yu, a San Francisco-based analyst at Citigroup Inc. who recommends holding Alcoa’s shares, said in a July 6 interview. “It’s a sign that, yes, the company is doing some things right.”
Aluminum prices have declined over the past year amid a supply surplus. Aluminum for delivery in three months on the London Metal Exchange averaged $2,019 a metric ton in the quarter, 23 percent less than a year earlier.
Global output rose 4.1 percent to 14.9 million metric tons in the first four months of 2012, beating usage by 623,703 tons, according to data compiled by Bloomberg.
Still, for the whole year, there will be a deficit of 515,000 tons, Kleinfeld said, wider than Alcoa’s April forecast for a 435,000-ton shortfall. Deutsche Bank’s Beristain and Lloyd O’Carroll, an analyst at Davenport & Co. in Richmond, Virginia, estimate that there will be a surplus this year.
Output Cuts
Alcoa announced in January that it would cut production capacity by 12 percent. Rio Tinto Group, the world’s second- largest producer, said earlier yesterday it reduced output by 15 percent at a plant in New Zealand after prices fell. Norway’s Norsk Hydro ASA (NHY), the fifth-biggest producer, said last month it would shut 120,000 tons of capacity in Australia because of weaker demand and oversupply.
“The market is working and we do see that the people are moving forward with curtailing or responding by slower build- out” of new smelting capacity, Kleinfeld said on the call.
Alcoa said it proposed to settle the lawsuit brought in a U.S. federal court by Aluminum Bahrain, also known as Alba, by offering a $45 million cash payment. It also offered the company a contract for the supply of alumina.
Alcoa took a $45 million charge for the quarter in relation to the settlement and said it may take a further charge of $75 million. Potential settlements with the Securities and Exchange Commission and the U.S. Department of Justice may also result in future charges, Alcoa said.
Alba claims Alcoa bribed senior officials in Bahrain and caused Alba to pay almost $500 million more than it should have for alumina, the principal raw material in aluminum.
U.S. prosecutors -- who have been investigating the allegations since 2008 to determine whether Alcoa or anyone else violated the U.S. Foreign Corrupt Practices Act -- last month dropped objections to the pretrial gathering of evidence in the lawsuit by state-owned Alba.
To contact the reporter on this story: Sonja Elmquist in New York at selmquist1@bloomberg.net
To contact the editor responsible for this story: Simon Casey at scasey4@bloomberg.net
