Despite lower aluminum prices, Alcoa posts $24 million profit in 3Q, beats expectations
Oct 9, 2013 / 5:32 am
DALLAS - Alcoa swung to a third-quarter profit driven by demand from auto makers and cost-cutting in the face of lower aluminum prices.
The results beat expectations, and the company's stock climbed in after-hours trading.
With the world awash in aluminum, Alcoa has been idling plants to cut smelting capacity by 16 per cent. That helped it cut its production costs by 9 per cent, more than enough to offset a 7 per cent drop in the cash price of the metal on the London market.
Alcoa Inc. said Tuesday that it earned $24 million, or 2 cents per share, in the July-September quarter, compared with a year-ago loss of $143 million, or 13 cents per share.
The company said that excluding $96 million in restructuring and other one-time costs and gains, it would have earned 11 cents per share. Analysts forecast profit of 5 cents per share, according to FactSet.
Alcoa credited higher productivity and strong results in its engineered-products and rolled-aluminum units, which now account for more than half its revenue. The company sells rolled aluminum sheets to car makers, a business that it expects will grow rapidly as manufacturers boost fuel mileage by producing lighter vehicles. Alcoa is expanding a rolling mill in Tennessee that serves the auto market.
The company said that the commodity end of its business â€” mining and smelting â€” performed better in a tough market.
Overall revenue fell 1 per cent to $5.77 billion, but still beat the $5.64 billion prediction of analysts.
Alcoa has been reducing costs in mining and other functions, and Chairman and CEO Klaus Kleinfeld said the third-quarter results showed that the "repositioning" is "on the right path."
"The one (part of the business) that needs restructuring â€” and we've always said that â€” is the smelting segment, and that's why you see 16 per cent of the smelting capacity curtailed, but it's a smaller part of our business," Kleinfeld said on a conference call with analysts.
Alcoa used to be considered the leadoff company for earnings season because it was the first member of the Dow Jones industrial average to report results each quarter. But last month the Dow index operators dropped Alcoa, due partly to its sagging stock price.
Still, investors are likely to keep watching Alcoa for hints about demand for aluminum, a key material in airplanes, automobiles and many consumer products.
The company stood by its forecast of 7 per cent increase in worldwide aluminum demand this year.
Alcoa predicted that operating income in the engineered-products and rolled-aluminum units would fall from the third quarter into the fourth, which Citi analyst Brian Yu called disappointing. The company blamed short-term high inventories of some products used by manufacturers such as jet makers.
Last week, Deutsche Bank downgraded its rating on Alcoa's stock to "Sell" from "Neutral" and suggested that the shares could lose nearly one-third of their value over the next year. The bank's analyst cited a deteriorating outlook for Alcoa's aluminum business.
Alcoa shares fell 3 cents to $7.94 before the results were released, leaving them down 8.5 per cent for the year. They gained 14 cents, or 1.8 per cent, to $8.08 after the release of the earnings report.
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