The largest U.S. aluminum producer
) reported a loss in the third quarter of 2012, hurt by a hefty
charge associated with environmental remediation and legal
settlement and lower aluminum pricing. The company posted a loss of
$143 million or 13 cents per share in the quarter compared with a
profit of $172 million or 15 cents a share reported in the year-ago
Excluding one-time special items (including a $175 million
charge mainly related to environmental remediation of the Grasse
River and the settlement of a civil lawsuit against Aluminum
Bahrain), Alcoa earned $32 million or 3 cents a share in the
quarter. Analysts polled by Zacks were expecting the company to
break even on a per share basis. The company recorded a $40 million
charge associated with the legal settlement in the quarter.
Revenues decreased 9.1% year over year and 2.2% sequentially to
$5,833 million, but were ahead of the Zacks Consensus Estimate of
$5,565 million. Alcoa said that aluminum prices dropped 17% year
over year and 5% sequentially in the third quarter.
Alcoa witnessed strong productivity growth in its upstream and
downstream businesses in the third quarter on the back of higher
utilization rates, process innovations, lower scrap rates and usage
reductions. The company saw healthy demand across the aerospace and
automotive markets in the quarter.
Shipments in the reported quarter were 2.37 million metric tons on
production of 4.08 million metric tons. The After Tax Operating
Income (ATOI) was negative $9 million, down from $154 million in
the year-ago quarter and from $23 million reported in the
sequentially preceding quarter. The third quarter results were
impacted by lower London Metal Exchange (LME) based pricing and
unfavorable currency, partly offset by improved productivity,
stable Alumina Price Index-pricing and higher volumes.
Primary Metals -
Shipments in the third quarter were 0.77 million metric tons versus
0.75 million metric tons in the previous-year quarter. Production
in the quarter was 0.94 million metric tons, a slight decrease of
2.7% from the year-ago quarter. ATOI was negative $14 million
compared with $110 million in the year-ago quarter and negative $3
million in the prior quarter. Higher alumina costs and
negative impact of LME based pricing were offset by productivity
gains, cost decreases, and improved regional premiums.
Global Rolled Products -
Shipments in the quarter were 0.48 million metric tons compared
with 0.45 million in the prior-year quarter. Third-party revenues
were $1.85 million, down 6.3% year over year. The segment posted
ATOI of $98 million, up 63.3% year over year and 3.2% sequentially.
The segment reported increased productivity, higher volumes and
better price and mix compared with the previous year.
Engineered Products and Solutions -
Shipments in the quarter were 0.05 million metric tons versus 0.06
million metric tons in the prior-year quarter. ATOI was $160
million, up 15.9% year over year and flat sequentially, mainly
driven by productivity improvements and favorable Massena impacts,
partly offset by increased costs and lower volumes. Sales for the
segment declined 0.4% year over year and 3.7% sequentially to $1.37
The company ended the third quarter with strong liquidity with
cash and cash equivalents of $1.43 billion, up 7.5% year over year.
Debt-to-capital ratio for the quarter was 36.1%, up from 33.7% a
year ago. Capital expenditure was $302 million in the quarter
compared with $291 million in second-quarter 2012.
Alcoa Reducing Smelting Capacity
Alcoa remained on track to move down the cost curve and
curtailed capacities in its upstream business. The company
completed partial curtailments at La Coruna and Aviles, Spain,
while the Portovesme, Italy curtailment is underway and is expected
to be completed by November 30, 2012. Further, the company
permanently closed its smelter at Alcoa, Tennessee, and two lines
at Rockdale, Texas. With the full curtailment of the Portovesme
smelter, Alcoa will have 14% of its highest-cost system smelting
capacity offline. The curtailments will improve the competitiveness
of the company's Primary Products business.
Alcoa has lowered its global aluminum demand forecast for 2012
to 6% from its earlier expectation of 7%, owing to the slowdown in
China. The company, however, expects the aluminum market to double
in 2020 from the 2010 levels as the market is already ahead of the
required 6.5% compound annual growth rate.
With respect to its end markets, Alcoa anticipates aerospace
market to grow by 13% to 14% annually. The company has raised its
outlook for the automotive market for 2012 by 1%. Alcoa has
reaffirmed its growth expectations for packaging (2% to 3%),
commercial building and construction (2.5% to 3.5%), and industrial
gas turbine (3% to 5%). However, the company has lowered its 2012
growth expectations for the heavy truck and trailer market (a 7% to
9% percent decline) anticipating a slowdown across all major
Pennsylvania-based Alcoa Inc. is among the world's leading
producers of primary and fabricated aluminum and alumina. The
company competes with
Aluminum Corporation Of China Limited
We believe that the company's cost reduction efforts are, to
some extent, offsetting the impact of higher energy and raw
material costs on its bottom line. Alcoa is divesting
underperforming assets through its restructuring program. The
company is making efforts to reduce costs of its upstream business
and achieve record profit in its mid stream and downstream
Alcoa currently retains a Zacks #3 Rank, which translates into a
short-term (1 to 3 months) Hold rating. We have a long-term Neutral
recommendation on the stock.
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