Alcoa Posts Q4 Loss on Hefty Charges - Analyst Blog

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Alcoa Inc. ( AA ), the largest U.S. aluminum producer, posted a loss of $2.3 billion or $2.19 per share in the fourth quarter of 2013 compared with a profit of $242 million or 21 cents per share in the year-ago quarter. The loss resulted mainly due to sizable goodwill impairment charges of $1.7 billion related to acquisitions in the Primary Metals business.

Excluding one-time special items, earnings came in at $40 million or 4 cents per share in the reported quarter, below the year-ago earnings of $64 million or 6 cents. It also missed the Zacks Consensus Estimate of 6 cents.

For full year 2013, Alcoa posted a net loss of $2.3 billion, or $2.14 per share compared with a net income of $191 million, or $0.18 per share in 2012.

Excluding one-time items, the company posted a net income of $357 million or 33 cents per share, ahead of the year-ago earnings of $262 million or 24 cents per share. It, however, missed the Zacks Consensus Estimate of 35 cents.

Revenues dropped roughly 5.3% to $5,585 million in the fourth quarter from $5,898 million in the year-ago quarter but exceeded the Zacks Consensus Estimate of $5,391 million. The decline was primarily due to weak aluminum prices which declined 7% year over year.

For full year 2013, revenues edged down 2.8% year over year to $23,032 million due to a 4% year-over-year decline in realized aluminum prices. It also beat the Zacks Consensus Estimate of $22,874 million.

Alcoa expects global aluminum demand growth to be 7% for 2014. Its shares fell as much as 4.6% in after-hours trading yesterday.

Segment Review

Alumina - Shipments in the reported quarter were 2.6 million metric tons on production of 4.25 million metric tons. After Tax Operating Income (ATOI) was $70 million, up from $41 million in the year-ago quarter and $67 million in the sequentially preceding quarter. The results were driven by strong productivity savings and energy efficiency improvements, benchmark production levels, and sales at Alumina Price Index-based pricing, partly offset by lower LME prices and higher energy costs.

Primary Metals - Shipments in the quarter were 0.72 million metric tons, down 6.6% from the year-ago quarter. Production in the quarter was 0.87 million metric tons, down 5% from the year-ago quarter. ATOI was negative $35 million compared with a profit of $316 million (including a $275 million gain on the Tapoco Hydroelectric Project asset sale) in the year-ago quarter and a profit of $8 million in the prior quarter.

The sequential decline was led by lower LME and regional premium prices coupled with a potline outage at the Ma'aden-Alcoa joint venture. However, strong productivity improvements and broad cost cutting measures offset higher seasonal energy and other price increases.

Global Rolled Products - Shipments in the quarter were 0.45 million metric tons, down 1.3% year over year. Third-party revenues were $1.64 billion, down 7.1% year over year. The segment posted ATOI of $21 million, down 72.7% year over year and 70.4% sequentially. The sequential decline was due to lower volumes in aerospace and mix and lower seasonal volume along with lower industrial volumes and prices.

Engineered Products and Solutions - Shipments in the quarter were 0.06 million metric tons, up 7.7% year over year. The segment posted fourth quarter ATOI of $168 million, up 20% year over year but down 12.5% sequentially. The sequential decline was due to seasonal cost increases and unfavorable volume and price/mix.

Financial Position

Alcoa's cash and cash equivalents stood at $1.44 billion as of Dec 31, 2013, compared with $1.86 billion as of Dec 31, 2012. Alcoa had a debt-to-capital ratio of 38.1% in 2013 versus 34.8% a year ago.

Alba resolution

Alcoa World Alumina LLC (AWA), which is owned 60% by Alcoa Inc. and 40% by Alumina Ltd., reached a settlement with the U.S. Department of Justice (DOJ) and the U.S. Securities and Exchange Commission (SEC) regarding certain legacy alumina contracts with Aluminium Bahrain B.S.C. (Alba).

As per the DOJ settlement, AWA will pay a total of $223 million, including a fine of $209 million payable in five equal installments over a four year period. AWA has been pleaded guilty, under the terms of the DOJ resolution, to one count of violating the anti-bribery provisions of the Foreign Corrupt Practices Act (FCPA).

Alcoa also reached another settlement with the SEC. Alcoa agreed to a settlement amount of $175 million. However, the company will be given credit for the $14 million one-time forfeiture payment, which is part of the DOJ resolution, leading to a total cash payment of $161 million to the SEC, payable in five equal installments over four years.

Strategic Actions

Alcoa's strategic re-positioning of its value and commodities businesses is working very well. The company is making capital investments and remains on track to move down the cost curve and curtail capacities in its upstream business. The curtailments will improve the competitiveness of the company's Primary Products business.

Alcoa started growing its value-added businesses (comprising  Engineered Products and Solutions and Global Rolled products) and lowering the cost base of its commodity businesses during the time of peak economic crisis. The company's value-added businesses are now driving 57% of its revenues and 80% of segment profits.

Alcoa has realized $1.1 billion year-over-year productivity savings, surpassing a $750 million annual goal. It has also managed growth capital expenditures of $407 million against an annual plan of $550 million and controlled sustaining capital expenditures of $786 million against a 2013 goal of $1 billion. The company is also progressing on the Saudi Arabia joint venture project with $159 million already invested in 2013 against a $350 million annual plan.

Outlook

Alcoa is optimistic for 2014 and expects global demand for aluminum to increase 7%. The company envisions 7%-8% global growth in the aerospace sector in 2014. Alcoa's growth forecast for other markets are - automotive (1%-4%), packaging (2%-3%), commercial building and construction (4%-6%).

Alcoa expects the transportation market to remain steady (-1% to 3%) in 2014 after witnessing a strong 2013. The company forecasts a decline in the industrial gas turbine market (-8% to -12%) on lower orders for new gas turbines and spare parts.

 Alcoa is a world leader in production and management of primary aluminum, fabricated aluminum, and alumina. The company is also the world's largest miner of bauxite and refiner of alumina.

Alcoa is divesting underperforming assets through its restructuring program and is aggressively pursuing cost-cutting actions. However, the company continues to compete  with pricing pressure.

Alcoa currently retains a short-term Zacks Rank #3 (Hold).

Other companies in the mining industry worth considering are Tahoe Resources Inc. ( TAHO ), Alexco Resource Corporation ( AXU ) and Denison Mines Corp. ( DNN ). While both Tahoe and Alexco carry a Zacks Rank #1 (Strong Buy), Denison holds a Zacks Rank #2 (Buy).



ALCOA INC (AA): Free Stock Analysis Report

ALEXCO RESOURCE (AXU): Free Stock Analysis Report

DENISON MINES (DNN): Free Stock Analysis Report

TAHOE RESOURCES (TAHO): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: AA , AXU , DNN , FCPA , TAHO

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