) posted a loss in the first quarter of 2014 as hefty
restructuring charges and weak aluminum prices weighed on its
bottom line in the quarter. But its shares rose as earnings,
barring items, topped expectations.
The U.S. aluminum giant raked in a loss of $178 million or 16
cents per share in the first quarter compared with a profit of
$149 million or 13 cents per share in the year-ago quarter. The
company recorded $276 million in restructuring charges and other
special items in the quarter, mostly related to smelter and
rolling mill capacity reductions.
Excluding one-time special items, earnings came in at $98
million or 9 cents per share in the reported quarter, below the
year-ago earnings of $121 million or 11 cents. However, it
surpassed the Zacks Consensus Estimate of 5 cents.
Revenues dropped roughly 6.5% to $5,454 million in the first
quarter from $5,833 million in the year-ago quarter. It missed
the Zacks Consensus Estimate of $5,561 million. The decline was
primarily due to weak aluminum prices which dropped 8% year over
Alcoa has reaffirmed its global aluminum demand growth
expectations of 7% for 2014.
Alcoa's shares, which are up around 18% so far this year, rose
as much as 3.3% in after-hours trading yesterday, reflecting the
healthy earnings beat. The stock is up 51% over a year.
While many no longer consider Alcoa a major earnings season
bellwether following its exclusion from the Dow Jones Industrial
Average last year, its results still matter as they shed light on
demand trend for aluminum across a gamut of industries, which is
closely linked to levels of economic activity.
Alcoa Inc - Quarterly Earnings Per Share |
- Shipments in the reported quarter were 2.6 million metric tons
on production of 4.2 million metric tons. After Tax Operating
Income (ATOI) was $92 million, up from $58 million in the
year-ago quarter and $70 million in the sequentially preceding
quarter. The results were driven by strong productivity savings,
positive Alumina Price Index-based pricing and the sale of
Alcoa's Suriname gold mine interest, partly offset by lower LME
prices, lower volumes and higher energy costs.
- Shipments in the quarter were 0.6 million metric tons, down
12.5% from the year-ago quarter. Production in the quarter was
0.8 million metric tons, down 6.2% from the year-ago quarter.
ATOI was negative $15 million compared with an income of $39
million in the year-ago quarter and negative $35 million in the
The sequential improvement in ATOI was led by higher regional
premium prices along with value-add product mix improvements, and
favorable energy prices. However, these were offset by negative
LME prices, increased alumina costs and taxes, as well as costs
related to smelter closures at the Point Henry and Massena East
Global Rolled Products
- Shipments in the quarter were roughly 0.5 million metric tons,
up 3.8% year over year. Third-party revenues were $1.7 billion,
down 5.7% year over year. The segment posted ATOI of $59 million
(including a charge of $11 million related to the permanent
shutdown of the Australia rolling operations), down 27.2% year
over year and up nearly three-fold sequentially. The sequential
jump was due to record auto sheet quarterly revenue, increasing
demand in industrial and commercial transportation products, and
higher productivity and fixed cost absorption from higher mill
Engineered Products and Solutions
- Shipments in the quarter were 0.06 million metric tons, up 5.5%
year over year. The segment posted first quarter ATOI of $189
million, up 8.5% year over year and 12.5% sequentially. The
sequential rise was due to higher volumes in aerospace and
commercial transportation coupled with favorable productivity
across all businesses.
Alcoa's cash and cash equivalents stood at roughly $0.7
billion as of Mar 31, 2014, down from $1.55 billion as of Mar 31,
2013. Alcoa had a debt-to-capital ratio of 35%, flat year over
Alcoa made several investments during the reported quarter. In
its midstream business, Global Rolled Products made an investment
of $40 million in Itapissuma, Brazil rolling mill to increase
production of specialty foils. The company also commissioned the
$300 million expansion at its Davenport, IA facility. The
company's aim is to generate $1 billion in incremental revenue
growth by 2016.
The company also announced that it is investing $13 million in
its wheel plant in Szekesfehervar to meet the rising European
demand for its Dura-Bright surface-treated wheels. Alcoa,
launched the world's lightest heavy-duty truck wheel-the Ultra
ONE - within its downstream business, Engineered Products and
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
During the quarter, Alcoa announced various capacity
curtailments. The company announced that it will permanently
close Point Henry aluminum smelter in Australia by Aug 2014,
thereby curtailing 190,000 metric tons. Also, it announced the
closure of two remaining potlines at the Massena East, New York
smelter, totaling 84,000 metric tons of smelting capacity.
Alcoa has realized $250 million year-over-year productivity
savings, of its target of $850 million. The company's capital
expenditures amounted to $92 million against an annual plan of
$500 million and controlled sustaining capital expenditures of
$117 million against a $750 million annual target. The company is
also progressing on the Saudi Arabia joint venture project with
$35 million already invested against a $125 million annual
The company raised its expectations to 8%-9% global growth in
the aerospace sector in 2014 from the previous expectations of
7%-8% on the back of strong demand for both large commercial
aircraft and regional jets and continued growth in the business
jet market. Alcoa's growth forecast for other markets are -
automotive (1%-4%), packaging (2%-3%), commercial building and
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
Alcoa is divesting underperforming assets through its
restructuring program and is aggressively pursuing cost-cutting
actions. However, the company contends with pricing
Alcoa currently retains a Zacks Rank #3 (Hold).
Other mining companies worth considering are
General Moly, Inc.
Platinum Group Metals Ltd.
Alexco Resource Corporation
), all carrying a Zacks Rank #2 (Buy).
ALCOA INC (AA): Free Stock Analysis Report
ALEXCO RESOURCE (AXU): Free Stock Analysis
GENERAL MOLY IN (GMO): Free Stock Analysis
PLATINUM GROUP (PLG): Free Stock Analysis
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