) swung to a profit in the second quarter of 2014 on strong results
from its downstream and primary metals businesses, aided by higher
aluminum pricing. The results in the legacy primary metals business
were driven by solid aluminum demand.
The U.S. aluminum giant raked in a profit of $138 million or 12
cents per share in the second quarter compared with a loss of $119
million or 11 cents per share in the year-ago quarter and a loss of
$178 million or 16 cents per share in first-quarter 2014.
Alcoa recorded $78 million in restructuring charges and other
special items in the quarter. Restructuring actions were mostly
related to reduction of costs in the commodity business.
Excluding one-time special items, earnings came in at $216
million or 18 cents per share in the reported quarter, ahead of the
year-ago earnings of $76 million or 7 cents per share. Earnings per
share also surpassed the Zacks Consensus Estimate of 13 cents.
Revenues edged down 0.2% to $5,836 million in the second quarter
from $5,849 million in the year-ago quarter but rose 7% from the
previous quarter. It exceeded the Zacks Consensus Estimate of
$5,626 million. The sequential increase was due to strong volumes
in the mid and downstream businesses, improved metal pricing, and
higher energy sales.
Alcoa reaffirmed its global aluminum demand growth expectations
of 7% for 2014. Its shares were up as much as .3.4% in after-hours
Alcoa Inc - Earnings Surprise | FindTheBest
Shipments in the reported quarter were 2.4 million metric tons on
production of 4.1 million metric tons. After Tax Operating Income
(ATOI) was $38 million, down from $64 million in the year-ago
quarter and $92 million in the sequentially preceding
quarter. The sequential decline in ATOI was mainly due to the
first quarter benefit from the sale of Alcoa's Suriname gold mine
interest, unfavorable foreign exchange translation, lower Alumina
Price Index (API) pricing, and additional costs due to outages and
Primary Metals -
Shipments in the quarter were 0.6 million metric tons, down 7.9%
from the year-ago quarter. Production in the quarter was 0.8
million metric tons, down 11.3% from the year-ago quarter. ATOI was
$97 million compared with negative $32 million in the year-ago
quarter and negative $15 million in the prior quarter.
The sequential improvement in ATOI was led by higher London
Metal Exchange (LME) pricing and regional premiums, increased power
sales, and the absence of special charges recorded in the first
quarter, which were partly offset by unfavorable currency
Global Rolled Products -
Shipments in the quarter were roughly 0.5 million metric tons,
almost at par year over year. Third-party revenues were $1.9
billion, down 0.9% year over year. The segment posted ATOI of $79
million, which was flat year over year and up 33.8% sequentially.
The sequential jump was due to for can sheet and strengthening
orders for brazing sheet, industrial and commercial transportation
products due to economic recoveries in Europe and the U.S., as well
as the absence of a first quarter charge related to the planned
permanent shutdown of the Australia rolling operations.
Engineered Products and Solutions -
Shipments in the quarter were 0.06 million metric tons, up 6.9%
year over year. The segment posted second-quarter ATOI of $204
million, up 5.7% year over year and 7.4% sequentially. The
sequential results were driven by higher volumes across all
businesses and favorable productivity.
Alcoa's cash and cash equivalents stood at roughly $1,183
million as of Jun 30, 2014, down 1.6% from $1,202 million as of Jun
30, 2013. Alcoa had a debt-to-capital ratio of 35.4%, compared with
34.5% in the year ago quarter.
Alcoa made several investments during the reported quarter. The
company recently entered into an agreement to buy jet engine parts
maker Firth Rixson for $2.85 million. The acquisition is expected
to contribute $1.6 billion in incremental revenues and $350 million
earnings before interest, tax, depreciation and amortization
(EBITDA) in 2016.
The company also announced two organic investments in its Power
and Propulsion (APP) business in the Engineered Products and
Solutions segment totaling $125 million to meet increasing demand
for next-generation jet engine components. APP revenues are
expected to reach $2.2 billion in 2016.
In the company's Global Rolled Products segment, expansion in
Davenport, IA is ramping up production to serve automotive demand.
Alcoa's second automotive expansion in Tennessee remains on
schedule for completion in mid-2015.
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
During the quarter, Alcoa announced various capacity
curtailments. Alcoa completed the curtailment of 147,000 metric
tons of smelting capacity in Brazil at Sao Luis (Alumar) and Pocos
de Caldas. The company will permanently close Point Henry aluminum
smelter in Australia by Aug 2014, thereby curtailing 190,000 metric
tons. Also, it completed the start up of the Saudi Arabia smelter,
the lowest cost aluminum production facility in the world, during
To further optimize the Alumina business, Alcoa signed a
non-binding letter of intent to pursue a sale of its ownership
interest in Alcoa Minerals of Jamaica, L.L.C. (AMJ) that operates a
bauxite mine and an alumina refinery.
Alcoa has realized $302 million year-over-year productivity
savings in the second quarter and $556 million for the first half
versus its annual target of $850 million. The company's capital
expenditures amounted to $206 million against an annual plan of
$500 million and controlled sustaining capital expenditures of $261
million against a $750 million annual target. The company is also
progressing on the Saudi Arabia joint venture project with $64
million already invested against a $125 million annual plan.
Alcoa reaffirmed its expectations of 8%-9% global growth in the
aerospace sector in 2014 on the back of strong demand for both
large commercial aircraft and regional jets. Alcoa's growth
forecast for other markets are - automotive (1%-4%), packaging
(2%-3%), commercial building and construction (4%-6%). For the
industrial gas turbine market, Alcoa continues to expect a decline
of 8% to 12% on lower orders for new gas turbines and spare
Alcoa raised its 2014 expectations for the North America
commercial transportation market to a range of 10% to 14%, from a
previous range of 5% to 9% partly due to rising truck orders and
Alcoa expects the transportation market to remain steady (-1% to
3%) in 2014 due to weakness in the European market.
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.
Alcoa currently retains a Zacks Rank #3 (Hold).
Other mining companies worth considering are
Paramount Gold and Silver Corp.
Thompson Creek Metals Company Inc.
). All three carry a Zacks Rank #2 (Buy).
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