Alcoa Swings to a Profit as Aluminum Prices Stabilize
January 9, 2013
From: Wall Street Journal
By: John Miller


Alcoa Inc. (AA) swung to a profit in the fourth quarter, helped by stabilizing prices for raw aluminum, increased sales in the higher-profit aerospace business and cost-cutting efforts.

 

The world's largest aluminum maker, considered a bellwether because it supplies a wide swath of industries and is the first U.S. company to report quarterly earnings, posted a profit of $242 million for the quarter, or 21 cents a share. That compares with a loss of $191 million, or 18 cents a share, a year earlier.

 

Chief Executive Klaus Kleinfeld said the company had "overcome volatile metal prices and global economic instability." Alcoa raised its forecast for global aluminum-demand growth slightly to 7% in 2013, above its average long-term growth prediction of 6.5%. Mr. Kleinfeld noted economic growth in China appears to be coming back and that Europe was doing better than most people expected. In the U.S., the automobile and aerospace markets remain strong.

 

Alcoa shares were up eight cents, or 0.9%, to $9.18 in after-hours trading Tuesday.

 

The company, whose share price has recovered recently but is still down 45% over the last two years, has struggled with an oversupply of aluminum in global markets and high energy costs at many of its plants. In response, the company curtailed its production in 2012.

 

Alcoa has also focused more on the aerospace industry. Operating profit from its division that makes specialized parts for the aerospace and other industries rose 12% in the quarter from a year earlier to $137 million, making it again the strongest of the company's four units.

 

Early last year, Mr. Kleinfeld pledged to curtail 12% of the company's production capacity, equivalent to 531,000 metric tons of aluminum, by shutting unprofitable smelters, a promise the company has fulfilled.

 

Separately, the company said Tuesday that it has promoted William F. Oplinger to chief financial officer, effective April 1, succeeding Charles D. McLane Jr. who will retire after a 40-year stint at the aluminum producer.

 

Mr. Oplinger joined Alcoa in 2000, most recently serving as chief operating officer of its global primary products business.

 

Excluding special items such as the sale of assets, the company posted earnings of $64 million, or six cents a share. In the year-ago quarter, excluding special items, the company posted a loss of $34 million, or three cents a share.

 

Quarterly sales declined 1.5% to $5.9 billion. Aluminum prices averaged about $2,325 per metric ton in the fourth quarter, down about 2% from year-ago levels but higher than previously forecast by analysts.

 

During the quarter, Alcoa completed the closing of its high-cost Portovesme smelter in Italy, and generated its first shipments from a more than $10 billion complex in Saudi Arabia that the company says will be the least costly of any of its plants to operate. Alcoa also posted an after-tax gain of $161 million by selling its Tapoco hydroelectric dam complex in Tennessee.

 

The company has drawn mostly praise for its cost cutting, but some critics suggest it has been too sluggish. "It's true they've fulfilled their promise of curtailing production, but it hasn't been fast enough for the market," says Jorge Vazquez, an analyst with Harbor Intelligence.

 

But Bill Selesky, an analyst with Argus Research, was more upbeat. "Absent a global recession, profit growth at Alcoa should now be stronger than at any time in the last decade," he said.