Alcoa Inc. reported a 59% rise in net profit for the first quarter and said production cutbacks in China are reducing a glut of aluminum that has been weighing down prices of the metal.
The profit increase was largely due to a tax benefit, changes in the value of energy contracts and a fire-insurance recovery. Excluding special items, profit was up about 15% from a year earlier.
Chief Executive Klaus Kleinfeld said in an interview the first-quarter earnings showed that "this is a different Alcoa," with more profits generated from value-added downstream operations, such as designing automotive and aerospace parts, and less reliance on basic mining and smelting. Weak aluminum prices are "going to be less and less of a risk" because the company is reducing its production costs by closing expensive smelters, negotiating new power-supply contracts and investing in technology, he said.
Alcoa reaffirmed its forecast that global demand for aluminum will rise 7% this year as Chinese growth improves and the U.S. economy continues to expand slowly.
Demand from the aerospace and auto industries remained strong, Chief Financial Officer William Oplinger told reporters. The company said growth should leave supply and demand for aluminum "essentially balanced."
Alcoa, typically the first major U.S. company to report earnings, is a bellwether because it serves a broad range of industries.
Alcoa reported net income of $149 million, or 13 cents per share, up from $94 million, or nine cents per share, a year earlier. Sales slipped 2.9% to $5.83 billion.
Excluding special items, earnings per share came to 11 cents, up from 10 cents a year before. The result for the latest quarter exceeded the Wall Street forecast of eight cents per share, according to FactSet.
Total costs declined 4.6% to $5.6 billion.
Aluminum prices should rise gradually over the rest of this year as demand in China grows, said Lloyd O'Carroll, an analyst at Davenport & Co. He forecast the price will average $2,225 per metric ton in this year's fourth quarter, up from $1,865 Monday.
Alcoa said it expects demand growth of 9% to 10% from aerospace customers, 1% to 4% from car makers and 2% to 3% from beverage cans and packaging.
The average price obtained by Alcoa for aluminum in the quarter was $2,398 per metric ton, down 1.4% from a year earlier but up 3.1% from the preceding quarter.
Lower prices hurt Alcoa on its sales of aluminum sheets, but the company has been reporting higher profits on sales of such "engineered" items as bolts and other fasteners used in the aerospace, auto and other industries. Operating income from the company's engineered-products division was $173 million, up 10% from a year earlier.