Bloomberg News

Alcoa Profit Doubles as Aluminum Price Gain Outweighs Costs

July 12, 2011

(Updates with closing share price in fifth paragraph.)

July 12 (Bloomberg) -- Alcoa Inc., the largest U.S. aluminum producer, said second-quarter profit more than doubled after higher prices for the lightweight metal outweighed increasing raw-material costs.

Net income rose to 28 cents a share from 13 cents a year earlier, New York-based Alcoa said yesterday in a statement. Earnings excluding $38 million of restructuring and debt tender offer costs and other one-time items were 32 cents a share, missing the 33-cent average estimate of 14 analysts surveyed by Bloomberg. Sales gained 27 percent to $6.59 billion, exceeding the $6.31 billion average estimate of seven analysts.

“The market should be pleased that Alcoa is still showing these strong year-on-year trends, and that we did not see them retrench on a quarter-over-quarter basis on the net income line,” Jorge Beristain, a Greenwich, Connecticut-based analyst at Deutsche Bank AG, said in an interview with Carol Massar and Matt Miller on Bloomberg Television’s “Street Smart.” Alcoa earned 27 cents a share in the first quarter.

Aluminum prices have advanced in the past year in London as usage soared in China, the biggest consumer, and demand from the U.S. automotive and aerospace industries improved. Alcoa Chief Executive Officer Klaus Kleinfeld reiterated his forecast for global demand to increase by 12 percent in 2011 and double by the end of the decade as Asian countries build more office blocks and buy more aircraft, cars and trains.

Shares Drop

Alcoa, traditionally the first company in the Dow Jones Industrial Average to report earnings, fell 20 cents to $15.71 as of 4:15 p.m. in New York Stock Exchange composite trading. Alcoa’s U.S. shares advanced 45 percent in the past 12 months, the fourth-best performer in the Dow Jones.

The cost of goods sold -- excluding selling, general administrative and some other expenses -- increased 25 percent to $5.25 billion on rising prices for electricity, fuel oil, caustic soda and carbon products.

“We’re growing both margins and profitability faster than revenue,” Chief Financial Officer Chuck McLane said on a conference call with analysts yesterday. “We’re taking firm actions to combat energy and raw-material inflation.”

Alcoa’s primary-aluminum production will increase by 30,000 metric tons in the third quarter, the company said in a presentation posted on its website. The primary-aluminum unit will also see energy costs rise by $33 million in the quarter.

‘Cost Pressures’

Brian Yu, a San Francisco-based analyst for Citigroup Inc., lowered his estimate for 2011 per-share earnings to $1.21 from $1.25 and for 2012 to $1.35 from $1.43.

“We continue to see risk to consensus estimates due to cyclical cost pressures in refining and smelting,” he said in a note yesterday.

After “blistering” growth in 2010, Chinese automotive demand for aluminum faces “headwinds” because of disruption caused by the Japanese tsunami in March and the end of Chinese government incentives, Kleinfeld said on the call. Growth will be 5 percent to 8 percent, he said.

The slowest of Alcoa’s markets is construction in Europe and North America, Kleinfeld said. Construction is “pretty much dead” in those markets and “we do not see that moving up.”

Globally, aerospace demand will climb 7 percent this year, automotive will gain 4 percent to 8 percent, and commercial construction will rise 1 percent to 3 percent, Alcoa said.

Alcoa’s primary-aluminum output rose 5.8 percent to 945,000 tons in the second quarter from a year earlier. Its average realized price increased 23 percent to $2,830 a ton.

Aluminum for delivery in three months on the London Metal Exchange rose $14 to $2,492 a ton as of 4:34 p.m. New York time. The metal has advanced 26 percent in the past year.

--With assistance from Carol Massar and in New York. Editors: Simon Casey, Jessica Resnick-Ault

To contact the reporter on this story: Sonja Elmquist in New York at selmquist1@bloomberg.net

To contact the editor responsible for this story: Simon Casey at scasey4@bloomberg.net


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