Bloomberg News

Alcoa Profit Misses Estimates After Production Costs Rise

October 11, 2011

Oct. 11 (Bloomberg) -- Alcoa Inc., the largest U.S. smelter of aluminum, reported third-quarter profit that trailed analysts’ estimates after production costs increased.

Net income more than doubled to $172 million, or 15 cents a share, from $61 million, or 6 cents, a year earlier, New York- based Alcoa said today in a statement. Excluding restructuring costs, earnings were about 14 cents. The average estimate of 15 analysts surveyed by Bloomberg was for 22 cents. Sales increased 21 percent to $6.4 billion from $5.29 billion. The average of nine analysts’ estimates was for $6.23 billion.

Aluminum for immediate delivery on the London Metal Exchange has declined 11 percent in 2011, erasing earlier gains, amid concerns about the economic outlook in the U.S. and Europe, hampering Alcoa’s efforts to boost earnings. The company cut thousands of jobs and closed smelters after the plunge in commodities during the financial crisis in 2008 led to three successive quarterly losses.

“Input cost pressures have yet to recede,” Brian Yu, an analyst at Citigroup Inc. in San Francisco, wrote in a note yesterday. “It is likely that production shut-downs would commence if spot pricing remains at current levels.”

The cost of goods sold -- excluding selling, general administrative and some other expenses -- increased 20 percent to $6.42 billion, Alcoa said.

Alcoa, the first company in the Dow Jones Industrial Average to report earnings, is a fully integrated aluminum producer. It mines bauxite, an ore that contains aluminum, and refines it into alumina, the raw material used by aluminum smelters. As well as selling aluminum to industrial users, Alcoa makes products such as can sheet and components for cars and aircraft.

The company’s smelters will likely post a loss in the fourth quarter should spot aluminum prices averaged 99 cents a pound ($2,183 a metric ton) in the period, Brian Yu, an analyst at Citigroup Inc. in San Francisco, wrote in a note yesterday.

Alcoa’s earnings were 66 cents in the second quarter of 2008, before the collapse of Lehman Brothers Holdings Inc. and the financial crisis sent commodity prices tumbling. They haven’t exceeded 32 cents since. The company posted three consecutive quarters of losses through June 30, 2009. It has cut 20,080 jobs since June 2008, according to Bloomberg data.

In 2010, Alcoa permanently shut 295,000 tons of capacity at smelters in Maryland, North Carolina and Indiana.

(Alcoa will hold a conference call at 5 p.m. New York time. Dial: +1-800-299-7635 or +1-617-786-2901, pass code 26075106, or see LIVE <GO>.)

--Editors: Simon Casey, Tina Davis

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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