Oct. 8 (Bloomberg) -- Alcoa Inc., the largest U.S. aluminum producer, fell the most in more than 20 years after third-quarter profit trailed analyst estimates and the company suspended a share-repurchase program because of the worsening credit crisis.

Net income dropped by more than half, to $268 million, or 33 cents a share, from $555 million, or 63 cents, a year earlier, New York-based Alcoa said yesterday after the close of trading. The company suspended a stock buyback program after repurchasing 12 percent of the shares and said it's trying to conserve cash.

Chief Executive Officer Klaus Kleinfeld, facing slowing demand and slumping prices as the credit crisis reduces manufacturing, is closing unprofitable units and shuttering production. Alcoa said it is curtailing non-critical projects to try to withstand an expected economic downturn.

``Alcoa is taking action to protect the balance sheet by suspending the buyback, and I think people will look at this and say, `This is a survivor,''' Michael Shinnick, a portfolio manager at 1st Source Bank in South Bend, Indiana, said yesterday in an interview with Bloomberg Television.

Excluding some items, the company earned 37 cents a share, below the 51 cent average estimate of 18 analysts in a Bloomberg News survey.

Alcoa, the first company in the Dow Jones Industrial Average to report earnings for the quarter, fell $2, or 12 percent, to $14.71 as of 4:15 p.m. in New York Stock Exchange composite trading, the biggest drop since Oct. 20, 1987. The shares have declined 60 percent this year.

Shares Fall

Century Aluminum Co., the second-largest U.S. producer of the metal, slid 52 cents, or 2.9 percent, to $17.38 in Nasdaq Stock Market composite trading.

Alcoa said it will trim production because of lower demand and is stopping all ``non-critical'' capital projects, including the share repurchases. The company had authorized buying back as much as 25 percent. Alcoa hasn't had difficulty raising cash in the commercial paper market, Chief Financial Officer Charles McLane said on a conference call.

Aluminum demand will increase 6 percent this year, less than an earlier forecast of 8 percent, Alcoa said. North American demand will fall about 10 percent, and Chinese growth will slow to 15 percent, trailing an expected 22 percent, the company said.

``Aluminum prices have fallen steeply and demand has softened further,'' Kleinfeld said in a statement. ``The resulting margin squeeze will have a greater impact going forward, but will be somewhat mitigated by the easing of energy prices and a stronger U.S. dollar.''

Escalating Costs

``Energy costs may begin to flatten in the fourth quarter, but this will be largely offset by other inputs such as caustic soda and carbon products which continue to escalate,'' Citigroup Inc. analyst John Hill said today in a note to investors.

Power accounts for about a third of the cost of producing aluminum. Caustic soda, used to produce alumina, rose about 88 percent from a year earlier, while coke more than doubled to $526 per ton, Alcoa said in an Oct. 7 presentation.

Aluminum, which rose 29 percent in the first half of this year after supply disruptions in South Africa and China, erased gains as manufacturing contracted in the U.S. and Europe.

U.S. Orders

Orders to U.S. factories fell 4 percent in August, more than forecast and the most in almost two years, the Commerce Department said on Oct. 2. A private report the previous day indicated the manufacturing slump worsened in September. The Institute for Supply Management said its factory index fell to the lowest level since the 2001 recession last month.

Aluminum Corp. of China Ltd. said earlier this week that third-quarter profit will fall more than 50 percent because of lower demand and prices, and higher costs.

Alcoa took a 4 cent-per-share charge for halting production at the Rockdale smelter in Texas. Alcoa said Sept. 30 it would shut the remaining 150,000 tons of production at Rockdale because of ``uncompetitive'' power supplies. The company closed 120,000 tons of capacity in June.

Profit also was hurt by higher costs after a June 3 gas explosion in West Australia forced it to use more expensive diesel fuel at alumina plants there.

UBS analyst Brian MacArthur in Toronto and Goldman Sachs Group Inc.'s Oscar Cabrera in New York reduced forecasts for base-metal prices and shares of the companies that produce them because of speculation slowing growth will hurt demand.

MacArthur on Oct. 6 reduced his price target on Alcoa to $25 from $46. Goldman cut its recommendation on Alcoa to ``neutral'' from ``buy'' on Oct. 2.

Aluminum will trade lower than previously expected through at least 2010 as global economic growth slows and stockpiles of the metal expand, Morgan Stanley said in a report.

Kleinfeld said in an Aug. 21 interview that there will be a ``real issue of undersupply'' in coming years because of rising demand from emerging markets.

To contact the reporter on this story: Dale Crofts in Chicago at dcrofts@bloomberg.net.

Last Updated: October 8, 2008 16:40 EDT