Alcoa Posts Surprise Profit After Aluminum Orders Climb

Photographer: Stephen Morton/Bloomberg

Aluminum billets at the Alcoa Inc. Mt. Holly production plant in Goose Creek, South Carolina. Close

Aluminum billets at the Alcoa Inc. Mt. Holly production plant in Goose Creek, South Carolina.

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Photographer: Stephen Morton/Bloomberg

Aluminum billets at the Alcoa Inc. Mt. Holly production plant in Goose Creek, South Carolina.

Alcoa Inc. (AA), the largest U.S. aluminum producer, reported an unexpected first-quarter profit after orders rose and it closed higher-cost smelting capacity. The shares advanced in German trading.

Net income fell to $94 million, or 9 cents a share, from $308 million, or 27 cents, a year earlier, New York-based Alcoa said yesterday in a statement. Profit excluding restructuring costs and other items was 10 cents a share, compared with the average estimate for a 4-cent loss from 19 analysts surveyed by Bloomberg. Sales rose 0.8 percent to $6.01 billion, beating the $5.77 billion average of 12 estimates. The shares rose the most in three months in New York.

The earnings were “driven by higher-than-expected profitability from every operating segment,” Brian Yu, an analyst at Citigroup Inc. in San Francisco who estimated a 6- cent loss, said in a note. “Good cost control likely played a major role.”

Alcoa, traditionally the first company in the Dow Jones Industrial Average (INDU) to report quarterly earnings, announced it would shut older plants in North America and Europe in January. Chief Executive Officer Klaus Kleinfeld is proceeding with an $11 billion joint venture in Saudi Arabia, which Alcoa says will be the world’s most efficient integrated aluminum plant.

Alcoa rose 6.2 percent to $9.90 at the close in New York, the biggest gain since Jan. 3. The stock dropped 44 percent in the past year, the largest decline on the DJIA.

Aerospace Demand

The company has rebounded from a fourth quarter in which it lost 3 cents a share, its first loss on an adjusted basis since 2009. Alcoa said yesterday its four units -- alumina, aluminum, rolled products and engineered products -- each recorded an operating profit after tax.

The rolled-products business, which processes aluminum used in cars and aircraft, saw earnings before interest, tax, depreciation and amortization per ton of metal rise 19 percent.

A jump in demand from planemakers rebuilding their fleets and auto manufacturers adapting to new fuel and emissions standards will help boost earnings in the next few years, said Lloyd O’Carroll, an analyst at Davenport & Co. in Richmond, Virginia.

“Aerospace, automotive, trucks and trailers, that’s what’s driving it,” he said.

Higher Output

Alcoa boosted its 2012 aerospace sales forecast by 3 percentage points to 13 percent to 14 percent. It projected U.S. auto sales will climb 7 percent to 12 percent.

The company’s production of primary aluminum rose 5.2 percent to 951,000 metric tons in the quarter, even with the smelter cutbacks. U.S. and Canadian aluminum producers’ shipments of extruded products, such as pipes and rods, rose 13 percent in the year through March 20 compared with the same period a year earlier, the Aluminum Association said April 9.

Alcoa in January announced the closure of plants in the U.S., Spain and Italy, cutting 531,000 tons of aluminum capacity. The company said last week it will reduce output of alumina, the raw material used to make aluminum, by 390,000 tons.

The cutbacks followed a decline in aluminum prices, which are down 23 percent on the London Metal Exchange in the past 12 months. The metal averaged $2,219 a ton on the LME in the first quarter, 12 percent less than a year earlier.

Deficit Forecast

Global aluminum use will exceed supply by 2.1 million tons this year, assuming Chinese consumption of 17.6 million tons, according to Andrew Cosgrove, an analyst at Bloomberg Industries in Princeton, New Jersey.

Kleinfeld said yesterday on a conference call that Alcoa forecasts a deficit this year of 435,000 tons, or narrower than the 600,000 tons he projected in January.

Alcoa isn’t the only aluminum producer to have cut capacity this year. Norway’s Norsk Hydro ASA (NHY) shut a 60,000-ton line at its Kurri-Kurri smelter in Australia and cut 180,000 tons at a German plant in January.

Oleg Deripaska, the CEO and largest shareholder of Russia’s United Co. Rusal, said in December that falling metal prices may prompt smelters to shut down 3 million tons of capacity globally.

Alcoa’s announced cuts in capacity “may not be the end,” Kleinfeld said on the call. The company is still considering the future of its Point Henry smelter in Australia and its Brazilian smelters, he said.

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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