Alcoa Inc., the largest U.S. aluminum producer, reported profit that missed estimates as metal prices slumped amid surging exports from China.
Second-quarter net income fell to 10 cents a share from 12 cents a year earlier, New York-based Alcoa said in a statement Wednesday. Excluding one-time items, earnings were 19 cents, trailing the 22-cent average of 16 estimates compiled by Bloomberg. Sales gained to $5.9 billion, compared with the $5.81 billion average estimate.
While Alcoa kept its 2015 global aluminum-demand growth forecast unchanged at 6.5 percent, the company cut its projection for this year’s growth in the aerospace and Chinese truck markets. Alcoa raised its projections for 2016 and 2017 aerospace growth.
The company is targeting free cash flow of $500 million and wants to lower costs at its alumina refinery business, Chief Financial Officer William F. Oplinger said on an earnings call.
Alcoa will continue “to optimize the portfolio,” Oplinger told analysts on Wednesday’s call. “On the refinery side, we continue to also improve our cost position. And there are many, many more ideas on that end.”
Alcoa rose 4.2 percent to $10.94 at 10:19 a.m. in New York, the most since May 1. The shares slumped 34 percent this year through Wednesday. Aluminum on the London Metal Exchange rose 1 percent to $1,688 a metric ton.
The company had $1.3 billion in cash at the end of last quarter and debt at $8.8 billion, Oplinger said.
Aluminum and other metals have fallen as Chinese growth slows and the country’s economy becomes more consumer-driven. Another consequence of that shift is that more of China’s processed aluminum is making its way overseas. The country is on pace to export record amounts of the metal this year, adding to a global oversupply.
Alcoa more than doubled its estimate for the glut, citing a lack of output curtailments in China.
“China clearly has a surplus and the surplus is rising,” Lloyd O’Carroll, a Richmond, Virginia-based independent analyst said in an interview. “Economic growth is slowing down in China faster than predicted, but they’re not cutting production.”
The price of aluminum for delivery in three months on the London Metal Exchange averaged $1,788 a metric ton in the quarter, down 2.7 percent from a year earlier.
Alcoa’s realized metal price includes the exchange price and the so-called premium paid by customers to secure physical metal. While premiums were up year on year, they have plunged in recent weeks in the U.S.
That’s because of rising imports, together with ample scrap supply and new commodity-exchange rules intended to speed up metal deliveries from warehouses, according to Jorge Vasquez, managing director at consultancy Harbor Intelligence in Austin, Texas. That signals the glut is growing, he said Wednesday in an interview.
After-tax operating income from Alcoa’s primary metals business, which smelts aluminum, was $67 million, down from $97 million a year earlier.
Alcoa has closed about 30 percent of its aluminum-smelting capacity since 2007, shutting high-cost plants from Texas to Australia. Chief Executive Officer Klaus Kleinfeld has also bought and built factories to make aluminum shapes and alloys that fetch premium prices. In March, the company agreed to buy aerospace supplier RTI International Metals Inc. for about $1.34 billion.
Earnings at Alcoa’s rolled-aluminum and engineered products segments gained, suggesting that the company’s strategy is working.
Alcoa’s quarterly report traditionally marks the unofficial beginning of earnings season. This time around, Wall Street forecasters see corporate profits falling 6.5 percent in the second quarter, the most bearish estimate of the current bull market. Even if companies exceed those predictions at the rate they usually do, it won’t be enough to lift profits from last year.