Alcoa Sales Top Estimates on Aluminum Prices

Alcoa Inc., the largest U.S. aluminum producer, reported fourth-quarter sales that exceeded analysts’ estimates after the company sold the commodity at a higher-than-expected average price.

Sales fell to $5.9 billion from $5.99 billion, beating the $5.6 billion average of 11 estimates. Net income of $242 million, or 21 cents a share, compared with a loss of $191 million, or 18 cents, a year earlier, the New York-based company said today in a statement. Profit excluding a gain on the sale of a power plant and other one-time items was 6 cents a share, matching the average of 20 estimates compiled by Bloomberg.

“The metal price helped out,” said Kuni Chen, an analyst at CRT Capital Group in Stamford, Connecticut, who recommends buying the shares. “They’re meeting their revenue growth goals in the downstream.”

Aluminum prices are rising as demand in China and the U.S. increases while record amounts are being shut away in warehouses as part of financing deals. Alcoa, which said today that global aluminum demand growth will accelerate to 7 percent in 2013, is trying to avoid a downgrade to junk by Moody’s Investors Services. The ratings company said Dec. 18 it was reviewing its rating on the company’s debt.

Alcoa rose 0.8 percent to $9.17 at 6:39 p.m. in New York after the close of regular trading. The shares have declined 0.7 percent in the past 12 months while the Dow Jones Industrial Average rose 7.6 percent. Alcoa is the first company in the index to report earnings.

China Strength

The company’s average realized aluminum price in the quarter was $2,325 a ton. Paul Massoud, an analyst at Stifel Nicolaus & Co. in Washington, expected Alcoa to receive $2,250 per ton for primary aluminum.

The average price of aluminum for immediate delivery on the London Metal Exchange rose 3.9 percent to $1,999 a metric ton in the quarter, compared with the previous period, when the price touched a 34-month low. The metal will average $2,150 this year, according to the median of 20 analysts’ estimates. The price is seen rising to $2,292 in 2014 and $2,400 in 2015, the estimates show.

“Aluminum prices have gone in their favor in the last quarter,” Jorge Beristain, an analyst at Deutsche Bank AG in Stamford, Connecticut, said by telephone yesterday. “It’s got everything to do with the fact that the Chinese economy strengthened in the fourth quarter.”

SEC Talks

Kleinfeld said today on a conference call that China, the world’s largest aluminum user, will see demand growth accelerate to 11 percent this year from 9 percent.

Alcoa reported after-tax operating income of $316 million in its primary-metals division, which smelts aluminum, compared with a loss of $32 million a year earlier. The company said today it delivered $1.3 billion in overhead and productivity improvements last year. Alcoa said its goal was $850 million of such savings.

“That’s clearly a good number and well ahead of what they were forecasting earlier this year,” Chen said by telephone.

U.S. aluminum demand increased 4.5 percent in 2012 and 8 percent in China, Lloyd O’Carroll, a Richmond, Virginia-based analyst at Davenport & Co., wrote in a Dec. 19 report.

Alcoa also said today that it’s in talks with the Department of Justice and the Securities and Exchange Commission to reach a resolution over their investigations into the company’s involvement with Aluminium Bahrain.

Alcoa in October said it settled a four-year-old racketeering lawsuit brought by Aluminium Bahrain. The state-owned smelter, also known as Alba, filed a civil suit in 2008 alleging that Alcoa bribed officials in Bahrain in order to charge more for alumina.

Alcoa said at the time it will pay Alba $85 million in two cash installments and agree to a long-term sales agreement, without admitting liability. Alba said in October that the settlement had a total value of $447 million.

Before it's here, it's on the Bloomberg Terminal.