Alcoa Misses Estimates Amid Excess Aerospace Inventories

Alcoa Inc., the largest U.S. aluminum producer, reported fourth-quarter profit that missed analysts’ estimates because of a glut of rolled metal used in the aerospace industry. The shares dropped.

The net loss was $2.34 billion, or $2.19 a share, compared with net income of $242 million, or 21 cents, a year earlier, New York-based Alcoa said yesterday in a statement. Profit excluding a $1.7 billion non-cash goodwill impairment and other one-time items was 4 cents a share, trailing the 6-cent average of 16 estimates compiled by Bloomberg.

Alcoa also recorded a charge of $243 million in connection with the settlement of allegations that one of its units bribed members of Bahrain’s royal family and officials at a state-owned company to win business in 2004. Alcoa World Alumina LLC, a majority-owned unit that supplies the raw material used by smelters to make aluminum, pleaded guilty yesterday to one count of violating the anti-bribery provisions of the U.S. Foreign Corrupt Practices Act.

Aluminum prices haven’t recovered to levels seen before the financial crisis as global supply has outstripped demand for nine years amid surging production in China and the Middle East. In response, Alcoa Chairman and Chief Executive Officer Klaus Kleinfeld is closing high-cost smelters and refocusing investment in divisions that roll and form the metal into high-tech components used in cars and commercial aircraft.

‘Weaker Than Expected’

Profit in Alcoa’s Global Rolled Products segment, which sells aluminum sheets and plates to aircraft builders and carmakers, fell 73 percent from a year earlier to $21 million amid high inventories of aluminum plate used by original-equipment manufacturers, the company said.

“It was really the rolled-products business that was weaker than expected,” Curtis Woodworth, a New York-based analyst at Nomura Holdings Inc., said yesterday in a telephone interview.

Alcoa dropped 7.3 percent to $9.91 at 9:44 a.m. in New York, the biggest decline in the Standard & Poor’s 500 Index. The shares earlier plunged 8.1 percent, the most intraday since Sept. 22, 2011.

Fourth-quarter sales dropped 5.3 percent to $5.59 billion. The company had a $35 million loss in the primary-metals division, the metal-smelting segment, compared with a profit of $316 million a year earlier, while profit in its mining and engineered-products segments rose.

‘Slightly Worse’

The price of the metal for delivery in three months on the London Metal Exchange fell 10 percent from a year earlier to average $1,815 a metric ton in the fourth quarter, the lowest average price since the second quarter of 2009.

Global aluminum demand will increase by 7 percent this year, Alcoa said in the statement. That forecast matches the company’s estimate of demand growth in 2013.

Alcoa agreed to pay $384 million to resolve U.S. criminal and civil probes into the Bahraini bribery case. Its unit, Alcoa World Alumina, pleaded guilty yesterday in federal court in Pittsburgh to violating the FCPA.

“The settlement is slightly worse than anticipated,” Nomura’s Woodworth said. “I don’t think people were expecting that high of a payout.”

Alcoa has been dealing with allegations over its conduct in Bahrain since 2008, when Aluminium Bahrain BSC, known as Alba, sued it in U.S. court for overcharges stemming from bribery. Alcoa agreed last year to pay $85 million in cash and enter into a long-term alumina contract with Alba to settle the suit. That settlement had a total value of $447 million, Alba said in 2012.

Criminal Fine

Yesterday’s settlement includes a criminal fine of $209 million, a forfeiture of $14 million and a disgorgement to the U.S. Securities and Exchange Commission of $161 million, according to the Justice Department. The total settlement is the fourth-largest in an FCPA case, according to the SEC.

The settlement “closes the door on Alba overhang,” according to a note yesterday by Brian Yu, a San Francisco-based analyst with Citigroup Inc., who has a neutral rating on the stock.

Alcoa World Alumina is a unit of a joint venture that is 60 percent owned by Alcoa and 40 percent owned by Alumina Ltd.

“There is no allegation in the filings by the DOJ and there is no finding by the SEC that anyone at Alcoa Inc. knowingly engaged in the conduct at issue,” Alcoa said yesterday.

When contacted by telephone, a person at the Bahrain embassy in Washington declined to comment on the accord and declined to provide his name or title.

Improper Advantage

The Alcoa unit hired a consultant in 1989 at the request of Bahraini government officials who controlled contracting at Alba, according to court filings.

The FCPA bars corporate employees or their agents from paying bribes to government officials to obtain or retain business or to secure an improper advantage.

Kleinfeld inherited the investigations over the company’s conduct in Bahrain when he took over Alcoa in 2008, after joining the company a year earlier. Kleinfeld had resigned as CEO of German engineering company Siemens AG in 2007 following a bribery investigation at the company that resulted in the largest FCPA fine of $800 million in 2008.

Alcoa, typically one of the first U.S. companies to report quarterly earnings, was removed from the Dow Jones Industrial Average on Sept. 10 after 44 years.

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