Oct. 16, 2013
Alcoa Reports Profitable Third Quarter
New York-based Alcoa reported net income of $24 million during the third quarter, a reversal from its second-quarter loss of $119 million. Net income was also a turnaround from the $143 million loss reported during the third quarter of 2012.
For the year to date, Alcoa’s income totaled $54 million, compared to a loss of $51 million during the first nine months last year.
Net sales in the quarter totaled $5.8 billion, flat with both the previous quarter and third-quarter 2012. Through nine months, net sales declined 1.9 percent to $17.5 billion.
“Our performance this quarter shows our repositioning of the company is on the right path,” said Klaus Kleinfeld, Alcoa chairman and CEO during the company’s quarterly conference call with investors and analysts. “We continued to build our value-add businesses, capturing demand for innovative material solutions across multiple markets. Our commodity business delivered better performance in a tougher market environment, and we continued to reshape the portfolio to lower the cost base.”
Results were led by continued strength in Engineered Products and Solutions and Global Rolled Products, despite traditional third-quarter weakness. In the first three quarters of 2013, Alcoa’s value-add businesses, comprising Engineered Products and Solutions and Global Rolled Products, accounted for 57 percent of total revenues and 79 percent of segment after-tax operating income.
Global Primary Products overcame falling metal prices and lower premiums to deliver significant performance improvement through productivity gains, the company claimed. After-tax operating income in the third quarter hit $71 million, down from $79 million in second-quarter 2013 and $89 million in third-quarter 2012. Sequentially, lower metal prices continued to impact the segment, albeit less significantly than the prior quarter. Strong automotive and seasonal demand in packaging were offset by lower volume in aerospace and industrial markets.
During the quarter, Alcoa completed the previously announced closure of the two Soderberg potlines at the Baie-Comeau smelter in Québec, representing 105,000 metric tons per year of smelting capacity. Alcoa also closed one Soderberg potline, representing 41,000 metric tons of capacity, at the Massena East plant in New York. Alcoa now has 16 percent, or 651,000 metric tons, of smelting capacity offline.
The company also broke ground on a $275 million expansion of its Tennessee operations to meet the growing need for aluminum sheet for the automotive market. It follows a $300 million project in Davenport, Iowa, for the same purpose.
Kleinfeld said the investments demonstrate Alcoa’s confidence in the long-term prospects for automotive aluminum. “We cannot speak for our customers, but I think you can get a good feel for what we are doing in terms of investment. We would not have started our Phase 2 investment in Tennessee if the Phase 1 in Davenport would not have sold out. And if you look at Phase 2, we just broke ground a few weeks ago and most of the capacity there is already committed.”
The company believes use of aluminum sheet in automotive will quadruple by 2015, and sees a tenfold increase by 2020. “It’s become pretty clear that aluminum-intense vehicles have a clear competitive edge,” said Kleinfeld, citing safety, durability, CO2 emissions and fuel efficiency as the chief attributes. “Aluminum is moving rapidly into high-volume vehicles.”
For 2013, Alcoa sees a 1-4 percent growth in aluminum demand compared to 2012, part of an overall 7 percent global aluminum demand growth forecast in 2013. Alcoa also projects global growth this year across the aerospace (9-10 percent), packaging (1-2 percent), commercial building and construction (4-5 percent), and industrial gas turbine (3-5 percent) end markets. In the heavy truck and trailer market, Alcoa is raising its 2013 growth expectation to 5-9 percent due to improvements in Europe and a stronger Chinese market.