Alcoa Sales, Profits Up from 2010
Aluminum giant Alcoa reported increased third-quarter revenue and earnings compared to the year-ago quarter, but lower results vs. the previous quarter, primarily due to lower metal prices, seasonal factors and weakness in Europe.
Alcoa’s net income for third-quarter 2011 totaled $172 million, compared to net income in third-quarter 2010 of $61 million and net income in the previous quarter of $322 million. Revenue totaled $6.4 billion in the third quarter, up 21 percent from the same period last year but down 3 percent compared to second-quarter 2011.
For the year to date, Alcoa’s revenues hit $19.0 billion, up 23 percent over the first three quarters of 2010. Net income through the first nine months of 2011 totaled $802 million.
On a year-over-year basis, Alcoa’s major end markets showed strong revenue growth, led by commercial transportation, up 44 percent; automotive, up 26 percent; packaging, up 21 percent; and aerospace, up 20 percent.
Compared to the second quarter, markets were mixed. Revenue was 5 percent lower for alumina and 1 percent lower for aluminum. In end markets, revenue increased in commercial transportation and aerospace, while declines were seen in automotive, industrial products, building and construction, and packaging.
Chuck McLane, executive vice president and chief financial officer, pointed to two significant developments in the quarter. The first was the sizable commodity price deflation suffered by both aluminum and alumina.
“While aluminum demand continues to grow globally and regional premiums remain strong, macroeconomic worries and various commodity investors have driven an 8 percent drop in the price of aluminum quarter on quarter. The result is a decrease in revenue and profit in both segments,” McLane said during the company’s quarterly conference call with investors and analysts.
Secondly, results in flat-rolled products were damaged by the continuing sovereign debt crisis in the euro zone and resulting market uncertainty. “Fearful of a slowing economy, our European customers reduced their orders dramatically and drove a significant reduction in this segment’s profitability,” he added.
“We continue to forecast a growth rate of 12 percent for 2011, with a slower pace in the second half of the year, and reaffirm our long-term forecast for a doubling of aluminum demand by 2020. Alcoa is a confident company in a nervous world. We are well prepared for whatever lies ahead, with more cash on hand, lower debt and continued focus on profitable growth,” said Alcoa Chairman and CEO Klaus Kleinfeld.
Aerospace, where order backlogs top eight years, and automotive, where increasing government requirements for fuel efficiency are driving the need for more lightweight materials, are expected to remain strong. Alcoa projects that aerospace demand will continue to grow in the second half of 2011, leading to a year-end growth rate of 6 to 7 percent. In the automotive market, Alcoa projects a year-over-year improvement of 3 to 5 percent.
Recovery in the industrial gas turbine market continues to support a brighter long-term outlook and a 2011 growth projection of 5 to 10 percent. The building and construction market continues to struggle in North America and Europe, however, leading to a growth projection of just 1 to 3 percent, primarily due to continued strength in non-residential construction in China.
The outlook for commercial transportation is mixed, with a weaker second half due primarily to lower sales in Europe and China, offsetting strong first-half results in the North American market. Alcoa projects heavy truck and trailer sales will range from flat to 2 percent growth over 2010.
Kleinfeld noted that short selling by investors and speculators on aluminum is a bet not against aluminum specifically, but as “a proxy for betting against the global economy.” And he disagrees with that strategy. “We have growing demand, we have strong physical markets and we have firm support for aluminum prices. We believe folks who have chosen to speculate against aluminum are on the wrong side of the trade.”