Tags: Alcoa | earnings | profit | costs

Alcoa Misses Estimates as Costs Rise, Growth Slows

Tuesday, 11 Oct 2011 05:37 PM

Alcoa Inc., the largest U.S. smelter of aluminum, reported third-quarter profit that trailed analysts’ estimates as raw-materials costs increased and the pace of global demand growth slowed.

Net income more than doubled to $172 million, or 15 cents a share, from $61 million, or 6 cents, a year earlier, New York-based Alcoa said Tuesday in a statement. Excluding restructuring costs, earnings were about 14 cents. The average of 15 analysts’ estimates compiled by Bloomberg was for 22 cents. Alcoa shares dropped 4.7 percent in after-hours trading in New York, after rising 2.1 percent during regular trading.

“With the exception of Europe, we saw growth in our end markets, though at a slower rate than in the first half, as confidence in the global recovery faded,” Alcoa Chairman and Chief Executive Officer Klaus Kleinfeld said in the statement.

Aluminum for immediate delivery on the London Metal Exchange has declined 11 percent in 2011, erasing earlier gains, hampering Alcoa’s efforts to boost earnings. The company cut thousands of jobs and closed smelters after the plunge in commodities during the financial crisis in 2008 led to three successive quarterly losses.

The earnings were a “disaster,” Charles Bradford, a metals analyst at Bradford Research Inc. in New York, said in an interview. “The only way that could happen is if you let costs get out of control.”

Higher Output

Alcoa dropped to $9.82 as of 5:05 p.m. after the close of regular trading in New York. The shares fell 33 percent this year before the close of regular trading today, the third-worst performer on the Dow Jones Industrial Average after Bank of America Corp. and Hewlett-Packard Co.

The cost of goods sold -- excluding selling, general administrative and some other expenses -- increased 20 percent to $6.42 billion, Alcoa said. Primary aluminum production rose 8.2 percent to 964,000 tons while output of alumina, the raw material used to make the metal, gained 2.3 percent to 4.14 million tons.

Alcoa, the first company in the Dow Jones Industrial Average to report earnings, said sales increased 21 percent to $6.4 billion from $5.29 billion. The average of nine analysts’ estimates was for $6.23 billion.

The company maintained its 2012 global demand growth forecast of 12 percent and said the pace of expansion will slow in the second half. Alcoa also reiterated its forecast that demand will double by 2020.

Integrated Producer

Alcoa is a fully integrated aluminum producer. It mines bauxite, an ore that contains aluminum, and refines it into alumina, the raw material used by aluminum smelters. As well as selling aluminum to industrial users, Alcoa makes products such as can sheet and components for cars and aircraft.

The company’s smelters will likely post a loss in the fourth quarter should spot aluminum prices average 99 cents a pound ($2,183 a metric ton) in the period, Brian Yu, an analyst at Citigroup Inc. in San Francisco, wrote in a note yesterday.

Alcoa’s earnings were 66 cents in the second quarter of 2008, before the collapse of Lehman Brothers Holdings Inc. and the financial crisis sent commodity prices tumbling. They haven’t exceeded 32 cents since. The company posted three consecutive quarters of losses through June 30, 2009. It has cut 20,080 jobs since June 2008, according to Bloomberg data.

In 2010, Alcoa permanently shut 295,000 tons of capacity at smelters in Maryland, North Carolina and Indiana.

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Alcoa Inc., the largest U.S. smelter of aluminum, reported third-quarter profit that trailed analysts estimates as raw-materials costs increased and the pace of global demand growth slowed. Net income more than doubled to $172 million, or 15 cents a share, from $61...
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Tuesday, 11 Oct 2011 05:37 PM
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