Tags: aluminum | alcoa | earnings

Alcoa Poised to Conquer

By Dan Weil   |   Wednesday, 13 Apr 2011 01:51 PM

As the global economy recovers, commodity prices are surging. That includes aluminum, which is good news for Alcoa (AA), the biggest U.S. aluminum producer.

Yes, earnings were a setback recently, but that won’t last. Higher aluminum prices mean higher profits for Alcoa. And rising profits, of course, mean a higher share price. And aluminum prices have climbed, up 10 percent during the last year on the London Metal Exchange, lifted by industrial and consumer demand around the world. Aluminum is used in construction, autos, and beverage cans.

As for the price Alcoa receives for its metal, it soared 15 percent in the first quarter from a year earlier to $2,682 a metric ton. Alcoa reported net income of $308 million in the quarter, beating analysts’ average estimates and reversing a $201 million loss from the same period of 2010.

Sales jumped 22 percent to $5.96 billion. Profit margins benefited from continued productivity increases.

Alcoa CEO Klaus Kleinfeld predicts global aluminum demand will climb 12 percent this year and more in some industrial sectors, such as heavy trucks.

In a conference call with analysts, he said Alcoa expects its sales in the aerospace sector to grow 7 percent this year. That’s a 1 percentage-point increase from the company’s previous estimates, thanks to production backlogs of six years for Boeing and Airbus.

In the auto sector, Alcoa sees sales gaining 5 percent to 11 percent, Kleinfeld said, with a similar increase for heavy trucks and trailers. But in North America, Kleinfeld anticipates 45 percent to 50 percent growth in trucks and trailers.

Alcoa expects its beverage can sales to stay about steady this year. In commercial construction, the company expects buoyant growth in China, offset by small declines in North America and Europe.

Analysts Anthony Rizzuto of Dahlman Rose & Co. and John Redstone of Desjardins Securities maintained their buy ratings on Alcoa after it reported its first-quarter earnings April 11.

Rizzuto has a $22 target price for the stock, while Redstone’s is $28.10.

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As the global economy recovers, commodity prices are surging. That includes aluminum, which is good news for Alcoa (AA), the biggest U.S. aluminum producer. Yes, earnings were a setback recently, but that won t last. Higher aluminum prices mean higher profits for Alcoa....
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