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Weak aluminum prices, charges drag Alcoa to 2Q loss but results beat revised estimates
Alcoa Inc. said Monday that it slid to a second-quarter loss from a year-ago profit, dragged down by hefty charges and weak aluminum prices. But the results edged above analysts' expectations and the aluminum maker backed its forecast for solid global demand later this year.
Alcoa's report marks the start of quarterly earnings season, and investors watch closely for signs of how earnings may unfold for other companies. Alcoa's performance reflects broader economic trends because aluminum is used in a wide range of products from airplanes and automobiles to beverage cans and consumer electronics.
The aluminum industry has faced rising inventories and lackluster demand as the global economy has slowed. Sales to the construction industry continue to be weak. Aluminum prices dropped 18 percent in the past year, dragging Alcoa's second-quarter revenue down 9 percent to $5.96 billion. The lower revenue combined with environmental remediation charges, fire damage costs, restructuring expenses and a $45 million civil settlement resulted in Alcoa posting a loss of $2 million for the second quarter, compared with profit of $322 million in the year-ago period. On a per-share basis, Alcoa broke even, compared with net income of 28 cents a year earlier.
Price, rather than demand, is of more concern for aluminum producers because it is difficult for them to make a profit when the price is below $2,000 per metric ton, says Morningstar Inc. analyst Bridget Freas. Recently the price has been around $1,900 a ton.
But Alcoa's revenue still topped analysts' revised forecast of $5.83 billion, and adjusted earnings of 6 cents per share beat the consensus estimate by a penny. Alcoa said car and plane makers bought more aluminum, and sales to packaging and commercial transportation companies also improved. Analysts expect auto makers to have a record sales year and aircraft makers like Boeing and Airbus are ramping up production.
"Although aluminum prices are down, the fundamentals of the aluminum market remain sound," said Klaus Kleinfeld, Alcoa chairman and CEO, in a statement.
Alcoa backed its forecast for a 7 percent increase in global demand this year and predicted a coming aluminum shortage. Kleinfeld told analysts on a conference call that China is curtailing production, which he expects to bring the global inventory surplus into balance.
Alcoa shares rose 4 cents to close at $8.76 before the results. They were virtually unchanged in after-hours trading. In the past 52 weeks, shares of the New York-based company have fallen from a year-ago high of $16.16 to recently bottom at $8.21.