Alcoa posts 2Q loss but sees some stability

PITTSBURGH — In an unofficial opening to the earnings season, Alcoa Inc. reported another quarterly loss but beat Wall Street expectations and said some markets for the metal may be stabilizing.

The aluminum giant’s loss of $454 million was narrower than analysts expected, and company executives attributed that outcome to recent efforts to slash costs and raise cash. They said some aluminum markets showed signs of improvement, but reiterated a forecast that worldwide aluminum consumption will shrink 7 percent this year amid the global recession.

It was the company’s third straight quarterly loss and fresh evidence of slumping orders from key customers in the aerospace, automotive, commercial transportation and construction industries. Alcoa and other aluminum makers have struggled since last year with sharply lower orders for the metal used in products ranging from beer cans to jumbo jets.

The anemic demand has driven up stockpiles and depressed prices of the metal, and many aluminum makers have responded by curbing production. Analysts say demand is picking up, but excess supplies will keep prices relatively low in the months ahead.

Alcoa, the first of the Dow Jones Industrial Average companies to post results and a bellwether of industrial health, has scaled back its production by about 20 percent. It has undertaken a campaign to cut costs and raise cash, announcing 13,500 job cuts and the planned sale of four business units earlier this year.

In April, Alcoa said it had agreed to sell one of its businesses, which makes electrical systems for automobiles, to Platinum Equity, a Los Angeles-based private-equity firm, for an undisclosed amount.

Alcoa’s president and CEO, Klaus Kleinfeld, said the company’s efforts to cut costs and generate cash “are working.”

“Now Alcoa has the staying power and reduced cost base to withstand the most serious downturn in the history of the aluminum industry,” he said in a statement.

Kleinfeld said Alcoa was well-positioned to grow as the broader economy recovers, and that some end markets — such as the U.S. beverage can and auto markets — showed signs of stabilizing. But Alcoa expects further weakness in the aerospace industry, with a 6 percent decline in deliveries of large aircraft.

Alcoa’s customers include Boeing Co. and Europe’s Airbus SA — the world’s top two commercial airplane makers — both of which have been grappling with dwindling demand for jets as the economic downturn forces airlines to cancel or delay orders.

Recent demand from China, the world’s biggest producer and consumer of the lightweight metal, will be short-lived as it gradually becomes self-sustaining, he said.

Given the current difficult market conditions, Alcoa, which makes aluminum and uses it to manufacture products such as truck wheels and fighter jet parts, is maintaining a forecast for an industrywide demand contraction of 7 percent this year, he said.

Among the most influential factors affecting the fortunes of aluminum makers like Alcoa is the market price of the metal. Although they have rallied recently, aluminum prices remain nearly 50 percent lower than they were at their peak last year. Aluminum currently sells for about 74 cents per pound, down from record highs of around $1.50 per pound last summer.

The Pittsburgh-based company’s loss amounted to 47 cents per share for the three months ended in June. During the same period last year, Alcoa — the largest U.S. aluminum producer — earned $546 million, or 66 cents per share.

Alcoa’s loss from continuing operations in the latest quarter was $312 million, or 32 cents per share. Excluding restructuring charges, that loss would have been 26 cents per share.

Revenue tumbled 41 percent to $4.24 billion.

Analysts expected Alcoa to lose 38 cents per share on revenue of $3.93 billion, on average, according to a survey by Thomson Reuters. Wall Street typically excludes one-time charges in its estimates.

John Tumazos, an industry analyst, said of Alcoa’s latest results: “They did good.”

The company lost considerably less money on ventures in China and Russia than in the past, and it garnered contributions from operations in Iceland and Norway, he said. Alcoa should have a positive cash flow in the third quarter, Tumazos added.

Shares of Alcoa gained 41 cents, or 4.3 percent, to $9.87 in after-hours trading following an advance of 5 cents to $9.46 in the regular session. During the quarter, Alcoa stock climbed about 36 percent.

On the Net:

Alcoa Inc.: www.alcoa.com/global/en/home.asp