Alcoa Beats Analysts in Q2 on Sales and Profits

Andrew Klips  |

Dow component and aluminum producer Alcoa, Inc. (AA) nipped past analyst predictions in the second quarter for both adjusted profits and sales, as a GAAP net loss because of an exorbitant amount of special items masked profits.  Alcoa unofficially kicked-off the latest earnings season with its report after Monday’s closing bell.  Honestly, earnings releases are so widely spread, that “earnings season” or Alcoa – the smallest Dow component by a long short – reporting has effectively lost most of its meaning.  More than 20 S&P 500 companies have already reported results from the second quarter.

For the quarter, the Pittsbugh, Pennsylvania-based company reported revenue of $5.83 billion, compared to $5.85 billion in the year prior quarter.  A net loss for the quarter of $119 million, or 11 cents per share, compared to a net loss in the year earlier quarter of $2 million, or nil per share.  On an adjusted basis, which excludes $195 million in restructuring, legal and other one-time items, was $76 million, or 7 cents per share, versus $61 million, or 6 cents per share, in the second quarter last year.

Wall Street expected adjusted earnings of 6 cents per share on revenue of $5.81 billion.

During the second quarter, Alcoa took charges of $42 million for closing two Soderberg potlines at a smelter in Quebec; $34 million in charges related to intentions fo close its Fusina smelter in Italy; $62 million in costs connected to settlement negotiations related to a Department of Justice and SEC investigation of alleged corrupt payments for the sale of alumina to Alba.  The company also took a $37-million charge for restructuring of business segments.

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The company generated $228 million in free cash flow in the second quarter as part of a bigger goal to be free cash flow positive in 2013.  In the first six months of 2013, the company generated $539 million of the $750 million annual target in productivity savings.

Alcoa chopped debt by $566 million from the first quarter and had $1.2 billion in cash on hand as of June 30.

“Our businesses showed remarkable operating performance in the quarter with solid free cash flow,” said Klaus Kleinfeld, chairmand and chief executive at Alcoa. “In our value-add businesses we reached another milestone with record profitability in our downstream business while acting decisively to defy the headwinds of falling metal prices in our upstream businesses.”

Alcoa’s growth, recognized by many as a bellwhether of global economic conditions, has be scrutinized because of the ongoing recession in Europe, manufacturing slowdowns in China and declining  aluminum prices as part of a broad slide in metals.  Quarter-over-quarter, aluminum prices dropped by 8 percent through June 30.   

Alcoa holds its contention that global demand for aluminum will grow 7 percent in 2013.  It also projects global growth this year across the aerospace (9-10 percent), automotive (1-4 percent), commercial transportation (3-8 percent), packaging (1-2 percent), building and construction (4-5 percent), and industrial gas turbine (3-5 percent) end markets.

Late in May, Moody’s slashed Alcoa’s credit rating to junk, or Ba1.  Last week, JP Morgan (JPM) cuts its rating on Alcoa from “overweight” to “neutral” and cut its price target from $12 to $9, sending shares to more than four-year lows.  Shares have grown some legs in the past few days, including rising 1.4 percent in Monday trading ahead of the release to close at $7.92.  In extended trading, shares briefly broke above $8, but are essentially holding near the closing price.  Shares are off about 8 percent so far in 2013.

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