Alcoa Rings In Earnings Season with Profit Growth and Sales Shrinkage

Andrew Klips  |

The latest earnings season is officially underway Monday evening with Alcoa, Inc. (AA), the largest U.S. aluminum producer by sales and Dow component, reporting first-quarter profit that topped analyst expectations, although revenue slipped below predictions. The company blamed the lower sales largely because of lower London Metal Exchange aluminum prices and the company slowing its European primary metals production.

For the first quarter of 2013, ended March 31, the New York-based company reported revenue of $5.83 billion, down 2.9 percent from last year’s $6.01 billion. Net income tallied $149 million, or 13 cents per share, up from $94 million, or 9 cents per share in the first quarter of 2012. Excluding special items, net income was $121 million, or 11 cents per share, compared to $105 million, or 10 cents per share in the year prior quarter.

Analysts were predicting Alcoa to earn 8 cents per share on revenue of $5.88 billion.

Special items, such as a net discrete income tax benefit, positive impact of mark-to-market changes on some energy contracts and a gain from an insurance claim after a fire at Alcoa’s Massena, N.Y. location were offset by the negative impact of restructuring as the company continues to try and scale-back production and focus on high-profit items amidst a tough market.

“This was a strong quarter led by record profitability in our downstream business, improved results in our midstream business, and remarkable upstream performance in the face of weak metal prices,” said Klaus Kleinfeld, Alcoa Chairman and Chief Executive Officer. Kleinfeld explained that the company’s effort to focus on its mid and downstream businesses has those segment now accounting for 72 percent of its total after-tax operating income.

Looking forward, Alcoa anticipates global growth in 2013, primarily because of a 9 – 10 percent increase in the aerospace industry and well as up to 7 percent growth in commercial transportation. Overall, the company projects 7 percent global aluminum demand growth in 2013 and essentially balanced alumina and aluminum markets.

The company said that no resolution has yet been reached with the Department of Justice and Securities and Exchange Commission regarding its matter with Aluminum Bahrain, or Alba, that resulted in an $85 million cash payment last October to Alba stemming from alleged racketeering and bribery in Bahrain to overcharge for alumina.

Alcoa has long been considered a bellwether of the global economy and stock markets because of its large global footprint and the fact that it is the first Dow component to report earnings. In recent years, however, many analysts are questioning the credibility of that philosophy.

In Monday trading, share were down mildly at one point, but managed to get some momentum heading into the close the wrap the day ahead by 1.8 percent at $8.39. In extended trading, shares have slipped back to $8.28 despite the earnings beat as investors appear to be paying more attention to the fleeting revenue. Perhaps not the best way to kick-off the latest iteration of earnings season, but there’s a long way to go yet.

In the past 52 weeks, shares of AA are down more than 13 percent.

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