Alcoa earnings drop
PITTSBURGH (AP) – Flat aluminum prices and sedentary markets led to a 24 percent drop in second quarter profits, Alcoa said Monday. The world’s largest aluminum company earned $232 million, or 27 cents a share, for the period ending June 30, down from $307 million, or 35 cents a share, during the same period last year.
Wall Street’s expectations had been falling over the past several weeks and Alcoa’s earnings per share fell 1 cent shy of estimates by analysts polled by Thomson Financial/First Call.
Analysts said, however, that Alcoa’s cost reduction program has been respectable given the low prices for aluminum this quarter, and that the company fell roughly in line with their expectations.
Average prices for aluminum on the London Metal Exchange have dropped 8.8 percent this quarter, forcing the company to idle some facilities, said Alain Belda, Alcoa’s chairman and chief executive officer.
Belda said the company improved shipment levels and was controlling costs and operating expenses.
Sales declined from $5.99 billion in the year-earlier period to $5.25 billion, the company said. But revenue was up 5 percent over the first quarter, the first sequential increase in six quarters.
“They have focused on cost reduction through productivity improvement – a big difference from most of corporate America, which does that through firings,” said Daniel Roling, an analyst with Merrill Lynch. “I’m not going to justify what anyone else says on Wall Street, they are better by 2 or 3 cents (per share) than I had expected.”
Indicators this quarter in the automotive, commercial transportation and industrial products markets all showed signs of improvement, Belda said.
“If economic trends solidify, we would continue to see improving profitability over the second half of the year, even at current aluminum prices,” Belda said.
Aluminum prices have remained static even as companies, including Alcoa, restart idled facilities. Alcoa will still have 540,000 metric tons of aluminum production idled with the restart of its Intalco smelter in Washington state, the company said.
Michael Gambardella, an analyst with J.P. Morgan in New York, said that as the production of aluminum continues to increase, it is too soon to say what will happen to prices.
“The whole industry, globally, has been suffering somewhat on the pricing side largely because of weak demand,” Gambardella said.
“The restarting by Alcoa and other producers over the last four months will continue throughout this year and into next, but, hopefully, demand will pick up to absorb some of that.
“Alcoa’s cost reduction program certainly will not hurt.”
Analysts agreed that Alcoa is on track to realize its goal of $1 billion in annualized cost savings by in 2003.
“We are just looking for some improvement in the economy to see the full results of those measures,” Roling said.
Shares of Alcoa declined 88 cents to close Monday at $32.50 on the New York Stock Exchange.
Alcoa employs 142,000 people in 37 countries and is the world’s leading producer of primary aluminum and fabricated aluminum.
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