Alcoa reports $497M loss in 1Q on lower prices

[April 08, 2009]  PITTSBURGH (AP) -- In a bleak start to the earnings season, Alcoa Inc. reported a quarterly loss of $497 million, as the stumbling global economy continued to erode prices and demand for the aluminum maker's products.

The Pittsburgh-based company, the world's third-largest aluminum maker, said Tuesday it expects further industrywide production cuts as demand for the lightweight metal is expected to remain weak in the coming months.

It marked Alcoa's second straight quarterly loss and underscored the deterioration of aluminum-intensive industries such as autos and construction amid the recession. Orders for the metal, used in everything from cars and airplanes to windows and soda cans, began sliding last fall as the world economy weakened. Stockpiles grew, prices plunged and aluminum makers started scaling back production worldwide. Analysts say plants are losing money, and that demand will continue to shrink this year.

Alcoa, the first blue chip company to report earnings for the quarter and considered an indicator of upcoming results from other firms, said its revenue dropped 44 percent to $4.15 billion from $7.38 billion during the same period last year.

In response to the tough market conditions, Pittsburgh-based Alcoa has taken measures to bolster its balance sheet and lower costs in recent months.

Days before reporting its first quarterly loss in six years in January, Alcoa announced plans to shed 13 percent of its global work force, sell four business units and substantially reduce production.

Alcoa took further steps in March, when the aluminum maker -- the world's third-largest -- cut its dividend for the first time in more than two decades, unveiled plans to sell stock and debt, and pledged to slash costs by more than $2.4 billion annually.

Alcoa, which makes aluminum and uses it to manufacture products such as truck wheels and fighter jet parts, announced the latest of several production cuts last week, saying it would reduce output at a smelter in New York. That move would bring total cuts to about 20 percent of annual output, Alcoa said.

Alcoa's president and chief executive, Klaus Kleinfeld, said in a statement that he expects economic stimulus programs focusing on infrastructure and energy efficiency to create near-term demand for aluminum, and that global trends such as population growth and urbanization will drive demand in the long term.

China remains an importer of aluminum, and "it will need to continue importing to meet their demands," Kleinfeld said in a conference call. But that will be temporary, he said, as China adjusts production and moves toward self-sufficiency. China -- the world's largest producer and consumer of the metal -- has cut aluminum production substantially in recent months after driving global demand for many years.

Kleinfeld said he is not overly concerned about one or more of the U.S. carmakers going into bankruptcy. He said Alcoa's exposure to General Motors, Ford and Chrysler amounts to about $25 million, "so it's really not substantial."

But weaker orders and high inventories will translate into a 7 percent drop in global aluminum consumption, compared with 3 percent in 2008, Kleinfeld said. China will be the only market where demand grows, while Europe and North America will see declines of 15 percent, he said.

Analysts point to the excess supplies of aluminum worldwide and say further production cuts are needed to match falling orders. Industry analyst John Tumazos said the actual market decline will be twice as much as Alcoa projected.

"It appears very improbable that the aluminum market will be tight anytime in the next three years," he said.

Prices of aluminum have plummeted to about 69 cents per pound from a record high of about $1.50 per pound last summer. During the quarter, prices on the London Metals Exchange averaged about 62 cents per pound, down 25 percent from the previous quarter.

Alcoa lost 61 cents per share in the quarter ended March 31. During the same period a year earlier, the company earned $303 million, or 37 cents per share. Excluding one-time items totaling $17 million, or 2 cents per share, Alcoa's loss would have been 59 cents per share.

Analysts polled by Thomson Reuters on average expected Alcoa to lose 56 cents per share on revenue of $4.08 billion during the quarter, according to a survey by Thomson Reuters. Wall Street typically excludes one-time charges in its earnings estimates.

Shares of Alcoa fell 28 cents to $7.51 in after-hours electronic trading, having closed the regular session down 12 cents at $7.79. During the quarter, Alcoa's stock lost about 35 percent of its value, hitting its lowest level in more than 20 years.

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On the Net:

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

[Associated Press; By DANIEL LOVERING]

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