Alcoa reports $1.19B loss in 4Q on low prices

[January 13, 2009]  PITTSBURGH (AP) -- In a dismal prelude to the earnings season, Alcoa Inc. reported a quarterly loss of $1.19 billion Monday, days after the aluminum giant announced cuts due to sinking prices and demand for the metal.

Alcoa, the world's third-largest aluminum company, said it expects to emerge a stronger company when the world economy stabilizes, but offered no specific forecast for the possible start of a recovery.

The Pittsburgh-based company's loss highlighted the severe impact of the economic downturn on key aluminum markets, such as the auto and construction industries. Prices of the metal, used in everything from cars and aircraft to window frames and beer cans, have fallen steeply along with other commodities since mid-2008. Analysts don't expect a rebound before mid-2009.

Alcoa, the first component of the Dow Jones industrial average to post results and considered a bellwether of earnings to come, said fourth-quarter revenue sank 19 percent to $5.7 billion from $7 billion in the year-earlier period.

To cope with diminishing demand, Alcoa last week announced plans to lay off about 13 percent of its global work force by the end of 2009, further reduce production and spending, and sell four of its subsidiaries. Alcoa said it expected to save $450 million annually as a result of the cutbacks.

"The aluminum industry is caught up in a perfect storm of historic proportions," Klaus Kleinfeld, Alcoa's president and chief executive, said in a conference call. "The price has never before fallen so fast. As demand disappears, inventories are building and prices are decreasing."

The company said the results were driven by a 35 percent price decline in the quarter -- a 56 percent decline from July -- and sharply lower demand, particularly from the automotive, commercial transportation and building and construction sectors.

Aluminum demand in the U.S., which accounts for about 18 percent of the global market, has been falling for months, pushed down by declines in the residential housing and automotive markets. The Census Bureau said new home sales in November were down over 35 percent from the same month in 2007. U.S. auto sales dropped 36 percent in December from a year ago.

Among Alcoa's customers are automakers such as General Motors Corp. and Ford Motor Co. and aircraft manufacturers Boeing Co. and Airbus SA.

Alcoa's loss equaled $1.49 cents per share in the quarter ended Dec. 31. During the same period a year earlier, the company earned $632 million, or 75 cents per share, helped by restructuring and tax gains.

One-time charges in the 2008 fourth-quarter totaled $920 million, or $1.15 per share.

Analysts, on average, expected the Pittsburgh-based company to lose 10 cents per share during the quarter, according to a survey by Thomson Reuters. Wall Street typically excludes one-time charges in its earnings estimates.

Some analysts have said Alcoa's recently announced production cuts may be insufficient to buoy prices. On Friday, Deutsche Bank analyst Jorge Beristain downgraded the company's stock to "sell" from "buy," citing aluminum prices that have dipped below the cost of production.

Tony Robson, an analyst with BMO Capital Markets, said the quarterly results were "certainly worse than we had expected," and that "the biggest surprise, perhaps, is Alcoa still seems to be taking a fairly optimistic tack."

For the full year, Alcoa lost 9 cents per share on revenue of $26.9 billion. Analysts estimated it would earn $1.40 per share on revenue of $27.6 billion.

Prices of aluminum have plummeted to about 70 cents per pound from around $1.50 per pound last summer, as the global economy slowed and demand for the metal waned. Prices averaged about $1.17 per pound in 2006 and $1.20 per pound in 2007. Some analysts think prices won't hit bottom until mid-2009.

The latest cuts by Alcoa, which include lowering production by 18 percent, follow earlier moves to scale back output. Last fall, it announced plans to curtail production by 15 percent due to slowing demand.

Other large aluminum makers also have cut production recently. The world's top aluminum maker, Moscow-based United Company Rusal, planned to trim output by 4 percent, while Aluminum Corporation of China, or Chalco, planned cuts of about 18 percent. Analysts expect further cuts in the first half of 2009.

Shares of Alcoa sank 75 cents, or 6.9 percent, to close at $10.06. During the quarter, Alcoa's share price fell 47 percent, hitting its lowest level in more than a decade. In 2008, Alcoa shares shed nearly 70 percent of their value.

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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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