Alcoa’s loss of $454m beats dire forecasts

IN AN unofficial opening to the earnings season, Alcoa has reported another quarterly loss but beat Wall Street expectations and said some markets for the metal might be stabilising. The aluminium giant’s loss of $454m was less than analysts expected, and company executives attributed that to recent efforts to slash costs and raise cash. They said some aluminium markets showed signs of improvement, but reiterated a forecast that worldwide aluminium consumption would shrink 7% this year amid the global recession. Aluminium is used in a wide range of products, making it a good indicator of the global economy. It was the company’s third successive quarterly loss and fresh evidence of slumping orders from key customers in the aerospace, automotive, commercial transportation and construction industries. Alcoa and other aluminium makers have struggled since last year with sharply lower orders for the metal used in products ranging from beer cans to jumbo jets. Low demand has driven up stockpiles and depressed prices of the metal, and many aluminium makers have responded by curbing production. Analysts say demand is picking up, but excess supplies will keep prices relatively low in the months ahead. Alcoa, a bellwether of industrial health and the first of the Dow Jones industrial average companies to post results, has scaled back its production about 20%. It has undertaken a campaign to cut costs and raise cash, announcing 13500 job cuts and the planned sale of four business units earlier this year. In April, Alcoa said it had agreed to sell one of its businesses, a maker of electrical systems for vehicles, to Platinum Equity, a Los Angeles private equity firm. Alcoa’s president and CEO, Klaus Kleinfeld, said the company’s efforts to cut costs and generate cash “are working”. “Now Alcoa has the staying power and reduced cost base to withstand the most serious downturn in the history of the aluminium industry.” Kleinfeld said Alcoa was well positioned to grow as the broader economy recovered, and some end markets — the US beverage cans and car markets — showed signs of stabilising. But Alcoa expected further weakness in the aerospace industry, with a 6% decline in deliveries of large aircraft. Alcoa’s customers include Boeing and Europe’s Airbus — the world’s top two commercial aircraft makers — both of which have been grappling with dwindling demand for jets as the economic downturn forces airlines to cancel or delay orders. Recent demand from China, the world’s biggest producer and consumer of the lightweight metal, would be short-lived as it gradually became self-sustaining, Kleinfeld said. Given the current difficult market conditions, Alcoa, which makes aluminium and uses it to manufacture products such as truck wheels and fighter jet parts, was maintaining a forecast for an industry-wide demand contraction of 7% this year, he said. Among the most influential factors affecting the fortunes of aluminium makers like Alcoa is the market price of the metal. Although they have rallied recently, aluminium prices remain nearly 50% lower than they were at their peak last year. The Pittsburgh-based company’s loss amounted to 47c per share for the three months ended in June. During the same period last year, Alcoa, the largest US aluminium producer, earned $546m, or 66c per share. Alcoa’s loss from continuing operations in the latest quarter was $312m. Revenue tumbled 41% to $4,24bn and analysts expected Alcoa to lose 38c a share on revenue of $3,93bn on average, according to a survey by Thomson Reuters. The company lost considerably less money on ventures in China and Russia than in the past, and garnered contributions from operations in Iceland and Norway, Kleinfeld said. Shares of Alcoa gained 41c, or 4,3%, to $9,87 in after-hours trading yesterday following an advance of 5c to $9,46 in the regular session. During the quarter, Alcoa stock climbed about 36%. Sapa-AP-AFP, Bloomberg