Alcoa Sells $1.25 Billion Notes

Alcoa Inc. (AA - Analyst Report), the largest U.S. aluminum producer, has planned to raise capital by issuing public notes of $1.25 billion. The company expects net proceeds of more than $1.24 billion from the sale of these 5.40% notes due April 15, 2021. The transaction is expected to close on April 21, 2011.

The Pittsburgh-based aluminum mining and processing company plans to use the proceeds from the offering together with the cash it already holds, to buy back two older series of notes: all of its 5.375% block due in 2013 and up to $400 million worth of its outstanding 6% series due in 2013. Alcoa intends to use any net proceeds remaining after this offering for general corporate purposes, which may include the repayment or repurchase of certain of the company’s other outstanding debt.

Recently the company released its first quarter results posting an EPS of 28 cents and exceeding the Zacks Consensus Estimate by a penny. This includes the impact of special items or 1 cent per share, excluding which the EPS is 27 cents per share.

Revenues for the quarter were $5.96 billion and missed the Zacks Consensus Estimate of $6.112 billion. Revenues, however, increased 22% year over year, aided by rising prices of aluminum and alumina.

The company posted improved profits across all its segments. This was followed by revenue growth in the end markets led by double-digit increases in packaging, automotive, commercial transportation and industrial products.

The company’s adjusted EBITDA of $955 million is the best it has seen since its third quarter of 2008, a tremendous leap of 60% over the year-ago quarter.

Alcoa is on track to meet its 2011 financial targets, with debt-to-capital ratio improving to 33.6%, 130 basis points better than the fourth quarter 2010.

The company remains optimistic about the remainder of 2011 and is confident of generating positive results. Its optimism stems essentially from the fact that its primary raw material, aluminum, possesses some unique qualities, capable of generating huge demand in the market. The metal is light, easy to use and reusable and thus has a competitive edge over other metals.  Alcoa has reaffirmed that global aluminum demand would grow 12% in 2011.

Alcoa Inc., a Pennsylvania-based corporation, is among the world’s leading producers of primary and fabricated aluminum and alumina. It involves the technology of mining, refining, smelting, fabricating and recycling of aluminum. We believe that Alcoa’s cost reduction efforts are, to some extent, offsetting the negative impact of higher energy and raw material costs on profitability.

The company is divesting underperforming assets through its restructuring program. The annual global consumption of aluminum products, both upstream and downstream, is expected to double over the next 15 years. This consumption boom will be driven primarily by growth in China, India, Russia and Brazil, whose demographics are accelerating development.

Currently, Alcoa has a short-term (1 to 3 months) Zacks #3 Hold rating and a long-term (6 months) Neutral recommendation.

 Alcoa faces stiff competition from Aluminum Corporation Of China Limited (ACH - Analyst Report), Rio Tinto Plc. (RIO - Analyst Report) and BHP Billiton Ltd. (BHP - Analyst Report).