Alcoa Inc. (AA) the largest U.S. aluminum producer has kicked off another earnings season with its first quarter posting an EPS of 28 cents and exceeding the Zacks Consensus Estimate by a penny. This excludes the negative impact of special items or 1 cent per share, including 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, helped by rising prices for 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 the company has seen since its third quarter of 2008, leaping remarkably by 60% over the year-ago quarter.
Segment Details
Alumina-The shipments in the reported quarter increased 3.7% year over year to 2.2 million metric tons on production of 4.0 million metric tons. The After Tax Operating Income (ATOI) increased 97.2% year over year to $ 142 million. In the reported quarter, alumina price jumped 15%.
However, the improvement in price was partially offset by higher raw material and energy costs and the cost of a labor contract settlement in Australia. Adjusted EBITDA rose to $ 286 million representing a sequential increase of 59%.
Primary Metals- Shipments in the first quarter of 2011 amounted to 0.7 million metric tons, almost flat with the previous-year quarter. The segment also incurred start-up costs of $ 9 million related to the restart of certain facilities at the Massena, Intalco and Wenatchee plants.
Production increased by 1.6% year over year to 0.9 million metric tons. Adjusted EBITDA per metric ton demonstrated consistent improvement, increasing to $ 438 per metric ton in the first quarter, up from $ 436 per metric ton in fourth quarter 2010. ATOI increased 64.2% year over year to $ 202 million in the quarter.
Flat-Rolled Products – Shipments in the quarter jumped 17.7% year over year to 0.4 million metric tons. ATOI increased comprehensively by 170% over the previous-year quarter and adjusted EBITDA improved by 25% sequentially to $ 173 million due to stronger pricing in North America and Europe, a better mix of products and higher volumes, although they were offset by cost pressure and rising regional premiums. The segment posted a record performance for the quarter.
Engineered Products and Solutions –Shipments in the quarter jumped 16.4% year over year to 0.6 million metric tons. ATOI in the first quarter totaled $ 130 million, up 38.5% year over year. Adjusted EBITDA margin came in at a record 18.4%, up 170 basis points from fourth quarter 2010 adjusted EBITDA margin of 16.7%. The segment’s strong results were marked by new product developments and productivity improvements.
Outlook
Alcoa is on track to meet its 2011 financial targets, with debt-to-capital ratio improving to 33.6%, 130 basis points better than fourth quarter 2010. The company remains optimistic about the remainder of 2011 and is confident of generating positive results owing to the fact that its primary raw material aluminum possesses some unique qualities, thereby 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 reaffirmed that global aluminum demand would grow 12% in 2011.
Our Take
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.
Zacks Recommendation
Currently, Alcoa has a short-term (1 to 3 months) Zacks #3 Hold rating and a long-term (6 months) Neutral recommendation.
Competitors
Alcoa faces stiff competition from Aluminum Corporation Of China Limited (ACH), Rio Tinto Plc. (RIO) and BHP Billiton Ltd. (BHP).
ALCOA INC (AA): Free Stock Analysis Report
ALUMINUM CP-ADR (ACH): Free Stock Analysis Report
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RIO TINTO-ADR (RIO): Free Stock Analysis Report
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