Alcoa Inc. (AA) announced that it intends to invest $300 million to expand its Davenport, Iowa rolled products plant in order to meet the rising demand from the automotive market.
The expansion will lead to the addition of the 150 jobs to the plant and is expected to be completed by the end of 2013.
Alcoa selected the Davenport plant for expansion due to its workforce and a very progressive support from the government side. Moreover, the government has provided an incentive package, including tax, financing and research and development credits, as well as training grants for the Davenport workforce and new employees.
Aluminum as a percentage of autos has been increasing over the last 20 years, especially as the U.S. auto industry tries to meet more stringent fuel efficiency standards by using the light-weight metal.
According to Alcoa, the use of aluminum has reached an all-time high of 343 pounds per vehicle, for 2012 model cars, an increase of 5% increase 2009.
In July, Alcoa released its financial results for the second quarter of 2011. The company reported adjusted earnings per share of 32 cents, missing the Zacks Consensus Estimate of 34 cents.
Revenues for the quarter were up 27% year over year to $6.585 billion, outpacing the Zacks Consensus Estimate of $6.434 billion. The increase was due in part to higher alumina shipments, and higher realized pricing for both alumina and aluminum.
The company posted improved profits across all its segments. This was followed by revenue growth of 13% in packaging, 6% in aerospace, 12% in building and construction, 16% in commercial transportation, 9% in industrial products, 8% in industrial gas turbines and 5% in automotive.
The company’s adjusted EBITDA of $1.04 billion was up 44% year over year.
Alcoa reaffirmed its forecast for a 12% growth in global aluminum demand in 2011. Looking ahead, Alcoa projects continued growth in all major end- markets on a global basis, including aerospace (7%), automotive (4-8%), commercial transportation (7-12%), packaging (2-3%), building and construction (1-3%), and industrial gas turbines (5-10%).
For the year, Alcoa projects aluminum demand to grow 12% on top of the 13% growth witnessed in 2010. Alcoa projects that from a 2010 baseline, aluminum demand would double by 2020 on a 6.5% annual growth.
Currently, Alcoa has a short-term (1 to 3 months) Zacks #4 Rank (Sell rating) and a long-term (6 months) Neutral recommendation.
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
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