Alcoa Inc. (AA) reported adjusted earnings per share of 15 cents per share, missing the Zacks Consensus Estimate of 22 cents per share. Adjusted earnings more than doubled from 6 cents per share reported in the year-ago quarter, but were 46.4% lower than the sequential quarter earnings of 28 cents per share due to lower metal prices, seasonal factors and weakness in Europe.
Revenues for the quarter were up 21% year over year to $6.419 billion, and were down from $6.585 billion in the sequential quarter. Alcoa’s end-markets demonstrated strong revenue growth, on a year-over-year basis whereas, sequentially the company experienced mixed market conditions.
Revenue was lower for both alumina and aluminum, down 5% and 1%, respectively, driven by lower alumina shipments and lower realized pricing in both businesses. In the end-markets, revenue increased in commercial transportation (6%) and aerospace (2%), while declines were seen in automotive (7%), industrial products (6%), building and construction (5%), and packaging (4%).
The company’s adjusted EBITDA was $821 million, up 36% from third quarter 2010, but down 21% from second quarter 2011.
Segment Details
Alumina: The shipments in the reported quarter increased 7.4% year over year to 2.3 million metric tons on production of 4.1 million metric tons. The After Tax Operating Income (ATOI) increased 120% year over year to $154 million but decreased 17% sequentially.
In the reported quarter, results were impacted by lower pricing on the London Metal Exchange (LME) and lower index pricing. However, increased energy and raw materials costs were offset by improved productivity, higher volumes, and positive currency impact. Adjusted EBITDA fell 7% sequentially to $311 million.
Primary Metals: Shipments in the third quarter of 2011 amounted to 0.8 million metric tons, an increase of 6.5% from the year ago quarter. Third-party realized metal prices decreased 5% sequentially on declining LME cash prices. Production increased by 8.2% year over year to 0.96 million metric tons. ATOI was $110 million, an increase of 41%, over third quarter 2010 and a decrease of 45% from second quarter 2011.
Flat-Rolled Products: Shipments in the quarter jumped 1.3% year over year to 4.5 million metric tons. ATOI decreased by 9% over the previous year quarter to $60 million and declined 39% from second quarter 2011. Third-party revenue in the third quarter was $2.0 billion, up 20% year-over-year and down 5% sequentially. The weak performance was driven by significant deterioration in the European markets, seasonal plant shutdowns and rising costs.
Engineered Products and Solutions: Shipments in the quarter surged 9.8% year over year to 0.56 million metric tons. ATOI in the third quarter totaled $138 million, up 21% year over year and down $ 7% sequentially. Lower ATOI was mainly driven by unfavorable price and mix across most businesses as well as the cost impact of flooding at the Bloomsburg, PA, plant. The ATOI improved on a year-over-year basis due to higher volumes across all businesses supported by a strong portfolio of innovative products.
Financial Position
At the end of September 30, 2011, cash from operations was $1.1 billion versus $891 million in the year-ago quarter. Free cash flow was $250 million. Debt-to-capital ratio was 33.7%. Cash on hand was $1.3 billion at the end of September 30, 2011 versus $1.5 billion at the end of December 31, 2011.
Outlook
Management remained cautious regarding the global economy (and Europe), but it reiterated its 12% growth estimate for aluminum demand in 2011, as well as its belief that global consumption of aluminum will double by 2020.
Alcoa expects aerospace, and automotive, demand to remain strong. Alcoa forecasts aerospace demand will continue to grow in the second half of 2011 and the year-end growth rate will be between 6% and 7%. In the automotive market, Alcoa projects continued growth in the second half of 2011 and a year-over-year improvement of 3% to 5%.
Growing demand for aluminum beverage cans in China, Europe, and the Middle East will offset flat to declining markets in the United States and drive overall packaging market growth of 2% to 3% in 2011 compared to 2010. The recovery in the industrial gas turbine market continues to support a brighter long-term outlook and a 2011 growth projection of 5% to 10%.
The building and construction market continues to struggle in North America and Europe, leading to a growth projection of 1% to 3%, primarily due to continued strength in non-residential construction in China.
The outlook for commercial transportation is mixed, with a weaker second half of 2011, driven primarily by lower sales in Europe and China , offsetting strong first-half results and continued gains in the North American market. Alcoa projects heavy truck and trailer sales will range from flat to 2% growth over 2010.
Alcoa Inc., a Pennsylvania-based corporation, is among the world’s leading producers of primary and fabricated aluminum and alumina. It mines, refines, smelts, fabricates and recycles 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.
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, or Chalco (ACH) and Rio Tinto Plc (RIO).
ALCOA INC (AA): Free Stock Analysis Report
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