Alcoa Reorganizes Midstream Segment (AA) (ACH) (BHP) (RIO)

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Aluminum producer Alcoa Inc. (AA) announced its plans to accelerate growth in its midstream Global Rolled Products businesses by shifting away from a regional, asset-based structure to a market-based structure, effective immediately. The company will focus on five key global markets, with particular emphasis on emerging economies.

The five global markets include Aerospace, Ground Transportation, Packaging, Consumer Electronics and Defense. Leaders of these five global markets will report to Helmut Wieser, executive vice president and group president of Alcoa Global Rolled Products.

As per Alcoa, the new organization will focus on China, Russia, Brazil and the Middle East. The new structure will allow Alcoa to capitalize on the growth ahead and profitably gain share. Alcoa aims to do this through better customer focus, global product platforms and by taking regional resources and re-deploying them to support global market initiatives.

In July 2011, Alcoa Inc. reported its second quarter 2011 results. The company reported adjusted earnings per share of $0.32, missing the Zacks Consensus Estimate of $0.34.

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 made possible by a 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.

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 by 2020. 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 #4 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).

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