As part of its upgradation strategy, aluminum producer, Alcoa Inc (AA) would spend $2.1 billion over five years to reduce costs and raise output at three smelters in Quebec.
Alcoa's Baie-Cameau, Deschambault and Becancour smelters would get new 25 year power supply contracts in the Canadian province, which will help it to expand its production capacity by 120,000 metric tons per year while reducing its costs by 13 percentage points at those plants.
The company plans to proceed immediately with the last engineering phase at the Baie-Comeau facility and aims to replace older smelting pots with an all-new electrolysis potline that would be operational by the end of 2015. It will also start preliminary engineering of the Deschambault smelter’s amperage increase project.
Approximately 6,800 job years will be maintained during the construction phase of the Baie-Comeau modernization, which will generate about $500 million in economic spinoffs. The company has also pledged $50 million for an economic development fund managed by the Quebec government and another $25 million for a sustainable development fund for the three communities, where the smelters are located.
Recently, Alcoa announced its third-quarter 2011 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 the company experienced mixed market conditions sequentially.
Alcoa expects aerospace, and automotive demand to remain strong in the coming quarters. The company forecasts aerospace demand to 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, offset by strong first-half results and continued gains in the North American market. Alcoa projects heavy truck and trailer sales to 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.
Currently, Alcoa has a short-term (1 to 3 months) Zacks #4 Sell rating and a long-term (6 months) Underperform recommendation.
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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