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Alcoa Loss Deeper than Expected; Sales Top Forecasts

CNBC.com with Wires
Tuesday, 7 Apr 2009 | 6:32 PM ET

Alcoa reported a loss that was marginally worse than expected, but the company's sales came in slightly above expectations.

The aluminum fabricator cited a drop in demand for the loss—especially in the auto industry—and sharply lower prices.

Excluding one-time items, Alcoa reported a loss of 59 cents a share in the first quarter, against a profit of 44 cents a share in the same period last year.

Revenue for the most recent period fell to $4.1 billion from a topline of $7.375 billion this time a year ago.

Analysts who follow Alcoa, a component of the Dow Jones Industrial Average, expected the company to lose 56 cents a share on sales of $4.077 billion, according to a consensus estimate compiled by Thomson Reuters.

Alcoa shares were down about 2.5 percent in late trading Tuesday. The stock finished the regular New York Stock Exchange session 1.5 percent lower at $7.79.

The price of aluminum tumbled some 50 percent in the second half of 2008 from a peak of $3,380 per ton last July. During the first quarter, the price fell another 9 percent from $1,530 to $1,392. It stood at $1,460 on Tuesday.

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The loss was Alcoa's second in the past two consecutive quarters and underscored the deterioration of aluminum-intensive industries such as autos and construction. Orders for the metal, used in everything from cars and airplanes to windows and soda cans, began sliding last fall as the world economy weakened.

Stockpiles grew, prices plunged and aluminum makers started scaling back production worldwide.

Analysts say plants are losing money, but that prices may recover modestly this summer.

Alcoa Chief Executive Klaus Kleinfeld said he believed the current government economic stimulus packages would spark a surge in aluminum demand.

"While our financial performance in the quarter was adversely affected by the economy-driven drop in demand, we launched operational and financial measures that will significantly improve our profitability and cash flow in 2009 and beyond," the CEO said in a press statement.

For Investors:

"We also see both near-term and long-term catalysts that should improve the prospects for the aluminum industry," he said. "Current stimulus programs that target infrastructure and energy efficiency will create a demand for ... aluminum.

"Longer term, the global megatrends of population growth, urbanization, and environmental stewardship will all drive demand for aluminum as the economy improves."

Alcoa, the first blue chip company to report earnings for the quarter, and considered an indicator of upcoming results from other firms, said its quarterly revenue dropped 44 percent to $4.15 billion from $7.38 billion during the same period last year.

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"There's no doubt in my mind that we are in for a really nasty earnings season," said Keith Wirtz, president and chief investment officer of Fifth Third Asset Management, which manages $22 billion. "Alcoa's second consecutive quarterly loss is testament to that. We are in the worse phase of this recession right now."

In response to the tough market conditions, Pittsburgh-based Alcoa has taken measures to bolster its balance sheet and lower costs in recent months.

Last week, Alcoa announced it was curtailing 120,000 annual tons at its smelter in Massena, N.Y., bringing the company's total aluminum output cuts to over 850,000 tons, or 20 percent of annualized output.

  • From 'Fast Money':Metals Lead Market Sell-Off

- Reuters and AP contributed to this report.

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