Continued weak metals prices caused Alcoa Inc. to lose money in the April-to-June quarter, but aggressive cost controls minimized the deficit and will help results as global demand improves.
Alcoa benefited from strong demand for aluminum in automobiles and aircraft -- two big industries that seek lightweight materials for their products, analysts said Monday.
"The most positive things in the aluminum world are aerospace and auto bodies," said Lloyd O'Carroll, analyst at Davenport & Co., Richmond, Va.
"They are both strong markets with high growth potential over the next five to 10 years," O'Carroll said. "But it does take time."
The company's engineered products and solutions segment, which includes aerospace, posted record operating income. And Alcoa's rolled products segment is getting more contracts with automakers, CEO Klaus Kleinfeld told analysts on a conference call.
But Alcoa and the rest of the aluminum industry are challenged by weak primary metals prices, which fell about 10 percent during the second quarter, because of a flat global economy and an oversupply of product.
New York-based Alcoa, with its operations center on the North Shore, reported a net loss of $119 million for the second quarter, which included $195 million in restructuring and other one-time items.
The results, released after the close of the stock market, equaled a loss of 11 cents a share. Alcoa shares closed at $7.92, up 11 cents.
"Results were better than I expected," said Charles Bradford, head of Bradford Research Inc., New York. "And they did better on costs and profitability than I expected."
Alcoa said it realized $539 million in productivity cost savings through the first half of the year, which was more than expected toward its full-year target of $750 million.
Alcoa has responded to falling prices and the supply glut by shuttering its least efficient plants. For example, at the end of June it announced the permanent closure of its Fusina aluminum smelter near Venice, Italy, which had been mothballed for two years. The action will cut Alcoa's smelting capacity by 44,000 metric tons.
The company said in May it will shut two production lines at its Baie-Comeau smelter in Quebec and postpone construction of a line at the plant until 2019.
Alcoa is evaluating 460,000 metric tons, or about 11 percent, of annual smelting capacity for curtailment or permanent closure by the end of next year. It reduced smelting capacity by 13 percent in 2012 with cutbacks in Tennessee, Texas, Italy and Spain.
Moody's Investor Service cut Alcoa's credit rating to junk status at the end of May. The firm also lowered its rating on $8.6 billion of Alcoa debt, while calling the outlook "stable."
Special items during the quarter included a $103 million charge connected to settlement negotiations related to a federal government investigations into a five-year-old, alleged bribery scandal in Bahrain. Alcoa said it might have to set aside as much as $200 million more toward a potential settlement.
One-time items during the quarter included $42 million in costs of closing two potlines at the Baie-Comeau smelter.
Sales declined 1.8 percent to $5.85 billion from $5.96 billion.
On an operating basis, results equaled 7 cents a share, excluding one-time items. Wall Street had expected Alcoa's operating earnings would be 6 cents a share, according to a consensus of 15 analysts polled by Bloomberg.
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