Alcoa Results Hurt by Weak Aluminum Prices

Author:Shanghai Yika Addtime:2016/4/13

Alcoa Inc. said its first-quarter earnings fell 92%, hurt by weak aluminum prices, and said it could cut as many as 2,000 jobs.

The metals maker¡¯s lukewarm results Monday underscore the company¡¯s motive in spinning off its more profitable aerospace and automotive-focused business in the second half of this year.

The company is in the process of spinning off its faster-growing business units into a separate company, to be named Arconic. Alcoa reiterated that the spinoff remains on track for completion in the second half of this year and noted that profit grew at those businesses in the first quarter.

¡°Profits grew in all of the Arconic segments, led by automotive and aerospace,¡± said Chief Executive Klaus Kleinfeld. And the raw aluminum segments, he noted, ¡°maintained profitability in a persistently low pricing environment.¡±

Alcoa said its engineered products segment, which will be part of Arconic, cut 600 positions in the first quarter and plans to cut an additional 400 positions. The unit also is evaluating a further possible workforce cut of as many as 1,000 positions because of the weak markets.

The New York-based aluminum maker, the first major U.S. company to disclose its first-quarter results, reported a profit of $16 million, down sharply from $195 million a year earlier, but slightly beating expectations. Revenue fell 15% to $4.9 billion, below analyst forecasts.

Investors have taken that as a cue to sell off Alcoa stock.Shares of Alcoa fell 4.7% to $9.28 in after-hours trading, erasing all of the gain from the regular session, in which the stock rose to $9.74 from its close Friday of $9.37. Through Monday¡¯s close, the stock has declined 26% over the past 12 months.

For 2016, Alcoa projects a global aluminum deficit of roughly 1.1 million metric tons as 5% growth in global aluminum demand offsets an expected 2% increase in global aluminum supply. The company previously had expected global aluminum demand to increase 6% and aluminum supply growth of 3%.

The main reason for the gloomier forecast is a decline in construction in Asia.

¡°China is switching to a consumption economy, and that means less construction,¡± a big consumer of aluminum, says Andrew Lane of Morningstar, Inc. ¡°And the pace of that decline in investment is going to be rapid.¡±

Morningstar forecasts long-term aluminum prices, by 2020, at $1,440 per ton.

Alcoa has cut production in high-cost areas such as the U.S., Australia and Europe in an effort to offset low prices.

The company also lowered its 2016 outlook for the aerospace market, now projecting growth of 6% to 8%, compared with its previous estimate of 8% to 9%.

 

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