Alcoa earnings slump
Alcoa reports slumping quarterly earnings and cuts its outlook for the aluminium and aerospace markets.
|||New York - Alcoa reported slumping quarterly earnings and cut its outlook for the aluminium and aerospace markets as it prepares to split itself into two companies. Shares fell.
First-quarter net income fell 92 percent to $16 million from $195 million a year earlier, the New York-based company said Monday in a statement. Profit excluding one-time items was 7 cents a share, beating the 2-cent average of 14 estimates compiled by Bloomberg. Sales fell more than estimated to $4.95 billion as average aluminium prices dropped 16 percent from a year earlier.
Read: Alcoa shuffles board before split
Operating profit plunged in the units that make alumina and primary metals. In contrast, earnings rose in the company’s three manufacturing units. The divergence in Alcoa’s business fortunes shows why Chief Executive Officer Klaus Kleinfeld plans to separate the legacy smelting and refining operations from segments that make car parts and airplane wings later this year. He will lead the downstream company, which will be called Arconic.
“There will be some disappointment,” after Alcoa cut its forecast for how much its Engineered Products and Solutions business will earn, Anthony Young, an analyst at Macquarie, said by telephone. “This is the cornerstone of Arconic and if that business isn’t as good as they previously thought, it may negatively impact the longer-term valuation.”
The share of Alcoa’s revenue that comes from selling the primary metal and its precursor alumina has dropped to 40 percent as prices have tumbled and Kleinfeld has shut down and sold off smelting capacity.
Staff cuts
Meanwhile, Kleinfeld has bolstered segments that shape and form the metal by expanding automotive-product capacity, retooling existing factories and buying companies such as aerospace supplier Firth Rixson. Alcoa’s key customers in aircraft production and automotive manufacturing have seen record production, while vehicle lightweighting has boosted the amount of aluminium on cars and trucks in North America.
The results were released after the close of regular trading in New York, where Alcoa fell 3.8 percent to $9.37 at 5.11pm. The shares dropped 1.3 percent this year through the close.
Alcoa lowered its forecast for global demand of the metal this year and decreased its market deficit projection as Chinese demand slows. In aerospace, Alcoa is projecting 6 percent to 8 percent global aerospace sales growth in 2016, revised from the 8 to 9 percent estimated in fourth quarter 2015.
Job cuts
Alcoa reduced its workforce by 600 positions in the engineered products and solutions unit in the first quarter, and plans a further reduction of 400 positions. Additionally, given the current market environment, it is evaluating another reduction of as many as 1 000 positions, the company said.
“Aluminium, while still being a metal where you have pretty attractive growth markets, that’s been pared back a little bit,” Macquarie’s Young said. “A portion of that’s China and a portion of that is other cross currents.”
* With assistance from Joe Deaux
BLOOMBERG