In a dismal prelude to the earnings season, Alcoa Inc reported a quarterly loss of US$1.19 billion Monday, days after the aluminum giant announced cutbacks due to sinking prices and demand for the metal amid the global economic slowdown.
Alcoa, the world’s third-largest aluminum company, said it expects to emerge a stronger company when the world economy stabilises, but offered no specific forecast
of when a recovery might begin.
The Pittsburgh-based company’s loss highlighted the impact of the economic downturn on key aluminum markets, such as the auto and construction industries. Prices of the metal, used in everything from cars and aircraft to window frames and beer cans, have fallen steeply along with other commodities since mid-2008.
Analysts do not expect a rebound before mid-2009.
Alcoa, the first component of the Dow Jones industrial average to post results and considered a bellwether of earnings to come, said quarterly revenue sank 19 per cent to US$5.7 billion from US$7 billion in the year-earlier period.
To cope with diminishing demand, Alcoa last week announced plans to lay off about 13 per cent of its global workforce by the end of 2009, further cut production and spending, and sell four of its subsidiaries.
Alcoa said it expected to save US$450 million annually as a result of the cutbacks.
“The aluminum industry is caught up in a perfect storm of historic proportions,” Klaus Kleinfeld, Alcoa’s president and chief executive, said in a conference call.
“The price has never before fallen so fast. As demand disappears, inventories are building and prices are decreasing.”
The company said the results were driven by a 35 per cent price decline in the quarter – a 56 per cent decline from July – and sharply lower demand, particularly from the automotive, commercial transportation and building and construction sectors.
Aluminum demand falling
Aluminum demand in the United States, which accounts for about 18 per cent of the global market, has been falling for months, pushed down by declines in the residential housing and automotive markets.
The Census Bureau said new home sales in November were down over 35 per cent from the same month in 2007. US auto sales dropped 36 per cent in December from a year ago.
Alcoa’s loss equalled $1.49 cents per share in the quarter ended December 31. During the same period a year earlier, the company earned US$632 million, or 75 cents per share, helped by restructuring and tax gains.
One-time charges in the 2008 fourth-quarter totalled US$920 million, or $1.15 per share.
Analysts, on average, expected the Pittsburgh-based company to lose 10 cents per share during the quarter, according to a survey by Thomson Reuters.
Wall Street typically excludes one-time charges in its earnings estimates.
Some analysts have said Alcoa’s recently announced production cuts may be insufficient to buoy prices.
On Friday, Deutsche Bank analyst Jorge Beristain downgraded the company’s stock to ‘sell’ from ‘buy’, citing aluminum prices that have dipped below the cost of production.
Tony Robson, an analyst with BMO Capital Markets, said the quarterly results were “certainly worse than we had expected,” and that “the biggest surprise perhaps is Alcoa still seems to be taking a fairly optimistic tack”.
For the full year, Alcoa lost nine cents per share on revenue of US$26.9 billion.
Analysts estimated it would earn US$1.40 per share on revenue of US$27.6 billion.
Prices of aluminum have plummeted to about 70 cents per pound from around US$1.50 per pound last summer, as the global economy slowed and demand for the metal waned.
Prices averaged about US$1.17 per pound in 2006 and US$1.20 per pound in 2007. Some analysts think prices will not rebound until mid-2009.
The latest cuts by Alcoa follow earlier moves to scale back output.
Production cut
Last fall, it announced plans to curtail production by 15 per cent due to slowing demand.
Other large aluminum makers also have cut production recently. The world’s top aluminum maker, Moscow-based United Company Rusal, planned to trim output by four per cent, while Aluminum Corporation of China, or Chalco, planned cuts of about 18 per cent.
Analysts expect further cuts in the first half of 2009.
Shares of Alcoa sank 75 cents, or 6.9 per cent, to close at US$10.06.
During the quarter, Alcoa’s share price fell 47 per cent, hitting its lowest level in more than a decade. In 2008, Alcoa shares shed nearly 70 per cent of their value.
Source: AP
