Alcoa Profit Tops Estimates as Autos Drive Aluminum Use

Alcoa Inc. (AA), the largest U.S. aluminum producer, posted better-than-expected fourth-quarter earnings and sales as orders from the auto and aerospace industries boosted demand for the lightweight metal.

Profit excluding one-time items was 33 cents a share, the New York-based company said today in a statement, exceeding the 27-cent average of 19 estimates compiled by Bloomberg. Sales rose 14 percent to $6.38 billion, compared with the $6.05 billion average estimate. The shares rose as much as 2.4 percent in extended trading.

Alcoa shipped a record volume of automotive aluminum sheet in the quarter. Auto companies such as Ford Motor Co., which started making its lightweight, aluminum-bodied F-150 pickup in November, are using more of the metal to boost fuel efficiency. Alcoa also predicted orders of commercial and regional jets will help boost aerospace sales by as much as 10 percent this year. It said overall global aluminum demand will rise 7 percent in 2015.

“Fundamentally Alcoa continues to improve and we would continue to be buyers,” Josh Sullivan, an analyst at Stern Agee & Leach Inc. who has a buy rating, said in a note today.

The company, the first in the Standard & Poor’s 500 Index to publish fourth-quarter earnings, reported after the close of trading. Fourth-quarter net income was 11 cents a share, compared with a loss of $2.19 a year earlier. The stock traded up at $16.32 at 4:36 p.m. in New York.

Smelter Cuts

Alcoa has in recent years sought to reposition itself as a metals engineering and manufacturing company. Its $2.85 billion acquisition of aerospace supplier Firth Rixon Ltd. in 2015 shows how Chairman and Chief Executive Officer Klaus Kleinfeld is shifting his focus to downstream operations. The deal, Alcoa’s biggest deal in 16 years, helped Alcoa expand into the production of components made from nickel-based superalloys and titanium.

While getting bigger in manufacturing, Alcoa has shut unprofitable aluminum smelters. That, and similar moves by some of its competitors, has helped to eliminate surplus production in the market.

Alcoa projects a deficit of 38,000 metric tons in 2015, compared with a 948,000-ton deficit in 2014, according to a presentation on its website.

“The combination of robust global demand and producer discipline has provided the foundations for the recovery in aluminum prices,” Jorge Beristain, a Greenwich, Connecticut-based analyst at Deutsche Bank AG, said in a note today.

Alcoa’s third-party realized price for aluminum in the fourth quarter was $2,578 a ton, up 20 percent from a year earlier.

Aluminum prices on the London Metal Exchange gained 2.9 percent last year. The metal was the ninth-best performer on the UBS Bloomberg CMCI Index. Aluminum may rise this year to an average of $2,057 a ton, according to the median of 23 analysts’ estimates compiled by Bloomberg.

(Source: Bloomberg)