Alcoa Inc. (AA), the largest U.S. aluminum producer, reported mixed second-quarter 2011 results. The company reported adjusted earnings per share of 32 cents, missing the Zacks Consensus Estimate of 34 cents.
Revenues for the quarter were up 27% year over year to $6.585 billion, outpacing the Zacks Consensus Estimate of $6.434 billion. The increase was due in part to higher alumina shipments, and higher realized pricing for both alumina and aluminum.
The company posted improved profits across all its segments. This was followed by revenue growth of 13% in packaging, 6% in aerospace, 12% in building and construction, 16% in commercial transportation, 9% in industrial products, 8% in industrial gas turbines and 5% in automotive.
The company’s adjusted EBITDA of $1.04 billion was up 44% year over year.
Segment Details
Alumina – The shipments in the reported quarter increased 11.8% year over year to 2.4 million metric tons on production of 4.1 million metric tons. The After Tax Operating Income (ATOI) increased 158% year over year to $186 million. In the reported quarter, the price of alumina jumped 7%. However, the improvement in price was partially offset by higher raw material and energy costs as well as a negative currency impact. Adjusted EBITDA rose to $335 million representing a sequential increase of 17%.
Primary Metals – Shipments in the second quarter of 2011 amounted to 0.7 million metric tons, almost flat with the previous-year quarter. During the second quarter, improved realized pricing and profits from restarts at Massena, NY, and Intalco and Wenatchee, WA, were offset by higher energy and raw materials cost, as well as a negative currency impact. Production increased by 5% year over year to 0.9 million metric tons. Adjusted EBITDA per metric ton demonstrated consistent improvement, increasing by $142 per mt over the year-ago quarter. ATOI was flat sequentially at $201 million in the quarter.
Flat-Rolled Products – Shipments in the quarter jumped 24.8% year over year to 0.4 million metric tons. ATOI increased comprehensively by 230% over the previous year quarter and adjusted EBITDA improved by 12% sequentially to $193 million due to volume strength along with productivity improvements. Both Russia and China continued to see positive trends, with record ATOI and EBITDA in the second quarter of 2011. Besides, third-party volumes were up 41% in Russia and 30% in China compared with the second quarter of 2010.
Engineered Products and Solutions – Shipments in the quarter surged 23.9% year over year to 0.57 million metric tons. ATOI in the second quarter totaled $149 million, up 83.9% year over year. Adjusted EBITDA margin came in at a record 19%, up 180 basis points from the second quarter of 2010. The segment’s strong results were marked by new product developments and productivity improvements.
Financial Position
At the end of June 30, 2011, cash from operations was $798 million versus $300 million in the year-ago quarter. Free cash flow was $526 million versus $87 million in the prior-year quarter. Debt-to-capital ratio was 32.6% and cash on hand was $1.3 billion. Days working capital was reduced to 37 from 43 in 2Q10.
Outlook
Alcoa reaffirmed its forecast for 12% growth in global aluminum demand in 2011. Looking ahead, Alcoa projects continued growth in all major end markets on a global basis, including aerospace (7%), automotive (4-8%), commercial transportation (7-12%), packaging (2-3%), building and construction (1-3%), and industrial gas turbines (5-10%). For the year, Alcoa projects aluminum demand to grow 12% on top of the 13% growth witnessed in 2010. Alcoa projects that, from a 2010 baseline, aluminum demand would double by 2020 on 6.5% annual growth.
Our Take
Alcoa Inc., a Pennsylvania-based corporation, is among the world’s leading producers of primary and fabricated aluminum and alumina. It involves the technology of mining, refining, smelting, fabricating and recycling of aluminum. We believe that Alcoa’s cost reduction efforts are, to some extent, offsetting the negative impact of higher energy and raw material costs on profitability.
The company is divesting underperforming assets through its restructuring program. The annual global consumption of aluminum products, both upstream and downstream, is expected to double by 2020. This consumption boom will be driven primarily by growth in China, India, Russia and Brazil, whose demographics are accelerating development.
Zacks Recommendation
Currently, Alcoa has a short-term (1 to 3 months) Zacks #4 Sell rating and a long-term (6 months) Neutral recommendation.
Competitors
Alcoa faces stiff competition from Aluminum Corporation Of China Limited (ACH), Rio Tinto Plc. (RIO) and BHP Billiton Ltd. (BHP).
ALCOA INC (AA): Free Stock Analysis Report
ALUMINUM CP-ADR (ACH): Free Stock Analysis Report
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RIO TINTO-ADR (RIO): Free Stock Analysis Report
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