Alcoa Inc. (AA) posted narrower-than-expected second-quarter loss late Wednesday, signaling the start and a possible trend of the second-quarter earnings season. Excluding restructuring costs, loss per share came in at 26 cents, beating the consensus estimate by 12 cents.
Revenue plunged 42% year-over-year to $4.2 billion, steeper than the first-quarter drop of 28%, as the double blow of depressed metal prices coupled with curtailed production affected performance. The industrial bellwether recorded quarterly gross margin of 6.6%, though a sequential improvement of 650 basis points, but still way below the year-ago figure of 21%.
Aluminum makers have been hit hard by the global economic downturn, which has affected demand from key customers such as automotive, commercial transportation construction and aerospace industries. Alcoa responded to the scenario by slashing production by about 20% and initiating a massive cost cutting program thereby generating $1 billion in savings through the first half of the year.
Meanwhile, Alcoa reported negative free cash flow of $90 million in the quarter, which was well below the positive free cash flow of $211 million in the year-ago period. However, the result was a significant improvement over the first-quarter when it posted negative free cash flow of $742 million. The company also said that it incurred capital expenditure of $418 million in the quarter, compared to $796 million last year and $471 million in the previous quarter. Alcoa has curtailed its capital expenditure targets by about 48% to $1.8 billion in 2009 and further by 53% to $850 million in 2010.
Looking ahead, the company feels there are some positive signals as aluminum prices have climbed 9% from first-quarter levels, which is likely to have an impact on the third-quarter performance. The recent stimulus by the US government is expected to revive the demand for automobiles and in turn aluminum. However, the continuing sluggishness in aerospace and industrial gas turbines industry will continue to weigh on performance. Moreover, the demand from China is likely to be short-lived as the country becomes self-sustaining in the production of the metal.
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