Aluminum maker remains optimistic

Alcoa Inc., the largest U.S. aluminum maker, expects earnings to improve this year as global demand increases for the industrial metal. "We are looking for much improved earnings performance in 2010 versus 2009," Chief Financial Officer Charles McLane said Tuesday in an interview. "We are going to continue to operate for cash. We think it's a smart thing to do in this environment, but we think earnings are also going to improve as we go through 2010." Alcoa on Monday forecast global aluminum demand will gain 10 percent this year, led by China. Aluminum prices rose 18 percent in the fourth quarter to $2,230 a ton on the London Metal Exchange. If prices hold around the current level this year, that would mean "significant" improvement in earnings, McLane said. Alcoa reported fourth-quarter profit excluding certain items of 1 cent a share, trailing the 6-cent average estimate of 16 analysts surveyed by Bloomberg, amid higher energy and foreign exchange costs. The company also reported free cash flow of $761 million in the quarter, its first positive figure since the second quarter of 2008. That was a result of "drastic and immediate action" the company took to focus on preserving cash as metal demand eroded last year, McLane said. Alcoa fell $1.93, or 11 percent, to $15.52 in the New York Stock Exchange composite trading, the biggest decline since March 30. The shares increased 43 percent last year. "The whole organization has been operating on a cash basis by cutting overhead, cutting spending on procurement, reducing capital expenditures, eliminating working capital," McLane said. "It's not that we ignore earnings. We will look to bring back facilities and volumes as demand improves." The company has idled 20 percent of its aluminum smelting capacity. Alcoa is still "comfortable" with the curtailments made and will maintain them for the time being, McLane said.