Alcoa Says China, U.S. Stimulus Plans May Revive Cash Flow

July 9 (Bloomberg) -- Alcoa Inc., the largest U.S. aluminum producer, expects government economic-stimulus spending in China and the U.S. to boost metal demand enough to help the company start generating cash again. China’s measures have spurred infrastructure projects and boosted consumer spending, pushing domestic aluminum demand beyond supply for the first time since the global recession forced metal producers to curtail output, Chief Executive Officer Klaus Kleinfeld said yesterday. “One of things that the Chinese government very smartly does these days is that they are stimulating people that it’s good to not have too much savings and to buy new cars and get a new air-conditioner,” Kleinfeld said on a call with analysts. Alcoa, the first company in the Dow Jones Industrial Average to announce results for the three months through June, yesterday reported a second-quarter loss excluding certain items of 26 cents a share. That was smaller than analysts’ average estimate in a Bloomberg survey for a 38-cent loss. The company will be “free cash flow positive very soon,” Chief Financial Officer Charles McLane said on yesterday’s call. The loss was New York-based Alcoa’s third straight, the first time that has happened since 1992 Alcoa rose 38 cents, or 4 percent, to $9.84 at 7:59 p.m. in trading after the official close of the New York Stock Exchange. The shares declined 16 percent this year through the close of regular U.S. trading on July 8. The Chinese government is spending 4 trillion yuan ($585 billion) to stimulate its economy, the world’s third-largest. U.S. Stimulus The U.S. government’s economic-stimulus plans, including incentives for consumers to trade in older cars, will help revive aluminum demand, Kleinfeld said. Ford Motor Co. and Toyota Motor Corp. will lead an increase in U.S. auto output, which may rise by 1 million cars in the second half from the first six months, he said. Stimulus programs have “artificially boosted demand for cars,” Gijsbert Groenewegen, a partner at Gold Arrow Capital Management in New York, said in a telephone interview. “These measures work if you can bridge a short-term weakness or loss of confidence, but they don’t work if you have to bridge longer periods of reduced confidence,” he said. Auto Sales U.S. auto sales fell to an annual rate of 9.69 million cars and light trucks last month, from 9.9 million in May and 13.7 million in June 2008, Autodata Corp. said last week. Total sales fell 28 percent to 859,847 vehicles, the 20th straight monthly decline. Investors hoping that Alcoa will buoy the stock market during earnings season may be in for a disappointment. During the past 16 quarters, the company’s results predicted the direction of the Standard & Poor’s 500 Index only half of the time. When Alcoa beat analysts’ estimates, the S&P 500 rose four times, while the index dropped four times after lower-than-expected results. Alcoa is as valuable as a “coin toss,” said Philip Orlando, who helps oversee $409 billion as Federated Investors Inc.’s chief equity market strategist in New York. “You really can’t make a broad assessment based on one company,” Orlando said. -- With assistance from Lynn Thomasson and Whitney Kisling in New York. Editors: Kevin Orland, Kevin Miller. To contact the reporter responsible for this story: Rob Delaney in Toronto at robdelaney@bloomberg.net.