Alcoa (NYSE: AA) today reported increased third quarter revenue and earnings compared to the year-ago quarter, but lower results sequentially, primarily due to lower metal prices, seasonal factors and weakness in Europe.
Income from continuing operations was $172 million, or $0.15 per share, in third quarter 2011, compared to $61 million, or $0.06 per share, in third quarter 2010 and $326 million, or $0.28 per share, in second quarter 2011.
“Aluminum prices fell in the third quarter, but most markets continued to grow,” said Alcoa Chairman and CEO Klaus Kleinfeld. “With the exception of Europe, we saw growth in our end markets, though at a slower rate than in the first half, as confidence in the global recovery faded.
“We continue to forecast a growth rate of 12 percent for 2011, with a slower pace in the second half of the year, and reaffirm our long-term forecast for a doubling of aluminum demand by 2020. Alcoa is a confident company in a nervous world. We are well prepared for whatever lies ahead, with more cash on hand, lower debt and continued focus on profitable growth.”
Net income for third quarter 2011 was $172 million, or $0.15 per share, compared to net income in third quarter 2010 of $61 million, or $0.06 per share, and net income in second quarter 2011 of $322 million, or $0.28 per share.
Revenue was $6.4 billion in third quarter 2011, up 21 percent from the $5.3 billion recorded in third quarter 2010 and down 3 percent compared to $6.6 billion recorded in second quarter 2011.
On a year-over-year basis, Alcoa’s major end markets showed strong revenue growth, led by commercial transportation (up 44 percent), automotive (up 26 percent), packaging (up 21 percent), and aerospace (up 20 percent).
Sequentially, markets were mixed. Revenue was lower for both alumina and aluminum, down 5 percent and 1 percent, respectively, driven by lower alumina shipments and lower realized pricing in both businesses. In end markets, revenue increased in commercial transportation (6 percent) and aerospace (2 percent), while declines were seen in automotive (7 percent), industrial products (6 percent), building and construction (5 percent), and packaging (4 percent).
Excluding the impact of restructuring and other special items, income from continuing operations was $165 million in third quarter 2011, an increase of $69 million from the prior-year quarter’s $96 million, but a decrease of $199 million from sequential quarter income from continuing operations of $364 million.
In third quarter 2011, special items included the positive impact of mark-to-market changes on certain energy contracts and a net discrete income tax benefit, partially offset by the negative impact of net costs associated with restructuring and uninsured losses, including losses related to flood damage at Alcoa’s Bloomsburg, PA, plant.
For the quarter, adjusted EBITDA was $821 million, up 36 percent from third quarter 2010, but down 21 percent from second quarter 2011.
Year-to-date, revenues were $19.0 billion, up 23 percent over the first three quarters of 2010. Income from continuing operations year-to-date was $807 million, or $0.71 per share, compared to $4 million in the first three quarters of 2010. Net income year-to-date in 2011 was $802 million, or $0.71 per share.
Through the first three quarters of 2011, Alcoa continued to turn in outstanding performance against the Company’s financial targets. Alcoa generated $250 million in free cash flow while cash from operations was $1.1 billion. Alcoa improved liquidity in third quarter 2011, with cash on hand rising 6 percent to $1.3 billion compared to second quarter 2011. Capital spending through third quarter 2011 was $801 million, 53 percent of target. Year-to-date, Alcoa has invested $165 million in the Company’s joint venture in Saudi Arabia, 41 percent of target. Alcoa’s debt-to-capital ratio stands at 33.7 percent, 200 basis points lower than third quarter 2010 and within the Company’s targeted range of 30 to 35 percent.
Looking forward, Alcoa continues to project aluminum demand will grow 12 percent in 2011 on top of the 13 percent growth seen in 2010, well ahead of the 6.5 percent compound annual growth rate needed to double aluminum demand by 2020. Increasing demand in China, where the Company has raised its 2011 growth projection two-percentage points to 17 percent, will mostly offset declines in Europe and other regions.
On a global basis, Alcoa’s year-over-year end market outlook remains positive.
Aerospace, where order backlogs top eight years, and automotive, where increasing government requirements for fuel efficiency are driving more demand for light-weight solutions, are expected to remain strong. Alcoa projects aerospace demand will continue to grow in the second half of 2011 and the year-end growth rate will be between 6 and 7 percent. In the automotive market, Alcoa projects continued growth in the second half and a year-over-year improvement of 3 to 5 percent.
Growing demand for aluminum beverage cans in China, Europe, and the Middle East will offset flat to declining markets in the United States and drive overall packaging market growth of 2 to 3 percent in 2011 compared to 2010. The recovery in the industrial gas turbine market continues to support a brighter long-term outlook and a 2011 growth projection of 5 to 10 percent. The building and construction market continues to struggle in North America and Europe, leading to a growth projection of 1 to 3 percent, primarily due to continued strength in non-residential construction in China.
The outlook for commercial transportation is mixed, with a weaker second half of 2011, driven primarily by lower sales in Europe and China, offsetting strong first-half results and continued gains in the North American market. Alcoa projects heavy truck and trailer sales will range from flat to 2 percent growth over 2010.
Segment Information
Alumina
After-tax operating income (ATOI) in the third quarter was $154 million, up 120 percent compared to $70 million in third quarter 2010, but a decrease of $32 million, or 17 percent, compared to second quarter 2011. Adjusted EBITDA fell $24 million to $311 million, a sequential decrease of 7 percent. Third-quarter results were impacted by lower pricing on the London Metal Exchange (LME) and lower index pricing. Increased energy and raw materials costs were offset by improved productivity, higher volumes, and positive currency impact. Alumina production of 4.14 million metric tons in the third quarter was essentially flat from second quarter 2011, with higher internal sales offsetting a slight decrease in third-party shipments.
Primary Metals
ATOI in the third quarter was $110 million, an increase of $32 million, or 41 percent, over third quarter 2010 and a decrease of $91 million, or 45 percent, from second quarter 2011. Third-party realized metal prices decreased 5 percent sequentially on declining LME cash prices. Restarts at smelters in Massena, NY, and Intalco and Wenatchee, WA, had a positive impact of $6 million in the quarter compared to second quarter 2011.
Flat-Rolled Products
Third-party revenue in the third quarter was $2.0 billion, up 20 percent year-over-year and down 5 percent sequentially. ATOI for the third quarter was $60 million, down 9 percent, or $6 million, from third quarter 2010 and down 39 percent, or $39 million, from second quarter 2011. The declining performance was driven by significant deterioration in European markets, seasonal plant shutdowns and rising costs.
Engineered Products and Solutions
Revenue in the third quarter was $1.4 billion, up 17 percent over third quarter 2010 and an increase of $3 million over second quarter 2011. ATOI in the third quarter was $138 million, up $24 million, or 21 percent, from third quarter 2010 and down $11 million, or 7 percent, compared to second quarter 2011. Sequentially, decreased ATOI was mainly driven by unfavorable price and mix across most businesses as well as the cost impact of flooding at the Bloomsburg, PA, plant. The ATOI improvement from third quarter 2010 resulted from higher volumes across all businesses supported by a strong portfolio of innovative products.
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