Alcoa outlook revised to negative by S&P on metal price drop
Alcoa Inc., the biggest U.S. aluminum producer, had its credit rating outlook revised to negative from stable by Standard & Poor's Ratings Services after a slump in the price of the metal.
At current aluminum prices, Alcoa's cash flow and debt are “well outside our expectations” for the company's BBB- corporate credit rating, the ratings company said on Friday in a statement. The rating is the lowest investment-grade level.
“The company's credit measures will remain weak at least through 2013, reflecting current weak prices, sluggish European demand, and slower-than-expected growth in China thus far this year,” S&P said.
Aluminum is the fourth-worst performer on the UBS Bloomberg CMCI index of commodities in the past five years, with a negative return of 49 percent.
Global production has exceeded demand for the past eight years, according to data compiled by Bloomberg. Growth is slowing in China, the biggest consumer of the metal.
“While we are disappointed with the change in outlook, we remain committed to maintaining our investment-grade rating and will continue to execute on our strategy and our 2013 goal of generating positive free cash flow,” Monica Orbe, an Alcoa spokeswoman, wrote in an email.
On April 8, the company reported a 59 percent increase in first-quarter net income, exceeding analysts' expectations, after it cut $247 million in costs through productivity gains and increased sales at its engineered-products division.
Still, Alcoa's rating by S&P has slipped four levels from A since 2002, during which time the company lost its position as the world's most valuable materials company to Australia's BHP Billiton Ltd. The U.K.'s Rio Tinto Group and Russian and Chinese aluminum producers took a greater share of the aluminum market over the period.
Alcoa will have earnings before interest, taxes, depreciation and amortization of $2.4 billion to $2.8 billion this year, S&P said. That would mean a debt-to-EBITDA ratio of 5.5 to 6, while keeping its current BBB- rating would require a ratio of no more than four, S&P said.
Moody's Investors Service Inc. said in December that it was putting Alcoa's $8.6 billion of debt on review for downgrade.
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- Covestro leader MacCleary finds stability amid change
- Union leaders warn Post-Gazette newsroom of possible layoffs
- Stocks shake off Middle East tensions, drop in consumer confidence
- Powder metals fabricator Atlas Pressed Metals diversifies appeal to customers
- Hedge fund Elliott Management grabs 6.4 percent stake in Alcoa
- Collectors willing to overpay for silver, value ‘all in the eye of the beholder’
- Pitt gets $2.5 million from Hillman Foundation for electrical grid work
- 3 startups want millennials to save money
- Holiday festivities help merchants in Western Pennsylvania
- Ford to quit using Takata air bag inflators
- Self-driving cars met with rule hurdles