ShareThis Page

Other segments nudge Alcoa to slim profit

| Thursday, Oct. 8, 2015, 4:27 p.m.

Alcoa Inc. managed to eke out a small profit in the third quarter despite the company's aluminum smelting business taking a nosedive on weak prices and oversupply.

The loss in Alcoa's primary metals business was offset by profits from other segments — highlighting what many investors like about the company's plan to separate its commodity aluminum and mining operations from its higher-value divisions that make parts for the aerospace and automotive industries.

Alcoa plans to complete the split in the second half next year, creating two standalone publicly traded companies.

CEO Klaus Kleinfeld said the separation should attract more investors.

Some investors like Alcoa's mining and smelting business but don't understand parts manufacturing, Kleinfeld told analysts on a conference call Thursday to discuss quarterly financial results. For others, it's the other way around, he said. They are attracted to the growth prospects with aerospace and automotive but are concerned about the drag of aluminum smelting.

“It allows investors to have a choice between those two,” he said. “That's the major point here.”

The segments that will make up the as-yet-unnamed parts manufacturing company — Engineered Products and Solutions, Transportation and Construction Solutions and Global Rolled Products — produced a combined $257 million in after-tax operating income in the third quarter.

Alcoa's primary metals segment, which produces aluminum, reported an after-tax operating loss of $59 million. Combined with the company's bauxite mining and alumina refining business, the raw material side of Alcoa produced $153 million in after-tax operating income. Those two segments will retain the Alcoa name after the breakup.

Overall, Alcoa reported net income of $44 million, or 2 cents per share, a drop from the $149 million, or 12 cents per share it reported during the same period last year.

“God bless them to not have lost any money,” said John Tumazos, analyst and owner of Tumazos Very Independent Research in Holmdel, N.J. “To be just down a little bit when the aluminum price has been falling like a rock is pretty good.”

Analysts had predicted net income of 10 cents a share, according to data from Bloomberg. The earnings miss, which was reported after markets closed Thursday, led Alcoa shares to fall 53 cents, or 5 percent, to $10.48 in after-hours trading.

Revenue during the quarter fell 11 percent to $5.6 billion. Some of the decline occurred as Alcoa closed and sold mining and smelting operations around the world to reduce costs and counter overcapacity.

Despite the weakness in the aluminum market, Kleinfeld gave an optimistic forecast for the metal.

Demand for aluminum is expected to increase 6.5 percent this year, he said. And inventories are beginning to fall. Combined, those factors could lead to price stabilization, he said.

“We are seeing that the market is most likely going into a deficit next year at a time when warehouse stocks are relatively low,” he said.

Alex Nixon is a Trib Total Media staff writer. Reach him at 412-320-7928 or anixon@tribweb.com.

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.