Alcoa profit shine dulled by sales shortfall

Alcoa, one of the world's biggest aluminium producers, produced the latest in a series of better than expected earnings figures for the first quarter but suffered a 3.3 per cent share price fall as revenues disappointed.

The company has benefited from a significant restructuring of its businesses producing basic aluminium commodities, including the closing of smelters and rolling mills in Australia. It has shifted its focus towards higher-value components, where it has been boosted by strong demand in commercial aerospace and the growing use of aluminium in the automotive industry.

Net income rose to $195m for the quarter, or 14 cents per share, compared with a loss of $178m, or 16 cents per share, for the same quarter last year. Excluding special items, which were mostly for restructuring, net income would have been $363m, or 28 cents per share, against analyst expectations of 25 cents.

However, the 7 per cent rise in revenues to $5.8bn fell narrowly short of analysts' expectations, sending the share price falling in trading after the close of trading in New York when the figures were announced

Klaus Kleinfeld, chief executive, dismissed the importance of the revenue shortfall, stressing how difficult the upheavals in the business over the past year had made it to estimate likely revenue. Alcoa closed four smelting facilities during 2014 and closed one refining plant and idled another.

The facts are we have grown 7 per cent year-over-year," Mr Kleinfeld said.

Around 2.3 per cent of the growth had come from "portfolio adjustment," Mr Kleinfeld said. That included the purchase of Firth Rixson, a UK-based maker of parts for aero engines, and Tital, a Germany-based manufacturer of titanium and aluminium aerospace parts.

The strength of the dollar had provided a further 1.8 per cent of the growth, while the remainder came from organic growth in demand for commodity aluminium and aluminium components.

This came mainly from the aerospace industry - where Mr Kleinfeld pointed out the cumulative backlog of orders would take nine years to produce - and the automotive industry. The US's best-selling vehicle, Ford's F150 pick-up truck, has been produced since last year with an aluminium body, rather than steel.

"We're very, very positive aerospace will produce 9 to 10 per cent growth this year," Mr Kleinfeld said. "The current numbers all show in the right direction."

Mr Kleinfeld also expressed optimism about automotive demand, dismissing a year-over-year dip in US sales for March as a blip amid continued growth.

After-tax operating income in the engineered products and solutions business - which produces manufactured components - rose 1 per cent to $191m, on sales up 17 per cent to $1.7bn.

By the same measure, global rolled products division income fell 42 per cent to $34m, on sales down 3 per cent to $1.62bn. In the primary metals arm, the figure was $187m, against a $15m loss previously, on sales which were up 10.4 per cent to $1.57bn.

In the alumina division, the company's most basic business, the after tax operating income more than doubled to $221m from $92m, on sales up 5 per cent to $887m.

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