Alcoa profits nearly halved (October 14, 2002)

U.S. aluminum giant Alcoa (AA-N) has reported a 43% drop in third-quarter earnings, owing to a global oversupply of aluminum and the slow economy.

Alcoa, traditionally one of the first major U.S. firms to report quarterly results, said net income slid to US$193 million (or US23 per share), compared with a profit of US$339 million (US39 per share) in the third quarter of 2001. Sales revenue between the two periods fell 5.2% to US$5.22 billion.

The latest quarterly results include a special after-tax charge of US$23 million related to the curtailment of production at the company’s primary smelting operations. Alcoa has 438,000 tonnes of aluminum production idled. Its base capacity is just short of 4 million tonnes annually.

The 3-month London Metal Exchange price for primary aluminum fell US2 per lb., or 3.5%, from the second quarter, and was off US3 per lb., or 5.3%, from a year earlier. Exacerbating the problem are two factors: overcapacity in the aluminum sector (a result of slow economic recovery) and China’s move to become a net aluminum exporter.

Still, the Pittsburgh-based company expects to meet its goal of US$1 billion in cost savings in 2003. By the end of the recent third quarter, annualized cost savings amounted to US$560 million via layoffs and the idling of capacity.

Following the earnings announcement in early October, Alcoa shares dove more than US$1 to trade below US$19. Shares touched a new 52-week low of US$18.35 when trading resumed the following week.