Alcoa profits nearly halved (October 04, 2002)

U.S. aluminum giant Alcoa (AA-N) has reported a 43% drop in third-quarter earnings thanks mostly to a global oversupply of aluminum and yet-to-be-seen economic recovery.

Alcoa, traditionally one of the first major U.S. firms to report quarterly results, said net income slid to US$193 million, (or 23 per share), compared with year-ago earnings of US$339 million (39 per share). Sales revenue between the two periods fell 5.2% to US$5.22 billion.

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

The three-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 overcapacity, 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 latest third quarter, annualized cost savings amounted to US$560 million via the layoff of 4.6$ of its global workforce and the idling of capacity.

Shares Of Alcoa quickly dove into the red on Friday, and by late afternoon, the issues was off US$1.09 or 5.4% at $19.01 (near its 52-week low) on the New York Stock Exchange.