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Alcoa's second-quarter profit sinks 24 per cent on higher cost |
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Written by Daniel Lovering, THE ASSOCIATED PRESS
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Tuesday, 08 July 2008 |
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PITTSBURGH - Alcoa Inc.'s second-quarter earnings fell nearly 24 per cent as higher prices failed to offset the costs of raw materials, energy and plant disruptions, the aluminum producer said Tuesday.
The Pittsburgh-based company earned US$546 million, or 66 cents per share, for the quarter that ended June 30, compared with $715 million, or 81 cents per share, during the same period a year earlier.
Quarterly revenue dropped about 6 per cent to $7.6 billion.
Alcoa is the world's third-largest aluminum producer and the first of the Dow Jones industrial average components to report quarterly earnings.
Results beat Wall Street estimates. Analysts, on average, expected profits of 64 cents per share on revenue of $7.36 billion.
Facility disruptions weighed down results by a total of $39 million, Alcoa said. They included a natural gas pipeline explosion in western Australia that curtailed supplies to an Australian affiliate, Alcoa World Alumina and Chemicals, and the temporary idling of half the production at its Rockdale, Texas, smelter due to power supply interruptions.
The explosion in western Australia cut profitability by $17 million, while the power troubles in Rockdale forced Alcoa to step up electricity purchases at market rates, bringing down income by some $22 million.
In a conference call with analysts and reporters, Alcoa chief executive Klaus Kleinfeld said the company expects the global aluminum industry's supply to remain in line with demand for the year, despite sluggish markets in the U.S. and Europe.
Growth in China will likely remain strong, he said, with consumption projected to rise nearly 20 per cent this year.
The company forecasts growth of six per cent annually in the global industry over the next decade, fuelled by gains in Asia, Kleinfeld said.
Serving that demand will not be easy, he said; securing access to affordable supplies of power - a crucial factor in aluminum production - and raw materials such as bauxite, used to make the metal, remains an ongoing challenge.
Tony Robson, an analyst with BMO Capital Markets, said he was pleased to see continued gains in Alcoa's two downstream divisions - flat-rolled and engineered products.
"However, the company was making higher profits a year ago on lower aluminum prices," indicating greater industrywide production costs, he said. "There's further work that needs to be done there."
Alcoa said its primary metals business hit record smelting production levels of more than one million tonnes during the quarter as a recently built smelter in Iceland reached full capacity.
Sales volumes for engineered products increased in the aerospace, industrial gas turbine, commercial building and construction, and commercial transportation markets, the company said.
Also during the quarter, Alcoa continued a share repurchase program, bringing the number of shares bought back for the year to date to 18.3 million, or 10 per cent of shares outstanding.
Shares of Alcoa rose $1.23, or nearly four per cent to $33.56 in after-hours trading. During the regular session Tuesday, they fell $1.06, or 3.2 per cent, to close at $32.33 in heavy trading.
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Alcoa Inc.: http://www.alcoa.com
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