Alcoa kicks off the earnings season with the declaration of its 1st quarter results. The result beats market analyst’s expectations as far as revenue and income are concerned.
Alcoa is going through a major transformation stage as it is shifting its priority towards creating a value added portfolio. However, the smart strategy towards the primary smelting and downstream segment has turned out to be profitable for the US aluminium giant as it reported first quarter 2015 net income of $195 million, or $0.14 per share compared to a loss of $178 million, or 16 cents a share in 2014 first quarter. Excluding special items, net income reported was $363 million, or $0.28 per share.
Revenues rose 7 percent to $5.8 billion, from $5.5 billion in the first quarter 2014. The increased revenue and earnings were mostly delivered by the growth in the automotive and aerospace segment. Continuous capacity reductions and portfolio changes have resulted in creating a balance in their financial situation.
In the upstream segment Alcoa undertook an intelligent approach of cost cutting through upgrading of smelting and refining facility and capacity reduction. In March they announced a strategic review of 500,000 metric tons of smelting capacity and 2.8 million metric tons of refining capacity which they could possibly curtail, close or sale in 2015. Accordingly, Alcoa announced that it would curtail the remaining 74,000 metric tons of smelting capacity at its São Luís (Alumar) facility in Brazil. Alcoa has also announced curtailment of 443,000 Metric Tons of Suralco’s Refining Capacity by April 2015. It converted its San Ciprian alumina refinery in Spain to natural gas from fuel oil to increase its competitiveness. Alcoa of Australia Limited also secured a new 12-year gas supply agreement to power its alumina refineries in Western Australia.
After Tax Operating Income (ATOI) for primary metal in the first quarter was $187 million which was down $80 million from $267 million in last quarter 2014. However it was up $202 million from negative $15 million in 1st quarter 2014. The company blames a lower LME aluminum price, lower energy sales and higher alumina cost for the decline in sequential income.
Considering the overcapacity in the market and the growing demand in the automotive and aerospace sector, Alcoa continued with its strategy towards building its innovative value-add portfolio throughout the 1st quarter. In January, Alcoa doubled capacity in its wheels manufacturing plant in Hungary to meet growing European demand for its lightweight, durable aluminum truck wheels. In March, Alcoa announced it would buy titanium supplier RTI to enhance its aerospace business. It has also completed the acquisition of privately held TITAL, a leading manufacturer of titanium and aluminum structural castings for aircraft engines and airframes.
Alcoa in its result has projected substantial growth for aerospace, automotive, building and construction and packaging sector. The company is expecting a 9 to 10 percent sales growth in aerospace sector. The company is very positive about its strategy towards the reorientation of its business model.
Klaus Kleinfeld, Alcoa Chairman and Chief Executive Officer also reiterated the company’s faith on the reorientation efforts in his words. “First quarter results show our transformation is moving at ongoing high speed and is fully on course,” he said. “We are organically and inorganically broadening our innovative, multi-material value-add businesses, bringing new capabilities and materials to our aerospace and automotive offerings, and taking swift action in the upstream, making it more competitive. We are pulling on all levers to create sustainable shareholder value,” he added.
