Alcoa Q3 profit dips, but stock up on outlook

Alcoa raised its 2010 global aluminum consumption growth forecast to 13% from 12%, noting growing demand for in countries such as China, Brazil, India and Russia.

“We are mutedly optimistic," chairman and chief executive officer Klaus Kleinfeld told Wall Street analysts on a conference call on Thursday. “We see good pockets of growth in some major regions and some specific end markets."

He said Alcoa was boosting the outlook for its aerospace business from essentially flat to a growth of 2% to 4% this year.

“We see orders, build rates, as well as deliveries up. Deliveries year-to-date are up 3%," Kleinfeld said, noting Boeing and Airbus were ramping up narrow-body aircraft production and international air traffic is expected to rise about 8%.

For its automotive business, the Alcoa chief said although August saw the lowest US car sales in nearly 30 years, September was the highest selling month in over a year.

“So we believe sales will continue to improve on a slow pace, probably slower than we are historically accustomed to."

Alcoa expects a modest decline in the beverage can and packaging business in North American caused by week summer promotions and inclement weather.

But the worst sector for aluminum, he said, was commercial building and construction.

“We expect it to go further down. Our expectation is for a 25% reduction ... though this market has not yet bottomed out," he said.

Beating The Street

In its third-quarter earnings release, Alcoa said net income was $61 million, or 6 cents per share, compared with $77 million or 8 cents per share in the same quarter last year, the Pittsburgh-based company said, citing a drop in the price of aluminum and a weaker dollar.

The results included a negative impact for special items of $35 million, or 3 cents per share.

Profit from continuing operations was 9 cents per share, said Alcoa, traditionally the first of the Dow Jones industrial average components to issue quarterly figures.

Analysts on average were expecting earnings of 5 cents per share, according to Thomson Reuters I/B/E/S.

Revenue rose 15% to $5.3 billion on higher volumes in aerospace and increased market share in the building and construction market.

“This quarter’s performance was negatively impacted by a 2% decline in realized prices and unfavorable currency movements against the US dollar," said chief financial officer Chuck McLane.

“Productivity gains driven by cash sustainability were largely offset by cost increases in carbon products and energy," he told the analysts.

Analyst Charles Bradford of Affiliated Research Group in New York, said the results were better than expected because of cost reductions. “But the metal’s price was pretty obvious. The fourth-quarter metals price ought to be a fair bit better."

“On a preliminary basis, it looks positive, which is a good start to the earnings season," said Alan Lancz, president, Alan B. Lancz & Associates Inc of Toledo, Ohio. “I don’t see anything here that would fuel the bears."

While Alcoa shares have bounced higher, they have not kept up with the rising metal price over the past six months.

In after-hours trading on the New York Stock Exchange, Alcoa’s stock rose to $12.62 from its close of $12.20.

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