New York - Alcoa just showed why its chief executive officer can’t wait to get out of the aluminium-making business.
Klaus Kleinfeld wants to sell metal sheets and parts - and he’s just ready to forsake the side of the company that processes raw materials. That’s understandable after a fourth quarter where the company reported a net loss amid lower aluminium prices and plant closures, even as demand for aircraft and auto parts rose.
The earnings underscore why Kleinfeld is separating its units that supply the value-added metal components from its legacy smelting and refining business, creating two companies later this year. While aluminium prices have tumbled to the lowest since 2009, Alcoa has invested more than $4 billion since 2014 in its businesses that make components for airplanes, trucks and power plants.
“The profitability is there in the upstream business,” Anthony Young, an analyst at Macquarie Group Ltd, said in a telephone interview.
The price of aluminium averaged $1,507 a metric ton in the fourth quarter in London, 24 percent less than a year earlier. Alumina, a precursor that the company refines from bauxite and sells to third-party customers as well as smelting into aluminium, dropped 34 percent to average $233 a ton in the quarter according to Metal Bulletin, a trade publication.
To cope with falling aluminium prices amid rising low-cost output from China, Alcoa has divested, closed or curtailed about a third of its global smelting capacity since 2007.
Sales last quarter dropped 18 percent and the company reported a net loss of 39 cents a share as falling aluminium prices dulled the impact of cost-cutting efforts at the New York-based company. Profit excluding one-time items related to smelter closures and taxes was 4 cents a share, helped by rising demand for aircraft parts, Alcoa said on Monday in a statement.
The 4-cent earnings excluding one-time items beat the 2-cent average of 13 analysts’ estimates compiled by Bloomberg.
Demand from aerospace companies, Alcoa’s largest source of revenue after primary metals, has increased along with soaring aircraft production. Boeing said its deliveries rose to a record in 2015, exceeding the planemaker’s own target. Airbus Group SE topped its own 2015 target, people familiar with the matter said January 1. Boeing and Airbus are Alcoa’s biggest customers by revenue, according to data compiled by Bloomberg.
Alcoa expects 2016 global aerospace sales to increase 8 percent to 9 percent over 2015 on “continued robust demand for large commercial aircraft and jet engines”.
The shares fell 0.9 percent to $7.93 at 7.12pm after regular trading hours in New York.
BLOOMBERG