Alcoa Reports 3.9% Drop in Q2 Net Income

Alcoa Inc. reported late Monday that Q2 earnings fell while revenue grew on higher aluminum prices and volumes. The earnings slide was attributable to continuing weakness in the U.S. housing and auto markets, as well as curtailment costs at two smelters and expenses incurred during an ongoing hostile bid for rival Alcan. Net income for the quarter came in at $715 million ($0.81/share), down 3.9% from $744 million ($0.85) a year ago but in line with expectations. Revenue was up 3.5% to $8.1 billion, shy of analyst forecasts of $8.34 billion. The results reflected a $0.02/share gain from the completion of a JV with Norway's Sapa Group, but also a $0.02/share cost associated with the Alcan bid. Profit was further shaved by $0.04/share due to costs at a Tennessee smelter that was shut down in April by a severe electrical storm and the closure for refurbishment of an aluminum-making potline at a Rockdale, Texas smelter. Raw aluminum prices were up 5.5% from a year ago to an average $2,728 per metric ton, though they were down from last quarter. Production was up 2.2% from last year to 901,000 metric tons. Alcoa has extended the deadline for its $27 billion offer for Alcan from July 10 to August 10. Alcan has rejected the bid as inadequate.

Sources: Q2 2007 Earnings Call Transcript, MarketWatch, Dow Jones, Bloomberg
Commentary: Alcoa Reports: Typically Lower From Open To Close, Regardless of Whether It Beats • Alcan Refuses to Enter Formal Discussions With Alcoa • Analysts Skeptical of BHP Bid for Alcoa, Alcan; Shares of All Three Rise
Stocks/ETFs to watch: Alcoa Inc. (AA), Alcan, Inc. (AL). ETFs: PowerShares FTSE RAFI Basic Materials (PRFM), Materials Select Sector SPDR (XLB), iShares Dow Jones US Basic Materials (IYM)

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