Alcoa Reports An Adjusted Earnings Beat And A Reduced Demand Forecast

| About: Alcoa, Inc. (AA)

On Tuesday, Alcoa Inc. (NYSE:AA), the largest U.S. aluminum producer reported an adjusted profit that beat estimates, but a non-adjusted loss. The company had a third-quarter net loss of $143 million, or 13 cents a share, compared with net income of $172 million, or 15 cents, a year earlier. Excluding costs related to some domestic environmental remediation and an international legal settlement, Alcoa had a per-share profit of 3 cents. Total revenues declined to $5.83 billion from $6.42 billion during Q3 last year, but beat Wall Street's average estimate of $5.54 billion in sales.

The company also cut its forecast for global aluminum consumption by one percent due to continued slowing of the Chinese economy. According to Alcoa's third-quarter earnings statement, aluminum demand will increase by six percent this year. In July, Alcoa estimated that demand would increase by seven percent. In either case, such growth would be well below the 10 percent demand increase in 2011 and about half the 13 percent increase seen in 2010.

While Alcoa did report an adjusted earnings beat, its reduced growth expectations are probably a harbinger of more reduced forecasts to come during this earnings season. Nonetheless, the company noted that it is still well ahead of the 6.5 percent compound annual growth rate needed to meet its projection of a doubling of aluminum demand between 2010 and 2020.

The company noted that the main driver for the cut to estimated demand growth is a slowing China. During the company's conference call, Alcoa's Chairman and Chief Executive Officer, Klaus Kleinfeld, stated that the Alcoa sees "a slight slowdown in some regions and end markets," adding that Chinese demand may increase towards the end of the fourth quarter due to stimulus-related spending.

Alcoa also noted that demand from heavy-truck and trailer manufacturing will decline in 2012, and that the company now estimates truck and trailer output may declining as much as 21 percent. Just three months ago, Alcoa forecast that truck and trailer related demand would decline by a mere eight percent.

Alcoa also indicated similarly problematic revised growth projections for its Chinese can and packaging related business. Alcoa now estimates Chinese can and packaging demand to increase by eight percent, compared to the company's July forecast for 20 percent growth. Alcoa indicated that demand should increase in the global aerospace, auto, construction and packaging industries.

Aluminum prices have been weak in 2012, while supplies remain abundant. Spot aluminum prices averaged roughly $1,950 per metric ton during Q3 of 2012, compared to an average price of nearly $2,700 at which Alcoa was able to sell aluminum in Q3 of 2011. The current aluminum price is about $2,050 per metric ton, which is about five percent higher than the average price during the third quarter.

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