NEW YORK - (BUSINESS WIRE) - Alcoa (NYSE:AA) reported Tuesday a sequential and year-over-year increase in third quarter profit for 2013 driven by strong operating performance and productivity gains, in spite of lower metal prices.
Alcoa reported third quarter 2013 net income of $24 million, or 2 cents per share, which includes $96 million of special items primarily tied to optimizing the Companys upstream portfolio.
Excluding the impact of special items, net income was $120 million, or $0.11 per share. Results were led by continued strength in Engineered Products and Solutions and Global Rolled Products, despite traditional third quarter weakness. Global Primary Products overcame falling metal prices and lower premiums to deliver significant performance improvement through productivity gains.
The company reported third quarter 2013 revenue of $5.8 billion, steady compared to second quarter 2013 and the year ago period, despite a 3 percent sequential and 7 percent year-over-year decline in the London Metal Exchange (LME) cash price of aluminum.
Our performance this quarter shows our repositioning of the company is on the right path, said Klaus Kleinfeld, Alcoa chairman and chief executive officer. We continued to build our value-add businesses, capturing demand for innovative material solutions across multiple markets. Our commodity business delivered better performance in a tougher market environment, and we continued to reshape the portfolio to lower the cost base. Across the board, productivity was exceptional – achieving our full year target in the first nine months.
In the first three quarters of 2013, Alcoas value-add businesses, comprising Engineered Products and Solutions and Global Rolled Products, accounted for 57 percent of total revenues and 79 percent of segment after-tax operating income (ATOI). Over the last 10 years, Alcoa has grown its value-add businesses to be more meaningful contributors to the Companys overall profitability. ATOI for the value-add businesses has nearly tripled since 2003.
Third quarter 2013 net income of $24 million, or $0.02 per share, compares to a net loss of $119 million, or $0.11 per share, in second quarter 2013, and a net loss of $143 million, or $0.13 per share, in third quarter 2012.
In third quarter 2013, Alcoa recorded $109 million in after-tax restructuring-related charges to improve upstream competitiveness. Alcoa completed the previously announced closure of the two Soderberg potlines at the Baie-Comeau smelter in Québec, representing 105,000 metric tons per year of smelting capacity. Alcoa also closed one Soderberg potline, representing 41,000 metric tons per year of smelting capacity, at the Massena East plant in New York.
Other special items in third quarter 2013 included an insurance recovery related to the March 2012 fire at the Massenalocation and a positive impact of mark-to-market changes on certain energy contracts, somewhat offset by a net discrete income tax charge. These items provided a net benefit of $13 million.
Excluding special items, third quarter 2013 net income of $120 million, or $0.11 per share, rose 58 percent compared to $76 million, or $0.07 per share, in second quarter 2013, despite lower realized aluminum prices.
Year-over-year, third quarter 2013 net income excluding special items was up $88 million compared to the same period last year. The year-over-year increase was driven by strong operating performance, productivity savings, and the favorable impact of foreign exchange rates, partially offset by cost increases and lower LME-based pricing.
Continued Growth Across End Markets
Alcoa reaffirms its 7 percent global aluminum demand growth forecast for 2013 and sees essentially balanced alumina and aluminum markets.
Alcoa continues to project global growth this year across the aerospace (9-10 percent), automotive (1-4 percent), packaging (1-2 percent), commercial building and construction (4-5 percent), and industrial gas turbine (3-5 percent) end markets. In the heavy truck and trailer market, Alcoa is raising its 2013 growth expectation, (5-9 percent, previously 3-8 percent), on improvements in the European market and a stronger Chinese market.
Strong Execution on Capital Investments and Against Strategic Goals
Alcoa made progress on its capital investments to capture value-add growth opportunities, and continued to take definitive actions in third quarter 2013 to improve its position on the aluminum cost curve.
The $300 million automotive expansion of Alcoas Davenport, Iowa, plant is set to be completed by the end of 2013 with the commissioning process currently underway.
Construction also began on the companys $275 million automotive expansion at its Alcoa, Tennessee, rolling mill.
Both will support the growing demand for aluminum sheet for automotive production. Aluminum sheet per vehicle is expected to grow 10 fold by 2025 in North America alone. The projects will incorporate, through Alcoas supply chain, the proprietary Alcoa 951 pretreatment bonding technology, enabling the mass production of aluminum-intensive vehicles. Much of the volume for the automotive expansions is secured under long-term supply agreements.
The Maaden-Alcoa joint venture project that will create the worlds lowest-cost integrated aluminum facility is on time and on budget. The smelter is 99 percent complete and full operating capacity of 740,000 metric tons per year (mtpy) is expected in 2014.
This smelter will be the lowest-cost in the world. It will contribute an estimated two percentage points toward the companys 2015 goal of lowering its position on the world aluminum production cost curve by 10 percentage points overall.
The joint ventures 380,000 mtpy integrated rolling mill is 88 percent complete. First hot coil for the rolling mill is anticipated in the fourth quarter of this year. Construction of the alumina refinery and bauxite mine are also on schedule. First alumina out of the facility and bauxite out of the mine are expected in 2014.
To further improve competitiveness in the upstream, Alcoa continues to review its global smelting capacity and take action on higher-cost plants and plants with long-term risk due to factors such as energy costs or regulatory uncertainties.
In the first five months since announcing the 460,000 metric ton smelting capacity review, Alcoa has taken swift action and has closed or curtailed 274,000 metric tons, equal to 60 percent, of the capacity under review. Most recent actions include the permanent closure of one potline representing 41,000 metric tons at the Massena East plant in New York and the temporary curtailment of 128,000 metric tons of capacity in Brazil.
Alcoa now has 16 percent, or 651,000 metric tons, of smelting capacity offline.