Alcoa Starts Earnings Season With Red Ink, Slight Beat

By Matt Egan Commodities FOXBusiness

Alcoa 2Q Earnings Top Estimates

Earnings HQ: FBN's Jo Ling Kent breaks down AA's second-quarter earnings report.

Kicking second-quarter earnings season off on a slightly positive note, Alcoa (AA) reported a deeper quarterly loss but an adjusted profit beat on Monday as the aluminum maker continues to grapple with slumping prices.

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While the Pittsburgh-based company has the honors of being the first member of the Dow Industrials to report quarterly results, it is no longer looked at as a key bellwether due to its heavy reliance on tepid aluminum prices.

Still, its shares rallied about 2% on the heels of the stronger-than-expected quarterly numbers.

Alcoa said it lost $119 million, or 11 cents a share, last quarter, compared with a net loss of $2 million, or zero cents a share, a year earlier.

Excluding one-time items, the company said it earned 7 cents a share, exceeding forecasts from analysts by a penny.

Hurt by an 8% quarter-over-quarter decline in aluminum prices, revenue dipped 1.9% to $5.85 billion, slightly beating consensus calls for $5.82 billion.

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“Our businesses showed remarkable operating performance in the quarter with solid free cash flow," CEO Klaus Kleinfeld said in a statement. “We reached another milestone with record profitability in our downstream business while acting decisively to defy the headwinds of falling metal prices in our upstream businesses.”

The net loss included $42 million in charges tied to the closure of facilities as well as $62 million tied to settlement negotiations over allegations of racketeering.

Alcoa’s stock retreated last week to its lowest level since April 2009 after J.P. Morgan Chase (JPM) downgraded the company to “neutral” from “overweight” and slashed its price target by 25% to $9.

J.P. Morgan cited the “persistently weak aluminum price environment,” which recently led the investment bank to trim its 2013 price forecast to 89 cents a pound from 94 cents and downgrade its 2014 target to 93 cents from $1.06.

Despite concerns about the health of China and other emerging economies, Alcoa on Monday reaffirmed its call for 7% global aluminum demand growth in 2013 and “essentially balanced” aluminum markets. The company sees aerospace demand jumping 9% to 10%, commercial transportation demand of 3% to 8% and automotive growth of 1% to 4%.

Alcoa also detailed its efforts to save cash by scaling back on production. The company said it achieved $539 million in productivity savings across all business segments during the first half of 2013, reaching more than half of its $750 million annual target.

Alcoa, which suffered an embarrassing downgrade of its credit rating cut to junk in May, said its debt-to-capital ratio dipped to 34.5% in the second quarter, down from 34.7% in the first quarter and 36.1% a year earlier. The company’s debt dropped by $566 million quarter-over-quarter.

Meanwhile, Alcoa also disclosed proposing a cash settlement of $103 million to the Department of Justice to put to rest an investigation into racketeering and fraud charges filed by Aluminum Bahrain, or Alba. The company said it has recorded a charge of $103 million.

Alcoa said settlement talks are ongoing and there is the potential of an additional charge of up to approximately $200 million to settle the matter.

Shares of Alcoa traded up 1.77% to $8.06 in after-hours action on Monday after rallying 1.41% to $7.92 during regular trading. While the Dow is up 16% on the year, Alcoa has lost about 9% of its value.

Following Alcoa’s kickoff, earnings season will pick up later this week with quarterly reports on tap from Yum Brands (YUM), Wells Fargo (WFC) and J.P. Morgan Chase (JPM).

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