Alcoa tops earnings outlook despite weak aluminum prices

Aluminum producer Alcoa Inc reported better than expected earnings on Tuesday, as strength at the unit that sells auto parts and other complex items helped offset lower metal prices.

The engineered products business, which sells cast metal items such as wheels and plane fuselages, has proved more profitable recently than selling less processed metal at rock-bottom prices. Alcoa said productivity in that business rose from the previous year.

But operating results also improved in the hard-hit primary metals business, again thanks to productivity gains. After-tax operating income was $8 million in that segment, compared with a loss of $14 million a year earlier.

The company bumped up its global aluminum demand forecast for the heavy truck and trailer market to between 5 percent and 9 percent this year from 3 percent to 8 percent, citing improvements in Europe and China.

"As the trucking companies try to take weight off of big trucks and also trailers, and use engineered aluminum, that really seems to be paying off here," said Tim Ghriskey, chief investment officer at Solaris Asset Management.

Manufacturers such as truck maker Navistar International Corp and aircraft maker Boeing Co and have been using more aluminum to cut down the weight of their products, which can help cut fuel costs amid tightening environmental regulations.

The company's shares were up 3.2 percent at $8.20 in after market trading.

KICKING OFF EARNINGS

Alcoa has long been the first company on the S&P 500 to report quarterly results, and because aluminum is used by several key industries - automotive, aerospace and construction - some see it as a bellwether for earnings season.

But the company's performance often diverges from its end markets, which has some questioning its importance. And in September it was cut from the Dow Jones industrial average, after more than 50 years. Alcoa had become by far the smallest company in the average.

Weak aluminum prices have weighed on its primary metals business and the aluminum industry in general.

Benchmark prices on the London Metal Exchange rose to $1,813 at the end of the third quarter from $1,773 at the end of the second quarter.

But prices have nearly halved since they peaked at $3,380 per ton in July 2008, and they fell nearly 14 percent in the first half of 2013, hurt in part by excess capacity.

High premiums paid to obtain physical metal have been a lifeline for aluminum producers, but proposed changes to warehousing rules could erode those margins.

The steep premiums led to a string of lawsuits and a London Metal Exchange proposal to overhaul its delivery system from next April, which industry players expect will be approved at a board meeting later this month.

BY THE NUMBERS

Net income attributable to Alcoa was $24 million, or 2 cents a share, compared with a loss of $143 million, or 13 cents, a year earlier. Sales slipped to $5.77 billion from $5.83 billion.

Excluding restructuring charges and other special items, earnings rose to $120 million, or 11 cents a share, from $32 million, or 3 cents.

Analysts, on average, had been expecting earnings of 5 cents a share, according to Thomson Reuters I/B/E/S.

(Additional reporting by Cameron French and Susan Taylor in Toronto, Josephine Mason and Carole Vaporean in New York and Nicole Mordant in Vancouver; Editing by Andre Grenon)