Business News

Alcoa Reports Strong 2nd Quarter 2008 Results; Higher Volume and Pricing Offset Input Cost Pressures

Wednesday 09. July 2008 - Double-Digit Profit Increases Across All Segments From 1st Quarter 2008

Highlights:
Net income of $546 million or $0.66 per share, an 80 percent increase sequentially;
Revenues of $7.6 billion, an 11 percent increase excluding Packaging;
Revenue increases across all four operating segments sequentially;
Double-digit profit increases across all segments sequentially;
Input costs impacting entire aluminum industry offset by higher volume and pricing;
Record quarterly smelting production levels set at more than 1 million metric tons
Cash from operations of $1 billion in the quarter, driven by higher profits and improved working capital;
Debt-to-capital stands well within targeted range at 30.6 percent;
ROC stands at 12.1 percent excluding investments in growth projects;
Share repurchase program continued in quarter. Total repurchases at 10 percent against Board authorized level of up to a maximum of 25 percent of shares outstanding.

Alcoa (NYSE: AA) today announced that strong revenue growth in its second quarter 2008 led to an 80 percent increase in profitability compared with the first quarter of 2008. The Company reported net income of $546 million, or $0.66 per diluted share compared with $303 million or $0.37 per share in first quarter 2008. Higher input costs impacting the entire aluminum industry were offset by higher volume and stronger pricing. Net income in the second quarter of 2007 was $715 million or $0.81.

Revenues for the quarter increased to $7.6 billion from $7.4 billion in the first quarter of 2008 driven by higher volumes and prices. All of the Company’s operating segments achieved higher revenues in the quarter. Revenues in the second quarter of 2007 were $6.8 billion excluding divested businesses, and including divested businesses were $8.1 billion.

All of the Company’s operating segments achieved double-digit after-tax operating income (ATOI) increases over the prior quarter. The Company’s downstream Engineered Products and Solutions segment again achieved an all-time quarterly ATOI record.

The strong quarterly results were achieved despite a negative after-tax impact of $39 million, or $0.05 per share, associated with the previously announced gas pipeline explosion in Western Australia and power disruptions at the Rockdale, TX smelter because of unreliable power supply.

“Each of our operating groups grew their topline this quarter, but more importantly they achieved profitable growth as they achieved strong ATOI increases,” said Klaus Kleinfeld, Alcoa Chief Executive Officer. “Higher prices for our products and increased volumes more than offset the increased input costs facing the entire industry.

“All of our businesses are focused on continuing to drive profitable growth through disciplined execution and using all of the levers of Alcoa in order to maximize shareowner value,” said Kleinfeld.

Cash from operations in the second quarter was $1.0 billion, an approximately $1.3 billion improvement from first quarter 2008, driven by higher profits and improved working capital management. Significant improvement was achieved in days working capital outstanding. On a year over year basis, days working capital improved 6.4 days, and on a sequential basis, 5.7 days. The Company’s cash generation helped to fund its growth programs. In the quarter, capital expenditures were $796 million, 52 percent of which was devoted to growth projects. Cash from operations in the 2007 second quarter was $1.3 billion.

The Company’s debt-to-capital ratio stood at 30.6 percent at the end of the quarter, well within its targeted range. The Company’s 12-month trailing return on capital (ROC) stood at 12.1 percent at the end of the second quarter, excluding investments in growth. Including those investments, ROC was 9.4 percent.

The Company’s share repurchase program continued in the quarter. On a year-to-date basis, the Company repurchased 18.3 million shares bringing total repurchases to 10 percent against the Board authorized level of up to a maximum of 25 percent of shares outstanding.

Segment and Other Results

Alumina

ATOI was $190 million, an increase of $21 million, or 12 percent, from the prior quarter. Higher pricing more than offset adverse currency effects and higher material costs. As previously announced, an explosion at a natural gas supplier in Western Australia impacted profitability by $17 million.

Primary Metals

ATOI was $428 million, up $121 million, or 39 percent, compared to the prior quarter. Record quarterly smelting production levels were set at more than one million metric tons as the Iceland smelter reached full capacity during the period. Higher LME prices more than offset cost pressures for raw materials, currency, and energy. Power disruptions at the Rockdale smelter required an increase in electricity purchases at market rates and impacted income by $22 million in the period. This segment purchased approximately 52 kmt of primary metal for internal use.

Flat-Rolled Products

ATOI was $55 million, up $14 million, or 34 percent, from the prior quarter. Improved Russia results and productivity gains more than offset lower volumes caused by North American and European market weakness and higher energy and transportation costs.

Engineered Products and Solutions

ATOI was a record $157 million, up $19 million, or 14 percent, from the prior quarter. Record revenue was also achieved despite some sluggish end markets. Volumes increased in the aerospace, industrial gas turbine, commercial building and construction, and commercial transportation markets.