Business News

Alcoa Reports Strong First Quarter 2008 Results In Face of Challenging Economic Conditions

Tuesday 08. April 2008 - Income from continuing operations of $303 million, or $0.37 per share. Income from continuing operations, excluding restructuring and tax impacts, was $361 million, or $0.44 per share, up 20 percent on a comparable basis from fourth quarter 2007. Sequentially, currency negatively impacted results by $68 million or $0.08 per share.

Highlights:

Revenues of $7.4 billion; flat sequentially and up six percent excluding packaging.
Segment ATOI increased 42 percent excluding packaging. Three business segments – Primary Metals, FRP and EPS – had substantially higher profitability than the prior quarter.
Debt-to-Capital stands at 31.5 percent, within targeted range.
ROC including major growth investments of 10.7 percent; excluding growth investments, ROC was 13.5 percent.
Completed sale of packaging and consumer businesses, invested in growth projects, strategic investment with Chinalco in Rio Tinto and purchased two aerospace fastener companies.
Repurchased approximately 14 million shares in first quarter.


NEW YORK–(BUSINESS WIRE)–Alcoa (NYSE: AA) today announced first quarter 2008 income from continuing operations of $303 million, or $0.37 per diluted share, versus $624 million, or $0.74 per share in the fourth quarter of 2007. Excluding restructuring and tax impacts, income from continuing operations was $361 million or $0.44 per share, up 20 percent on a comparable basis from the prior quarter, which included a favorable restructuring adjustment and tax benefits totaling $323 million or $0.38 per share. First quarter 2007 income from continuing operations excluding restructuring and tax impacts was $691 million, or $0.79.

Three of four business segments achieved significant after-tax operating income (ATOI) increases from the fourth quarter of 2007, with segment ATOI up 42 percent excluding packaging. Earnings for the first quarter were compressed by higher input and energy costs, and the impact of a weaker U.S. dollar. Currency negatively impacted results by $68 million or $0.08 per share on a sequential basis, as the U.S. dollar deteriorated against most major currencies.

Net income for the quarter was $303 million, or $0.37. Net income was $632 million, or $0.75 in the fourth quarter of 2007 and $662 million, or $0.75 in the first quarter of 2007.

Revenues for the 2008 first quarter were $7.4 billion, flat from the previous quarter, but a six percent increase excluding the revenue of the packaging and consumer business, which was sold in February 2008. Fourth quarter 2007 revenues were $7.4 billion, and revenues were $7.9 billion in the first quarter of 2007.

“We have generated strong returns in the face of challenging economic conditions and three of our segments – primary, flat-rolled and engineered products and solutions – achieved substantial ATOI growth,” said Alain Belda, Alcoa Chairman and CEO. “Upstream margins were squeezed by higher energy costs and a weaker U.S. dollar, but the global market remains tight and prices are near historic highs, primarily driven by demand in Asia, especially China.

“Our engineered products and solutions business delivered its strongest quarter ever, driven by robust aerospace and industrial gas turbine sales and productivity improvements,” said Belda. “Market fundamentals remain strong and we are well positioned to boost returns when the North American and European economies rebound.”

Cost of goods sold as a percent of revenues was 79.9 percent, a 340 basis point improvement versus the fourth quarter of 2007.

The Company funded numerous growth investments in the quarter including the new Juruti bauxite mine and Sao Luis refinery in Brazil; the strategic investment with Chinalco in Rio Tinto plc; and the acquisition of two aerospace fastening companies. In the quarter, capital expenditures were $748 million, 60 percent of which was devoted to growth projects. In addition, the Company repurchased approximately 14 million shares in the first quarter of 2008 under its approved share re-purchase authorization.

The Company’s debt-to-capital ratio stood at 31.5 percent at the end of the quarter, within the Company’s target range. The Company’s 12-month trailing ROC stood at 10.7 percent at the end of the first quarter 2008, following significant growth investments. Excluding investments in growth, the Company’s ROC was 13.5 percent.

Segment and Other Results

In the first quarter of 2008, management approved a realignment of Alcoa’s reportable segments to better reflect the core businesses in which Alcoa operates and how it is managed. This realignment consisted of eliminating the Extruded and End Products segment, and realigning its component businesses. See the Segment Information schedule for further details. Additionally, the Packaging and Consumer segment was sold in the first quarter of 2008.

Alumina

ATOI was $169 million, a decrease of $36 million, or 18 percent, from the prior quarter. Production was up slightly; however, shipments were down by two percent due to timing. As expected, lower pricing, higher energy cost, and unfavorable currency reduced profitability.

Primary Metals

ATOI was $307 million, up $111 million, or 57 percent, compared to the prior quarter. The majority of the increase resulted from higher LME prices. In addition, production was up four percent driven by the continuing ramp-up of the Iceland smelter offset by unfavorable currency and increased carbon costs. This segment purchased approximately 49 kmt of primary metal for internal use.

Flat-Rolled Products

ATOI was $41 million, up $56 million from the prior quarter. The segment benefited from improved performance in the Russia business as well as slightly higher volumes and an improved mix offset by higher energy and alloy material costs.

Engineered Products and Solutions

ATOI was a record $138 million, up $62 million, or 82 percent, from the prior quarter. Results were driven by continued productivity improvements, the positive impact from the automotive business restructuring, and increased volume as the aerospace and IGT markets continue to demonstrate strength.