Aluminum slump: Alcoa Banks on Chinese Growth!
World aluminum consumption may drop 7 percent in 2009, and sales may decline as much as 15 percent in global building markets and 18 percent to automotive customers.
The largest U.S. aluminum producer Alcoa yesterday reported a $497 million net loss, capping its first back-to-back quarterly losses since the three months ended in March 1994.
Chief Executive Officer Klaus Kleinfeld said yesterday that the company will save $400 million a year by reducing its payroll and trimming other costs. If they can continue with the cost reductions, their earnings should be significantly better. While our financial performance in the quarter was adversely affected by the economy-driven drop in demand, we launched operational and financial measures that will significantly improve our profitability and cash flow in 2009 and beyond. In fact, they have already begun to have an impact in the first quarter.
Revenues for the first quarter 2009 were $4.1 billion, down from $5.7 billion in the fourth quarter 2008 and down 36 percent from $6.5 billion in revenues in the first quarter of 2008 after excluding divested businesses. The sharp drop in revenue resulted from the impact of the economic downturn on Alcoa’s end markets – automotive, transportation, building and construction and aerospace. As demand weakened during the quarter in those markets, realized metal prices fell an additional $558 a ton – a 26 percent price decline – resulting in prices that are now about 60 percent lower than last summer.
* Continuing Economic Downturn and 26 Percent Metal Price Decline in Quarter Lead to Revenue Decline and Loss From Continuing Operations of $480 Million, or $0.59 per share;
* Company Launched Holistic Program to Re-position Balance Sheet and Restructure Operational Costs;
* Strengthened Balance Sheet — Raised $1.4 Billion in Successful Equity and Convertible Notes Offering, Reduced Dividend for $430 Million Annually, Exiting Shining Prospect Stake for $1.02 Billion;
* Procurement Savings of $293 Million, Ramping to $2.0 Billion by 2010;
* Overhead Savings of $110 Million, Ramping to $400 Million by 2010;
* Working Capital Generated $291 Million, Ramping to $800 Million in 2009;
* Reduced Cost to Produce Alumina 33 Percent and Aluminum 30 Percent from 3Q 2008 baseline;
* Lowered Debt-To-Capital Ratio to 40.6 Percent and Has $1.1 Billion Cash on Hand at Quarter End.
“While our financial performance in the quarter was adversely affected by the economy-driven drop in demand, we launched operational and financial measures that will significantly improve our profitability and cash flow in 2009 and beyond. In fact, they have already begun to have an impact in the first quarter,” said Kleinfeld.
“We also see both near-term and long-term catalysts that should improve the prospects for the aluminum industry,” said Kleinfeld. “Current stimulus programs that target infrastructure and energy efficiency will create a demand for the unique characteristics of aluminum – lightweight, strong, durable, recyclable, and conductive. Longer term, the global megatrends of population growth, urbanization, and environmental stewardship will all drive demand for aluminum as the economy improves.”
Major initiatives were taken during the quarter to execute on the financial pillar of the Company’s holistic program. Most are already completed and Alcoa finished the first quarter with $1.1 billion of cash on hand. The Company reduced the quarterly dividend, resulting in cash savings of $430 million annually. Alcoa received $500 million of a $1.02 billion payment from Chinalco for exiting its stake in the Shining Prospect venture. The Company recorded a non-cash after-tax loss of approximately $120 million on exiting the investment. Alcoa raised $1.4 billion in cash through successful common stock and convertible notes offerings to further improve its liquidity. As a result, Alcoa is in a much stronger cash position with availability of $5.2 billion of aggregate revolving credit facilities that support its commercial paper program and has lowered its debt-to-capital ratio to 40.6 percent.