Alcoa tops earnings outlook despite weak aluminum prices


By Allison Martell

Oct 8 (Reuters) - Aluminum producer Alcoa Inc reported better than expected earnings on Tuesday, as strengthat the unit that sells auto parts and other complex items helpedoffset lower metal prices.

The engineered products business, which sells cast metalitems such as wheels and plane fuselages, has proved moreprofitable recently than selling less processed metal atrock-bottom prices. Alcoa said productivity in that businessrose from the previous year.

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

The company bumped up its global aluminum demand forecastfor the heavy truck and trailer market to between 5 percent and9 percent this year from 3 percent to 8 percent, citingimprovements in Europe and China.

"As the trucking companies try to take weight off of bigtrucks and also trailers, and use engineered aluminum, thatreally seems to be paying off here," said Tim Ghriskey, chiefinvestment officer at Solaris Asset Management.

Manufacturers such as truck maker Navistar InternationalCorp and aircraft maker Boeing Co and have beenusing more aluminum to cut down the weight of their products,which can help cut fuel costs amid tightening environmentalregulations.

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


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

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

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

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

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

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

The steep premiums led to a string of lawsuits and a LondonMetal Exchange proposal to overhaul its delivery system fromnext April, which industry players expect will be approved at aboard meeting later this month.


Net income attributable to Alcoa was $24 million, or 2 centsa share, compared with a loss of $143 million, or 13 cents, ayear 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 $32million, or 3 cents.

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

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