Alcoa Inc (AA.N), the largest aluminum producer in the United States, is cautiously optimistic demand for the metal will continue to grow in 2013, helped in part by strong sales to aerospace and construction customers.
Executives offered a positive outlook on Tuesday for 2013, but kept a cautious tone as worries lingered over a looming U.S. budget confrontation.
Alcoa expects global aluminum consumption to grow 7 percent in 2013, up slightly from 6 percent in 2012, and maintains global aluminum demand will double between 2010 and 2020.
It forecast global consumption growth in the aerospace sector to dip to 9 percent-10 percent in 2013 from 13 percent-14 percent in 2012, and pegged growth in the automotive sector at 1 percent-4 percent, well below 16 percent-17 percent in 2012.
"There is one uncertainty still there, which is the uncertainty around the U.S. budget, and that potentially has an impact, obviously, on the defense spend," Chief Executive Klaus Kleinfeld said on a conference call with investors.
The company posted a fourth-quarter profit on Tuesday, in line with Wall Street expectations, and handily beat expectations on revenue, helping calm investors' nerves after a rocky 2012.
Shares of Alcoa rose 1.3 percent in after-hours trading.
Analysts breathed a sigh of relief from the results of the first S&P 500 company to report fourth-quarter results, hoping it was a sign of things to come.
"I think it was a good solid quarter. Not a barnburner but a good quarter," said Tim Ghriskey, chief investment officer at Solaris Asset Management in Bedford Hills. "It's certainly important in this type of environment to look at revenues."
Investors tend to scrutinize Alcoa's results for hints on where the overall economy is headed, as the company's aluminum products are used in the automotive, appliance and airline industries.
Alcoa has pushed hard over the last four years to increase productivity and cut overhead costs in an effort to ease the impact of stubbornly low aluminum prices. The company is eyeing $750 million in productivity gains in 2013, down from $1.3 billion in 2012.
PROFIT IN LINE
The earnings were a positive turn for Alcoa, whose core business of mining bauxite and producing aluminum has been hit in recent years by a persistently low metal price.
The company's realized price for aluminum fell roughly 11 percent in 2012.
"It's difficult to make money with aluminum prices at these levels, but consumption is holding up well," said Bridget Freas, an analyst with Morningstar Inc in Chicago. "Aluminum prices averaged $2,000 a ton in the fourth quarter and they need higher prices for consistent profitability."
Economic sentiment, rather than market fundamentals, will drive a rebound in aluminum prices, said Kleinfeld, noting a recovery in Chinese growth and a U.S. budget deal would likely have a positive impact on prices.
"The LME price these days is very much trading on general economics," he said. "When people started to gain confidence again that the fiscal cliff would be avoided, you actually saw the rebound in the metal. That's what driving it these days."
For the fourth quarter, the company reported net income of $242 million, or 21 cents per share, compared with a net loss of $191 million, or 18 cents per share, in the year-ago period.
The quarterly results were helped by a $161 million after-tax gain from the sale of the Tapoco Hydroelectric Project facility in Tennessee to Brookfield Renewable Energy Partners (BEP_u.TO).
Excluding that and other one-time items, net income was $64 million, or 6 cents per share, in line with average analysts' expectations of 6 cents a share on revenue of $5.6 billion, according to Thomson Reuters I/B/E/S.
Sales were $5.89 billion, beating analysts' expectations, but down 1.5 percent from the year-ago quarter as the average realized price per tonne of aluminum fell slightly.
Alcoa trimmed costs by 12 percent in the fourth quarter, due in part to fewer restructuring expenses.
Separately, Chief Financial Officer Charles McLane, 58, said he would retire from Alcoa in August after 13 years with the company. He will be replaced by William Oplinger, currently Alcoa's chief operating officer.
Alcoa said it has yet to reach an agreement with U.S. officials over charges it arranged bribes to overcharge Aluminum Bahrain (Alba) ALBH.BH alumina, the crucial material used to make aluminum.
Alcoa settled with Alba last fall, but the U.S. Department of Justice and the Securities and Exchange Commission opened their own investigations.
Alcoa said it's not clear if it will be able to reach an agreement with U.S. officials and is prepared to go to trial. Any settlement or verdict could significantly harm earnings, the company said.
(Editing by M.D. Golan and Muralikumar Anantharaman)