Alcoa's profit lower but tops Street forecasts

People leave the Alcoa Business Services Center in Pittsburgh, Pennsylvania, February 13, 2007.

NEW YORK (Reuters) - Aluminum producer Alcoa Inc (AA.N) on Tuesday posted a better-than-expected quarterly profit, lifting its shares, as higher aluminum prices and sales volumes offset increased costs.

Strong demand for aluminum from China and other developing economies has supported prices for the metal, but soaring energy costs and inflation in raw materials have eaten away at Alcoa's profits in recent quarters.

"The energy situation along with the inflationary pressures on many materials has increased the cost of aluminum refining and aluminum smelting by 20 to 35 percent between 2005 and 2007, and we would expect a similar rate increase this year," Chief Executive Klaus Kleinfeld said on a conference call.

Net earnings were $546 million, or 66 cents per share, compared with $715 million, or 81 cents per share, in the same quarter last year, the company said.

The profit was 2 cents better than the 64 cents per share analysts expected on average, according to Reuters Estimates.

Sales in the quarter fell to $7.62 billion from $8.07 billion a year earlier, but topped analysts' forecasts for sales of $7.23 billion.

"They're not hitting the cover off the ball, but it's an in-line quarter, maybe a little bit better than some people expected," said Mark Liinamaa, a metals and mining analyst at Morgan Stanley.

"They're dealing with the cost of high inputs like everyone is. But aluminum prices are looking pretty good," he said.

Higher costs for caustic soda, natural gas, fuel oil and transportation sliced $107 million off Alcoa's profits in the quarter, the company said.

A "force majeure" caused by a gas supply disruption in Australia and the idling of its Rockdale, Texas, smelter because of local power supply problems led to a charge of $39 million, or 5 cents per share, in the quarter.

Still, the company said strong demand continued to boost the company's bottom line.

The company's prices for aluminum sold jumped to $3,058 per ton from $2,879 a year earlier.

"Global supply and demand is essentially balanced, (and) even though North America and Europe are experiencing significant weakness in specific in markets, global consumption remains robust," Chief Financial Officer Chuck McLane told the conference call.

Among those soft markets was the airline sector, where orders for fasteners, engine components and spare parts were expected to ease.

Production of alumina, or unfinished aluminum, slipped about 1 percent during the quarter, although aluminum output rose 3.5 percent to 1.03 million tons.

Alcoa's rolled products business posted a 3 percent reduction in overall shipments, hurt by North American shipments, which hit their lowest point so far this decade in May. In Europe, McLane said new orders for sheet and plate products are down 10 percent from the previous year.

Following the earnings report, shares rose 3.6 percent to $33.50 from their $32.33 close on the New York Stock Exchange. They had lost 3.2 percent during Tuesday's regular session.

(Reporting by Matt Daily, additional reporting by Steve James; Editing by Gary Hill)