Alcoa's profit lower but tops Street forecasts

NEW YORK (Reuters) - Aluminum producer Alcoa Inc (AA.N: Quote, Profile, Research, Stock Buzz) 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.