Alcoa says energy costs, weak dollar halve profit

By Steve James

NEW YORK (Reuters) - Aluminum producer Alcoa Inc (AA.N) said on Monday that first-quarter profit was cut in half from a year ago, as higher energy costs and a weak dollar offset a surge in the metal's price.

The results, the first by a Dow component in the quarterly earnings season, missed expectations by 5 cents a share. But Wall Street looked beyond the profit shortfall and currency issues to focus on the rising price of aluminum and the shares recovered after briefly declining in after-hours trading.

"It looks like a pretty solid quarter," said Bruce Zaro, chief technical strategist of Delta Global Advisors in Boston. "Everybody knows the dollar has been weakened and that's one of the most difficult things, especially for the commodity makers, to estimate how that's going to impact the numbers at the end of the quarter."

The price of aluminum on the London Metal Exchange MAL3 slipped below $2,500 per metric ton at the beginning of the year, but has risen since February and gained $17 to $2,970 on Monday.

"I think the fundamentals for aluminum could be quite strong over the next couple of years," said Brian Hicks, co-manager at U.S. Global Investors' resources fund. "That's the way we're looking at it -- we're not so focused on near- term quarterly results. I think the Street might allow for this mishap."

Net earnings were $303 million, or 37 cents per share, compared with $662 million, or 75 cents per share, in the same quarter last year, Alcoa said. Income from continuing operations, excluding restructuring and tax impacts, were $361 million, or 44 cents per share.

That fell below analysts' average expectation of earnings of 49 cents per share, according to Reuters Estimates. Wall Street analysts recently lowered Alcoa estimates, but said they expected the company to benefit from higher aluminum prices later in the year.

Revenue fell to $7.4 billion from $7.9 billion a year earlier, Alcoa said. Analyst expectations were for revenue of $7.388 billion.

Alcoa shares edged higher to $37.90 in after-hours trading after dropping more than 2 percent on the initial earnings report. The shares had fallen $1.56, or 4 percent, to close at $37.44 on the New York Stock Exchange.

The company said earnings were "compressed" by higher raw material and energy costs and by the impact of a weaker U.S. dollar.

"Currency negatively impacted results by $68 million, or 8 cents per share, on a sequential basis, as the U.S. dollar deteriorated against most major currencies," it said.

"I think this is more of an indication that inflation is a bigger problem than people understand," said Peter Schiff, president of Euro Pacific Capital.

"It's driving costs higher, and even companies that you would think would benefit from it are having trouble because the cost pressures are very strong. But, ultimately, you're going to get big increases out of Alcoa in their prices as well."

Alcoa's Chief Executive Officer Alain Belda said in a statement that market fundamentals remain strong and the company is well positioned to boost returns when the North American and European economies rebound.

In an indication that President and Chief Operating Officer Klaus Kleinfeld is Belda's heir apparent, the former Siemens AG (SIEGn.DE) CEO took part in Alcoa's earnings conference call. Kleinfeld briefed analysts on his vision for the company and fielded most of their questions.