| NEW YORK
NEW YORK Alcoa Inc's quarterly revenue and profit beat Wall Street's expectations even though prices for its aluminum are at nearly two-year lows, and it forecast growing demand in the aerospace and auto sectors.
Chief Executive Klaus Kleinfeld said low metal prices were a result of the global economic malaise rather than any fault with market fundamentals.
"I want to make one thing crystal clear here, the market is working," he told Wall Street analysts on a conference call.
"We do see that people are moving forward with curtailing (production) and responding by slower build as we see in China and that's clearly a function of the low LME (London Metal Exchange) pricing that we currently have in the market."
With high inventories and a 20 percent drop in prices since March, many aluminum producers are losing money. Benchmark three-month London Metal Exchange aluminum stood at $1,925 a tonne on Monday - hovering above the $1,880 low of June 2010.
Recent production cuts helped bring the aluminum market into deficit, Kleinfeld said, suggesting prices might now rise according to historical patterns in cyclical metals markets.
"The real question is: has the general economic sentiment currently overtaken the market fundamentals? I guess ... the answer to that is 'yes.'
"In the end I believe the fundamentals prevail."
Kleinfeld said Alcoa was sticking with its forecast that global aluminum demand will grow by 7 percent this year. "China continues to grow substantially - 11 percent.
"We are seeing positive growth continuing in most of our end markets," he said. Alcoa said it sees 13 percent to 14 percent growth in aerospace this year, 4 percent to 8 percent growth in automotive, and 2 percent to 3 percent global growth in beverage cans.
Kleinfeld also said the world market for alumina -- refined bauxite that is then smelted into aluminum -- is moving back into balance, driven partly by refinery curtailments in China.
Alcoa, traditionally the first Dow industrials component to report quarterly results, said on Monday that it had a second-quarter operating profit of $61 million, or 6 cents per share, excluding a $45 million charge as part of its effort to settle a lawsuit with Aluminium Bahrain, plus other items.
On that basis, it beat Wall Street estimates of 5 cents per share, which were lowered in recent weeks as aluminum prices dropped.
On a net basis, Alcoa lost $2 million, or nil cents per share. That compared with a net profit of $322 million, or 28 cents per share, in the same quarter last year.
Revenue fell 9 percent to $6 billion, as aluminum prices dropped 18 percent from last year, Pittsburgh-based Alcoa said. But that also exceeded analyst expectations of $5.8 billion.
"The numbers look weak and they are, but the revenues are actually above expectations. There is a big focus on revenue this earnings season because people want to see that growth," said Tim Ghriskey, chief investment officer at Solaris Asset Management.
Bridget Freas, an analyst with Morningstar in Chicago, said the strong growth forecast was impressive. "The bright news is what they said on the demand front. I think a lot of people were looking for them to scale back on that 7 percent increase (in global aluminum demand growth) and they reaffirmed it.
"The demand side looks OK, the pricing side looks horrible. That's the biggest driver for why they can't turn a profit," she said.
"You can't really say it was a great quarter, but it definitely wasn't as bad a some people thought it could have been," said Jonathan Pavlik, portfolio manager at Stewart Capital.
Alcoa is locked in a lawsuit with Aluminium Bahrain, which has accused it of conspiring to overcharge the company, known as Alba, for alumina supplies.
Alcoa could take another $75 million charge based on that effort to settle the lawsuit. It said it had also held talks with the U.S. Department of Justice and the Securities and Exchange Commission to settle ongoing investigations, which could lead to additional charges.
Alcoa stock rose 2 cents to $8.78 in after-market trading on the New York Stock Exchange.
(Additional reporting by Angela Moon, and Ernest Scheyder in New York and Braden Reddall in San Francisco. Editing by Steve Orlofsky)