Alcoa Inc (AA.N), the largest U.S. aluminum producer, reported a higher quarterly profit on Monday thanks in part to strength at its raw materials segment, but lower-than-expected revenue and an uncertain outlook dragged down the company's share price.
Stubbornly low aluminum prices have weighed on the company's business of mining bauxite, refining it into alumina and smelting alumina to produce aluminum.
"Most analysts when they update their spreadsheets probably will reduce their 2013 estimates (for Alcoa) because the metal price plunged so much in the last several weeks," said John Tumazos, an analyst at Very Independent Reseach.com.
Alcoa, the first of the S&P 500 companies to report first-quarter results, is viewed as a bellwether for the materials sector, and some look to it as a gauge of the health of the broader economy.
The company maintained its forecast of 7 percent growth in global aluminum demand this year, and said it sees a tighter market, with supply falling.
Recent growth at Alcoa has come from its engineered products segment, which makes wheels, aircraft parts and other goods. In the just-ended quarter, after-tax operating income also rose in the hard-hit alumina and aluminum segments, where Alcoa has cut higher-cost capacity.
Since the start of March, the three-month aluminum price has hovered under $2,000 a metric ton (1.1023 tons) - a level close to the cost of production at many smelters - due to sluggish global demand and plentiful supplies.
"Aluminum prices are now down around $1,900 a ton," said Bridget Freas, an analyst at Morningstar in Chicago. "It's very difficult for the company to make any meaningful improvement in their earnings around that level."
The lingering price slump has led to speculation that Alcoa could offload some raw material assets. In an interview with cable channel CNBC after the results, Chief Executive Klaus Kleinfeld declined to rule that out: "This is not the time to speculate," he said.
Operating income slipped in the rolled products segment, which produces sheet and plate metal, hurt in part by weaker sales in industrial and commercial transportation markets.
On a call with analysts and investors, Chief Financial Officer William Oplinger said Alcoa expects strong demand for rolled products from aerospace and automotive in the current quarter, but continued pressure on prices in North America and China. Prices have been hurt by excess inventory, he said.
In the current quarter, Oplinger said, earnings are expected to rise 5 percent in engineered products, 15 to 20 percent in rolled products, and alumina and aluminum combined should be flat, all when compared with the first quarter.
Net income rose to $149 million, or 13 cents a share, from $94 million, or 9 cents, a year earlier.
"It's very nice that they came in at 13 cents, but the ingot and alumina divisions are going to have a much tougher time in the June and September quarters," said Tumazos, the analyst at Very Independent Reseach.com.
Excluding restructuring charges and other items, Alcoa earned to $121 million, or 11 cents a share, compared with $105 million, or 10 cents, a year earlier. Analysts, on average, had been expecting 8 cents a share, according to Thomson Reuters I/B/E/S
Revenue slipped 3 percent to $5.83 billion, shy of the $5.88 billion expected, on average, by analysts, according to Thomson Reuters I/B/E/S.
Alcoa shares slipped 1 percent to $8.27 in post-market trading, after closing at $8.39.
(Reporting by Allison Martell; Additional reporting by Josephine Mason, Carole Vaporean, Nichola Groom, Anna Driver, Cameron French and Euan Rocha; Editing by Frank McGurty, Steve Orlofsky and Stephen Coates)