Alcoa, Inc. (AA) Tops Q2 EPS by 6c; Widens Global Aluminum Deficit Outlook for FY14

(Updated - July 8, 2014 4:06 PM EDT)

Alcoa, Inc. (NYSE: AA) reported Q2 EPS of $0.18, $0.06 better than the analyst estimate of $0.12. Revenue for the quarter came in at $5.8 billion versus the consensus estimate of $5.66 billion.

Highlights:

• Engineered Products and Solutions delivers highest after-tax-operating income in history of $204 million; record adjusted EBITDA margin of 23.1 percent
• Global Rolled Products after-tax-operating income up 34 percent sequentially
• Upstream business improves performance for 11th consecutive quarter

Continued Growth Across End Markets

Alcoa continues to project 2014 global aerospace growth of 8 to 9 percent driven by robust demand for both large commercial aircraft and regional jets. The Company’s projected 2014 automotive growth of 1 to 4 percent, packaging growth of 2 to 3 percent, and building and construction growth of 4 to 6 percent, remain unchanged. In the industrial gas turbine market, the Company’s projected decline of 8 to 12 percent, on lower orders for new gas turbines and spare parts, also remains unchanged.

Alcoa increased its 2014 estimate for the North America commercial transportation market to a range of 10 to 14 percent, from a previous range of 5 to 9 percent in the first quarter. The higher estimate is based in part on rising truck orders and backlogs. Globally, Alcoa continues to expect a steady commercial transportation market in 2014 of -1 to 3 percent due to weakness in the European market.

Additionally, Alcoa reaffirmed its 7 percent global aluminum demand growth projection for 2014.

For 2014, the Company sees a global aluminum deficit of 930,000 metric tons, an increase from a deficit of 730,000 metric tons estimated in the first quarter. Alcoa also sees a tightening of the alumina market with a surplus declining from 2,257,000 metric tons in the first quarter to 824,000 metric tons in second quarter 2014.

Value-Add Portfolio Transformation

Alcoa’s strategy to build out its value-add businesses took a major step forward in the second quarter with the signing of a definitive agreement to acquire Firth Rixson, a global leader in aerospace jet engine components. The $2.85 billion cash and stock acquisition will further strengthen Alcoa’s robust aerospace portfolio, positioning the Company to capture additional aerospace growth with a broader range of multi-material, value-add jet engine components.

Firth Rixson’s revenues are expected to grow 60 percent over the next three years, from $1 billion in 2013 to $1.6 billion, and contribute $350 million EBITDA in 2016. Firth Rixson’s sales are expected to grow 12 percent annually through 2019, a rate more than double the expanding global aerospace market. Approximately 70 percent of Firth Rixson’s revenue growth is secured by long-term agreements.

In the second quarter, Alcoa also announced two organic investments in its Power and Propulsion (APP) business in the EPS segment totaling $125 million to meet increasing demand for next-generation jet engine components. In La Porte, Indiana, Alcoa is investing $100 million to build a new state-of-the-art 320,000-square-foot facility. It will expand Alcoa’s reach in structural engine components for military, business and regional jets to large commercial aircraft, including narrow-and wide-body airplanes. In Hampton, Virginia, Alcoa is scaling-up technology at an existing plant to cut the weight of its highest-volume jet engine blades by 20 percent. The lighter blade will enhance aerodynamic performance for increased fuel efficiency. Both expansions are expected to be complete by fourth quarter 2015 and will contribute towards APP’s expected $2.2 billion revenues in 2016.

In Alcoa’s GRP segment, the automotive expansion in Davenport, Iowa, is complete and will continue to ramp up production in the third quarter to serve growing demand for aluminum intensive vehicles. Alcoa’s second automotive expansion in Tennessee is on schedule for completion in mid 2015. The amount of aluminum body sheet content in North American vehicles is expected to quadruple by 2015 and increase tenfold by 2025 from 2012 levels. In addition, the rolling mill at the Ma’aden-Alcoa joint venture in Saudi Arabia produced its first production-grade coil on schedule.

For earnings history and earnings-related data on Alcoa, Inc. (AA) click here.

You May Also Be Interested In

• Midday movers: Tesla, Li Auto and CNH Industrial fall; Salesforce rises
• Evercore on Albertsons (ACI): 'Cultivating Customers; Cost/Macro Headwinds Remain'
• Albion River Comments on Recent Statement from Ducommun (DCO) Board