(Updated - July 8, 2015 4:04 PM EDT)

Alcoa (NYSE: AA) reported Q2 EPS of $0.19, $0.03 worse than the analyst estimate of $0.22. Revenue for the quarter came in at $5.9 billion versus the consensus estimate of $5.79 billion.

"We continue to transform Alcoa; our portfolio reshaping combined with smart investments in growth markets is delivering strong results,” said Klaus Kleinfeld, Chairman and Chief Executive Officer. “Our value-add businesses are outperforming, with record profitability in the downstream and exciting profitable growth in the midstream. Recent acquisitions are fully on track, and paired with our innovations we are cementing Alcoa’s position as a premier aerospace and automotive partner. In the upstream, our Alumina business delivered its best first half since 2007 and our lower cost metals business showed resilience in the face of strong market headwinds. Productivity and cash generation were excellent.”

End Market Growth Remains Steady

Alcoa continues to project steady growth in 2015 across the majority of its end markets.

In the aerospace sector, the Company expects global sales growth of 8 to 9 percent in 2015. The 2015 forecast shifted one point on a slower ramp up primarily in the A350 and Bombardier C Series, and future estimated growth rates have been revised upward. Projections for 2016 and 2017 aerospace sales growth have nearly doubled to 8 and 13 percent, from 4 to 5 percent and 6 percent, respectively, showing the ongoing strength of the sector.

Alcoa sees increasing orders in the North American heavy duty truck and trailer market, and projects 9 to 11 percent growth for 2015, up from the previous forecast of 6 to 8 percent growth. In the global heavy duty truck and trailer market, the Company is lowering its projection for the year to a decline of 4 to 6 percent, from a decline of 2 to 4 percent, on slower economic growth in Brazil and China.

In the automotive, building and construction, industrial gas turbine, and packaging end markets, the Company’s global forecasts remain unchanged. Alcoa estimates a global automotive production increase of 2 to 4 percent for the year, with a 1 to 4 percent rise in North America; 5 to 7 percent global sales growth in the commercial building and construction market; 1 to 3 percent global airfoil market growth in the industrial gas turbine market; and a 2 to 3 percent global sales increase in the packaging market.

Alcoa continues to project robust global aluminum demand growth of 6.5 percent in 2015.

Value-Add Portfolio Transformation

Alcoa’s strategy to build its innovative value-add portfolio, both organically and inorganically, remained on course in the second quarter.

Alcoa continued to successfully integrate jet engine component makers Firth Rixson and TITAL. The acquisitions further strengthened the Company’s position as a premier aerospace leader and contributed to 29 percent higher aerospace revenue in Engineered Products and Solutions in the second quarter. Firth Rixson doubles Alcoa’s average revenue content on key jet engine programs and TITAL expands the Company’s titanium and aluminum structural castings for aerospace in Europe. As a result of these acquisitions, Alcoa can build more than 90 percent of all the structural and rotating components of a jet engine.

Firth Rixson generated $42 million in second quarter adjusted EBITDA up from $27 million in the first quarter by successfully capturing synergies. Firth Rixson is on track to increase Alcoa’s revenue by $1.6 billion with an additional $350 million EBITDA in 2016. TITAL’s titanium revenues are expected to increase by 70 percent over the next five years from approximately $100 million in 2014 and approximately 70 percent of TITAL’s revenues are expected to come from commercial aerospace sales in 2019.

The Company’s plan to acquire RTI International Metals also progressed as planned. U.S. and European regulatory approvals were obtained in the second quarter and RTI shareholders are scheduled to vote on the merger on July 21.

Upon shareholder approval and close, RTI will broaden Alcoa’s multi-material product suite to meet growing aerospace demand for titanium. With RTI, Alcoa’s 2014 pro forma aerospace revenue increases by 13 percent to $5.6 billion. Alcoa expects RTI to contribute $1.2 billion in revenue in 2019, up from $794 million that RTI generated in 2014. Its profitability is expected to reach 25 percent EBITDA margin in 2019.

In the second quarter, Alcoa also announced an investment in aerospace technology at its Whitehall, Michigan facility in the United States. The $22 million investment in Hot Isostatic Pressing technology will enable Alcoa to capture growing demand for advanced titanium, nickel and 3D-printed parts for the world’s bestselling jet engines.

In the midstream, Alcoa’s MicromillTM material continued to gain commercial traction. The Company has qualification agreements in place with eight major automotive customers from three continents. Automotive parts made with Alcoa Micromill® material will be twice as formable and 30 percent lighter than parts made from high-strength steel. Alcoa Micromill also reduces the time to transform molten metal into an aluminum coil from 20 days to 20 minutes.

The Company’s automotive expansion in Davenport, Iowa shipped record volume of automotive sheet to meet growing customer demand, increasing automotive sheet revenue approximately 180 percent year-over-year. Alcoa’s automotive expansion in Tennessee is on schedule with customer qualifications already taking place.

Upstream Portfolio Transformation

In the upstream, Alcoa continues to take steps to lower its cost base and improve profitability.

In the Alumina segment, Alcoa of Australia Limited made the first of two prepayments on the previously announced 12-year gas supply agreement for its alumina refineries in Western Australia (WA), which begins in 2020. A $300 million payment was made in the second quarter and a payment of $200 million will be made in January 2016. The contract replaces existing long-term contracts, which expire at the end of the decade, and supports the refineries’ ongoing competitiveness.

Also in Australia, the Company announced plans to permanently close its Anglesea coal mine and power station by August 31. The Anglesea power station had previously supplied approximately 40 percent of the power needs for the Point Henry smelter in Geelong, Victoria, which was closed in 2014.

In addition, Alcoa continued to close and curtail upstream facilities as part of its ongoing review of 500,000 metric tons of smelting capacity and 2.8 million metric tons of alumina capacity. On April 30 in Suriname, Alcoa curtailed 443,000 metric tons of alumina refining capacity at Suralco. The Company also continued to pursue a transaction to sell the Suralco operations to a Suriname government-owned entity.

In Primary Metals, Alcoa curtailed the remaining 74,000 metric tons of primary aluminum smelting capacity at its São Luís, Brazil facility on April 15. Also in Brazil, the Company permanently closed its Poços de Caldas primary aluminum smelter on June 30, which had been curtailed since May 2014. By permanently closing the Poços smelter, Alcoa’s total global smelting capacity was reduced by 96,000 metric tons, to 3.4 million metric tons. The Poços bauxite mine, alumina refinery, aluminum powder plant and aluminum casthouse will continue normal operations.

In Saudi Arabia, the Ma’aden-Alcoa joint venture mine neared completion while the refinery continued its ramp up and is on track to produce 1.1 million metric tons of alumina in 2015. The smelter is on target to reach nameplate production of 740,000 metric tons of primary aluminum this year.

All of the above actions support Alcoa’s goal of lowering its position on the global aluminum cost curve to the 38th percentile and the global alumina cost curve to the 21st percentile by 2016.

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