(Rewrites throughout, updates stock price)
By Nick Carey
Oct 11 Metals company Alcoa Inc, weeks
away from splitting into two, on Tuesday reported a quarterly
profit that missed estimates and lowered its revenue forecast
for the unit serving the auto and aerospace sectors, sending
shares down 10 percent.
Quarterly revenue fell in the business making products for
the automotive and aerospace industries, due partly to delays
with new jet aircraft engines and pricing pressure, Alcoa said.
It posted a higher third-quarter profit as cost-cutting
offset lower revenue from curtailed or closed smelting
operations and falling prices.
"We are performing well despite the low pricing environment
... demanding conditions on the commodity side as well as aero
industry teething problems," Alcoa Chief Executive Officer Klaus
Kleinfeld told Reuters. "We have concentrated on what we can
influence and you see our strong resilience."
Alcoa will split into two entities ahead of the market
opening on Nov. 1. The first company, keeping the Alcoa name,
will focus on the traditional smelting business. The other,
Arconic, will specialize in higher-end aluminum and titanium
alloys for the automotive, aerospace and construction
The company lowered its full-year 2016 revenue targets
across all areas of the business, which it said was due to
near-term challenges, particularly in the aerospace industry.
The delay in building new, more energy-efficient jet engines
stems from the need to test all the metal parts involved, which
is taking longer than planned and delaying production.
Charles Bradford of Bradford Research said Alcoa has done
"quite well on the cost side" in the third quarter, adding that
its problems were largely external, from low alumina prices to
the delay in aircraft production.
"The jet engine issue is nothing to do with them," Bradford
said. "Demand for those engines is strong, the problem is
actually making them."
Alcoa said global automotive production will rise between 1
percent and 4 percent in 2016 and that aircraft deliveries will
be flat to up 3 percent in 2016.
Its quarterly results came as benchmark aluminum prices
hit two-month highs on Tuesday before retreating on
oversupply concerns and rising output by top producer China.
But Kleinfeld said Chinese capacity growth "has not been
substantial," adding Alcoa sees aluminum demand increasing 5
percent in 2016, outpacing supply growth of 3 percent.
He said the continued "aluminumization" of the auto industry
is a positive, "although the overall market in the U.S. seems to
Earlier Tuesday the top executive at rolled-aluminum product
maker Novelis Inc told Reuters that aluminum demand
should grow 4 percent to 5 percent in 2017, boosted by sales to
New York-based Alcoa reported a third-quarter net profit of
$166 million, or 33 cents per share, up from $44 million, or 6
cents a year earlier. Excluding items, earned 32 cents a share.
Analysts, on average, expected 35 cents.
In the most recent quarter, Alcoa reported "productivity
gains" of $377 million across all segments.
Revenue fell to $5.2 billion from $5.6 billion a year
earlier and was below estimates of $5.3 billion.
Alcoa shares tumbled $3.24 at $28.27 in afternoon trading.
(Reporting by Nick Carey in Chicago; Editing by Jeffrey Benkoe)