April 5, 2012 / 11:00 AM / 6 years ago

Alcoa seen launching earnings season with quarterly loss

* Wall St expects 4 ct/shr loss vs year-ago 28 ct/shr profit

* Aluminum prices 20 pct lower than same period last year

By Steve James

NEW YORK, April 4 (Reuters) - Alcoa Inc is expected to post its second consecutive quarterly loss next week as weak aluminum prices and uncertainty over demand delay the company’s recovery.

Alcoa’s stock price has fallen 46 percent since April 2011. Aluminum prices have been creeping up slowly and rose in the first quarter of 2012 to $2,126 per tonne on March 31 from $2,020 per tonne on Jan. 1. But that is still almost 20 percent lower than a year ago.

The metal’s price plummeted in 2008 during the global financial crisis.

Alcoa’s first-quarter results are due on April 10. It is the first company in the Dow Jones industrial average to report quarterly earnings and is considered a portent for the rest of the industrial sector.

Analysts expect the aluminum market to improve as global demand increases and have said that Alcoa should post quarterly profits for the rest of the year.

“The weakness in the aluminum price in December and January will hurt their (Alcoa’s) first quarter,” said Bridget Freas, an analyst with Morningstar in Chicago.

Charles Bradford of Bradford Research in New York said although he expects Alcoa to post a first-quarter loss, the company might benefit from foreign currency exchanges because of a stronger U.S. dollar.

“They could surprise on the upside,” he said. “Last quarter was a 3-cent loss and I think they will do better, (but) I’m talking break-even.”

Tuesday’s results are expected to show a loss of 4 cents per share, compared with a profit of 28 cents per share in the same quarter of 2011, according to analysts polled by Thomson Reuters I/B/E/S.

Revenue is expected to drop to $5.7 billion from $6.0 billion, according to analysts’ average forecast.

Fraser Phillips of RBC Dominion Securities in Toronto increased his loss estimate to 7 cents per share from 5 cents as a result of higher costs, including maintenance at some refining and smelting operations.

“We expect rising costs could outstrip gains from productivity improvements,” he said.

“The outlook for aluminum is still strong, but Alcoa cannot expect an outstanding year,” Freas said. “They are just bumping along, and what’s needed is better economic growth.”

Demand for aluminum has been strong in China and other emerging economies but is only slowly returning to pre-recession levels in the developed world.

In February, Alcoa and China Power Investment Corp (CPI) said they had agreed to establish a joint venture company to produce high-end fabricated aluminum products for the Chinese market.

The aerospace and automobile sectors have increased their use of aluminum and the beverage can market is strong, but the construction industry is lagging.

Freas said that the price of aluminum had bottomed out in January, “which gives hope for the second quarter.

“If prices stay where they are or trend up, the first quarter will propbably be their only potential loss this year,” she said. “They can make a profit and some production has come off, which is a positive.”

The Pittsburgh-based company’s expected loss follows red ink in the fourth quarter of 2011. In January Alcoa forecast 7 percent growth in global aluminum demand this year and said cutbacks in production would result in a global supply deficit of 600,000 tonnes in 2012.

Bradford said that ultimately the key to Alcoa’s bottom line was the price it could get for the alumina it produces from its bauxite mines and the resulting aluminum metal it smelts.

“It all depends on the metal price,” he said, adding that seasonality of demand might boost subsequent quarters this year.

In March, Alcoa said in a regulatory filing with the U.S. Securities and Exchange Commission that it had cut Chairman and Chief Executive Klaus Kleinfeld’s performance-based compensation for 2011 by 45 percent because of the decline in the company’s stock price.

Alcoa’s shares closed down 2.48 percent at $9.81 on Wednesday.

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