January 10, 2008 / 12:14 AM / in 10 years

UPDATE 3-Alcoa's quarterly profit rises, beats estimates

(Adds CEO comments from conference call, byline)

By Steve James

NEW YORK, Jan 9 (Reuters) - Aluminum producer Alcoa Inc (AA.N) said on Wednesday that fourth-quarter net profit rose 76 percent on restructuring and tax benefits, offsetting lower aluminum prices.

The first earnings report from a Dow Jones Industrial Average member this quarter was above Wall Street expectations, sending Alcoa shares up 2.4 percent in after-hours trading.

The strong results, coupled with a bullish forecast from chemical maker DuPont Co DD.N earlier in the day, bodes well for the raw materials group heading into 2008, analysts said.

“It’s kind of an early indication of the earnings trend, but more importantly, it might be a sign if the DuPont numbers hold true ... those are the sectors that have been actually the strongest,” said Bruce Zaro, chief technical adviser at Delta Global Advisors.

Chairman and Chief Executive Alain Belda said that, despite a year when Alcoa failed in its attempt to acquire Canadian rival Alcan and in which fuel, raw material and freight costs spiraled upward as the U.S. dollar weakened, the outlook for 2008 was good.

He said aluminum consumption rates were very strong, increasing 10 percent globally in 2007, and Alcoa expects world consumption to increase from 38 million tons to 41.5 million tons this year.

“All our end markets are projected to grow in ‘08,” Belda told Wall Street analysts on a conference call.

Although there had been delays in the European A-380 airliner and the Boeing 787 with orders for aluminum from the aircraft makers on hold in the fourth and current quarters, “by the start of the second quarter we will see the orders coming in.”

Belda said the U.S. auto industry was expected to be slightly down in 2008, but the industry would be up in Europe and in China and other emerging countries.

He also was confident about projections aluminum prices would rise to $2,700 per tonne by 2010.

“The three-month retail prices are volatile, but I have confidence in the future prospects for aluminum,” he said.

Since trading at $2,659 per tonne on the London Metal Exchange last Nov. 7, the price of aluminum has slipped and is currently selling for around $2,500 per tonne.

Alcoa said net income increased to $632 million, or 75 cents per share, from $359 million, or 41 cents per share, in the year-ago period. The company recorded a favorable restructuring adjustment and tax benefit totaling $323 million, or 38 cents per share, almost all of it related to the pending sale of its packaging and consumer business for $2.7 billion.

Before items, the company earned 36 cents per share. On that basis, analysts, on average, expected 34 cents, according to Reuters Estimates.

“The quarter looks good to me,” said Mark Liinamaa, a mining analyst at Morgan Stanley, noting strength across all Alcoa’s businesses except for flat-rolled products.

“The market seemed positioned for a little bit of a disappointment. I don’t see that today.”

Alcoa said revenue dropped to $7.39 billion from $7.84 billion due to lower metal prices and the reduction of revenue from its soft alloy extrusion business, which is now part of a joint venture.

Alcoa said operating income for its alumina business declined partly due to higher freight and energy costs and unfavorable currency rates. And its flat-rolled products business also declined mostly from “weak performance in Russia and China.”

Belda said the company had renegotiated long-term power agreements and built new energy facilities to offset high costs.

Chief Financial Officer Chuck McLane said Alcoa had a capital expenditure budget of around $3 billion for 2008, one-third of which was for prjects in Brazil.

Reporting by Steve James; editing by Jeffrey Benkoe/Andre Grenon

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