Alcoa Swings to $2.29 Billion Loss for 2013 on Legacy Costs, Lower Prices

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Researched by Industrial Info Resources (Sugar Land, Texas)--Aluminum producer Alcoa Incorporated (NYSE:AA) (Pittsburgh, Pennsylvania) endured rough market conditions in fourth-quarter and full-year 2013, as lower realized aluminum prices and heavy short-term losses in the Primary Metals business offset gains in productivity and energy efficiency. Alcoa reported a net loss of $2.34 billion for the quarter, compared with a $242 million gain in fourth-quarter 2012. The company incurred a net loss of $2.29 billion for the year, compared with a $191 million gain in 2012.

Alcoa executives emphasized in a press release that much of the loss was due to $2.4 billion in special items largely related to legacy matters in the Primary Metals segment, including a non-cash goodwill impairment of $1.7 billion. When excluding these special items, Alcoa saw net income of $40 million.

Total sales stood at $5.59 billion for the quarter, a 5.31% decrease from the same period last year, and $23.03 billion for the year, a 2.82% decrease from 2012. The decline was attributed partly to a 4% drop in realized aluminum prices. The Engineered Products and Solutions segment saw record after-tax operating income (ATOI) in the fourth quarter, boosted by productivity improvements. The Global Rolled Products segment, however, incurred seasonal volume and pricing headwinds in packaging, weaker aerospace volumes and mix, and weaker industrial volumes and prices. Still, automotive shipments set a record. These two segments drove 57% of the company's revenues and 80% of segment profits.

The Alumina segment benefited from improvements in productivity and energy efficiency, overcoming higher energy costs and lower London Metal Exchange-based prices.

Capital expenditures in 2013 were reported to be $1.19 billion, compared with $1.26 billion in 2012. Shortly before the full-year results were made public, Alcoa announced the resolution of investigations by the U.S. Department of Justice and the U.S. Securities and Exchange Commission regarding legacy alumina contracts with Aluminium Bahrain B.S.C. According to a press release, Alcoa World Alumina LLC, a company within Alcoa World Alumina and Chemicals, the unincorporated bauxite mining and alumina refining venture between Alcoa Incorporated and Alumina Limited, "will pay a total of $223 million, including a fine of $209 million payable in five equal installments over four years. The first installment of $41.8 million, plus a one-time administrative forfeiture of $14 million, will be paid in the first quarter of 2014, and the remaining installments of $41.8 million each will be paid in the first quarters of 2015-2018."

Industrial Info is tracking more than $4.7 billion in projects on five continents involving Alcoa, including the $275 million expansion of an aluminum sheet plant in Alcoa, Tennessee. The project is in response to growing demand for aluminum sheet in automotive production. Some of the plant's can sheet capacity is to be converted to high-strength automotive aluminum capacity, while incremental automotive capacity is to be installed. CCC Group Incorporated (Maryville, Tennessee) is serving as construction manager.

"We typically see a fourth-quarter seasonal decline in our mid- and downstream segments, and that drove much of the declines," said William Oplinger, the executive vice president and chief financial officer for Alcoa, in a conference call presentation. "Market forces negatively impacted the quarter by $26 million, driven by slightly lower LME cash prices and losses recognized on a mark-to-market basis for the part of the future customer fixed-price sales commitment, which can't be effectively hedged, specifically the regional premiums. Productivity across all business groups offset lower volumes, particularly seasonal declines in packaging, aero plate destocking, and demand pressures in industrial markets."

Alcoa executives expect a 7% growth in global aluminum demand in 2014, unchanged from the past year. Among the key end markets, they expect a 7% to 8% global growth in aerospace; 4% to 6% growth in building and construction; and 1% to 4% growth in automotive. However, the industrial gas turbines market is expected to contract between 8% and 12% due to weaker orders, while the commercial transportation market will see something between a 1% contraction and 3% growth.

"China continues to lead global growth at a solid 10%, slightly lower than the 12% in 2013," Oplinger said. "In the rest of the world, North American demand will accelerate 5%, driven by an increase in automotive consumption, and we're forecasting a return to growth in Europe--stronger flat-rolled product shipments in Germany will lead the region. We do expect Brazil, Russia and India to perform reasonably well, with growth of 6%, 5% and 7%, respectively."

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Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and nine international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.