Alcoa Turns in Record Results in Third-Quarter 2014, Expects More Growth in Aerospace, Automotive

Researched by Industrial Info Resources (Sugar Land, Texas)--Aluminum producer Alcoa Incorporated (NYSE:AA) (Pittsburgh, Pennsylvania) reported solid overall gains in the third quarter of 2014, as strong organic growth--particularly in the Engineered Products and Solutions (EPS) segment, which saw a record after-tax operating income--was complemented by higher energy sales and improved metal pricing. Net income for the quarter was reported to be $149 million, compared with only $24 million in third-quarter 2013.

Industrial Info is tracking $5.49 billion in active projects involving Alcoa, including the $275 million expansion of an aluminum sheet plant in Alcoa, Tennessee. The company plans to convert much of the facility's existing can sheet production capacity to produce high-strength automotive aluminum sheet. Existing rolling and treating equipment at the plant is being modified and expanded. CCC Group Incorporated Tennessee (Maryville, Tennessee) is performing construction management services.

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Total sales were reported to be $6.24 billion in third-quarter 2014, an 8.22% increase from the same period last year. In addition the record EPS results, the Primary Metals segment saw its best results since the recession began. Toward the end of the quarter, Alcoa executives announced two multi-year contracts: a $1.1 billion deal with Pratt & Whitney (Hartford, Connecticut) to supply jet engine equipment and components, and a $1 billion deal with Boeing (NYSE:BA) (Chicago, Illinois) to collaborate in numerous areas, including advanced aerospace alloys.

Alcoa also opened the world's largest aluminum-lithium aerospace plant in Lafayette, Indiana, following a $90 million construction project that kicked off in May 2012. The company also completed the expansion of its lightweight aluminum works plant in Riverdale, Iowa, which services the automotive industry, and is already seeing record levels of sheet production at the facility. Contracted revenues at the facility already have reached $100 million through 2017.

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Capital expenditures in the third quarter were reported to be $283 million, compared with $250 million in the same period last year.

"We have become the global leader in aluminum-lithium extrusions," said Klaus Kleinfeld, the chairman and chief executive officer of Alcoa, in a conference call. "There are three patented alloys, and one where the patent is pending. Alcoa has developed unique equipment and unique technologies. We can make the largest aluminum ingot, 50% larger than any of our nearest competitors. We have the broadest product portfolio now.

"And that's also why it was pretty exciting last week that we formerly did the ribbon-cutting on our latest expansion in Lafayette, Indiana, which is the largest aluminum-lithium casthouse, producing 20,000 tons of aluminum lithium."

Alcoa executives expect an 8% to 9% increase in global aerospace sales for full-year 2014, citing an increase in demand for large commercial aircraft and regional jets. The company is continuing to make progress on one of its most anticipated ventures: the $2.85 billion acquisition of Firth Rixson (Sheffield, England), a leading designer and manufacturer of aerospace jet engine parts. It is expected to be completed by year's end, and executives say that it will grow Alcoa's annual aerospace revenues 20% to $4.8 billion in 2016.

The company's 2014 estimate of production is the North American commercial transportation market is another standout: Executives expect it to grow 16% to 20%, based in part on a dramatic jump in truck orders during the third quarter. An anemic European market, however, is expected to keep the global transportation market flat.

"In the alumina market, we've not changed our view that market fundamentals are positive, and we're reaffirming our global aluminum growth projection of 7% this year," said William Oplinger, the executive vice president and chief financial officer of Alcoa, in the conference call. "Supply and demand for both the alumina and aluminum markets are essentially balanced. The alumina market has tightened from 824,000 metric tons to 389,000 metric tons, driven by increasing Chinese imports. In the case of metal, we are now projecting a 671,000-metric-ton deficit, down from 930,000 metric tons, driven primarily by Chinese restarts."

Among the key global end markets, executives expect to see 2% to 4% growth in automotive; 4% to 6% growth in building and construction; and 2% to 3% growth in packaging sales. However, as made clear in the previous quarter, weaker orders for new gas turbines and spare parts are expected to contract the industrial gas turbines market between 8% and 12%.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and 10 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.