Aluminum producer Alcoa Inc
In response to the tough times, Alcoa -- the first member of the Dow Jones Industrial Average <.DJI> to report -- has cut thousands of jobs, slashed its dividend, trimmed spending and raised $1.3 billion to help it through the slowdown.
There's no doubt in my mind that we are in for a really nasty earnings season, said Keith Wirtz, president and chief investment officer of Fifth Third Asset Management. Alcoa's second consecutive quarterly loss is testament to that. We are in the worse phase of this recession right now.
But on a conference call with Wall Street analysts, Alcoa Chief Executive Officer Klaus Kleinfeld was more upbeat, despite weakness in demand from industries it supplies.
In the U.S., we are seeing the first signs of markets stabilizing at lower levels, he said.
Auto industry demand is down 18 percent globally and is worse in the United States, he said, but the U.S. residential (construction) market might see some signs of bottoming out.
But Kleinfeld repeated his forecast that global aluminum consumption will decline 7 percent this year, although he is hopeful government stimulus action will revive metal demand.
Alcoa's first-quarter net loss was $497 million, or 61 cents per share, compared with a profit of $303 million, or 37 cents, in the 2008 quarter, the Pittsburgh-based company said. The loss from continuing operations was 59 cents per share.
Revenue fell 36 percent to $4.1 billion from $6.5 billion a year earlier after excluding divested businesses.
According to Reuters Estimates, the company actually lost 60 cents per share, excluding a write-off and gain from two transactions in the quarter. That missed analysts' estimate for a loss of 55 cents, Reuters Estimates said.
TRIMMING THEIR SAILS
Kleinfeld said in a press statement the steps the company has taken so far to cut costs should significantly improve its profitability and cash flow in 2009 and beyond.
We also see both near-term and long-term catalysts that should improve the prospects for the aluminum industry, he said. Current stimulus programs that target infrastructure and energy efficiency will create a demand for ... aluminum.
But Alcoa expects second-quarter alumina production to drop slightly as it cuts refinery production to meet smelter demand. Alumina, refined from bauxite, is smelted into aluminum.
The company also sees continued end market weakness for its flat-rolled products in the aerospace, construction and global transportation sectors in the second quarter.
They are doing all the right things to preserve liquidity, but market fundamentals are pretty bad, said Min Ye, equity analyst with Morningstar in Chicago.
(The) positive news is that prices seem like they have leveled off, but demand has not picked up and inventories are high ... It's going to take some time for prices to recover.
Alcoa said the drop in revenue was the impact of the economic downturn on Alcoa's end markets. As demand weakened, realized metal prices fell an additional $558 per ton resulting in prices now about 60 percent lower than last summer.
Aluminum prices have tumbled from a peak of $3,380 per tonne last July. In the first quarter, the price fell 9 percent from $1,530 to $1,392.
Alcoa, like most rivals, has cut production in the last six months. Last week, it announced it was curtailing 120,000 annual tonnes at its smelter in Massena, New York, bringing the company's total aluminum output cuts to over 850,000 tonnes, or 20 percent of annualized output.
Alcoa's stock has slumped as the recession hurt aluminum prices and demand for the metal.
Its shares have lost more than 82 percent of their value since last May, when they traded near $45. They bounced somewhat off a low of $4.98 last month after Alcoa announced it would cut its dividend and raise $1.3 billion from an offering of stock and convertible notes.
The shares closed down 1.5 percent on the New York Stock Exchange at $7.79 on Tuesday, and were down to $7.55 in after-hours trading.
(Reporting by Steve James; Additional reporting by Michael Erman; editing by Patrick Fitzgibbons and Andre Grenon)