Alcoa (NYSE:AA), the US aluminum powerhouse whose performance serves as one of the barometers of the global economy, opened the US quarterly results season last night with lower than expected net earnings of US$140 million, or 10 cents/share. In the second quarter of 2014, Alcoa reported net earnings of US$138 million.
Excluding exceptional items, earnings per share (EPS) was still high at 19 cents, but they were also three cents shy of analysts’ expectations. Still, Alcoa was trading 2.5% higher today at US$10.75/share, after reaching a 52 week low of US$10.39/share yesterday.
Revenue of US$5.9 billion, against US$5.81 billion year over year, did exceed expectations, representing an increase of 1%. Organic growth was 12.7%, but sales of assets and various restructuring had a negative impact of 11.7%. Excluding currency effects, revenue growth would have otherwise reached 3%.
Aluminum prices are low but demand in the aerospace and automotive sectors remains strong; indeed, Alcoa predicts global demand to increase by 6.5%. The company maintained its forecast for China, Europe and North America, but revised it downwards for Russia and Brazil.
The highest demand surge has been in India, where Alcoa sees it reaching 10%, or two points higher than previous estimates.
In March, Alcoa bought Tital, a German titanium aerospace components manufacturer and RTI International Metals, one of the world’s main titanium producers in a deal valued at about USD$ 1.5 billion, which is clearly aimed at expanding its exposure to the aerospace industry.
Alcoa expects a 7% annual growth in sales of commercial aircraft up to 2019, when it expects to draw some 70% of revenues come commercial aerospace applications alone.
In June 2014, Alcoa took a significant step in the evolution of its portfolio toward aerospace by acquiring Firth Rixson, one of the worlds’ main manufacturers of jet engine components, from Oak Hill Capital Partners. That transaction was valued at USD$ 2.85 billion in cash and stock.
The Pittsburgh based RTI, draws 80% of its revenues from the aerospace and defense market; one of its main customers is Boeing.
Alcoa is clearly betting that the aerospace industry will continue to grow as it has in 2013 and 2014.