This is a summary of the first quarter fiscal 2009 earnings call conducted by Alcoa, Inc. (AA) on April 7, 2009.
Management:
-
Director of Investor Relations: Elizabeth Besen
-
Chief Financial Officer, Executive VP: Charles D. McLane, Jr.
-
President, CEO, Director: Klaus Kleinfeld
Key Investor Issues:
- Alcoa reported a net loss of $497 million, or 61 cents a share, compared with net income of $303 million, or 37 cents a share, a year ago.
- The loss from continuing operations was $480 million, or 59 cents a share. Year-ago income from continuing operations was $299 million, or 36 cents a share.
- Revenue fell 41% to $4.15 billion.
- Alcoa cut its dividend by 82% last month and launched initiatives to reduce costs.
First Quarter Highlights:
For the quarter the loss from continuing operations was $480 million or $0.59 per share. The fourth quarter weakness was followed by an even softer first quarter in almost every end market as the economic recession continued in its hunt to find a bottom. Prices declined and inventories on the exchange continued to climb. The results for the quarter were adversely affected by both prices and volumes as revenues were down 27% sequentially and 41% on a year-over-year basis.
The collapse in demand was due not only to weaker end markets but also to the significant de-stocking occurring throughout the supply chain.
To effectively manage in the midst of this environment Alcoa undertook a holistic set of actions to improve performance, lower cost and strengthen liquidity. As a result of these actions cash on hand was $1.1 billion at quarter end and debt-to-cap decreased from 42.5% to 40.6%.
In addition, in January Alcoa provided a forecast for the cash cost of production for both alumina and primary aluminum. These estimates were exceeded as alumina and aluminum cash costs were down 33% and 30% respectively from the third quarter of 2008.
SG&A declined 11% sequentially.
On a year-over-year basis after excluding $34 million of expense in the 2008 first quarter related to the divested patching consumer businesses, SG&A declined 15%. Alcoa expects the lower cost level to continue as actions are being taken to further the reductions. Interest expense of $114 million declined by 9% due to the reduced cost on short-term borrowings. Lastly, the loss from discontinued operations is comprised of AEES, Alcoa wire harness business, which is one of the targeted for divestiture.
The company continued to focus on streamlining its operations and reducing costs during the first quarter.
Restructuring charges in the first quarter were $69 million before tax, the majority of which related to an additional 2,500 headcount reductions. Alcoa recorded a non-cash gain on the completion of the Elkem/SAPA Swap of $133 million. We incurred a loss on the redemption of its interest in Shining Prospect of $118 million.
Lastly, there was a discrete tax benefit of $28 million which resulted from a tax law change. The net of these items reduced results by $3 million.
Third-party realized price was down 26%.
Favorable productivity of $103 million, lower SG&A and R&D costs of $34 million and $20 million in currency gains partially offset the decline in price and volume. Alcoa have specific goals for lower procurement and overhead costs, decreased working capital and lower capital project spending. Each of these categories has demonstrated improved first quarter performance.
Realized pricing was $1,234 per ton or 44% lower than last year and LME cash prices were $1,383 per ton lower for the same period.
In addition, lower volumes were experienced across every segment. These significant negative impacts were partially reduced by improved productivity of $115 million, lower overhead costs of $45 million and $198 million of favorable currency.
Alumina production declined 9% or 331,000 tons on a sequential basis.
Total curtailments have now been brought to an annual run rate of approximately 2 million tons by March 31. ATOI in the segment declined 78% or $127 million. Realized pricing declined 34% which matched the LME two-month lag as well as matched the percentage Alcoa forecast in the updated outlook of its public offerings.
The lower pricing and production declines were partially offset by lower energy costs, productivity and a favorable currency impact.
