This is a summary of the fourth quarter fiscal 2008 earnings call conducted by Alcoa, Inc. (AA) on January 12, 2008.
Management:
-
CFO, Executive VP: Charles D. McLane, Jr.
-
President, CEO, Director: Klaus Kleinfeld
-
Director of Investor Relations: Greg Aschman
Key Investor Issues:
- The quarterly loss was $1.49 cents per share versus earnings of $632 million, or 75 cents per share a year earlier.
- For the full year, Alcoa lost 9 cents per share on revenue of $26.9 billion.
- Fourth-quarter revenue dropped 19% to $5.7 billion from $7 billion in the year-ago period.
- Prices of aluminum have plummeted to about 70 cents per pound from around $1.50 per pound last summer.
Fourth Quarter Highlights:
Aluminum prices decline 35% quarter-over-quarter.
The fourth quarter fabricated shipments decline was historic in nature as an already weak demand environment was crushed by supply chain’s flight to liquidity.
For the quarter North American automotive sales declined 35% versus 2007. North American class A production was down 8% on top of a 44% decline in 2007 and trailer shipments were down 35% on top of a 22% decline in 2007.
Corporate borrowing spreads, particularly short-term, expanded dramatically.
Raw material and energy cost decreases lagged to metal price reductions which compound the impact on margins. Alcoa has taken aggressive actions in curtailing production, reducing headcount and restructuring its portfolio. Those actions generated a charge of $708 million, most of which is non-cash in nature. The total loss from continuing operations for the quarter was $929 million or $1.16 per share.
Cash from operations for the quarter was $608 million and Alcoa had $762 million cash on hand.
Alcoa was able to add $1.9 billion bank facility in addition to its five year $3.3 billion revolving credit facility.
Interest increased $29 million in the quarter.
The financial crisis in the quarter led to a significant widening of corporate spreads and Alcoa was impacted accordingly. Once Alcoa passed year-end those spreads tightened to the company’s benefit.
SG&A costs have declined 28% since the fourth quarter of 2007 and Alcoa would anticipate further reductions as the announced actions are implemented.
The company’s wire harness business has been targeted for divestiture. The operational results as well as the restructuring and impairment charges for those operations have been moved to discontinued operations.
The restructuring total of $614 million or $0.76 per share and the accompanying break down are fairly self explanatory as they depict a summary of head count reductions as well as the impact for each of the planned transactions.
With regard to special items, obsolete inventory charges are connected to the sale or shut down of specific locations and thus run through cost of goods sold.
The environmental reserve relates to the estimated future remediation costs for the Grasse River site near Massena.
Alcoa increased the accounts receivable reserve by $16 million or $11 million after tax. Alcoa has a disciplined process for credit and collections and historically incurred minimal losses. Even in the current environment the accounts receivable balance is 93% current.
The additional tax noted is a non-cash charge attributable to repatriating cash from international operations. The majority of these actions are non-cash in nature and Alcoa anticipates annualized savings of approximately $450 million once these actions are complete. A majority of these actions will be completed by the end of the second quarter.
