This is a summary of the second quarter fiscal 2008 earnings call conducted by Alcoa Inc (AA: chart) on July 8, 2008
Management:
- President and Chief Executive Officer: Klaus Kleinfeld
- Chief Financial Officer, Executive Vice President: Charles D. McLane Jr.
- Executive VP; Group President - Engineered Products: William F. Christopher
- Director of Investor Relations: Greg Aschman
Key Investors Issues:
- Sales were $7.62 billion, down 5.6% from $8.07 billion for the same period in the prior year
- Net income of 66 cents per share, an 80 percent increase sequentially.
- Share repurchase program continued, with total repurchases at 10% against Board authorized level of up to a maximum of 25% of shares outstanding.
Second Quarter Highlights:


Sales were $7.62 billion down 5.6% from $8.07 billion for the same period prior year, with $850 million of real organic growth, of which $400 million came from being well-positioned in markets that the company is growing.

- Each of the businesses delivered share growth, contributing $450 million of additional sales, driven by new products and regional expansions.
- Net income was $520 million or 66 cents a share, down 27.3% compared with $715 million or 82 cents a share in 2007 on higher input costs.
- The company’s margin to sales were up 19% year over year.
- Selling, general, administrative, and other expenses were $306 million compared to the $367 million for the second quarter of 2007.

Cash from operations was $1.0 billion, a $1.3 billion improvement from the prior quarter driven by higher profits and improved working capital management.

- Capital expenditures were $796 million, 52% of which was devoted to growth projects.
-The Company’s debt-to-capital ratio stood at 30.6 percent at the end of the quarter, well within its targeted range.
- The company''s 12-month trailing return on capital (ROC) stood at 12.1% at the end of the second quarter, excluding investments in growth.

Higher raw material and energy costs reduced profits by $107 million.

- Production decreased 50,000 tons, primarily as a result of the unexpected gas outage in Western Australia.
- The positive effect of higher prices was reduced by increased costs for caustic, natural gas and fuel oil, as well as a continued deterioration of the U.S. dollar to the A dollar.
- Productivity improvements in the aerospace and forgings business enabled the record ATOI performance of $157 million.

Segment Analysis:

- Alumina ATOI was $190 million, an increase of $21 million, or 12% from the prior quarter.
- Higher pricing more than offset adverse currency effects and higher material costs.

- Primary Metals ATOI was $428 million, up $121 million, or 39%, compared to the prior quarter.
- Power disruptions at the Rockdale smelter required an increase in electricity purchases at market rates and impacted income by $22 million in the period.

- Flat-Rolled Products ATOI was $55 million, up $14 million, or 34%, from the prior quarter.
- Improved Russia results and productivity gains more than offset lower volumes caused by North American and European market weakness and higher energy and transportation costs.

- Engineered Products and Solutions ATOI was a record $157 million, up $19 million, or 14%, from the prior quarter as volumes increased in the aerospace, industrial gas turbine, commercial building and construction, and commercial transportation markets.

Outlook For Fiscal 2008:

- Capital expenditures is expected to total $3.6 billion for the year.
- Alcoa is looking at large commercial aircrafts greater than 100-passenger build rates, and about 920 aircraft to be built this year.
- Alcoa is investing in power management technology that will allow its customers to either increase the content or the efficiency, or reduce weight at its harnesses.

The company is working on a new starting system that has the potential to reduce up to two batteries at 45 pounds each in each truck.

- Disciplined execution is going to continue to allow Alcoa to drive productivity gains as the company move forward.
- New products have been will continue to be moving forward.
- The company is also bringing online two great facilities in Russia for aerospace forgings and industrial products.
- The company will make sure that it understand and take advantage of major market trends and capitalize on those mega trends, specifically in transport and the energy ends of the business, and building and construction.

Key questions and answers for the second quarter fiscal 2008 earnings call, conducted by Alcoa Inc (AA: chart) on July 8, 2008
Michael Gambardella: In the second quarter there was about $155 million improvement in other income from the first quarter. Can you highlight how that improved and how the tax rate was lower?

Charles D. McLane Jr: There are currency translation fees in other income. There are differences between the downstream businesses and upstream businesses that are upsetting and there is company-owned life insurance offsets because of a deferred compensation. And the tax rate is 28.6.

Michael Gambardella: Is there a positive $30 million in the quarter, and is that increment from the second quarter?

Charles D. McLane Jr: The $30 million is the change between the two, net impact.

John Hill: How much of the industry cost pressures showed up in the second quarter and how much increased costs can we expect?

Charles D. McLane Jr: We had cost increases from the first quarter excluding currency of $51 million for energy and $56 million for other raw material cost. We moved down eight points from 38 percentile on the cost curve to 30, even in light of the industry receiving all these cost increases.