Alcoa Earnings Beat Estimates: ‘Our Transformation Is Accelerating’

Source: Thinkstock

Source: Thinkstock

Alcoa (NYSE:AA) surpassed $13 for the first time since 2011 after reporting relatively strong first-quarter results. Adjusted net income came in at $98 million, or 9 cents per share, well above the mean analyst estimate of 5 cents. Alcoa’s value-add business Engineered Products and Solutions posted record first-quarter profits and “a near three-fold” profit increase at Global Rolled Products business. All told, Alcoa posted its highest quarterly after-tax operating income ($325 million million) since 2011.

“We hit record downstream profitability, nearly tripled results in the midstream, and strengthened our upstream business for the 10th quarter in a row,” said Klaus Kleinfeld, Alcoa Chair and Chief Executive Officer. “Our transformation is accelerating — we’re powering growth in our value-add businesses and aggressively reshaping our commodity business.”

Alcoa is expecting global demand for aluminum to increase by 7 percent in 2014. Some of this growth will be driven by ”strong demand for both large commercial aircraft and regional jets and continued growth in the business jet market.” Alcoa increased its 2014 aerospace growth projection 1 percentage point to a range between 8 and 9 percent. Automotive growth is expected in a range between 1 and 4 percent, while construction growth is expected in a range between 4 and 6 percent.

The news is not all good, though. Unadjusted net income was a loss of $178 million, or 16 cents per share. Net sales of $5.45 billion, down 6.5 percent on the year, was below the mean analyst estimate of $5.55 billion, a fall agitated by declining aluminum prices.

The idea of an accelerated transformation at Alcoa hasn’t escaped analysts and other market watchers who, after several quarters of bearishness on the company (a $1.7 billion goodwill impairment in the fourth-quarter seemed to damage investor moral), have begun to change their tune. Alongside competitors like Constellium N.V. (NYSE:CSTM), Alcoa is expected to capitalize on faster growth in the metals sector over the next few years.

Alcoa has faced a lot of headwinds recently, but the company appears to be soldiering through and capitalizing on opportunities as they come. Emerging aerospace industries in China and India are consuming components produced by Alcoa’s engineered products and solutions division.

Additionally, automakers are incorporating more aluminum into their vehicles, as the metal is more lightweight and energy-efficient than steel. Slowing economic growth in China may restrain demand from the Chinese construction industry to some degree, but — barring some economic catastrophe — overall economic conditions around the world are improving, which bodes well for aluminum demand.

More From Wall St. Cheat Sheet: