SAND Sandstorm Gold Ltd

The largest U.S. aluminum producer Alcoa Inc. (AA) saw its profit surge roughly 59% in first-quarter 2013, buoyed by strong aluminum demand. It posted a profit of $149 million or 13 cents per share in the quarter, exceeding the profit of $94 million or 9 cents per share recorded a year ago. The results were driven by strong demand across the aerospace and auto markets.

Excluding one-time special items, Alcoa earned $121 million or 11 cents a share in the quarter, beating the Zacks Consensus Estimate by a penny and also coming ahead of $105 million or 10 cents per share posted in the year-ago quarter.

Revenues declined roughly 3% to $5,833 million from $6,006 million in the year-ago quarter and were below the Zacks Consensus Estimate of $5,857 million. Sales were hurt by lower aluminum prices and reduced production in Alcoa’s European primary metals business.

Alcoa reiterated its global aluminum demand growth expectation of 7% for 2013. Its shares, which are down roughly 7% so far this year, fell 1.4% in after-hours trading, reflecting the revenue miss and pricing pressure.

Segment Review

Alumina - Shipments in the reported quarter were 2.46 million metric tons on production of 3.99 million metric tons. After Tax Operating Income (ATOI) was $58 million, up from $35 million in the year-ago quarter and $41 million reported in the sequentially preceding quarter. The first quarter results were led by productivity gains, partly offset by higher input costs.

Primary Metals - Shipments in the first quarter were 0.71 million metric tons versus 0.77 million metric tons a year ago. Production in the quarter was 0.89 million metric tons, a decrease of 6.3% from the year-ago quarter. ATOI was $39 million compared with $10 million in the year-ago quarter and $316 million in the prior quarter.

Global Rolled Products - Shipments in the quarter were 0.45 million metric tons, down 0.4% year over year. Third-party revenues were $1.78 billion, down 3.6% year over year. The segment posted ATOI of $81 million, down 20.6% year over year but up 5% sequentially. Favorable productivity and strong demand from the aerospace and automotive markets led to the sequential improvement.

Engineered Products and Solutions - Shipments in the quarter were 0.06 million metric tons, a 5.6% decline on year-over-year basis. ATOI was $173 million, up 24% year over year and 10.2% sequentially. The sequential increase was due to higher productivity and volumes. The segment delivered record first quarter adjusted EBITDA margin.

Financial Position

The company ended the first quarter with cash and cash equivalents of $1.56 billion, down 11% year over year. Alcoa had a debt-to-capital ratio of 34.7% in the reported quarter versus 36% a year ago. Capital expenditure was $235 million in the quarter.

Alcoa Reducing Smelting Capacity

Alcoa remained on track to move down the cost curve and curtailed capacities in its upstream business. The curtailments will improve the competitiveness of the company’s Primary Products business.

Outlook

Alcoa remains optimistic for 2013 and expects global demand for aluminum to increase 7%. The company, however, foresees the markets to be tight due to supply contractions.

The company envisions 9%-10% global growth in the aerospace sector this year. Its growth forecast for the other markets are – automotive (1%-4%), commercial transportation (2%-7%), packaging (2%-3%), building and construction (4%-5%), and industrial gas turbine (3%-5%).

Our Take

Pa.-based Alcoa Inc. is among the world’s leading producers of primary and fabricated aluminum and alumina. We believe that the company’s cost reduction efforts are, to some extent, offsetting the impact of higher energy and raw material costs on its bottom line.

Alcoa is divesting underperforming assets through its restructuring program. The company is making efforts to reduce costs of its upstream business and achieve record profit in its mid stream and downstream businesses. Moving ahead, healthy demand in the aerospace market is expected to drive result.

Alcoa currently retains a short-term Zacks Rank #3 (Hold).

Other companies in the mining industry with favorable Zacks Rank are Atlatsa Resources Corporation (ATL), Sandstorm Gold Ltd. (SAND) and Anglo American Platinum Ltd. (AGPPY). All of them hold a Zacks Rank #2 (Buy).
 

 
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