As the earnings season gathered pace with second quarter reports, Alcoa revealed that its Q2 earnings rose by 1.4% after weak aluminium prices negatively affected results at its smelting operations.
The weak aluminium prices meant that the smelting division reported a fall in operating earnings of 31% in the second quarter to $67 million.
In contrast to its raw material production operations, the company continued to benefit from growth in its value added operations that manufacture products used by the aerospace and automotive markets.
The company reported revenue of $5.9 billion emanating from its automotive, aerospace and alumina businesses. Alcoa forecasts a continuation of steady growth in the majority of its markets in these divisions for the rest of 2015.
Meanwhile, the company has responded to the soft aluminium prices with efforts to cut costs by closing smelting operations that are not cost effective at current prices. This includes the recent closure of its Pocos de Caldas smelter in Brazil.
Alcoa is placing a far greater emphasis on adding value to its own raw material by manufacturing finished products for growth markets such as the aerospace and automotive industries. The change in strategy is borne out by the company's purchase last year of U.K. based jet-engine parts manufacturer Firth Rixson Ltd. as well as its acquisition of RTI International Metals, an important manufacturer of titanium parts for the aerospace industry.
The revenue of $5.9 billion exceeded the Thomson Reuters forecast of $5.81 billion while earnings per share, which rose from 18 cents to 19 cents, fell below the forecast figure of 22 cents per share.
Alcoa stocks closed at 10.59 on Thursday, 1.92% above their 52 week low of $10.39 which was set the day before on 8 July 2015.
These comments came from Klaus Kleinfeld, Alcoa chairman and CEO, “We continue to transform Alcoa, our portfolio reshaping combined with smart investments in growth markets is delivering strong results.” He added, “Our value-add businesses are outperforming, with record profitability in the downstream and exciting profitable growth in the midstream. Recent acquisitions are fully on track, and paired with our innovations we are cementing Alcoa’s position as a premier aerospace and automotive partner. In the upstream, our Alumina business delivered its best first half since 2007 and our lower cost metals business showed resilience in the face of strong market headwinds. Productivity and cash generation were excellent.”
MT4 Chart: Alcoa