Aluminum Demand, New Products Lift Alcoa’s Earnings

July 14th, 2011 by Trefis Team
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Alcoa

Alcoa (NYSE:AA) recently announced its performance for the second quarter of 2011. [1] While the company grew its top-line by more than 11% over the figure in Q1 2011 to reach $6.6 billion, the net income also grew over the period by about 6% to settle at $326 million. Alcoa is the world leader in the production and management of primary aluminum, fabricated aluminum and alumina, and its competitors include Rusal, Rio Tinto (NYSE:RIO), BHP Billiton (NYSE:BHP) and Chalco (NYSE:ACH).

We maintain a $19.50 price estimate for Alcoa, roughly 20% above the stock’s market price.

Mid-stream and down-stream demand

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Alcoa’s focus on pushing its light, yet strong aluminum products as the natural substitute for heavier metals across industries from construction to automobiles and aerospace has substantially helped the company as the flat-rolled products division and the engineered products division reporting record income numbers over this quarter.

The engineered products & solutions division reported $1.37 billion in revenues, EBITDA margins of 19% in the quarter and after tax operating income (ATOI) of $149 million (15% growth sequentially.)

The flat-rolled products division, which produces and sells aluminum plates, sheets and foils, reported revenues of $2.1 billion in the quarter and an ATOI of just under $100 million for the quarter. The division’s strong growth has been supported by increased demand from Russia and China.

… and there is more in store for the year

Quite recently, Alcoa captured the attention of major airline manufacturers with the announcement of its next generation aluminium alloy. This alloy would significantly improve aircraft efficiency by reducing weight without compromising on the strength and without the need for added investment in upgrades to existing manufacturing lines.

The company signed a long-term deal with Airbus almost immediately after the announcement. We believe that there are more such deals on the way for Alcoa. This combined with the company’s estimate of a 12% growth in the global demand for aluminium in 2011 over 2010 figures leads us to believe that things are only going to get better for Alcoa over the rest of 2011.

See our full analysis for Alcoa’s stock here

Notes:
  1. Alcoa Second Quarter Income from Continuing Operations Jumps 138 Percent, Revenue Rises 27 Percent over Year-Ago Quarter, Alcoa Investor News, July 11 2011 [↩]