Alcoa Pays the Price for Legacy Issues in the Fourth Quarter



Shares of Alcoa (NYSE:AA) closed the regular session on Thursday down 1.29 percent at $10.69 and fell another 5.43 percent more in Friday trading after the firm reported fourth-quarter and full-year fiscal 2013 results. Revenue fell 5.3 percent on the year to $5.59 billion, above the mean analyst estimate of $5.38 billion. Earnings came in at a loss of $2.19 per share, or a gain of 4 cents per share excluding special items. This is below the mean analyst estimate of 6 cents per share.

Alcoa, one of the world’s largest aluminum companies, reported a net loss of $2.3 billion for the fourth quarter thanks largely to a $1.7 billion non-cash goodwill impairment related to its Primary Metals segment. Alcoa reported that the “impairment has no impact on the Company’s liquidity and does not affect the ongoing operating performance of Primary Metals.” The impairment specifically relates to a decline in the estimated fair value of smelting assets acquired more than a decade ago.

The unit did suffer negative after-tax operating income of $35 million in the fourth quarter, but because of a particularly strong first quarter, ended the year with ATOI of $259 million, up from $90 million in 2012.

Overall aluminum production did fall in 2013, ending the year down about 5.1 percent at 3.5 million metric tons. Alumina production increased about 1.6 percent in 2013 to 16.6 million metric tons.

“We delivered strong operating performance in the fourth quarter, led by record downstream profitability, as our strategy to build-out the value-add businesses and lower the cost base in the commodity segment gains traction,” said Alcoa Chairman and CEO Klaus Kleinfeld. “In addition, we put a number of legacy matters behind us, clearing a path for Alcoa’s continued transformation in 2014.”

Those legacy issues include the $1.7 billion goodwill impairment.

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.

Shares closed at $10.11 per share on Friday.