Future outlook
The company reiterated its 2013 targets of productivity of $750 million, growth capital of $550 million, sustaining capital of $1 billion, $350 million investment in Saudi, and a Debt/Capital ratio of 30-35%, which will help in meeting its target of positive free cash flow.
It maintained its global aluminum demand growth figure at 7%. It is upbeat about the aerospace market and maintained its 9% to 10% growth rate for 2013. The company boasted about its strong order backlogs for planes with Boeing and Airbus, which it claims may take up to eight years to clear.
In the automotive segment, it expects global growth of 1% to 4% and 7% to 10% growth rate in China. Further, it expects strong growth in the North American market due to the new US Corporate Average Fuel Economy (CAFE) standards, which demand better fuel economy in vehicles and this can be achieved by replacing steel with aluminum to make vehicles lighter.
The company has acknowledged that 50% of its future growth will be driven by China, but at the same time has taken into consideration the recent slowdown in China’s economy. This can be seen from its revised 2013 growth forecast in the heavy truck and trailer segment – 12% to 16% versus previous guidance of 12% to 19%.
How are competitors faring?
Comparing to its competitors, Alcoa has performed much better. BHP Billiton Limited (ADR) (NYSE:BHP), the diversified natural resources company, posted a 14% decline in its 2Q13 revenues citing lower commodity prices and negative foreign exchange fluctuations in major producing nations like Australia and Chile, which resulted in increased costs. It posted a 43% decline in its first half net profit, excluding one off items. The company has undertaken 20 new projects, most of which are expected to enter production by 2015 but expects this growth to be offset by increase in the supply of key commodities due to new or expanded mines, limiting the upside in commodity prices.
Similarly, Aluminum Corp. of China Limited (ADR) (NYSE:ACH), which engages in the manufacture and distribution of alumina, and aluminum fabrication products in China and internationally, has its operating profit and net income in the red despite a 6% increase in its revenue in the recent quarter. It posted a worse than expected net loss of RMB8.2 billion ($1.3 billion) for FY12 due to low aluminum prices and rising costs. Its loss was significantly lower as compared to analyst expectations of RMB4.78 billion net loss (Thomson Reuters) and a net profit of RMB237.9 million last year. For 2013, the company has mentioned that it will take the necessary measures to cut costs and expects the start up of new coalmines to boost revenue.
Conclusion
The one factor which attracts me to the company is its Management, which has been able to drive the company to profitability despite a decline in revenues and lower aluminum prices. Furthermore, the company’s improved operational performance and drivers for future makes it a good long-term investment at the current price. However, do not expect great returns in the immediate future and be patient as the company moves in tandem with the slowly recovering global economy.
The article Alcoa’s Return To Profitability originally appeared on Fool.com and is written by Sujata Dutta.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
