New Efficiencies Should Help Alcoa as Recession Lifts
Andrew Leckey

Q. I'm concerned about my shares of Alcoa Inc. Where do you see them going this year?--J.L., via the Internet

A. The world's largest aluminum producer has positioned itself to benefit from a global economic recovery but in the meantime must cope with low and uncertain prices for that metal.

It has used the recessionary period of falling demand to improve its efficiency by selling off some low-growth assets and expanding its production in lower-cost locales such as Brazil, Russia and Saudi Arabia.

Strong demand from China and improvement in aerospace and industrial markets are pluses for the firm. It has been increasing its profit margins.

Yet continued uncertainty over where aluminum prices are headed and large world inventories of the metal remain worries. Debt problems in the European Union are another economic concern affecting a world producer such as Alcoa. Costs of energy and raw materials can also be volatile and there are labor issues with which it must cope.

Alcoa (AA) shares are down 26 percent this year following last year's 46 percent rise. The company's first-quarter loss of $201 million was less than half its loss of the year-earlier quarter, yet sales results disappointed Wall Street analysts.

Alcoa recently named Klaus Kleinfeld as its chairman and CEO, replacing the retiring CEO Alain Belda. Kleinfeld, who joined Alcoa as president and CEO in 2007, was previously CEO of Germany's Siemens AG.

The consensus analyst recommendation on Alcoa shares is "hold," according to Thomson Reuters, consisting of two "strong buys," five "buys," nine "holds," one "underperform" and one "sell."

Alcoa's "downstream" businesses produce beverage cans, aerospace components, gas turbines, auto and building products and telecommunications parts. Its "upstream" segments include mining, refining and smelting. It has operations on every continent and mining activities in the U.S., Australia, Brazil, Guinea, Jamaica, Trinidad and Suriname, employing 59,000 people in 31 countries.

Alcoa's recently-published sustainability report set a goal of reducing by 2020 its total carbon dioxide use by 20 percent and energy consumption of by its primary operations by 10 percent. It said it will employ land management, biodiversity and purchasing standards to help it achieve its goals.

Earnings are expected to rise 184 percent this year and 57 percent next year. The five-year annualized growth rate for the company is projected to be 15 percent versus 16 percent forecast for the aluminum industry.

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