Alcoa slashes dividend in cost-cutting move

Aluminum prices have fallen sharply, which has the Dow component forecasting a loss for its first quarter of 2009.

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NEW YORK (CNNMoney.com) -- Aluminum producer Alcoa announced a slew of cost-cutting strategies Monday, including slashing its quarterly common stock dividend by 82%.

The actions will reduce costs by more than $2.4 billion annually, reduce capital spending by an additional $1 billion in 2010, and improve working capital by $800 million in 2009, the company said.

"By taking quick and decisive actions, Alcoa has been able to stay ahead of the evolving economic crisis," said Klaus Kleinfeld, Alcoa CEO, in a written statement. "Today's actions better prepare Alcoa to manage through a prolonged downturn and position the company for the future."

The move to reduce the quarterly common stock dividend to 3 cents a share from 17 cents will save the Dow component more than $400 million per year.

Regarding the reduction of the dividend, "this decision was made after comparisons to peer companies and consideration of the interests of our shareholders," said Kleinfeld in a statement. "We are pleased to be able to continue Alcoa's record of paying a dividend every quarter for the past 60 years."

Alcoa (AA, Fortune 500) also said it will be offering common stock and convertible notes, a move that should raise around $1.1 billion.

In a report filed to the Securities and Exchange Commission Monday, Alcoa said it expects to report a loss for first quarter of 2009.

"Our first quarter results will continue to be adversely affected by the global economic downturn, which has materially and adversely affected pricing of and demand for aluminum, alumina and aluminum products," the SEC filling said. "Primarily as a result of these factors, we expect to report a net loss for the quarter ending March 31, 2009."

Prices of alumina, which is used to make aluminum, are expected to sink 34% in the first quarter of 2009 compared to the fourth quarter of 2008, according to the SEC filing. Aluminum prices were forecast to be down by 26% in the fiscal first quarter compared to the prior quarter.

One analyst said that the declining cost for aluminum was the primary issue facing the company. "The problem is that the aluminum price is down very, very sharply ... and there is nothing an aluminum company can do about it," said Charles Bradford, president of Bradford Research.

"This is a market issue. This is not an Alcoa issue," said Bradford. "I don't think there are any aluminum companies out there making money today."

Bradford said that Chinese aluminum companies have three times the production capacity of the U.S., and they are suffering severely as well. Global levels of demand fell off while supply increased. In the face of the current market conditions, Bradford expected the dividend cut, but he was surprised that the company would opt to sell stock at the current prices.

Shares of Alcoa closed Monday at $6.12 a share.

"The world demand for aluminum has plummeted, it is much worse than Alcoa predicted a few months ago," said Bradford. "But at the same time, there has been more supply."

This is not the first time Alcoa has been taken steps to cut costs. At the very start of 2009, Alcoa shaved its global workforce by 13%, and will eliminate 13,500 jobs by the end of the year. Also in January, the company said it had cut 1,700 contractor positions and instituted a global hiring and salary freeze.

The recession has cut into demand for big-ticket machinery items, hurting Alcoa. A report from the Federal Reserve released Monday said U.S. industrial production fell 1.4% last month, in the fourth straight month of decline to the lowest level since April 2002.