Alcoa posts its third consecutive quarterly loss

Despite the loss, the aluminum producer beats the Street in both sales and profits.

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By Catherine Clifford, staff writer

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NEW YORK ( -- Aluminum producer Alcoa Inc. reported its third quarterly loss in a row Wednesday, as the global recession has crippled demand for the lightweight metal.

The stock surged in after-hours trade, adding as much as 9%. In regular session trade, shares of Alcoa added 5 cents to close at $9.46.

Alcoa has cut costs aggressively in the face of sharply slower demand, but with inventory levels low and the global economy showing signs of recovery in the longer term, executives said they were seeing signs of stabilization.

In the three months ended June 30, Alcoa (AA, Fortune 500) lost $454 million, or 47 cents per share, compared with a profit of $546 million, or 66 cents per share, in the same period a year ago.

Excluding one-time restructuring charges and losses from discontinued operations, the company posted a loss of 26 cents per share, which was better than the forecast for a loss of 38 cents a share from analysts polled by Thomson Reuters. Analysts typically exclude one-time charges from their estimates.

Sales fell 41% to $4.24 billion from $7.62 billion last year, beating analyst expectations of $3.93 billion.

The company blamed the loss and drop in sales on a slowdown in the industries for which it provides raw materials -- including automotive, commercial transportation, building, construction and aerospace -- as well as a 49% drop in metal costs.

The company boasted that its cost-cutting initiatives -- such as previously announced headcount announcements and production cut-backs -- were boosting its balance sheet.

"Our cash generation initiatives, productivity improvements, and portfolio changes are working," said Klaus Kleinfeld, Alcoa President and Chief Executive Officer, in a written statement. "Now Alcoa has the staying power and reduced cost base to withstand the most serious downturn in the history of the aluminum industry."

Alcoa has been especially aggressive in reducing its head count. In the last year, the company has identified 21,650 jobs that it plans to cut, and so far, the company has already eliminated 18,375 of those planned cuts, said Chuck McLane, Executive Vice President and Chief Financial Officer, in a conference call after the release of the financials were released.

The company had to slash headcounts to navigate the downturn, but going forward, the company plans to operate at tighter standards.

"More important is how many of these reductions are permanent and how many would be added back once markets recover," said McLane. "Although it's not an exact science, we estimate that 75% of the positions are permanent reductions."

Demand for aluminum will continue to be weak in the near term. Global demand for aluminum consumption will be 7% lower in 2009 compared to 2008, according to Klaus on the conference call, but he also say signs of a recovery in demand in the longer term.

For example, demand has been so low for big ticket items that manufacturers have been forced to scale back production. But with inventories low, manufacturers will have to ramp up production when demand does recover.

Stimulus programs will also begin to produce demand. For example, Klaus cited the "Cash for Clunkers" stimulus program that President Obama recently signed, which should bring some demand to the auto industry starting at the tail end of 2009.

Furthermore, Klaus is optimistic about the longer-term demand to come out of the growing Chinese economy. Klaus said that the stimulus bill that China passed was having a positive effect on that economy.

"We are actually seeing some signs of stabilization," said Klaus.

Alcoa is the first Dow component to release its second-quarter numbers. Investors look to the aluminum producer as a barometer of how corporations are faring during the recession. To top of page

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