Alcoa Inc. (AA)
, the largest U.S. aluminum producer, reported first-quarter profit that surpassed analysts’ expectations as it benefited from a supply bottleneck at domestic metals warehouses.
Earnings excluding restructuring costs and other one-time items were 9 cents a share, the New York-based company said today in a statement. That beat the 5-cent average of 18 estimates compiled by Bloomberg. Sales fell to $5.45 billion from $5.83 billion, trailing the $5.55 billion average estimate.
The company’s rolled-product unit reported after-tax operating income of $59 million, more than Alcoa forecast in January.
While the average price for aluminum on the London Metal Exchange fell in the quarter, the impact was muted for Alcoa because of a 66 percent increase in U.S. warehouse premiums. Higher premiums mean Alcoa gets a better price for its commodity aluminum sales. The surcharge has surged amid delays to the delivery of aluminum stored at warehouses registered with the London Metal Exchange.
“Aluminum premiums will remain elevated, providing a lift for Alcoa’s upstream segments,” Jorge Beristain
, a Greenwich, Connecticut-based analyst at Deutsche Bank AG, said in a note before the earnings were announced.
The warehouse bottleneck has been a source of controversy in the $90 billion-a-year aluminum industry, with Alcoa complaining that the holdups are reducing transparency in the market. The LME’s proposed rule change to speed up deliveries was delayed last month after a U.K. judge said the bourse’s consultation was flawed.
Higher premiums are a bright spot for Alcoa after nine straight years in which industry output has exceeded demand. Aluminum futures on the LME traded at $1,754 a metric ton in January through March, the lowest quarterly average since 2009.
Amid the global oversupply, Chairman and Chief Executive Officer Klaus Kleinfeld
has targeted 800,000 tons of annual smelting capacity cuts to improve efficiency in Alcoa’s mining and metal-producing divisions. So far this year Alcoa has announced permanent shutdowns in Australia and the U.S.
While older plants have been closed, Alcoa is completing construction of a vertically integrated mining, smelting and rolling complex in Saudi Arabia
in partnership with the country’s state-owned mining company.
Alcoa is also expanding its capacity to roll and shape aluminum for the automotive and aerospace industries. The company sees growing demand in both sectors, driven by developments such as Ford Motor Co.’s introduction of its aluminum-bodied F-150 pickup truck.
Alcoa, typically one of the first U.S. companies to report quarterly earnings, was removed from the Dow Jones Industrial Average
in September after 44 years.