Alcoa cut its 2016 outlook for the global aerospace market and said it would reduce its workforce, after the US-based metals company posted first-quarter net income of $16 million Monday, down 92% from a year ago, reflecting soft alumina and aluminum prices that weighed on earnings.
Revenue tumbled by 15% to $4.9 billion in the January-March period, although Alcoa remains on track to separate into two companies in the second half of 2016, Alcoa chairman and CEO Klaus Kleinfeld said during a conference call.
Kleinfeld said the performance of Firth Rixson, the maker of aerospace jet engine parts that Alcoa acquired two years ago for $2.85 billion, has underwhelmed so far but added it is improving. "We have improved the performance, but we are clearly behind, probably two years behind," he said.
Alcoa's $1.5 billion purchase last year of RTI International Metals, renamed ATEP, appears to be going smoother. ATEP's integration into Alcoa "is going very well and it is ahead of plan, probably a year ahead," he said.
In moves to boost the competitiveness of its upstream business, Alcoa closed its 269,000 mt/year Warrick primary aluminum smelter in Indiana at the end of March and intends to fully curtail the remaining 810,000 mt/year of refining capacity at its Point Comfort operations in Texas by the end of June as part of an overall plan to slice alumina production by 1 million mt.
While the permanent Warrick smelter shutdown is expected to decrease Alcoa's production by 50,000 mt in the second quarter, the action also resulted in the company spending $15 million to source metal for Warrick Operations' rolling mill, which remains in operation.
Neither Kleinfeld nor William Oplinger, Alcoa executive vice president and chief financial officer, elaborated on the metal sourcing.
To trim costs, Alcoa also is in the process of eliminating about 1,000 jobs and is evaluating another 1,000 job reductions.
AEROSPACE GROWTH PROJECTION SLIPS TO 6%-8%
Overall, Alcoa still anticipates strong alumina demand growth of about 5% for the year (which was revised downward from 6%), global consumption of 59.7 million mt and a global aluminum deficit of approximately 1.1 million mt.
Most of the decline is coming from China and North America, Kleinfeld said. Growth in China now is estimated at 6.5% this year, versus 8% previously, with North American growth reduced to 4%, he added.
In addition, the company projects a global alumina deficit of 1.4 million mt.
But Alcoa now projects global aerospace growth of 6%-8% in 2016, compared with 8%-9% estimated in the fourth quarter of 2015, citing a transition period in the market "as major original equipment manufacturers shift from incumbent platforms to multiple new platforms simultaneously."
Kleinfeld said the aerospace market remains healthy overall. The industry boasts a nine-year backlog for new airliners, "and there is almost no cancellations. The order book is strong."
Alcoa also envisions a continued strong automotive market, with projected growth of 1% to 5% this year in North America.
"Auto will continue to grow in the coming years," Kleinfeld said.
