Alcoa Reports Large Drop in Profit

Oct. 8, 2008
Input costs are high while aluminum prices have fallen and demand has decreased

Alcoa reported on Oct. 8 third quarter net income of $268 million. Net income in the third quarter of 2007 was $555 million.

"Despite rising costs and sluggish end markets, combined profitability in the four business segments was in line with last years third quarter," said Klaus Kleinfeld, Alcoa President and Chief Executive Officer. "Recently, aluminum prices have fallen steeply and demand has softened further, while input costs remain high," said Kleinfeld. "The resulting margin squeeze will have a greater impact going forward, but will be somewhat mitigated by the easing of energy prices and a stronger U.S. dollar. We will continue to manage our business to keep it competitive in a turbulent global environment."

"We have taken action to conserve cash and maximize profitability through very adverse economic conditions," said Kleinfeld. "Given the sharp decline in metal prices and increasingly soft demand in our key markets, we are stopping all non-critical capital projects, making targeted reductions to match market conditions, and are adjusting our manufacturing capacity to meet demand in rapidly changing upstream and downstream markets. We are halting production at our smelter in Rockdale, Texas, adjusting alumina capacity accordingly, and are continually reviewing under-performing assets throughout our portfolio. And, we are suspending our share buy-back program."

Kleinfled expressed a better future. "While we face volatile and uncertain markets today, longer term trends will drive a rebound in global aluminum demand and the forward market reflects underlying optimism on medium term aluminum pricing," said Kleinfeld. "During difficult times, we will examine opportunities across the industry to improve our competitiveness, use every lever to improve profitability, and position the company to deliver stronger value when demand improves."

Revenues for the quarter were $7.2 billion, down slightly from $7.6 billion in the second quarter of 2008 due to lower metal prices, seasonal downturns in Europe, and weak end markets, particularly the automotive sector. Revenues in the third quarter 2007 were $6.5 billion after excluding the divested businesses.

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