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Alcoa's profit jumps 60%

Higher metal prices help boost fourth-quarter earnings. Annual results climb to records.

January 10, 2007|From Bloomberg News

Alcoa Inc., the world's biggest aluminum maker, said profit jumped 60% in the fourth quarter as metal prices gained.

Net income rose to $359 million, or 41 cents a share, from $224 million, or 26 cents, a year earlier, New York-based Alcoa said Tuesday. Sales climbed 20% to $7.84 billion. Annual earnings and revenue climbed to records. Profit excluding items in the latest quarter topped analysts' estimates, sending its shares up in after-hours trading.

"The company all along had the opportunity to surprise with higher metal prices," said Scott Burns, an analyst at Morningstar Inc. in Chicago. "It was up to them to execute, and they did that."

Alcoa got $2,766 a metric ton for aluminum, up 27%. Earnings were reduced by $386 million in costs to cut jobs and close plants. Chief Executive Alain Belda is trimming expenses after the stock trailed benchmark U.S. indexes and the shares of Alcan Inc., the second-largest aluminum producer.

Profit excluding items was 74 cents a share, Alcoa said. On that basis, the company was forecast to earn 65 cents, according to a survey by Thomson Financial.

The earnings news sent shares of Alcoa up $1.18 to $29.70 after the close of regular trading.

Net income in 2006 rose 82% from a year earlier to $2.25 billion. Revenue climbed 19% to $30.4 billion. Sales were driven by demand in the aerospace, transportation and building industries, the company said. Aluminum prices on the London Metal Exchange rose 23% last year.

"If we find that the end markets remain strong, especially in aerospace and also the construction market, that should be a big positive for next year," said Peter Klein, portfolio manager at Fifth Third Asset Management.

Fourth-quarter shipments rose 1% to 908,000 tons, the company said.

Alcoa was the first company in the Dow average to report fourth-quarter results. The shares have dropped 5% this year, and the Dow is down 0.4%.

"As we enter 2007, market fundamentals remain strong," Belda said Tuesday.

Alcoa and Alcan are closing smelters in Europe and North America because of high power costs and switching to countries such as Iceland and Brazil that offer cheaper electricity. Power can account for about a third of production costs.

"If you are in a commodity product like Alcoa where you have relatively little control over selling costs, the only thing you can really work on is expenses," Charles Bradford, an analyst at Soleil Securities in New York, said before results were announced.

"The big program is to build new smelters in places with lower costs."

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