The Economy

Alcoa’s Q1 Profit Falls 92% on Weak Aluminum Prices

The metals maker may cut as many as 2,000 positions to improve its cost structure.
Katie Kuehner-HebertApril 12, 2016
Alcoa’s Q1 Profit Falls 92% on Weak Aluminum Prices

As Alcoa moves to spin off its more profitable aerospace and automotive-focused business, the metals-maker’s topline figures for the first quarter were dragged down by weak aluminum prices and negative foreign exchange impacts.

As a result, the New York-based company on Monday said it might have to cut as many as 2,000 jobs.

Alcoa reported that net income including special items fell 92% to $16 million, slightly beating analysts’ expectations, and revenue fell 15% to $4.9 billion, below expectations. Excluding the impact of special items, first quarter 2016 net income was $108 million, or 7 cents a share.

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Alcoa’s primary metals operations, which include smelting, mining and refining, reported that revenue fell 32% to $2.1 billion, due mainly to lower prices and unfavorable FX rates. Operating earnings were $22 million as the company’s alumina and aluminum businesses both remained profitable.

For the units that Alcoa will spin off later this year into a new company to be called Arconic, revenue fell 2.2% to $3.3 billion. Operating earnings rose 8% to $269 million.

“Profits grew in all of the Arconic segments, led by automotive and aerospace,” chief executive Klaus Kleinfeld said in a press release, while its legacy segments “maintained profitability in a persistently low pricing environment.”

To strengthen Alcoa’s cost structure, the company said that its engineered products and solutions unit was taking a number of actions, including headcount reductions, overtime reduction, productivity savings, and other cost controls. The business reduced its workforce by 600 positions in the first quarter and plans a further reduction of 400 positions. Additionally, given the current market environment, the unit is evaluating another cut of as many as 1,000 positions.

Alcoa has been greatly impacted by lower raw metal prices, according to The Wall Street Journal. Aluminum prices are down 40%, to around $1,500 per ton, in the last five years on the London Metal Exchange.

As of Tuesday at 1 p.m., Aloca’s shares had fallen 4%.