Alcoa Breaks Ground on New Facility

Alcoa Inc. (AA - Analyst Report) announced that it has begun construction of its $90-million, 115,000 square-foot greenfield aluminum lithium expansion project of Lafayatte, Indiana facility that will produce state-of-the-art aluminum lithium alloy. The new facility is expected to start production by the end of fiscal 2014. The company’s investment in the facility is supported by the Indiana Economic Development Corporation.

The newly introduced alloy will help airplane manufacturers produce relatively light weight wings and fuselage without resorting to composite materials. Moreover, the expansion of the facility is expected to create around 75 permanent jobs and about 150 temporary jobs during the period of construction.

The primary target of the company is to help the original equipment manufacturers reduce fuel consumption per seat mile. The expansion will help the company produce more than 20,000 tonnes of aluminum lithium, and cast round and rectangular ingot for rolled, extruded and forged applications.

Alcoa released its first-quarter 2012 results in April. The company reported earnings of 9 cents per share in the quarter in contrast to a loss of 18 cents in the fourth quarter of 2011. However, it came below the earnings of 27 cents a share recorded a year ago.

Excluding restructuring charges and other items, Alcoa's profit came in at 10 cents per share, beating the Zacks Consensus Estimate of a loss of 4 cents per share. The impressive results coupled with the company’s bullish outlook pushed up its stock price by 5.4% to $9.82 in after-hours trading.Higher production and volumes as well as improved market conditions drove Alcoa’s results.

Quarterly revenues increased by 0.3% sequentially to $6,006 million and edged up 0.8% over the prior-year quarter. It surpassed the Zacks Consensus Estimate of $5,735 million. The increase in revenues was driven by strong results in Global Rolled Products and Engineered Products and Solutions.

For 2012, Alcoa expects global aerospace market to grow by 3 percentage points to 13% to 14%. The company also expects global growth for the automotive sector to be in the range of 3%-7%, commercial transportation in the range of 1%-5%, packaging in the range of 2%-3%, building and construction in the range of 2.5%-3.5%, and industrial gas turbine in the band of 1%-2%.

The company believes that there will be a deficit in global aluminum supply in 2012. Besides, Alcoa reiterated its expectation that aluminum demand will grow by 7% globally in the year.

Pennsylvania-based Alcoa Inc. is among the world’s leading producers of primary and fabricated aluminum and alumina. It competes with Aluminum Corporation Of China Limited ((ACH) and RioTinto plc. ((RIO - Analyst Report).

We believe that the Alcoa’s cost reduction measures are offsetting the negative impact of higher energy and raw material costs on its profitability to some extent. The company aims to reduce costs in its upstream business and achieve record profits in its mid stream and downstream businesses. It is also divesting underperforming assets through its restructuring program.

Currently, the stock maintains a Zacks #3 Rank, which translates into a short-term (1 to 3 months) “Hold” rating and we have a long-term recommendation of “Neutral” on the shares of the company.