Alcoa to Divest Rockdale Assets

Aluminum giant Alcoa Inc. (AA - Analyst Report) intends to divest certain assets at its Rockdale, Texas site to Lower Colorado River Authority. The sale will include approximately 34,000 acres of property, all surface and groundwater rights, certain common plant and equipment assets, and Alcoa’s power contracts with Luminant. However, Alcoa did not disclose the terms of the deal.

The deal is expected to close by early next year subject to requisite approvals and fulfillment of necessary conditions. Alcoa also announced that it will retain the ownership of its smelter and aluminum powder operations at the site.

Alcoa had temporarily stalled smelting operations in Rockdale back in 2008 and permanently shut down two of its six lines in January this year to reduce costs due to weak aluminum prices.

Alcoa is a leading producer of primary and fabricated aluminum as well as the world’s largest miner of bauxite and refiner of alumina. The company reported a loss of $2 million (break-even on a per-share basis) in the second quarter of 2012 compared with a profit of $322 million (or 28 cents a share) in the year-ago quarter. The year-over-year decline was due to lower aluminum prices.

Excluding one-time special items (including restructuring and other charges, litigation expenses and tax-related items), Alcoa earned 6 cents a share in the quarter, in line with the Zacks Consensus Estimate but lower than the year-ago earnings of 32 cents per share.

Revenues decreased 9.4% year over year to $5,963 million, but were ahead of the Zacks Consensus Estimate of $5,828 million. While weak aluminum prices dragged down revenues, the company witnessed increased demand across aerospace and automotive markets in the quarter. Aluminum prices dropped 18% year over year and 4% sequentially in the quarter.

Alcoa witnessed strong performances across all its businesses during the quarter, driven by higher utilization rates, process innovations, lower scrap rates and usage reductions. The company expects higher demand for aluminum from automobile, aerospace, packaging and commercial transportation end markets in the near term.

Alcoa competes with Aluminum Corporation of China Limited (ACH) and RioTinto plc. (RIO - Analyst Report). The stock maintains a Zacks #4 Rank, which translates into a short-term (1 to 3 months) Sell rating.