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Alcoa Signs Contract with Siemens

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Alcoa Power and Propulsion, a business unit of aluminum giant Alcoa Inc. (AA - Free Report) , announced the signing of a long-term deal with Siemens Energy to supply blades and vanes for a wide range of industrial gas turbines. Specific terms of the contract were not revealed, but the company stated that production will be done at Alcoa Power and Propulsion operations in the US and Europe.

Siemens Energy, the energy division of Siemens AG is one of the world’s leading suppliers of products, solutions and services in the energy technology field.

Alcoa said that the parts to be supplied to Siemens will be used for the production of its F-Class turbine, among other designs. Alcoa’s blades and vanes operate in those sections of the turbine where temperatures sometimes exceed the melting point of the casting and the rotational rate exceeds the speed of sound. Alcoa’s technology enables the optimal functioning of the castings, thus providing the customers with reliable electric supply.

Alcoa Power and Propulsion is a global leader in airfoil and structural investment castings and serves the aerospace, defense, energy and industrial markets. Alcoa Inc. is among the world’s leading producers of primary and fabricated aluminum and alumina. Alcoa incurred a loss of $143 million or 13 cents for the third quarter of 2012, driven by a hefty charge associated with environmental remediation and legal settlement as well as lower aluminum pricing. It compared unfavorably with a profit of $172 million or 15 cents a share in the year-ago quarter.

Excluding one-time special items Alcoa earned $32 million or 3 cents a share in the quarter compared with the Zacks Consensus Estimate of a break even result.

Revenues decreased 9.1% year over year and 2.2% sequentially to $5,833 million, but were ahead of the Zacks Consensus Estimate of $5,565 million. The decline in revenues was attributable to a 17% year over year fall in aluminum prices.

Alcoa witnessed strong productivity growth in its upstream and downstream businesses in the quarter on the back of higher utilization rates, process innovations, lower scrap rates and usage reductions. The company saw healthy demand across the aerospace and automotive markets in the quarter.

The company has lowered its global aluminum demand forecast to 6% for 2012 from its earlier expectation of 7%, owing to the slowdown in China. The company, however, expects the aluminum market to double in 2020 from the 2010 level as the market is already ahead of the required compound annual growth rate of 6.5%.

The company competes with Aluminum Corporation of China Limited and RioTinto plc. (RIO - Free Report) . It currently retains a Zacks #3 Rank, which translates into a short-term (1 to 3 months) Hold rating and we have a long-term (more than 6 months) Neutral recommendation on the stock.

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