ALCOA INC. $37 (New York symbol AA; Conservative Growth Portfolio, Resources sector; Shares outstanding: 815.1 million; Market cap: $30.2 billion; WSSF Rating: Above average) is one of the world’s leading producers of aluminum.
In February 2008, Alcoa sold its packaging and consumer businesses for $2.5 billion. These operations accounted for 11% of its total sales.
If you exclude restructuring costs and other unusual items, Alcoa earned $0.44 a share ($361 million) in the first quarter of 2008, down 44.3% from $0.79 a share ($691 million) a year earlier. Cash flow per share fell 29.1%, to $0.90 from $1.27. Alcoa needs large amounts of electricity to refine raw alumina, and higher power costs hurt its profits and cash flow in the latest quarter. The weaker U.S. dollar also hurt its earnings. However, Alcoa’s new lower-cost plants put it in a good position to expand earnings in the next few years.
Revenue fell 6.3%, to $7.4 billion from $7.9 billion, due to the sale of the packaging and consumer operations. On a comparable basis, revenue rose 6%.
The stock recently shot up to $44 on takeover rumors, but moved down after the company warned that natural gas supply problems at its Australian operations would cut its second-quarter earnings by $0.03 a share.
However, the long-term outlook for aluminum remains bright. Alcoa now trades at 12.7 times its likely 2008 earnings of $2.91 a share. The $0.68 dividend yields 1.8%.
Alcoa is a buy.
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