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Alcoa Q3 Results Miss View; Stock Down

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Alcoa Inc. (AA), the largest producer of aluminum in the US, reported a profit for the third-quarter that significantly increased from last year, but quarterly revenue declined.

Both adjusted earnings per share and revenue for the quarter missed analysts' expectations.

This will be the last quarterly report for Alcoa before it splits into two companies- Arconic and Alcoa Corporation. The Company's separation is scheduled to become effective before the opening of the market on November 1, 2016.

In the pre-market trade, AA is currently trading at $30.40, down $1.11 or 3.52 percent.

"Profits grew in the combined Arconic segments, and Alcoa Corporation segments managed successfully to stay profitable in a low pricing environment. .. The strength of both future companies is the result of our multi-year strategy and allows us to launch two strong, independent entities," said Klaus Kleinfeld, Alcoa Chairman and Chief Executive Officer.

For 2016, Alcoa projects a global alumina deficit of 1.6 million metric tons. The Company also continues to project a global aluminum deficit of 615 thousand metric tons in 2016 as 5 percent global aluminum demand growth surpasses 3 percent global aluminum supply growth.

Alcoa reported third quarter 2016 net income of $166 million, or $0.33 per share, compared to $44 million, or $0.06 per share in the third quarter of 2015. The latest-quarter result included a net $5 million in income related to special items primarily associated with the sale of non-essential land offset by separation costs and associated tax impacts.

Excluding the impact of special items, third quarter 2016 net income was $161 million, or $0.32 per share, compared to $109 million, or $0.21 per share last year. All segments contributed a combined $246 million after-tax in productivity gains, partially offset by lower alumina pricing, cost increases, unfavorable price and product mix, and unfavorable currency impacts. Analysts polled by Thomson Reuters expected the company to report earnings of $0.35 per share for the quarter. Analysts' estimates typically exclude special items.

Year over year, the impact of curtailed and closed operations, lower alumina pricing and an unfavorable price and product mix resulted in third quarter 2016 revenue of $5.21 billion, down about 6 percent year over year from $5.57 billion in the third quarter of 2015. Wall Street expected revenues of $5.33 billion for the quarter.

In the third quarter, Alcoa completed the sale of the Intalco smelter wharf and other excess property, in the state of Washington, for $120 million.

In the fourth quarter of 2016, the Company expects other potential asset sales of approximately $250 million. Gross proceeds from Company asset sales completed in 2016 are expected to total approximately $1.2 billion.

The global aerospace market continues to undergo a transition as new aero engine launches accelerate demand, outpacing near-term demand for airframe components, which is being partially absorbed through de-stocking. As a result, Alcoa forecasts full-year 2016 aircraft deliveries to be flat to up 3 percent. Strong market fundamentals continue to drive long- term demand.

Alcoa continues to forecast global automotive production growth of 1 to 4 percent in 2016, unchanged from the prior quarter. This includes 1 to 2 percent growth in North America, where overall sales are up slightly, and a strengthening outlook in China.

The 2016 global packaging market is projected to be up slightly for the year, with growth of 2 to 3 percent, up slightly from the prior quarter's forecast of 1 to 3 percent. The global building and construction market is projected to grow 4 to 6 percent in 2016, unchanged from the second quarter.

For 2016, Alcoa projects a global alumina deficit of 1.6 million metric tons. The Company also continues to project a global aluminum deficit of 615 thousand metric tons in 2016 as 5 percent global aluminum demand growth surpasses 3 percent global aluminum supply growth.

Alcoa is providing new full-year 2016 goals to reflect near-term industry challenges and foreign exchange impacts. In aerospace, this includes an unprecedented industry ramp-up to new platforms, destocking and supply chain optimization in airframes.

Global Rolled Products targets revenue of $4.8 billion to $5.0 billion for full year 2016. This is revised from $5.0 billion to $5.2 billion for full year 2016, a target adjusted from the earlier $6.0 billion to $6.2 billion to reflect the transfer of the rolling mill in Warrick, Indiana, to the future Alcoa Corporation; the impact of a tolling arrangement between Alcoa Corporation and Arconic for can body sheet at Tennessee Operations; and the updated impact for changes in both the London Metal Exchange aluminum price and foreign currency exchange rate assumptions versus 2013. The goal for adjusted EBITDA per metric ton remains unchanged at or above average historical highs of $344.

Following the Company's separation, Alcoa Corporation will comprise Bauxite, Alumina, Aluminum, Cast Products, and Energy - today's Alumina and Primary Metals segments - as well as the rolling mill operations in Warrick, Indiana, and Saudi Arabia currently part of the Global Rolled Products segment. In third quarter 2016, the Alumina and Primary Metals segments reported revenue of $2.3 billion, ATOI of $128 million and adjusted EBITDA of $318 million.

The Pension Benefit Guaranty Corporation has approved management's plan to separate the Alcoa Inc. pension plans between the future Arconic Inc. and Alcoa Corporation. The agreement stipulates that Arconic will make cash contributions over a period of 30 months to its two largest pension funds. Payments are expected to be made in three increments of no less than $50 million each over this 30-month period, with the first payment due no later than six months after the separation of the Company.

by RTT Staff Writer

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