Shares of Alcoa traded even in after hours trading after the aluminum maker reported second quarter earnings. The company reported adjusted earnings per share of $0.06 for the period. Revenue of $6.0 billion was down 9% from last year’s second quarter. Strong sales offset a decline in metal prices.
While many see Alcoa as a global aluminum play, the company is seeing increased demand for aluminum right here in the United States. Automobile manufacturers along with the aerospace industry are seeking out Alcoa’s aluminum to create lightweight vehicles.
The increased supply should bode well for Alcoa and other aluminum producers like Rio Tinto. Alcoa has stated they will be cutting aluminum production by 12%, while Rio Tinto will also cut production by double digits. So with the number one and two aluminum producers creating less aluminum, the market is shaping up for a shortfall. Several analysts predict a surplus of aluminum, which would leave prices stable or decreasing once again. Aluminum prices are hitting low prices this year of close to $2,000 a ton and are down over 20% in value from the previous year. If there does end up being a shortfall, prices of aluminum will stabilize and regain their all time highs, setting up a return to normalcy for Alcoa.
Demand for aluminum in automobiles and aircraft reported from Alcoa also leads to signs of strengths in those two areas. Car companies have responded to consumer wants by shifting away from trucks and SUVs into lightweight fuel efficient cars. Alcoa is right there to meet the demand of the automobile manufacturers.
Tighter government regulations are coming to the United States for miles per gallon from automobiles. In fact, America’s worry of increasing miles per gallon from cars will ensure that aluminum is needed from Alcoa for quite some time. With rising costs of jet fuel, airplane companies are trying to make their aircraft lighter in weight to save on fuel efficiency.
In fact, every area of operation for Alcoa has similar demands for aluminum to lower end costs for customers. The company with a huge global presence can tackle the demand in the United States and also maintain international sales. Despite a poor economic situation in Europe, the demand for aluminum will still be there in 2012 and 2013. Emerging markets like Brazil, with a World Cup and Summer Olympics to be hosted in 2014 and 2016, will continue to take advantage of lower aluminum prices to build out infrastructure.
Alcoa shares trade close to a fifty two week low and are almost 50% away from their fifty two week high. Around 7.5% of shares are short, meaning the majority of investors are going long this worldwide aluminum producer. With $0.93 earnings per share projected for fiscal 2013, shares now trade for less than ten time forward earnings, representing possibly the greatest price to earnings value in the Dow Composite.