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Alcoa announces income from continuing operations of $298 million

Alcoa : 07 October, 2004  (Company News)
Alcoa announced today that its income from continuing operations was $298 million, or $0.34 per diluted share, in the third quarter, up from $285 million, or $0.33, in the third quarter of 2003, and down from $405 million, or $0.46, in the previous quarter.
Alcoa announced today that its income from continuing operations was $298 million, or $0.34 per diluted share, in the third quarter, up from $285 million, or $0.33, in the third quarter of 2003, and down from $405 million, or $0.46, in the previous quarter.

Net income in the quarter was $283 million, or $0.32, down from $404 million, or $0.46, in the previous quarter, and even with $280 million, or $0.33, in the third quarter of 2003.

Year-to-date, income from continuing operations was $1053 billion, or $1.20, 52 percent more than 2003's result of $695 million, or $0.82. During this time period, the average cash aluminium price traded on the LME increased by 20%.

The quarter's results were negatively affected by several events, including the previously announced impact of the strike at the Becancour, Quebec smelter and costs associated with the impact of Hurricane Ivan on the Jamalco refinery. The quarter's results do not include the previously announced charge that was expected to be recorded for layoffs at the Wenatchee facility since a tentative agreement with the United Steelworkers of America (USWA) and its affiliate, the Aluminum Trades Council of Wenatchee, was reached that will allow restart of the facility.

'Industry fundamentals and performance in key markets continue to be strong. Our efforts to tackle higher labor and health care costs in North America lowered profitability. We are taking the right approach to ensure competitiveness for the long-term', said Alain Belda, Alcoa Chairman and CEO.

Sales in the quarter of $5975 billion rose 12.5% over revenue in the third quarter of 2003. Sales were down slightly over the sequential quarter's $6070 billion, primarily because of lower activity in the company's automotive markets. Upstream markets for alumina and aluminium remained strong in the quarter, as worldwide demand pushed industry inventories lower. Beyond customary seasonality within some downstream markets, the automotive, consumer packaging and European fabricated aluminium markets saw softness in the third quarter. Commercial transportation and aerospace markets continued to gain momentum.

Higher input costs, particularly energy in Europe and North America, negatively affected several businesses, and the increase in prices for petroleum-derived products, like resin, caused higher costs in the packaging businesses.

Foreign currency translation resulted in a pre-tax loss of $17 million in the quarter. The company's return on capital stood at 8.7 percent on a trailing four quarters basis.

Segment and other results
All comparisons on a sequential quarter basis, unless noted:

*Alumina and Chemicals - Segment profitability increased $10 million (6%) driven by the favourable impact of winding down an alumina-tolling contract, offset by throughput issues in Western Australia. Alumina production for the quarter was 3546 thousand tonnes (kmt). The financial impact caused by the damage in Jamaica is partially recognized in this segment and partially recognized in the ATOI reconciliation.

*Primary Metals - Segment profitability decreased $42 million (18%) largely because of the strike at the Becancour facility, unfavourable currency effects, higher energy costs, and higher maintenance expenses. Realized prices were flat with the second quarter. Primary metal production for the quarter was 821 kmt down from 863 kmt in the second quarter due primarily to the curtailment of Becancour. The company purchased roughly 200 kmt of primary metal for internal use as Alcoa continued to execute on its strategy of selling value-added products.

*Flat Rolled Products - Segment profitability increased $3 million to $62 million, up 5% from the second quarter. The resolution of prior quarter operational issues in the Tennessee, USA, and the Kitts Green, UK, facilities led to higher shipments and revenue in the segment. Continued strong pricing in North America helped to offset the traditional slowdown associated with North American automotive OEM shutdowns.

*Engineered Products - Segment profitability fell by $18 million, to $60 million. The decline in profitability was largely driven by lower shipments to the automotive industry coupled with ramp-up costs associated with expected higher future demand in the aerospace and commercial vehicle markets.

*Packaging and Consumer - Typical seasonal decline in demand in the closures business, softness in the consumer products business, persistently higher resin costs and the negative impact of the KAMA fire led to a $13 million decline in segment profitability.

*Other - Profitability decreased $18 million driven by lower shipments to the automotive market, partially offset by stronger results at Alcoa Home Exteriors.

The largest variances in reconciling items were in the ‘other’ and ‘discontinued operations’ line items. ‘Other’ changed largely due to the non-recurrence of the second quarter environmental charges and the gain on early debt repayment, lower dividend income and unfavorable translation effects of currency. ‘Discontinued Operations’ includes the charge associated with the anticipated sale of the protective packaging business.
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