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Alcoa Slashes Profit Outlook on Higher Costs by Paul Glader Wall Street Journal - September 23, 2005

PITTSBURGH -- Alcoa Inc., the world's largest aluminum producer, sharply cut its outlook for third-quarter profit because of higher energy and raw-material costs, as well as lower selling prices for aluminum.

"This quarter, we are squeezed between a weaker upstream pricing environment and significantly higher energy and input costs," Chairman and Chief Executive Alain Belda said in a statement. "We continue to face challenges from escalating costs in energy and raw materials."

Alcoa said it expects earnings from continuing operations to be between 27 cents and 31 cents a share for the third quarter, well below the current Thomson First Call average estimate of 43 cents a share. A year earlier, the company earned 34 cents a share from continuing operations.

Aluminum prices have rebounded 10% on the London Metal Exchange during the third quarter to about $1,858 a metric ton of aluminum, up from less than $1,700 a ton in early July. However, Lloyd O'Carroll, chief economist and metals analyst at BB&T Capital Markets in Richmond, Va., says part of the problem for Alcoa is the lag between when contracts were signed in the second quarter -- when aluminum prices were lower -- and when the sales were finalized in the third period.

Indeed, the company said that while aluminum prices have strengthened recently, those improvements won't fully be felt until the fourth quarter.

The company said demand was weaker in Europe and also in the North American automotive market, which has seen auto production slow in recent months amid higher gas prices. Alcoa also said that its results could be affected by the recent hurricanes. The company has temporarily closed its alumina refinery in Point Comfort, Texas, as well as its anode plant in Lake Charles, La. "You would think one of them would get hit," Mr. O'Carroll said. "They are at risk. How much damage and how big a deal this is, it's too early to know."

Alcoa shares were halted for late trading on the New York Stock Exchange. At 4 p.m., the stock was down 18 cents to $25.90.