Alcoa 2Q15 Earnings Call Notes

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Aerospace strong, and resi construction recovering but weakness in Europe continues

“The aerospace market is remaining strong. We see continued recovery in North American non-residential construction. Weakness in Europe continues. We anticipate the usual European summer slowdown across all sectors, and we have continued strength in North American heavy-duty truck build rates and gradual recovery in Europe.”

Raising north american truck forecast

“et’s go to the next end market, heavy-duty trucks and trailer. Let’s start with North America. And this is really a fascinating story. That score, we expected growth this year between 6% to 8%. And we’re ramping this up to 9% to 11%. And the reason for this is because we were originally assuming that the supply chain would not be able to support much higher [?] in the second quarter, and we are now seeing production peaking at +18.7% at 137,000 trucks. Their order book is largely has increased 42% year-over-year, stands at 169,000 trucks just compared to this 10-year average is 100,000 trucks cover orders or decreasing 8.6% after the record fourth quarter 2014 numbers. The fundamentals are very solid, 2.3% freight ton miles and a 54% fleet profitability in the first quarter this year.”

Taking European trucking up as well

“On the European heavy trucks and trailers, we actually also taken our number up. It used to be minus 5% to minus 7% for this year, and we believe it is more likely to be around minus 2% to zero. The reason for this is because we see production increasing by Western Europe, 5.2%, and improving conditions in Western Europe. Orders are up 12.2%. Registrations are up 17.8%.”

China trucking down a lot though

“In China, we actually bring the number down. We used to think minus 9% to minus 11%, and we now think minus 14% to minus 16%. The production is down by 34%, and this still suffers from the strong pull ahead that they had due to the Stage 4 regulations.”

North American construction still positive

“When you go to building and construction, actually we do believe in North America continue to believe in the 4% to 5% growth for this year. The early indicators are really positive.”

Lightweight trend will continue in automotive

“the lightweight trend will continue and we are super well-positioned there. Why will it continue? Because of the CAPE [ph] regulations, the OEMs needed, they need to lightweight who has the solution, the end customer’s benefit from it, they get fuel efficiency and money savings, they get more payload, they get faster acceleration and improved breaking.”

We are really optimistic about the aerospace market

“you can see that we are really optimistic, as most people are, in where this market is going, right? So, and the fundamentals are there. I mean, and they are very different from what we’ve seen before. We didn’t have an emerging Asia that adds 100 million new passengers every year in the next 20 years every year. We didn’t have a situation where the next-generation aircraft was so much more attractive in terms of fuel efficiency and maintenance costs and where we literally had 600 aircraft per annum retiring every year.”

The Rolls Royce thing is more a company specific thing

“we do see a robust demand also on the engine side, which is basically a derivative of the planes and of the new planes and the usage, and we do not see any dips in there or any risks. I think that is more, and I think if you talk to the experts there you would very soon see that this is more a company-specific thing rather than a market situation, right?”

Enormous headwinds on the packaging side

“when you see the decline in the enormous headwinds that we are facing on the packaging side, I mean, when I look at our rolling business, I must say, I mean, they are doing on both sides a really, really good job to bring the cost down in the packaging business.”

The Chinese don’t want primary metal leaving their country

“why have they put these procedures in place? Because they don’t want primary metal to leave the country, because primary metal is another way, it’s a liquefied way of energy. And that energy that they don’t have enough in their country, and that has a level of pollution, creates a level of pollution and eats up water in areas where there is water shortage.”

China’s government is very focused on how their people are feeling about government

“this government, as we could see today again and yesterday, I mean, it’s very much also focused on how their people are feeling about the government, right?”