Alcoa 2Q16 Earnings Call Notes

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Alcoa’s (AA) CEO Klaus Kleinfeld on Q2 2016 Results

Revenue down 1% y/y

‘Revenues of 3.4 billion, that’s down 1% year-over-year and this basically reflects the customer adjustments of the delivery schedules in the aerospace industry, softness in the North American commercial transportation market, pricing pressures partially offset by the North American automotive volumes.”

Demand for aircraft is pretty flat, softening demand in wide body segment

“In the third quarter, we’ve seen large commercial aircraft deliveries up 3%. The growth year-to-date is kind of flat and so we believe that the year 2016 is more likely to come out at the low end of the range and the range being 0 to plus 3%. We also see solid growth of narrow and softening demand for wide body segment.”

North American auto growing 1-2%

“So let’s move on to automotive and let’s go to North America. We believe it’s going to grow 1% to 2%. In the second quarter we had a range still between 1 to 4, but we are now seeing there’s rather a narrow range than the one that we had planned. What we do see is product is up 2.4%, but it’s really a tale of two cities.”

100m vehicles older than 12 years in the US

“The demand we believe for longer term, we do see a sustained demand picture in the US. If you just look at the vehicles that are 12 years and older the number is more than 100 million out of 258 million that are in operation. So it’s a big chunk that potentially is kind of sitting there as future demand.”

China could actually be better than what we saw in the last quarter

“On China, we actually believe that it’s going to be better than what we saw in the last quarter, 6% to 8% we see here up from the 3% to 5% that we saw before. Production is up almost 11%, sales up 11%, and some of the legislation is helping us to get boosted. So that’s the picture on automotive.”

Packaging actually a little higher than we saw before

“Packaging, actually we do see global growth rather a little bit higher than what we saw before. Before we said one to three, and we said 2 to 3 very strongly driven by the US where we saw minus 1 to 0 as a picture before and we think now it’s a little bit 0 to 1”

William Oplinger

Weakness in heavy duty truck offset by growth in construction

“As we look to the fourth quarter, we expect continued weakness in the North American heavy duty truck market to be offset by growth in our building and construction business, and productivity gains. Overall, fourth quarter ATOI is expected to be up 8% to 10% year-over-year to $43 million to $44 million.”

Global consumption expected to be 60m tonnes

“Now I’ll move to review the aluminum market fundamentals. Global demand remains robust at 5%, while supply has increased slightly from last quarter, keeping the overall market balance of our 2016 aluminum balance in depths at range of 615,000 metric tons. Global consumption is projected to reach 59.7 million metric tons.”

Alumina market is in deficit

“We then turn to alumina; the alumina market is in deficit of approximately 1.6 million metric tons, representing a larger market deficit than what we had reported in the second quarter. The deficit increased due to the combined impact of three main factors; higher alumina demand in both China and the rest of the world from increased smelter production, lower rest of the world supply, as (inaudible) curtailment and slowed expansion in India combined to lower the overall rest of the world supply. And in China a few faster restart in additional expansion have increased 2016 Chinese alumina supply. “