Alcoa 4Q14 Earnings Call Notes

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This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Expect near double digit growth in aerospace

“On aerospace, we do believe that there is going to be a growth in this market in 2015 between 9% to 10%. ”

Airlines have good fundamental growth projected

“if you look at the airline fundamentals, we are taking here the IATA expectations. What they expect for this year is 7% increase of passenger, a 4.3% increase of cargo demand. Airline profits are supposed to go up to a level of $25 billion for the airlines. That’s pretty amazing.'”

Expect auto to be up 1-4% this year

“North America we believe we’re going to see a growth between 1% to 4%. That’s a pretty big range. Mary Bara, the CEO of GM last week came out with her estimate of roughly 3%. So that’s in that range. And this is obviously on top of the 2014 goals. In 2014 we’ve seen the USA is up 5.8%, 16.4 million vehicles. Production also strong than the 15.7 million vehicles. All of those numbers are year to date November numbers. This is up 4.4% compared to the prior year.’

China auto growth 6-8% expected

“China, a good story. We believe 5% to 8% growth on top of the 6.9% that we saw in the full year 2014 and the growth is driven very strongly by the middle class, increased middle class. And also by the Clean Air Act. The China Clean Air Act is supposed to scrap older less clean cars and they are trying to get 15 million vehicles off the roads and replaced obviously by 2017.”

Two businesses at Alcoa

“On the one hand we are building a lightweight multi-material innovation powerhouse, and at the same time we’re creating a globally competitive commodity business.”

Multi-material powerhouse means getting aluminum into more products

“We are increasing share in exciting growth markets; like aerospace, automotive, heavy duty trucks and trailer, building and construction, many of those that I just talked about. We have a full pipeline of innovative products and solutions. You just saw that again in the last quarter, what we came on with our breakthrough Micromill materials. We are using all those levers from organic to inorganic. We are shifting the mix to higher value add.”

expanding metals portfolio with investments

“we’re expanding our multi-materials portfolio with smart investments. Firth Rixson…making us a global leader in seamless rolled rings, giving us access to a full range of engine disk, give us access to a unique technology called Isothermal forging, and giving us increasingly multi-materials mix to having here in the Firth Rixson 60% nickel base, 25 titanium, 15 steel and aluminum. And TITAL falls kind of in the same logic. It establishes for our core titanium casting capability in Europe.”

Even with oil prices down, OEMs are going to lightweight because CAFE standards require them to

“one of the big questions that I’ve been getting and Bill has been getting here from you all in the last weeks is what about lightweighting in a potential environment where the gas price is coming down…Why do the OEMs need it? So let’s start here on the left hand side. Because there is such a thing called CAFE regulations”

Signs that consumer preference has shifted with lower gas prices

“while the gas price has been coming down, the consumer preference has been a shifting a bit. It’s probably too early to tell though that’s really a trend here, but it’s an interesting development. So lower gas prices I would say increase — lead to bigger vehicles.”

Boeing and Airbus’ more efficient planes are still here to stay

“The second big driver was the increase of efficiency on the planes, and you typically see that new planes on new re-engine models; if you look at on average the claim buy Boeing and Airbus is that they give you 25% increased efficiency and that’s also not going to go away.”

Lower oil prices lead to higher profitability

“the direct impact that Alcoa has outside of the industry impact here, for every $10 per barrel, up or down it means for us 40 million pre-tax profitability impact. That’s after minority interest. And that basically comes to two factors. One is the two oil based refineries that we still have in the portfolio. One is [indiscernible] and the second one is the transportation cost, simply the transportation cost. So that’s the direct impact.”