Alcoa (AA) To Shutter 50-Year-Old Smelter

NEW YORK (TheStreet) -- Aluminum producer Alcoa (AA) announced it will close its Point Henry smelter and two rolling mills in Australia after a two-year review proved they wouldn't return to profitability.

The smelter was placed under strategic review in February 2012 amid challenging conditions for the industry. The two-year review found the 50-year-old smelter had "no prospect of becoming financially viable."

Meanwhile, the rolling mills which serve Australian and Asian can sheet markets have been undercut recently by a surplus from Chinese producers.

The three facilities employ just under 1,000 people combined.

"We recognize how deeply this decision impacts employees at the affected facilities and are committed to supporting them through this transition," said CEO Klaus Kleinfeld in a statement. "Despite the hard work of the local teams, these assets are no longer competitive and are not financially sustainable today or into the future."

Restructuring-related charges over fiscal 2014 are expected between $250 million and $270 million, or 22 cents to 25 cents a share, of which 60% will likely be recorded in the first quarter.

The closures will reduce the company's smelting capacity by 190,000 metric tons, around 10% of Australia's total annual output, and reduce can sheet capacity by 200,000 metric tons.

The Geelong, Vic.-based smelter will close in August and the two rolling mills will shutter by the end of 2014.

By late afternoon, shares had edged 0.09% higher to $11.38.

TheStreet Ratings team rates ALCOA INC as a Hold with a ratings score of C. The team has this to say about their recommendation:

"We rate ALCOA INC (AA) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. Among the primary strengths of the company is its solid stock price performance. At the same time, however, we also find weaknesses including deteriorating net income, disappointing return on equity and poor profit margins."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • AA's share price has surged by 25.27% over the past year, reflecting the market's general trend, despite their weak earnings growth during the last quarter. Although AA had significant growth over the past year, our hold rating indicates that we do not recommend additional investment in this stock at the current time.
  • AA, with its decline in revenue, slightly underperformed the industry average of 4.2%. Since the same quarter one year prior, revenues slightly dropped by 5.3%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • ALCOA INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, ALCOA INC swung to a loss, reporting -$2.15 versus $0.17 in the prior year. This year, the market expects an improvement in earnings ($0.30 versus -$2.15).
  • The gross profit margin for ALCOA INC is rather low; currently it is at 15.70%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -41.88% is significantly below that of the industry average.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Metals & Mining industry. The net income has significantly decreased by 1066.5% when compared to the same quarter one year ago, falling from $242.00 million to -$2,339.00 million.

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