10-QPeriod: Q3 FY2008

Howmet Aerospace Inc. Quarterly Report for Q3 Ended Sep 30, 2008

Filed October 24, 2008For Securities:HWM

Summary

Alcoa Inc. (HWM) reported a significant decline in its third-quarter and nine-month performance for 2008 compared to the same periods in 2007. The company experienced a substantial decrease in net income, impacted by the absence of a large gain on an investment sale in the prior year, alongside increased operational costs for raw materials and energy. Additionally, Alcoa has been navigating challenges related to a gas outage in Western Australia and temporary smelter curtailments due to power supply issues and market conditions. The company also saw a decrease in sales, largely attributable to the divestiture of its Packaging and Consumer businesses and weaker market demand in automotive and commercial transportation sectors. Despite these headwinds, Alcoa's Primary Metals segment showed some resilience with improved realized prices and increased volumes driven by the Iceland smelter's production. However, the overall financial performance was weakened by rising input costs and the impact of operational disruptions. The company is actively managing its liquidity by halting non-critical capital projects, suspending its share repurchase program, and adjusting manufacturing capacity. While facing economic uncertainties, Alcoa's credit ratings have been affirmed by major agencies, though outlooks have been revised to negative by some due to market weakness and increased debt levels.

Financial Highlights

32 data points
Beta

Revenue

$6.97B

19.0% Gross Margin

Net Income

$268.00M

3.8% Net Margin

EPS (Diluted)

$0.33

Cash & Equivalents

$831.00M

Free Cash Flow

-$964.00M

Financial Statements
Beta
Revenue$6.97B
Cost of Revenue$5.65B
Gross Profit$1.32B
R&D Expenses$61.00M
SG&A Expenses$275.00M
Operating Income$1.16B
Interest Expense$96.00M
Net Income$268.00M
EPS (Basic)$0.33
EPS (Diluted)$0.33

Key Highlights

  • 1Net income for the third quarter of 2008 was $268 million, a substantial decrease from $555 million in the third quarter of 2007.
  • 2Income from continuing operations for the nine months ended September 30, 2008, decreased by 43% to $1,118 million compared to $1,947 million in the prior year.
  • 3Sales decreased by 2% in the third quarter of 2008 to $7,234 million and by 5% for the nine-month period to $22,229 million, largely due to the divestiture of the Packaging and Consumer segment.
  • 4The company incurred restructuring and other charges of $43 million in Q3 2008, including costs related to temporarily idling the Rockdale smelter and layoffs.
  • 5Cash provided from operations significantly decreased to $626 million for the nine months ended September 30, 2008, compared to $2,468 million in the same period of 2007.
  • 6Alcoa took actions to enhance liquidity, including halting non-critical capital projects, suspending share repurchases, and adjusting manufacturing capacity in response to market conditions.
  • 7Several rating agencies (S&P, Moody's) revised their outlook for Alcoa from stable to negative, citing weaker earnings, falling aluminum prices, and weak end markets, while Fitch downgraded its long-term debt rating.

Frequently Asked Questions

The decrease in net income was primarily driven by the absence of a significant gain on the sale of an investment in Aluminum Corporation of China Limited in the prior year's third quarter, coupled with higher costs for raw materials, energy, and other inputs. Additionally, the company faced challenges from operational disruptions like a gas outage in Western Australia and smelter curtailments due to power supply issues and market conditions. The divestiture of the Packaging and Consumer businesses also impacted reported sales.

The divestiture of the Packaging and Consumer businesses resulted in lower reported sales for the third quarter and nine-month periods of 2008. While this removed associated operational costs and potentially unfavorable segment results, it also meant the absence of revenue that was present in the prior year's comparable periods. The company also recognized losses related to the sale of these businesses within restructuring and other charges.

In response to challenging economic markets, Alcoa is implementing several measures to enhance liquidity. These include halting non-critical capital projects, suspending its share repurchase program, making targeted reductions in operations to match market demand, and adjusting manufacturing capacity. The company has also entered into financing arrangements to extend debt maturities and is maintaining higher cash levels.

The outlook for Alcoa is influenced by weakening aluminum end markets and falling aluminum prices. Several rating agencies have revised their outlooks to negative, reflecting concerns about weaker than expected earnings and increased financial leverage. The company anticipates persistent weaker than normal market conditions in key sectors like automotive and commercial transportation, and continued cost pressures. However, Alcoa is focusing on operational adjustments and cost management to navigate these challenges.