RE: Alcoa,REALLY busy Posted on Fri, Sep. 23, 2005
Analysts: Alcoa may have to shift production out of North America
SEAN D. HAMILL
Associated Press
PITTSBURGH - Alcoa Inc. may have to shift production from expensive North American plants to ones in cheaper countries if the high cost of energy and raw materials is more than a short-term problem, analysts said Friday.
"They would have to look at higher cost operations, and that comes down to the North American region," said analyst Bill Selesky of New York-based Argus Research Corp. "They'll have to look for ways to cut costs."
The world's largest aluminum maker announced late Thursday that third-quarter earnings would fall far short of Wall Street's expectations, dropping its projections of earnings into a range of 27 cents to 31 cents per share. That's a one-third drop from the 43 cents per share that analysts surveyed by Thomson Financial had been expecting.
The company's stock plummeted $1.48 per share on the announcement, hitting $24.42 at the close of trading Friday on the New York Stock Exchange. The stock had previously traded in a 52-week range between $25.55 and $34.99.
Analysts' reactions were mixed, with some, like those at Goldman Sachs and Prudential, downgrading their ratings for Alcoa, but others, including Selesky, holding firm with a "buy" recommendation.
"It is trading at a 52-week low," Selesky said. "But we think most of the bad news is out there now."
Analysts said this is the third straight quarter the company has cited higher energy and raw materials costs, and it may be time to start viewing the increase as a long-term problem for Alcoa and all manufacturing companies.
"If this is a long-term shift in gas and energy prices, you've simply got to pay the costs," said Lloyd O'Carroll of BB&T Capital Markets in Richmond, Va. "But then you start asking: Should we build plants one place versus another place?"
Alcoa Spokesman Kevin Lowery on Friday said he couldn't give any detailed projections about what the company may do to make up for those rising costs.
"But I think it's safe to say that our company is going to be willing to do whatever it takes to address the costs that affect it in the long-term," he said.
Lowery conceded that many of the company's 250 North American facilities have higher costs than others around the world, "but many are also very competitive."
Earlier this year, Alcoa announced two rounds of layoffs that would cut a total of 8,300 jobs worldwide out of its 131,000-person work force. The company said the cuts are expected to save $195 million annually.
The United Steelworkers Union, which represents 13,000 Alcoa plant workers in the United States, has long feared that the company would look to shift more jobs out of North America.
"We've got completely out-of-control health-care costs ... environmental controls other countries don't have to deal with, and wages in other countries you couldn't survive on here in the U.S.," said Jim Robinson, the union's chief negotiator with Alcoa. "It's all putting American workers at a disadvantage."