Alcoa Says Profit Falls 54% on Energy Costs, Pricing

April 7 (Bloomberg) -- Alcoa Inc., the world's third-largest aluminum company, said first-quarter profit tumbled 54 percent because of surging energy costs, a weaker U.S. dollar and lower metals prices.

Alcoa is the first company in the Standard & Poor's 500 Index to report results for the first three months of the year. Earnings at S&P 500 companies probably fell an average of 11 percent from the same period a year earlier, according to analyst estimates compiled by Bloomberg.

Chief Executive Officer Alain Belda is selling less- profitable units to boost earnings after the company fell behind United Co. Rusal and Rio Tinto Group in aluminum production in the past year. Alcoa also is seeking to sign long-term electricity contracts and increase the amount of cheaper hydropower it uses to cut costs.

``Everyone knew that it was going to be a tough quarter, with lower metal prices and the U.S. dollar,'' said Scott Burns, an analyst at Morningstar Inc. in Chicago. ``Spot prices spiked toward the end of the quarter, and I'd expect things to go better for the rest of the year.''

Net income fell to $303 million, or 37 cents a share, from $662 million, or 75 cents, a year earlier, New York-based Alcoa said today in a statement. Excluding some items, profit was 44 cents a share. The company was expected to earn 50 cents, the average estimate of 14 analysts in a Bloomberg survey. Sales fell 6.7 percent to $7.38 billion.

Alcoa rose 22 cents to $37.66 as of 5:34 p.m., after the official close of the New York Stock Exchange. Before the results were announced, the shares had gained 2.4 percent this year.

Aluminum Mergers

Alcoa slipped from its position as the world's largest aluminum producer last year after a merger that led to the creation of Russia's Rusal. Rio Tinto's $38.1 billion takeover of Alcan Inc. pushed Alcoa to third.

Alcoa and Aluminum Corp. of China agreed to buy a 12 percent stake in Rio Tinto in February, and Alcoa now is seeking more joint ventures in China, the Middle East and North America to increase capacity.

Operating income fell at four of the company's five units. Profit in the primary-metals business dropped 39 percent to $307 million. Alcoa said earnings in the alumina business slid 35 percent to $169 million.

Alcoa sold aluminum for an average of $2,801 a metric ton during the quarter, down 3.5 percent from a year earlier. Prices have since rebounded after power cuts to smelters in South Africa and China. Aluminum for delivery in three months was trading at $2,998 a ton as of 9:26 p.m. on the London Metal Exchange.

Currency Effects

Aluminum is sold mostly in dollars, meaning a weakening U.S. currency increases costs the company must pay in Australian dollars and Brazilian reais. The declining greenback reduced earnings by 8 cents compared with the fourth quarter, Alcoa said. The company didn't provide a figure for a year earlier.

``Stronger international markets did impinge a little bit,'' Peter Klein, who helps oversee about $21 billion at Fifth Third Asset Management in Cleveland, said today in an interview with Bloomberg Television. ``Currency was a factor in all of this, with the lower dollar helping our domestic exports but certainly hurting overseas costs.''

Alcoa expects to add as much as 50 cents to earnings per share in 2008 through new mining and metal investments, including the expansion of the Fjardaal smelter in Iceland, which will produce 300,000 tons of aluminum this year. The company also is completing a 90,000-ton addition at the Pinjarra alumina refinery in Australia.

World demand for aluminum probably will rise about 9.6 percent to 41.7 million tons this year, led by a 24 percent rise in demand from China and an 8.3 percent gain in India, according to the company. Chinese demand this year will be about 14.9 million tons, compared with 6.8 million for the U.S.