NEW YORK – Alcoa Inc., the world's No. 1 aluminum producer, Tuesday warned that fourth-quarter earnings were likely to miss Wall Street's estimates due to losses from insolvent customers and charges to restructure operations.
Pittsburgh-based Alcoa said it expects to make a profit of 10 cents a share excluding the special after-tax charge or $225 million or 26 cents a share, for the restructuring.
Analysts had expected the firm to post fourth-quarter earnings of 20 cents to 37 cents per share, with a consensus of 30 cents per share, according to 15 brokers polled by research firm Thomson Financial/First Call.
While the news of the restructuring charge did not come as a huge surprise since the company had warned of it last month, analysts said the losses relating to insolvent customers was news.
"The one area where investors may have some element of surprise is the $60 million costs associated with insolvent customers," Mark Parr, an analyst at McDonald Investment Inc. said.
Alcoa said in a statement a significant portion of the losses involved customers who have become insolvent and are not expected to meet the full terms of their contracts, and other long-term contracts and claims.
In addition, the company said it also expects to incur losses amounting to about $45 million in the fourth quarter as a result of costs to restart production at its Warrick, Indiana, smelter.
Power failures shut down four of the facility's six potlines, crippling production at the plant with capacity of 300,000 metric tonnes per year. Alcoa uses the primary metal produced at Warrick exclusively to produce aluminum can sheet products for the food and beverage industry.
"The company expects that production capacity at Warrick will be fully restored by the end of the second quarter," the company said, adding the plant's losses were below its insurance deductibles which rose in September.
Alcoa, among many industrial heavyweights being buffeted by the stalling global economy, said it expects the restructuring to make it more lean and efficient to benefit from an eventual economic recovery.
"The fourth-quarter has proven to be extremely challenging as a result of lower volumes, depressed metal prices, and overall weak downstream markets," Alain Belda, Alcoa chairman and chief executive added.