Alcoa 3Q income dips 21 percent on costs, 1st Ld-Writethru

Alcoa Inc. believes that the global economy will continue to be lifted this year by a burgeoning international middle class that wants better transportation and more modern buildings.

The Pittsburgh company, which on Thursday reported third-quarter results slightly above Wall Street expectations, said it expects global aluminum consumption to grow 13 percent this year, up from a forecast of 12 percent growth in the second quarter. Shares rose almost 3 percent in after-hours trading.

Alcoa supplies a variety of manufacturers including the auto and aerospace industries and is one of the first companies to report financial results for the quarter. Economists and investors get an early read on the health of the economy from its results.

Klaus Kleinfeld, Alcoa chairman and chief executive, said more people in emerging markets such as China, Russia, India and Brazil "are moving into the middle class, driving demand in building and construction, transportation, and packaging. This trend favors aluminum as it is light, strong, and infinitely recyclable."

Still, Alcoa's business faces headwinds. Increased costs for foreign exchange and energy, as well as other expenses, helped push the company's net income lower year-over-year.

The Pittsburgh aluminum maker reported that net income fell 21 percent to $61 million, or 6 cents per share, for the three-month period ended Sept. 30. That compares with earnings of $77 million, or 8 cents per share for the same period last year. Revenue increased 14.6 percent to $5.3 billion as Alcoa saw a 15 percent increase in aluminum prices year-over-year to $2,261 per metric ton.

Consumers won't be affected by those higher prices anytime soon, said David Silver, an analyst with Wall Street Strategies. Auto makers and other major manufacturers already have locked in aluminum prices with supply contracts that extend into 2011 and 2012, but prices of consumer goods could climb during the next few quarters if aluminum prices continue to rise, he said.

"They'll increase their profit margins now, so when those higher prices hit, it won't be that dramatic" for those companies, Silver said.

Alcoa said a handful of its key markets would see a jump in global sales this year, led by a 35- to 40-percent increase in the heavy truck and trailer market. Auto sales are expected to increase 3 to 8 percent and aerospace sales should rise between 2 and 4 percent, Alcoa said. Beverage can sales will stay flat, primarily because of a drop in sales in North America. Industrial gas turbine sales should decline by 25 percent to 30 percent globally and the commercial building and construction industries should see a 2 to 3 percent sales decline.