The dance goes on for another quarter as metal companies continue to strive to offset rising production costs with improved product mix and internal synergies. The world's No. 2 aluminum company, Canada's Alcan
Although both reported revenue and operating earnings appear to have dropped by a fairly considerable amount, investors should recall that the year-ago results included the rolled-aluminum business, Novelis
Admittedly, that doesn't sound like a fabulous result, but it was better than even the higher end of the analyst estimate range. What's more, while ongoing capital expenditures have left free cash flow in a deficit position, operating cash flow did pick up from the first quarter.
At this point, Alcan is in something of a race with its production costs. While the company is seeing benefits from higher prices, better volumes, and an improved product mix, high production costs (especially energy and caustic soda) and adverse currency moves are taking their toll.
Not helping matters, the company indicated that third-quarter results would be below those of the second quarter. Analysts were already expecting a very slight sequential decrease, and given Alcan's outperformance this quarter, it is possible that the new estimate will actually be a bit higher than it was before. Nevertheless, estimates in general haven't been heading in the right direction for this company, so Fools might do well to be a bit cautious.
For now at least, the aluminum market still looks to be working in Alcan's favor. While production growth is outpacing demand growth, Alcan still estimates that there will be a worldwide deficit of aluminum exiting this year. Looking ahead, though, improvements in demand from aerospace companies like Boeing
For more shiny takes on the aluminum business:
- Profits Flow to Rio Tinto
- Analysts to Alcoa: Oooh! Shiny!
- Alcan Can, Can't It?
- Should Investors Rely Upon Reliance?
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).