8 April
Moscow,
Dow Jones

Alcoa Inc.'s (AA) first-quarter net income dropped 54% amid what the largest U.S. aluminum producer called "challenging economic conditions," and the company cut expectations for worldwide aluminum demand.

However, the company said that "market fundamentals remain strong and we are well-positioned to boost returns when the North American and European economies rebound." Shares rose in after-hours trading.

The company, the first component of the Dow Jones Industrial Average to release first-quarter results, reported net income of $303 million, or 37 cents a share, compared with $662 million, or 75 cents a share a year earlier.

Earnings from continuing operations, excluding restructuring expense and taxes, dropped to 44 cents a share from 79 cents.

Revenue fell to $7.38 billion from $7.91 billion.

Analysts polled by Thomson Financial expected earnings of 48 cents a share on revenue of $7.22 billion.

Gross Margin fell to 20.1% from 24%.

"Upstream margins were squeezed by higher energy costs and a weaker U.S. dollar, but the global market remains tight and prices are near historic highs, primarily driven by demand in Asia, especially China," said Chairman and Chief Executive Alain Belda in prepared statement.

Profits at the company’s alumina operating segment, which produces one of the primary precursors for aluminum, dropped 35% despite increased production as lower prices, higher energy costs and "unfavorable currency" cut margins.

At the company’s primary metals segment, which produces aluminum in a very energy intensive process, profits slid 39%, due partially to a 3.5% decrease in average aluminum prices.

The company now expects aluminum consumption to grow 8.5% worldwide, with a 5% drop in the U.S., in 2008. In January, Alcoa had predicted aluminum consumption to grow more than 9% worldwide, while consumption in North America was expected to grow 0.8%.

While aluminum prices have shot up in the last few months along with other commodities, recovering from doldrums in the last half of 2007, the company is dealing with a host of other issues — including record energy prices, the weak dollar and a teetering economy in the U.S.

Alcoa’s shares closed down 4% to $37.44 Monday, and were recently up 23 cents to $37.67 in late trading.