Alcoa Falls Short As Drought in Brazil Hurts Production

Alcoa Corp’s revenue and profit both fell short of Wall Street expectations on Wednesday for its fourth quarter as the aluminum producer said that a drought in Brazil hurt bauxite production and higher prices for power in Spain increased expenses.

Shares of Alcoa, which closed higher by 1.3% during the regular trading session, fell almost 6% in trading after hours. The company said an acute water shortage was caused by the drought in Brazil and not only hurt its bauxite production, but affected the profits from its Brazilian hydropower system.

Bauxite is normally covered by several layers of clay and rock, which need to be removed before it can be processed.

CEO Roy Harvey said the company had lower global alumina segments that were expected due to delays from weather and difficulties involving shipload. Harvey noted that the results had been close to $50 million less than expectations of the company.

While the alumina shipments for Alcoa increased during the quarter, the issues with production meant it was not able to take complete advantage of improved prices for alumina and aluminum.

Revenue at Alcoa was up 25.1% to more than $3.17 billion during the fourth quarter ending December 31. However, its net loss reached $196 million compared to a net loss last year of $125 million. This year’s net loss included a charge of $22 million related to the just enacted tax reforms in the U.S.

Earnings per share on an adjusted basis reached $1.04 for Alcoa.

Analysts were expecting the company to have a profit of $1.22 a share on revenue of more than $3.29 billion.

Alcoa said it is not expecting the tax reforms in the U.S. to have any material effect on its results for 2018 and has forecast a non-operating charge to income of approximately $20 million for the ongoing quarter because of a new plan it has to lower its obligations in pensions by $35 million.

Alcoa also announced that it would be freezing salaries defined benefit pension plans for its employees in both the U.S. and Canada, effective on January 1, 2021. The affected employees are estimated to total about 800, and will be transitioned to defined contribution plans that are country-specific.

Harvey on the phone with analysts said that to reduce the company’s liabilities changes are necessary.

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