Orange County Business Journal

Kaiser Aluminum Profit Falls Short, Shares Stumble

Chris Casacchia Wednesday, April 27, 2011

Foothill Ranch-based aluminum products maker Kaiser Aluminum Corp. on Wednesday reported first-quarter results that fell short of Wall Street’s profit expectations while topping analysts’ revenue estimates.

Kaiser reported an adjusted profit of $9 million, flat from a year earlier.

Analysts were forecasting profits around $10.2 million.

The company reported sales of $323 million, up more than 20% from a year ago. Analysts on average were expecting revenue of $300 million.

Investor sent shares down nearly 2% in afterhours trading on a market value of about $950 million.

Higher prices for products and services, improved demand and recent acquisitions helped the company grow sales, but it wasn’t enough to offset rising metal costs, according to Kaiser President and CEO Jack Hockema.

“We did not fully realize our earnings potential during the quarter as the timing and amount of price increases on spot sales for high value added products have been insufficient to recover sharply rising aluminum and alloying costs,” he said. “We are encouraged that recently implemented price increases are sustainable, and we expect to begin to recapture some of the margin squeeze in the second quarter.”

The company last year bought Chandler, Ariz.-based Alexco LLC, a maker of plane parts, and Alabama’s Nichols Wire, a maker of wire products, nails and aluminum rods for the aerospace and auto industries.

A new $100 million plant to produce rods and bars in Kalamazoo, Mich., is expected to boost Kaiser’s automobile business and bring down costs companywide.

The company said it’s seeing strong demand from its aerospace business line and gradual improvement in its engineering and automotive segments.

Kaiser shapes aluminum into custom pieces for the defense, aviation and auto industries.

The demand comes as auto industry analysts project a 7% increase in U.S. auto production to some 12.6 million cars in 2011. Kaiser stands to get a boost from automakers opting for more aluminum to replace steel as they aim for lighter, more fuel efficient vehicles.

An ongoing recovery in the airline industry also helps. A number of airlines are adding 737s from Chicago-based Boeing Co. and A380 jumbo jets from Europe’s Airbus SAS to their fleets.

Kaiser’s products are used on hundreds of Boeing 737s produced annually. Other customers include Airbus, Lockheed Martin Corp., Honda Motor Co. and truck maker Paccar Inc.

Kaiser hasn’t seen demand wane for its automotive and chip applications due to the Japan earthquake and tsunami but “there remains some uncertainty as to the potential impact, if any, on the overall supply chain,” Hockema said.

The company did not provide second-quarter guidance with its results for the recently ended quarter.

Analysts on average expect an adjusted profit of $11.3 million and revenue of $302 million.

Shipbuilding industrialist Henry J. Kaiser, who's known for building Hoover Dam and founding healthcare provider Kaiser Permanente, started Kaiser Aluminum in 1946.

In 2005, Kaiser Aluminum moved its headquarters from Houston to Orange County.