Foothill Ranch-based Kaiser Aluminum Corp. is set to report third-quarter results next week amid a squeeze in the market for aluminum products.
The results come after industry bellwether Alcoa Inc. rattled Wall Street earlier this month with a big profit drop as weak demand prompted aluminum prices to fall by a third from their high in July.
Shares of Kaiser Aluminum have fallen about 40% since then with a market value of about $525 million last week. The shares are down about 65% for the year.
Analysts are looking for a third-quarter profit drop at Kaiser as well. On average, they forecast a profit of $13.8 million, down from $25 million a year earlier.
Sales are seen coming in at $405 million, up 11% from a year earlier.
The problem for Kaiser and the rest of the industry: Prices for aluminum products are falling, but the high production costs of the past few years aren’t coming down as fast.
Earlier this month, Kaiser laid off about 35 workers from plants in Washington. The company didn’t say why it let the workers go.
A union official told the Spokesman-Review newspaper in Spokane that those laid off could be rehired when business picks up.
Kaiser Chief Executive Jack Hockema said his company isn’t immune to a weaker economy.
“Everyone is going to feel it,” he said.
Kaiser shapes aluminum into custom pieces for the defense and auto industries, producing more than 500 million pounds of products each year.
While the auto industry is in a severe slump, Hockema said he sees military sales, which make up 20% of Kaiser’s business, holding up.
Just a few months ago, defense spending was seen by many as stable for the next couple of years. But some are wondering whether the government’s $700 billion bailout package will prompt cuts to Pentagon programs.
Kaiser makes parts for Lockheed Martin Corp.’s F-35 strike fighter, which will replace many aging fighter planes.
It also sees strong business for the armor plates it makes for Humvees, many of which have been destroyed from the wars in Iraq and Afghanistan and need to be replaced.
Sales for commercial jets and other aerospace products make up 40% of Kaiser’s business. That segment is expected to remain stable.
Kaiser also is looking to sell more to other countries. A weaker dollar has been a boost to most exporters, though the dollar has been gaining on other currencies in the past few months.
The company is getting some breaks on costs. Falling energy prices,with oil down more than 50% since July,have helped ease production costs.
Kaiser recently lowered its energy surcharges to reflect a drop in natural gas and diesel prices.
One analyst at Richmond, Va.-based Davenport & Co. calls Kaiser a “strong buy,” saying the stock is undervalued.
In the second quarter, Kaiser missed Wall Street’s expectations af-ter higher fuel costs and a fire at one of its plants in Britain hurt business.
The company earned nearly $22.8 million in the second quarter, down 34% from a year earlier.
Second-quarter sales were up 7% to $413.5 million.
Damage from the fire should be fixed by next month, according to the company.
Kaiser is set to collect on insurance it has for the plant. But it’s not clear if this will show up on the books for the third quarter.
Kaiser could be on the lookout to buy companies that add to its business, Hockema said.
“We think there are a lot of those out there,” he said.
The company came out of bankruptcy more than two years ago and has invested $250 million back into itself in the past three years.
In 2002, Kaiser filed for bankruptcy during an industry downturn sparked by asbestos lawsuits.
