CHICAGO Novelis Inc.s net income narrowed in its fiscal second quarter as overcapacity and fierce competition in the North American beverage can market dented results.
But the Atlanta-based aluminum roller and recycler predicted a bright fiscal second half as its capacity shifts from the lower-margin beverage can market, hurt in North America by declining soft drink sales, to the more-profitable auto sector, where there is increased aluminum demand due to stricter fuel economy standards, the company said Nov. 11.
"We expect results in the second half of fiscal 2014 to be stronger than the first half," Novelis president and chief executive officer Philip Martens said. "The reallocation of some hot mill capacity towards high-growth, high-margin automotive sheet in this region is not only a key piece of our growth strategy, it also will help rebalance the North American can market."
Novelis posted net income of $23 million for the three months ended Sept. 30, down 53.1 percent from $49 million in the same period last year despite sales holding roughly steady at $2.43 billion. The company shipped 713,000 tonnes of aluminum rolled products in its fiscal second quarter, down 0.8 percent from 719,000 tonnes a year earlier.
Novelis executives said competition in the mature North American market pushed the company to accept lower-priced contracts from some beverage can customers, and the capacity glut could drag on future results.
But Martens stressed that results should improve as the company increasingly sees the benefits of ramped-up demand for automotive sheet in North America and Europe. The company is mulling further expansions to meet the expected growth in automotive aluminum demand, he said.
"We are aggressively increasing finishing capacity globally to support strong growth in the automotive flat-rolled products market," Martens said. "Our two North American finishing lines are on track to produce commercial product by the end of this fiscal year, and we are already evaluating additional investments."
Novelis recently commissioned a $200-million expansion of its rolling operations in Oswego, N.Y., increasing the companys North American capacity for producing aluminum sheet for the automotive industry by 240,000 tons, five times its previous capacity in the region (amm.com, Oct. 25). The company has said that it is considering additional growth to meet demand from the automotive sector (amm.com, Oct. 25).