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Aleris in red despite stronger auto sales

Keywords: Tags  Aleris International, aluminum, earnings report, Steven J. Demetriou, rolled products, extrusions, automotive, aerospace Nathan Laliberte

NEW YORK — Aleris International Inc. posted a net loss in the second quarter as a weaker mix of rolled products sales coupled with reduced rolling margins continued to offset significantly higher automotive volumes.

The Cleveland-based aluminum producer posted a net loss of $17.5 million for the three months ended June 30 vs. a net loss of $11.7 million in the same period last year despite revenue that increased 8.7 percent to $1.23 billion from $1.13 billion.

"Stronger overall volumes are confirming our expectation that demand would strengthen in 2014, particularly in our automotive business, which has grown significantly," chairman and chief executive officer Steven J. Demetriou said in a statement accompanying the earnings report. However, operational issues related to inefficiencies at several production facilities and compressed margins in rolled products prevented the company from "fully capitalizing on the improved demand and we are taking steps to address these issues," he said.

An Aleris spokesman declined to offer additional detail about operational problems at production facilities, but noted that the issues had impacted plants in the United States and abroad.

The company’s North America rolled products segment posted earnings before interest, taxes, depreciation and amortization (Ebitda) of $23 million in the second quarter, down 25.8 percent from $31 million a year earlier due to a weaker mix of products sold into the distribution and building and construction industries, which offset a 32-percent overall volume increase.

Pricing pressures caused by elevated Midwest aluminum premiums and "competitive imports" also resulted in a $2-million decrease to the segment’s Ebitda, Aleris said.

The European rolled products segment’s Ebitda fell 25.7 percent to $26 million due mainly to lower aerospace shipments, which dipped 14 percent as "aircraft manufacturers continue to work down excess inventory levels," Aleris said.

The North America Recycling and Specification Alloys segment bucked the trend in the quarter, posting Ebitda of $17 million, up 30.7 percent from $13 million a year ago. Aleris said that segment performance was aided by a better mix of buy and sell volume and continued improvement in metal spreads.

Demetriou did not offer any details on the possible sale of Aleris’ secondary business unit. "We are formally evaluating the sale of the secondary business; we currently have nothing to report," he said during an earnings conference call Aug. 5.

The extrusions segment Ebitda was cut in half during the second quarter, falling to $2 million from $4 million last year, which Aleris attributed to pricing pressures and inflation that were "only partly offset by productivity savings."

Despite the second-quarter production issues, the outlook for the third quarter remains upbeat, Aleris said. Demand for auto body sheet is expected to continue to increase, although those gains may be negatively impacted by lower aerospace volumes and price pressures, the company said.

Capital expenditures during the third quarter are expected to be lower than a year earlier, it added.

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