Alcoa cutting 6,500 positions

Mike Crissey

Friday, June 24, 2005 | 9:37 a.m.

PITTSBURGH -- Alcoa Inc., the world's largest aluminum producer, will cut about 6,500 jobs globally -- or 5 percent of its work force -- in the next year, most of them in its automotive businesses, as part of a restructuring aimed at saving the company $150 million a year.

The company said it plans to cut about 3,500 jobs in its automotive divisions. The cuts include previously announced plans to shutter its Hawesville, Ky., automotive plant, as well as cutting 2,500 jobs in its AFL automotive wire harness business.

The Pittsburgh-based company said it will record after-tax charges of $220 million to $250 million, or 25 cents to 28 cents per share, in the second quarter as part of its plans to streamline the company. The charges include layoffs, plant closures and consolidations.

Alcoa spokesman Kevin Lowery said the aluminum maker has been hit by North American automakers scaling back production amid slumping sales.

Earlier this week, Ford Motor Co., the nation's No. 2 automaker, announced it was cutting another 1,700 salaries positions atop 1,000 salaried job cuts it announced in April. Ford's U.S. business was off 4 percent through May.

Meanwhile, General Motors Corp., the No. 1 automaker, has announced it would close plants and eliminate 25,000 jobs over the next three years. General Motors said U.S. auto sales were down 5.2 percent through the first five months of the year.

Both automakers are offering deep discounts on their vehicles to try to prop up sales. Ford is offering employees and retirees up to $1,000 in cash to entice friends, relatives and neighbors to buy vehicles with employee discounts. General Motors has tried to boost sales by offering customers the same discounts it gives its employees.

Last month, Standard & Poor's Ratings Services downgraded Ford's debt, along with No. 1 General Motors Corp., to below investment grade, or junk status. S&P said the automakers no longer can count on generating enormous profits from their SUV lineups, which could cause a severe blow to profits.

Both Ford and General Motors buy aluminum from Alcoa, Lowery said.

Besides the cuts in its automotive businesses, Alcoa said it plans to cut 1,000 jobs at its extrusion plants in the United States and Europe, which make fabricated aluminum; trim 1,500 jobs from its packaging and consumer business, which includes Reynolds Wrap aluminum foil; and cut 490 positions in its primary metals and global mill products divisions as well as some corporate jobs.

Alcoa also announced it would take a hit from the shuttering of an aluminum smelter in Hamburg, Germany, that it partially owned with Markisches Werk GmbH. The German company said it was closing the smelter because of high energy costs.

During the first quarter, Alcoa recorded restructuring charges of $25 million after it cut 1,800 positions to save $45 million a year.

The combined first-half restructuring charges are expected to total between $245 million and $275 million as Alcoa removes a total of 8,300 jobs from its payroll in a move to save $195 million pretax each year.

"In total, the restructuring we have undertaken this year should generate nearly $200 million in annual cost savings, helping put our businesses in a better position to compete globally and serve our customers," Chairman and CEO Alain Belda said in a statement. "While eliminating jobs is unsettling, we will do our best to minimize the impact on our employees and the communities where we operate."

Alcoa also said it expects to slightly offset the restructuring costs with a tax benefit of $100 million to $120 million during the quarter. In addition, the company will record a 25 cent per share gain on the previously announced sale of its stake in Norwegian metals company Elkem.

Analysts surveyed by Thomson Financial expect earnings of 49 cents per share on revenue of $6.68 billion during the second quarter.

Alcoa shares fell 50 cents to close at $27.19 on the New York Stock Exchange, near their 52-week low of $26.03. The stock rose 8 cents in the late-trading session.