Alcoa, the world's third-largest aluminum maker, said Tuesday it will cut 13,500 jobs, or 13 per cent of its work force, and slash spending and output to cope with the global economic slowdown.
The reductions expand on cost-cutting measures announced in October, when Alcoa reported a 52-per cent decline in third-quarter profit due to sharply lower aluminum prices, weaker demand and a charge from curtailing a smelter in Texas.
In its latest announcement, which came after US markets closed Tuesday, the Pittsburgh-based company said it also will cut 1,700 contractor positions and sell four business units. It has imposed a global salary and hiring freeze.
Alcoa, which produces aluminum and uses the metal to make products such as truck wheels, said it will further limit smelting by more than 135,000 metric tons per year, lowering total aluminum output by more than 750,000 metric tons, or 18 per cent, annually.
As a result of its actions, Alcoa expects total fourth-quarter charges of between $900 million and $950 million and savings of about $450 million annually, before taxes. It plans to report quarterly results Jan. 12.
"These are extraordinary times, requiring speed and decisiveness to address the current economic downturn," Klaus Kleinfeld, Alcoa's president and chief executive, said in a statement. "We will continue to monitor the dynamic market situation to ensure that we adjust capacity to meet any future changes in demand and seize new opportunities that emerge."
As part of the plan, Alcoa said it will sell its electrical and electronic systems, global foil, cast auto wheels and European transportation products businesses.
Those units, which employ a total of 22,600 people at 38 locations, operated at a loss of $105 million on revenue of $1.8 billion in 2008. The company expects net proceeds of about $100 million from the sales.
Among the production cuts will be all smelting at the company's operations in Alcoa, Tenn., though the rigid packaging division there will be unaffected.
The cuts also include about 18 per cent of Alcoa's jobs in Russia, and about 6,500 positions in its electrical and electronic systems business, which serves the auto and heavy truck markets, across North American and Europe.
The planned sale of the Europe-based transportation products business includes facilities in Italy, Hungary and Germany. The cast auto wheels unit includes a plant in Beloit, Wis., that employs about 265 people.
Alcoa said it plans to consolidate operations serving the building and construction markets due to weaker demand.
About 1,100 people have been laid off from Alcoa's global power and propulsion unit, which makes aircraft parts and other products for the aerospace and defense industries, the company said, citing lower demand. Those job cuts are included in the 13,500 total job reduction.
Alcoa plans to eliminate about 260 corporate staff and contractor positions.
Kevin Lowery, an Alcoa spokesman, said he did not have a breakdown of the job cuts by country. The company employs at least 94,000 people in 34 countries, though the size of the total work force fluctuates, he said.
Production of alumina, a material used to make aluminum, will be reduced to 1.5 million metric tons per year in response to market conditions, the company said.
The production cuts are expected to be completed by the end of March.
Analyst Charles Bradford of Bradford Research/Soleil Securities said Alcoa's production cuts will not help put a floor under plummeting aluminum prices, which fell to roughly 65 cents per pound a few weeks ago from $1.50 per pound in July.
Broader production cuts are needed by Alcoa competitors, such as Rio Tinto Group and aluminum producers in China, Bradford said, and prices are unlikely to stabilize unless more drastic steps are taken.
"The problem is a lack of demand," he said. "With the lower price, Alcoa has got to try to bring its costs down. There is no way they can make money at 65-cent aluminum."
Alcoa said it will seek to lower costs for energy and raw materials, such as coke, caustic soda and aluminum fluoride.
Alcoa, which suspended its stock buyback program and non-critical capital projects in October, said it will build on earlier efforts to conserve cash.
The company said it expects capital expenditures of $1.8 billion in 2009, 50 per cent lower than last year. Such spending includes about $750 million for the completion of refinery and bauxite mine projects in Brazil. Alcoa said spending on the projects already had been reduced by about $150 million, partly because of a stronger US dollar.
Other companies that have faced the difficult market conditions include Moscow-based Rusal, the world's top aluminum producer, and Rio Tinto, the mining giant that acquired Canada-based Alcan Inc. in 2007.
Shares of Alcoa fell about 3.5 per cent in after-hours trade after rising 26 cents, or 2.2 per cent, to close at $12.12 on Tuesday.