Alcoa Inc. (NYSE:AA) on Tuesday announced the name of its new spun-off company: Arconic. It announced the move in September in a bid to increase its cumulative stock-market value, which has been under pressure from flailing raw aluminum prices and pressure from a glut of Chinese exports in key markets. The new company will focus on making multi-alloy manufactured goods for the aerospace and automotive sectors, which for now is a more-lucrative business than smelting.
Chief executive Klaus Kleinfeld and his team have been frustrated for years by investors trading the company's stock based on the London Metal Exchange aluminum price index.
Since the former Siemens AG boss took over in 2008, the stock price has fallen from around $30 per share to less than $10, as the raw-aluminum price has declined from $2,900 to under $1,700. It hasn't seemed to matter to investors that Alcoa has closed high-cost smelters in the U.S. and Europe, and expanded its parts business.
As if to illustrate the point, Alcoa's share price fell Tuesday, declining 50 cents to $9.16, as aluminum companies took a hit following another slip in the aluminum price.
In 2015 the smelting business registered $155 million in operating income, compared with $595 million for the engineered-products division, which will form the core of the new firm.
A new name and new logos for both companies may not be able to solve all of the issues Alcoa and Arconic face. The former remains beholden to the aluminum price, which is expected to be diluted by Chinese overcapacity for the near future. The new company will face more competition as Chinese companies enter higher-tech markets, and the steel industry fights back with lower-weight, higher-strength steels.
Andrew Lane of Morningstar, Inc. said Alcoa had set up Arconic "for profitable growth" but that he had concerns about how fast the company can improve profit margins after a "relatively flat fourth quarter." Mr. Lane said Alcoa is "still digesting" the recent multi-billion-dollar acquisitions of Firth Rixson and RTI, two alloyed-metals and aerospace-parts makers.