An old-school U.S. company lets its sexy side shine
Aluminum giant Alcoa reports earnings Thursday afternoon, highlighting a moment of challenge and change for the firm. Aluminum prices are in the dumps, along with other commodities. But Alcoa now does a lot more than just old-school mining and aluminum production. So the company is preparing to split into two publicly traded companies: one focused on its legacy aluminum business and the other on high-performance materials — not just aluminum — used in jets and next-generation cars.
For now, Alcoa refers to the mining and manufacturing company as Upstream and the high-tech one as Value-Add. With great respect to the art and craft of aluminum processing, think of the two as boring stuff and the sexy business. Investors are hot for the latter because it makes expensive, heat-resistant materials that turbine engine manufacturers use to boost performance.
“The higher the temperature they operate at, the more efficient and more powerful they can become,” Sammy Tin said, engineering professor at Illinois Institute of Technology.
Alcoa also makes super-lightweight products. Used in airliners and the latest Ford trucks, the aluminum parts cut weight and boost fuel efficiency. It’s cutting-edge stuff, nothing like an everyday soda can. The vintage mining and production business will go on. But Alcoa sees major growth potential for its high-end materials, so it’s going to set that business free and let investors dig in.
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