Kaiser Aluminum sees 4th quarter near breakeven

By Carole Vaporean

NEW YORK, Oct 26 (Reuters) - Kaiser Aluminum Corp. (NYSE:KLU - news) President and Chief Executive Officer Raymond Milchovich said he currently expects the company's operating results for the fourth quarter of 2000 to come in modestly above or below breakeven, depending on prevailing aluminum prices.

``At this point, given all the moving parts that we've got and all the things that could occur, I think that's as good an estimate as we can provide,'' Milchovich told Reuters after an analysts' meeting on Thursday.

After the stock market close on Wednesday, Kaiser posted a third quarter net loss of 21 cents per share, including one-time income and expenses. Operating earnings before nonrecurring items were $2,100,000 or 3 cents per diluted share.

``If you look at our Q3 results, separate from our one-time charges, at 3 cents a share, I see Q4 as reasonably consistent with that,'' he said.

Elaborating on the ``movable parts,'' he added, ``Given the exposure to high energy prices, given seasonal downturn in some (fabrication) markets, given the slowdown we've seen in the ground transportation market, and given the fact that we predict primary shipments won't be quite as strong for us in the fourth quarter as they were in the third, I think that's a reasonably consistent estimate.''

When asked about first quarter 2001 results, Milchovich declined to make a specific projection.

He added, however, that several factors should help first quarter results. For example, he said he has no reason to think the labour situation will not be be fully resolved; the Gramercy plant will be fully operational; and typically, the fabrication business tails off in the fourth quarter, but not normally in the first quarter.

In September, Kaiser settled an ongoing labour dispute with the steelworkers' union, for which it took a one-time pre-tax charge of $38.5 million against third quarter earnings.

Milchovich said on Thursday he is satisfied with the pace at which those workers are being integrated into their jobs.

``We don't have a labour dispute to deal with in 2001; we have a five year labour contract, and the terms in that contract are excellent. It feels good to have some of that behind us,'' he said.

As for Gramercy, he said, ``we are very optimistic.''

An explosion at the Gramercy, La. plant last year knocked one million tonnes of annualized alumina supply out of the market. Kaiser had initially projected a third quarter start-up for the plant, then revised that date to mid-fourth quarter.

Milchovich said the plant is still on target for the revised fourth quarter date, with improved technology.

``Not only do I see (Gramercy) starting phase one in the fourth quarter, and then getting to full operation in the first quarter, I'm happy with the capital improvements; I'm happy with the technology; I'm happy with the work we've chosen to do; it's in very good condition for restart,'' he said.

``Considering all the negatives and positives to deal with, Gramercy is a positive,'' he added.

The wild card, however, will remain for some time the high energy prices in the Northwest U.S., he added.

Looking at broad demand factors affecting the fourth quarter and beyond, Milchovich cited tensions in the Middle East that could hurt energy prices as a key issue.

``My concern is what world energy prices could do to economic activity over some period of time. Our assumption is that somehow we figure out a way to get through that -- as an industry, as an economy, and so forth,'' he added.

The CEO said, ``Our assumption is that we continue to see economic health basically within a range of what we've seen in the recent past, that in both the Q4 and '01, we continue to enjoy a reasonable aggregate economic health.''

``We're not assuming a sea change in terms of economic downturn or economic health. Perhaps a slight slowing in North America, but that should be picked up in Asia and South America such that the aggregate continues to give us a reasonable amount of economic health,'' Milchovich said.

Specifically, Kaiser anticipates continued softness in demand in the ground transportation market. Its Engineered Products business, which is also going through some seasonal order slowdowns, is the most exposed of Kaiser's businesses to the transportation market.

Despite its order weakness, Milchovich said, ``Our operating performance in fabricating is excellent. Even with market softness, the performance fabricating posted in the third quarter is very good, given relative strength in the markets.''

He added that he sees external growth opportunities in engineering products.

Several of Kaiser's refineries and smelters are also showing performance improvement opportunities, he said.

Another positive for the company is the aerospace market.

``We think it will continue to be strong as we go into Q1. That's a positive. We do have a series of positives to mitigate some of these negatives we're dealing with, like Pacific Northwest power,'' said Kaiser's chief.