By: Zacks Equity Research

Alcoa (AA) has created a new all-aluminum bus design and space frame for Chinese automaker BYD, reducing the body weight of BYD's new electric bus by around 1 ton, or 40%, compared to steel components.

The aluminum-products manufacturer also cut the overall weight of the bus by 1.2 tons with its "Huck-Spin" fasteners and forged wheels. The reduction in overall weight will increase the electric bus’ overall range by at least 10% to roughly 300 kilometers on a full charge.

BYD plans to produce thousands of these electric buses for the Chinese and Southeast Asian markets and also export the buses globally. For this proposed project, Alcoa will remain the exclusive supplier of the design and provide sheet product from its Bohai rolling mill in the Hebei province. Alcoa will also provide the exclusive forged-aluminum wheels and fasteners for the project.

BYD Electric Bus launched its first two prototype buses this week in Changsha City in the Hunan province. The debut of this new bus builds on Alcoa’s capabilities in safe-transportation design, which include ground transportation and automotive space-frame technologies for brands such as Ferrari and Audi.

Alcoa reported adjusted earnings per share of 15 cents in its third quarter, missing the Zacks Consensus Estimate of 22 cents. Adjusted earnings more than doubled from 6 cents in the year-ago quarter, but were 46.4% lower than the sequential quarter earnings of 28 cents due to lower metal prices, seasonal factors and weakness in Europe.

Revenue for the quarter was up 21% year over year to $6.42 billion, but fell from $6.59 billion in the previous quarter. Alcoa’s end markets demonstrated strong revenue growth on a year-over-year basis, but sequentially the company experienced mixed market conditions.

Revenue for alumina and aluminum fell 5% and 1%, respectively, driven by lower alumina shipments and lower realized pricing in both businesses. In the end markets, revenue increased in commercial transportation (6%) and aerospace (2%), while declines were seen in automotive (7%), industrial products (6%), building and construction (5%), and packaging (4%).

The company’s adjusted EBITDA was $821 million, up 36% from third quarter 2010, but down 21% from second quarter 2011.

Currently, Alcoa has a short-term (one to three months) Zacks No. 3 hold rating and a long-term (6 months) neutral recommendation.

Alcoa faces stiff competition from Aluminum Corporation Of China Limited (ACH) or Chalco.

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