updated 4/7/2008 8:09:11 PM ET 2008-04-08T00:09:11

Aluminum producer Alcoa Inc. said Monday its first-quarter earnings plummeted 54 percent as higher raw material and energy costs and a weaker dollar cut into results.

Net income dropped to $303 million, or 37 cents per share, during the first three months of the year, compared with $662 million, or 75 cents per share, during the same period last year, the company said.

Sales fell nearly 7 percent to $7.38 billion, from $7.91 billion a year earlier.

Excluding the impact of restructuring and taxes, operating income was 44 cents per share, down from 79 cents per share a year ago. The swooning dollar lowered profits by $68 million, or 8 cents per share, on a quarter-by-quarter basis.

The results failed to meet some Wall Street expectations. Analysts surveyed by Thomson Financial, on average, forecast earnings of 48 cents per share on revenue of $7.18 billion.

Alcoa, the world's third-largest aluminum maker, is the first of the Dow Jones industrial average components to report results this quarter.

Alcoa's chairman and chief executive, Alain Belda, said higher energy costs and the weaker dollar squeezed margins, but that the global market remained tight and prices were near historic highs, primarily driven by demand in Asia, particularly China.

The price of aluminum has climbed 24.5 percent in the past three months as a broad-based global commodity rally lifted most industrial metals.

"Market fundamentals remain strong and we are well positioned to boost returns when the North American and European economies rebound," Belda said in a statement.

In a conference call with analysts and reporters, Alcoa President and Chief Operating Officer Klaus Kleinfeld said the company held a strong position in the aerospace market and expected to benefit from growing urbanization around the world as developing countries build new infrastructure.

With those trends, Alcoa sees aluminum consumption increasing about 6 percent annually over the next decade, he said.

During the quarter, Alcoa invested in several growth projects, including a new bauxite mine and a refinery in Brazil.

In February, Alcoa and Aluminum Corporation of China Ltd. announced they were jointly buying 12 percent of Rio Tinto PLC's shares in a deal reportedly valued at $14.05 billion. Alcoa said it contributed $1.2 billion to the total investment. The move was widely seen as an effort to complicate efforts by Australia's BHP Billiton Ltd. to acquire Rio Tinto.

Also during the quarter, Alcoa completed the sale of its packaging and consumer businesses. It got about $2.5 billion with the expectation of an additional $200 million this month.

In March, Alcoa announced the purchase of two aerospace fastener manufacturers, Republic Fastener Manufacturing Corp. and Van Petty Manufacturing, from The Wood Family Trust. Financial terms were not disclosed.

Charles Bradford, an industry analyst with Bradford Research/Soleil Securities, said plant shutdowns in China _ caused by severe winter weather _ and a power cutback in South Africa had caused prices to rise.

"They're going to have a much better second quarter," he said, pointing to a newly completed smelter in Iceland, among other factors. "Things are looking up."

Alcoa bought back about 14 million shares of its stock during the quarter.

Alcoa shares were down 14 cents in after-hours trading Monday after falling $1.56, or 4 percent, to $37.44 in the regular session.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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