Alcoa Inc (NYSE:AA) will post earnings for the second quarter after market hours on July 8. A report from Citigroup has slashed its previous estimate of $0.09 per share to $0.07 per share due to lower than estimated LME spot pricing, which have been partially counterbalanced by a stronger USD.

Alcoa

Items to Watch For

As per the report, the aluminum market is weak so the items to watch for in the earnings report card will be degree of cost control and downstream operations of the company, “where leverage to the stronger automotive and aerospace markets has driven record profits and margins for those business units.”

Analysts at Citi have estimated the ATOI of $304 million for the second quarter, a decline from $351 million from the first quarter. The EBITDA for Alcoa Inc (NYSE:AA) is estimated to be around $792 million, a decline from $838 million.

Segment Wise Estimated ATOI for Alcoa Inc (AA)

Alumina ATOI, for Alcoa Inc (NYSE:AA), is expected to be $49 million ($175 million EBITDA) as against $58 million ($180 million EBITDA) in the first quarter, affected by pricing. It is estimated that production will increase 3.8 percent to 4,145k tones. The reference aluminum price for the second quarter is $1,940 per tonne, a decline of 4.0 percent compared to $2,020 per tonne, in the first quarter. The selling price is estimated to decline by 1.3 percent to $332 per tonne. Price of Spot caustic soda surged 4.4 percent quarter over quarter in the second quarter to $629 per ton.

Primary Metals ATOI is expected to incur a loss of $29 million ($105 million EBITDA) compared to $39 million profit ($184 million EBITDA) in the first quarter. The performance of Downstream should, however, be better with ATOI growth of 5 percent for engineered products and 15%-20% for Rolled Products.

According to Citi, the Engineered Product ATOI will be $187 million ($315 million EBITDA) compared to $173 million ($297 million EBITDA) in the first quarter. For Rolled Products, ATOI is estimated at $97 million ($198 million EBITDA) compared to ($177 million EBITDA) in the first quarter.

In the primary Metal segment, Citi Research is expecting ATOI to be at -$29 million ($105 million EBITDA) in the second quarter compared to $39 million ($184 million EBITDA) in the first quarter. As per the report, third party shipments are expected to increase to 15k tonnes. The total cost is estimated at $1.00/lb, decline from $1.02 in the first quarter due to declining cost of Alumina.

In the GRP segment, ATOI is expected to be at $97 million ($198 million EBITDA) compared to $81 million ($177 million EBITDA) in the first quarter.

Citi research holds the view that the earnings of Alcoa Inc (NYSE:AA) can be affected by certain currency headwinds.

Forecasts for 3Q

For the third quarter, which is believed to be “a sequentially lower volume quarter, driven by Europe,” the report estimates QoQ ATOI decline of 10 percent for Engineered Products and 2 percent for Rolled Products.