Alcoa Inc (AA) Expected To Report Lower EPS On Soft Aluminum Prices

Alcoa Inc (AA) Expected To Report Lower EPS On Soft Aluminum Prices
By Alcoa ( [Public domain], <a href="">via Wikimedia Commons</a>

Deutsche Bank analysts believe Alcoa Inc (NYSE:AA)’s next quarterly earnings report will show adjusted diluted earnings per share of 5 cents. That’s 2 cents lower than FactSet consensus, which has fallen 4 cents over the last month. It’s also 6 cents lower than the aluminum maker’s first quarter results as the analysts predict soft aluminum pricing during the second quarter of the year.

Alcoa Inc (AA) Expected To Report Lower EPS On Soft Aluminum Prices

The analysts rate Alcoa Inc (NYSE:AA) as a hold. This week Goldman Sachs analysts gave Alcoa a neutral rating. Bank of America Merrill Lynch also has a neutral rating on the stock.

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Negative Impacts For Alcoa

Analysts Jorge Beristain, Wilfredo Ortiz and David S Martin at Deutsche Bank issued a report to investors this week explaining why they are below consensus for Alcoa Inc (NYSE:AA). The aluminum maker releases its next earnings report on Monday after closing bell, and it’s widely expected that prices for the metal were soft during the quarter.

In addition to soft aluminum prices, the analysts also noted that the company had negative impacts from its Myara crusher move, which they estimated to have cost around $20 million. Also Alcoa Inc (NYSE:AA) had plant outages at Angelsea and Warrick, which the analysts estimate to have cost a combined $25 million.

Positives For Alcoa

They did say however, that these negative impacts were probably partially offset by production increases in Alcoa Inc (NYSE:AA)’s two upstream businesses. They’re looking for 2.4 million tons of alumina to have been sold by the company during the second quarter, which is a 20,000 ton decline quarter over quarter, at an average price of $324 per ton. That’s a 4 percent decline quarter over quarter with a 50 / 50 split between 30-day lagged LME and spot.

The analysts are also looking for 715,000 tons of primary metal sales—a 1 percent increase quarter over quarter—at a realized aluminum price of $1 per pound. They also said flat rolled volumes should increase 6 percent quarter over quarter as aerospace and automotive demand for the product increases. They believe earnings for that segment will be around $198 million—a 10 percent increase quarter over quarter. They’re also predicting a 6 percent increase in revenues from engineered products.

Alcoa’s Forecasts

They believe the markets will focus on Alcoa Inc (NUSE:AA)’s forecasts for global aluminum trends and also progress toward the Ma’aden smelter and rolling mill. The mill is expected to launch in the fourth quarter of the year. Investors will also likely look at the direction of the company’s net debt position. In May, Alcoa’s credit rating was downgraded a notch to Baa3 by Moody’s Investors Service because of soft aluminum prices.

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