Alcoa Inc shares climbed today ahead of tonight’s earnings report, rising by more than 3% to as high as $9.70 per share. Analysts are expecting the aluminum maker to post earnings of 2 cents per share and $5.3 billion in revenue. Things should be turning around soon as commodity prices have started to improve.

Alcoa Inc (AA) Earnings Preview

Alcoa’s Upstream business in recovery mode

Sterne Agee CRT analyst Josh W. Sullivan noted in a report last week that Alcoa’s Upstream business has benefited from the pricing improvements and management’s efforts to cut costs. The first quarter does include lagging pricing, although he notes that the segment’s trajectory improved slightly during the first quarter after alumina prices hit a multi-year low during the quarter.

He added that both the Alumina and Primary Metals segments are benefiting from the improved pricing, and he is “incrementally optimistic about the market finding a bottom,” although he is still cautious about supply dynamics, especially as Alcoa may bring its operations in Malaysia and Indonesia back online.

Sullivan expects Aerospace sales to remain strong on the back of this year’s ramp of next-generation aircraft. He believes the Body-in-White business will remain strong as aluminum penetrates the automotive industry further. He adds, however, that currencies, truck build rates, can sheet prices, and imports are still headwinds for this segment.

More updates expected

The analyst expects Alcoa management to provide another update with additional details regarding the pending split involving Firth and RTI. He said one of the most important parts of Firth is the new Isothermal Forge, so it’s important for the company to resolve possible delays. He noted also that the company is restructuring its Global Rolled Products business so that it runs without internally sourced aluminum, and as a result, this segment’s cost basis could be volatile.

Credit Suisse analyst Curt Woodworth and team are more positive on steel than aluminum in commodities, although they believe new Downstream guidance will help improve investor sentiment around profitability. They estimate $528 million in EBITDA for the first quarter on the back of improving alumina prices and “cost rationalization” in the Alumina and Primary businesses. They’re still “constructive” on the valuation of Alcoa’s Upstream business because of “current trough positioning” and they expect more cost cuts and asset sales.

The Credit Suisse team also believes the ITC’s investigation in aluminum activities around the world could be a positive for Alcoa, although it will depend on how things play out.

Meanwhile the aluminum maker remains cautious as activist investment firm Elliott Management has taken a stake.