Alcoa Inc (AA) Earnings Preview: Firth-Rixson In Focus

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Alcoa Inc (NYSE:AA) kicks off the September quarter earnings report tonight, and analysts have been sending out their preview reports. On average, analysts expect earnings of 19 cents per share and $5.77 billion in revenue.

What to expect in Alcoa’s earnings report

In their report dated Oct. 6, 2014, Deutsche Bank analysts Jorge Beristain and Wilfredo Ortiz and associate Jeremy Kliewer said they’re just a penny ahead of consensus for earnings, estimating 20 cents per share. They’re expecting a 12% quarter over quarter increase in aluminum premiums, which they expect to hit a weighted average of 19 cents per pound. They expect Japan’s Europe’s and the Midwest’s premiums to drive the increase.

The Deutsche Bank team is looking for $860 million in EBITDA, which would be an 11% increase quarter over quarter. That’s due mostly to higher realization of aluminum.

Alcoa expected to see rising alumina sales

They predict sales of 2.7 million tons of alumina, which would be a 16% increase, at a price of $327 per ton. They add that about 65% of the alumina is priced on a “30-day lagged LME price,” while the rest is spot pricing. They expect cash costs to edge upward 2% to $260 per ton, which suggests $183 million in EBITDA for alumina.

The Deutsche Bank team predicts a 13% quarter over quarter decline in primary metals sales, which they’re projecting to be at 553,000 tons. That’s due to the closing of the Port Henry smelter. They project $347 million in EBITDA for the segment and cash costs of 88 cents per pound, a 3% increase.

In global rolled volumes, they expect a 5% decline quarter over quarter to 479,000 due to seasonality. They estimate EBITDA at $157 million for the segment. In engineered products, they’re estimating $355 million in EBITDA.

Focusing on Firth-Rixson

The analysts also expect Alcoa Inc (NYSE:AA) to report a $175 million non-recurring charge, which amounts to 15 cents per share, in connection with the closing of the Portovesme smelter during the quarter. They’re expecting the aluminum maker’s net debt to fall by 18% quarter over quarter temporarily to $5.6 billion. That’s due to the recent $1.4 billion offering, which resulted in 7% dilution and was completed to fund the purchase of the Firth-Rixson property.

In addition to the primary earnings numbers, they think the closing timeline for the Firth Rixson purchase will be in focus. They’re also looking for more details on Alcoa’s supply deal with The Boeing Company (NYSE:BA), as well as updates on global aluminum trends.

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