Alcoa Inc. (
) is scheduled to report its second-quarter 2012 results after the
market closes on Monday, July 9. The Zacks Consensus Estimate for
the quarter is a profit of 6 cents per share, representing a
significant year-over-year estimated decline of 80.63%.
With respect to earnings surprises, the company missed the Zacks
Consensus Estimate in three of the trailing four quarters while
exceeding in one of the quarters. This is reflected in the average
earnings surprise of -23.06%.
First Quarter 2012 Synopsis
Alcoa reported earnings of 9 cents per share in the first
quarter of 2012, down drastically from 27 cents in the first
quarter of 2011. Excluding restructuring charges and other items,
Alcoa's profit came in at 10 cents per share, beating the Zacks
Consensus Estimate of a loss of 4 cents. However, it was lower than
the year-ago profit of 28 cents per share.
Quarterly revenues increased by 0.3% sequentially to $6,006
million and edged up 0.8% over the prior-year quarter. It surpassed
the Zacks Consensus Estimate of $5,735 million. The increase was
driven by strong results in Global Rolled Products and Engineered
Products and Solutions.
For 2012, Alcoa raised its growth forecast for the aerospace
market by 3 percentage points to the range of 13% to 14%. The
company expects global growth for the automotive sector to be in
the range of 3%-7%, commercial transportation in the range of
1%-5%, packaging in the range of 2%-3%, building and construction
in the range of 2.5% - 3.5%, and industrial gas turbine in the band
The company believes that there will be a deficit in global
aluminum supply in 2012 and reiterated its expectation that
aluminum demand will grow by 7% globally in this year.
Agreement of Estimate Revisions
In the past 30 days, ten analysts made downward revisions while
none of the analysts made upward revision for the second quarter of
2012. In the last seven days, four analysts made downward revision
and only one analyst made an upward revision of estimate.
Magnitude of Estimate Revisions
Analysts gradually lower their estimates on Alcoa for the second
quarter. The Zacks Consensus Estimate for the quarter has been
reduced to 6 cents per share recently from 12 cents in the last 90
days and 8 cents in the last 7 days.
We believe that Alcoa's outlook depends on the uncertainties in
the aluminum market. We are concerned about the volatile prices of
aluminum and rising raw material costs. We expect rising energy and
raw material (especially caustic soda) costs to continue
Alcoa is also aggressively slashing cost. The company curtailed
390,000 metric tons of its system smelting capacity to improve its
competitive position. In the first quarter of 2012, the company
announced the permanent closure of the Tennessee smelter as part of
its initiative to reduce costs. The company also announced that it
will permanently close two of the six idled potlines at its
Rockdale, Texas smelter. In addition to the closures and
curtailments, Alcoa plans to aggressively accelerate actions to
reduce the cost of raw materials used by its Primary Products
business and will adjust capacity across the company's global
refining system to reflect internal demand as well as prevailing
However, we are optimistic about Alcoa's long-term growth projects
in China, Russia, Jamaica, Suriname, Brazil and Saudi Arabia.
Demand from these countries is expected to increase its alumina and
aluminum production while lowering its operating costs. The company
has established itself already as a key domestic supplier in some
of the markets like packaging, aerospace, and commercial and
transportation in Russia.
Alcoa also faces stiff competition from
Aluminum Corporation of China
Rio Tinto plc.
). In view of the above stated reasons, the company retains a Zacks
#3 Rank, indicating a short-term (1 to 3 months) "Hold" rating.
Currently, we have a long-term (more than 6 months) "Neutral"
recommendation on the stock.
ALCOA INC (AA): Free Stock Analysis Report
ALUMINUM CP-ADR (ACH): Free Stock Analysis
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