) is scheduled to report its third-quarter 2012 results after the
market closes on Tuesday, October 9. Analysts polled by Zacks are
currently expecting the company to break even on a per share basis
on revenues of $5.62 billion.
With respect to earnings surprises, the company has posted two
negative surprises in the preceding four quarters while it beat and
met the Zacks Consensus Estimate on the other two occasions. Alcoa
has delivered an average negative earnings surprise of 28.79% over
the trailing four quarters, implying that it has missed the Zacks
Consensus Estimate by that measure.
Second Quarter Flashback
Alcoa reported loss in the second quarter of 2012, hurt by lower
aluminum prices. The company posted a loss of $2 million (break
even on a per share basis) in the quarter compared with a profit of
$322 million (or 28 cents a share) in the year-ago quarter.
Excluding one-time special items (including restructuring and
other charges, litigation expenses and tax-related items), Alcoa
earned 6 cents a share, in line with the Zacks Consensus Estimate
but below the year-ago earnings of 32 cents.
Revenues decreased 9.4% year over year and 0.7% sequentially to
$5,963 million, but were ahead of the Zacks Consensus Estimate of
$5,828 million. While weak aluminum prices dragged down revenues,
the company saw increased demand across aerospace and automotive
markets in the quarter. Alcoa stated that aluminum prices dropped
18% year over year and 4% sequentially in the second quarter.
For 2012, Alcoa reiterated its aluminum growth forecast of 7%
globally. The company also continues to expect a deficit in global
aluminum supply in 2012.
Estimate Revisions Trend
In the past 30 days, 7 analysts (out of 15) have made downward
revisions while 1 analyst has raised his/her estimate for the third
quarter. Over the last 7 days, there has been one upward revision
coupled with a sole reverse movement.
Given the relative lack of movements, estimate for the third
quarter has been static (at break even per share) over the past
week. However, the directional pressure from a number of downward
revisions has resulted in a decline of 3 cents in the estimate for
the quarter over the past month.
We believe that Alcoa's outlook depends on the uncertainties in
the aluminum market. In addition, we remain concerned about the
volatile aluminum pricing and rising raw material costs. We expect
rising energy and raw material (especially caustic soda) costs to
continue constrain margin.
The company is pursuing strategies to move down its cost curves
in its upstream businesses, and record profitability in its
midstream and downstream businesses. In conjunction with the
revenue targets, management is committed to improving margins that
will exceed historical levels in the midstream and downstream
operations. The company aims to achieve these goals by optimizing
its portfolio and restructuring its high-cost assets.
Alcoa is aggressively slashing costs. The company curtailed
390,000 metric tons of its system smelting capacity to improve its
competitive position. Alcoa, in January 2012, announced the
temporarily idling of a portion of the smelters in Aviles and La
Coruna, both of which will be operating at roughly 50% of
However, we are optimistic about Alcoa's long-term growth
projects in China, Russia, 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 faces stiff competition from
Aluminum Corporation of China Limited
Rio Tinto plc.
). 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
RIO TINTO-ADR (RIO): Free Stock Analysis Report
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