) is scheduled to report its fourth quarter and full-year 2012
results after the market closes on Tuesday, January 8. The Zacks
Consensus Estimate for earnings for the quarter is 7 cents per
share, representing a significant year-over-year estimated
decline of 316.67%. For the full year, the Zacks Consensus
Estimate for earnings is 24 cents per share, representing an
estimated year-over-year decline of 66.02%.
With respect to earnings surprises, Alcoa has delivered an
average negative earnings surprise of 25% over the trailing four
quarters, implying that it has missed the Zacks Consensus
Estimate by that measure.
Third Quarter Flashback
Alcoa reported a loss in the third quarter of 2012, hurt by a
hefty charge associated with environmental remediation and legal
settlement and lower aluminum pricing. The company posted a loss
of $143 million or 13 cents per share in the quarter compared to
a profit of $172 million or 15 cents per share in the year-ago
Excluding one-time special items (including a $175 million
charge mainly related to environmental remediation of the Grasse
River and the settlement of a civil lawsuit against Aluminum
Bahrain), Alcoa earned $32 million or 3 cents per share in the
quarter. Analysts polled by Zacks were expecting the company to
report break-even results. The company recorded a $40 million
charge associated with the legal settlement in the quarter.
Revenues decreased 9.1% year over year and 2.2% sequentially
to $5,833 million, but were ahead of the Zacks Consensus Estimate
of $5,565 million. Alcoa said that aluminum prices dropped 17%
year over year and 5% sequentially in the third quarter.
Alcoa lowered its global aluminum demand forecast for 2012 to
6% from its earlier expectation of 7%, owing to the slowdown in
China. The company, however, expects the aluminum market to
double in 2020 from the 2010 levels as the market is already
ahead of the required 6.5% compound annual growth rate.
Estimate Revisions Trend
In the past 30 days, 2 analysts (out of 14) have revised their
estimates upward while 5 have decreased their estimates for the
fourth quarter. Over the last 7 days, none of the analysts raised
their estimates while one downward revision was witnessed.
A similar trend is seen for full-year 2012 with 2 analysts
(out of 15) having made upward revisions in the past 30 days
while 6 moving in the opposite direction. While none of the
analysts made any upward revision over the last 7 days, one of
them moved downward.
Given the relative lack of movements, estimate for the fourth
quarter has been static over the past week. The Zacks Consensus
Estimate for the quarter has been reduced by a penny to 7 cents
per share in the last 30 days.
For full-year 2012, estimate decreased by a penny to 24 cents
per share over the past week and has reduced by 2 cents over the
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.
Alcoa 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
The company trimmed its aluminum demand forecast for 2012 due
to slowdown in China. Alcoa is divesting underperforming assets
through its restructuring program and is aggressively pursuing
cost-cutting actions. Moving ahead, higher demand in the
aerospace and automotive markets is expected to drive results.
However, weakness across building and construction and commercial
transportation markets is expected to continue into the fourth
Alcoa faces stiff competition from
Aluminum Corporation of China Limited
Rio Tinto plc.
). We currently have a long-term Neutral recommendation on Alcoa,
which is in agreement with a short-term Zacks #3 Rank (Hold).
ALCOA INC (AA): Free Stock Analysis Report
ALUMINUM CP-ADR (ACH): Free Stock Analysis
RIO TINTO-ADR (RIO): Free Stock Analysis
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