The largest U.S. aluminum producer
Alcoa Inc.
(
AA
) posted a loss in the second quarter of 2012 due to lower aluminum
prices. The company, however, expects demand for aluminum to remain
strong in the near term.
Second Quarter Flashback
The company posted a loss of $2 million (break-even on a
per-share basis) in the second quarter of 2012 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
and below the year-ago earnings of 32 cents.
Revenues decreased 9.4% year over year and 0.7% sequentially to
$5,963 million, surpassing the Zacks Consensus Estimate of $5,828
million. Though weak aluminum prices dragged down revenues, the
company witnessed 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 of
2012.
Alcoa witnessed strong performances across all its businesses
driven by higher utilization rates, process innovations, lower
scrap rates and usage reductions. The company expects improved
aluminum demand from automobile, aerospace, packaging and
commercial transportation end markets.
We have discussed the quarterly results at length here:
Weak Price Hits Alcoa in 2Q
Agreement - Estimate Revisions
Estimates for Alcoa have barely moved over the past week. Out of 15
analysts covering the stock, just two analysts have lowered their
earnings estimate for the third quarter over the past 7 days while
none moved in the opposite direction. An identical trend applies to
the estimates for fiscal 2012, with two downward revisions.
Estimates for third quarter demonstrates a strong negative bias
over the last 30 days with 13 analysts downgrading their forecasts
with no upward movement. For fiscal 2012, estimates are negatively
inclined over the past month with 14 analysts lowering their
forecasts and no positive revisions.
Magnitude - Consensus Estimate Trend
Estimates for the third quarter and fiscal 2012 haven't moved much
over the last week, with each quarterly and annual estimates
dropping by a penny. The decline has been much more profound over
the last month with estimates for the third quarter decreasing by
14 cents and for fiscal 2012 by 27 cents. The current Zacks
Consensus Estimates for the third quarter and 2012 are 3 cents and
29 cents, respectively.
Neutral on Alcoa
Pennsylvania-based Alcoa Inc. is among the world's leading
producers of primary and fabricated aluminum and alumina. The
company is engaged in mining, refining, smelting, fabricating and
recycling of aluminum.
The company is pursuing strategies to move down its cost curves in
its upstream businesses, and record profitability in its midstream
and downstream businesses. The company aims to achieve these goals
by optimizing its portfolio while restructuring its high-cost
assets. In the second quarter of 2012, the company's
midstream and downstream businesses delivered good results driven
by the aerospace and automobile markets.
We believe that the company's cost reduction efforts are, to
some extent, will offset the impact of higher energy and raw
material costs on its bottom line. Alcoa is divesting
underperforming assets through its restructuring program.
Alcoa also contends with weak pricing. In the quarter, realized
metal price and alumina price declined 18% and 17% year over year,
respectively, leading to lower revenues. Aluminum prices also
decreased 18% year over year in the quarter.
The company also competes with
Aluminum Corporation of China Limited
(
ACH
) and
RioTinto plc
. (
RIO
). Currently, the stock maintains a Zacks #3 Rank, which translates
into a short-term (1 to 3 months) Hold rating and we have a
long-term Neutral recommendation on the shares of Alcoa.
About Earnings Estimate Scorecard
As a PhD from MIT, Len Zacks proved over 30 years ago that earnings
estimate revisions are the most powerful force impacting stock
prices. He turned this ground breaking discovery into two of the
most celebrating stock rating systems in use today. The Zacks Rank
for stock trading in a 1 to 3 month time horizon and the Zacks
Recommendation for long-term investing (6+ months). These "Earnings
Estimate Scorecard" articles help analyze the important aspects of
estimate revisions for each stock after their quarterly earnings
announcements. Learn more about earnings estimates and our proven
stock ratings at
http://www.zacks.com/education/
ALCOA INC (AA): Free Stock Analysis Report
ALUMINUM CP-ADR (ACH): Free Stock Analysis
Report
RIO TINTO-ADR (RIO): Free Stock Analysis Report
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