Q1 Preview: Lagging Demand Forces Alcoa (AA) into Production Cuts, Limited Rebound In Sight


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Alcoa Inc. ( AA ) shares are trading down nearly 2 percent ahead of the company's first-quarter 2012 report, generally regarded as the unofficial kickoff to earnings season. The figures are expected out after the market closes Tuesday.

The Street is looking for Alcoa to produce a loss of 4 cents per share on revenue of $5.77 billion. During the same quarter last year, Alcoa reported earnings of 28 cents per share and revenue of $5.96 billion. Over the last six quarters, Alcoa has managed to miss Street expectations by an average of 21 percent, tipped off with its second-quarter report last year.

In April, Alcoa said it was cutting alumina production by 390,000 metric tons, allowing production to come more in-line with smelter curtailments.

Through the quarter, Alcoa shares gained 16.2 percent to $10.02 at the end of March. This is a nice pop after Alcoa finished 43 percent lower in 2011. Over the last 52-week time frame, Alcoa shares have traded within a range of $8.45 to $18.19.

Analysts are fairly even on the prospects for Alcoa over the next year, with eight having a Buy rating, 10 at Hold, and three with a Sell-equivalent call on the stock. The analyst price target average is $11.75, ranging from $8 to $18.

Analyst Comments

  • Goldman Sachs sees a loss of 3 cents per share, which is ahead of the market. The firm is focusing its attention on the slowdown in Europe, where Alcoa derives about 20 percent of its total top-line results. Goldman sees uncertainty and slow demand in Europe as well as low aluminum prices more than offsetting any positive sentiment with Alcoa's position in the aerospace industry as well as aluminum-alumina price decoupling.

    The firm has a Neutral rating and $11 target on the shares.

  • Deutsche Bank sees Alcoa issuing a loss of 5 cents per share in the quarter. Earnings will be negatively impacted by $30 million in raw material and maintenance expenses in alumina, $10 million in foreign exchange, and $25 million in energy-related costs in Primary metals.

    The firm commented: "At 1Q12E EBITDA rates and without a significant recovery in aluminum prices, we believe Alcoa may resort to ~6% equity issuance in 2012 to fund a $650m pension gap, otherwise leverage will rise." Aluminum pricing in the quarter should come in at $1.12 per pound, which is a one cent increase in the benchmark LME price more than offset by weaker permia of 14 cents per pound.

    Deutsche expects Alcoa to provide an update on recent capacity cuts: "While 90k ton cut in Spanish smelters scheduled by 1H12, Union pressure has post-poned 150k ton Italian smelter cuts until end-2012. In addition, Alcoa has put its 190k tons Point Henry (Australia) smelter under review on rising costs/ strong AUD."
Stay tuned to StreetInsider.com's EPS Insider section to see our analysis of the highly-anticipated quarterly results within seconds of their release. You can also check out Alcoa's past performance at Streetinsider's Alcoa's Income Statement .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing Stocks
Referenced Stocks: AA

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