Alcoa (AA) 1st Quarter Earnings: What to Expect

Solid aluminum tubes (Getty images)

Solid aluminum tubes (Getty images)

Shares of aluminum giant Alcoa (AA) have been on fire, soaring more than 20% over the past thirty days, thanks to a recent surge in aluminum prices resulting from U.S. decision to impose a 10% tariff on aluminum imports.

Among the major drivers of higher commodity prices is the fact that these new tariffs will impact Russia-based Rusal, which accounts for roughly 7% of the world’s aluminum capacity and production. Goldman Sachs analyst Matthew Korn sees these events as favorable news for Alcoa, which is set to report first quarter fiscal 2018 earnings results after the closing bell Wednesday.

Beyond the top- and bottom-line numbers, on Wednesday analysts will look for commentary by management on what impact (if any) a potential trade war with China and other regions might have on the business. Likewise, Wall Street will want confirmation from Alcoa that assumptions about higher aluminum prices will be correct, particularly given the extent to which its stock has outperformed the SPDR S&P Metals & Mining ETF (XME), which is up just 1% in thirty days.

For the quarter that ended March, consensus estimates calls for the New York-based company to deliver earnings of 70 cents per share on revenue of $3.08 billion. This compares the year-ago quarter when the company earned 63 cents per share on $2.65 billion in revenue. For the full year, ending in December, earnings are projected to rise 19.6% year over year to $3.60 per share, while revenue of $12.45 billion would rise 6.9% year over year.

The management will be asked about the recent sanctions. After Canada, Russia is the United States’ second-largest aluminum supplier. As such, Korn sees the tariffs leading to "greater market frictions and higher aluminum prices.” On Monday aluminum prices surged to a seven-year high, rising almost 4% on the LME (London Metal Exchange) to 2,371/metric ton. Korn also believes that Alcoa has the "most direct positive exposure" to higher aluminum prices.

In terms of the potential adverse impact on Rusal, Deutsche Bank metals analyst Nicholas Snowdon was even gloomier on Rusal’s ability to navigate the sanctions, telling Bloomberg, “We have a potential scenario where U.S. and European markets will be shut off to Rusal, and they’ll be forced to redirect units to clients in other markets.” Adding, “There’s clear potential that [Rusal] will have to cut production.”

The recent surge in Alcoa shares, which have outperformed U.S. Steel Corporation (X) and AK Steel (AKS), now trade near January highs, suggesting the level of confidence investors have about not only its first quarter financial results, but also the guidance the management will give. To the extent Alcoa projects any sign of sustained revenue and earnings growth, these shares — despite rising 80% in twelve months — may yet be cheap.

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

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

Richard Saintvilus

After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.

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