Arconic (ARNC) Q3 Earnings Preview: What's in the Cards?

Arconic Inc.ARNC , a global leader in multi-material, precision engineered products and solutions for a variety of industries, is slated to release its third-quarter 2017 results before the bell on Oct 23.

Arconic's adjusted earnings of 32 cents per share for the second quarter topped the Zacks Consensus Estimate of 27 cents. The company gained from its cost-saving actions in the quarter and all of its businesses delivered higher volumes.

Revenues went up 1% year over year to $3,261 million on improved volumes and higher aluminum prices, also coming ahead of the Zacks Consensus Estimate of $3,234 million.

Arconic has outperformed the industry it belongs to year to date. The company's shares have gained around 44.7% over this period, compared with roughly 37.9% gain recorded by the industry.

Let's see how things are shaping up for this announcement.

Factors at Play

Arconic, in July, revised its full-year guidance on the back of higher volumes, higher aluminium prices and stronger net cost savings. The company now expects revenues in the range of $12.3-$12.7 billion (up from earlier view of $11.8-$12.4 billion) and adjusted earnings of $1.15-$1.20 per share (up from $1.10-$1.20 per share expected earlier) for 2017.

Arconic is focusing on cost reduction and productivity improvements across its businesses, which should continue to lend support to its bottom line in the third quarter. Arconic achieved net cost savings of around 2% of revenues in first-half 2017.

Arconic holds strong positions in attractive markets. The company is seeing healthy demand trends in the aerospace market and is actively pursuing its aerospace expansion strategy. It is well placed to gain from major contract wins in aerospace. Arconic is seeing strong momentum in commercial aero engines and sees a year over year increase in sales in second-half 2017.

Arconic is also well placed to capture the growing demand for aluminum sheet stemming from the transition of the North American automotive industry to lightweighting. The company leverages its breakthrough Micromill technology that manufacture the most advanced aluminum sheet on the market.

The company's Global Rolled Products (GRP) segment is expected to continue to gain from strong automotive volumes in the to-be-reported quarter. Growth trend in automotive sheet is expected to sustain in the third quarter.

However, Arconic is seeing lower sales in industrial gas turbine market due to weak market conditions. Moreover, destocking and lower wide-body build rates for select platforms are hurting sales of commercial aero airframes and remain a headwind in the to-be-reported quarter.

The company's move to ramp down production at its Tennessee packaging business may also have some impact on its revenues in the third quarter. Arconic plans to exit that business in 2018.

Arconic Inc. Price and EPS Surprise

Arconic Inc. Price and EPS Surprise | Arconic Inc. Quote

Earnings Whispers

Our proven model does not conclusively show that Arconic is likely to beat the Zacks Consensus Estimate this quarter. That is because a stock needs to have both a positive Earnings ESP (Expected Surprise Prediction) and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below:

Zacks ESP: The Earnings ESP for Arconic is 0.00% as both the Most Accurate Estimate and the Zacks Consensus Estimate are pegged at 28 cents. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank: Arconic currently carries a Zacks Rank #3, which when combined with a 0.00% ESP, makes surprise prediction difficult.

Note that we caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some other companies in the basic materials space you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:

Westlake Chemical Corporation WLK has an Earnings ESP of +5.14% and a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here.

FMC Corporation FMC has an Earnings ESP of +0.88% and a Zacks Rank #1.

Ingevity Corporation NGVT has an Earnings ESP of +2.94% and sports a Zacks Rank #2.

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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.

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