Alcoa pre-earnings outlook

Alcoa is set to report second quarter earnings on July 8. Its second quarter earnings report follows some speculation in the market regarding aluminum prices and global industry demand. Analysts’ have a second quarter consensus estimate of $0.10 per share, $0.04 above the previous year’s second quarter report, indicating steady state growth occurring for the company.

Alcoa’s first quarter earnings were on track coming in at $0.11 per share on target with analysts’ consensus estimate. First quarter top line revenue was down 1.7 percent in the first quarter from $5.9 billion to $5.8 billion. Net income was up 89 percent from the previous quarter at $121 million from $64 million, resulting in the earnings of $0.11 per share.

While the first quarter report was positive for Alcoa some troubling concerns were noted following the company’s announcement. Global market concerns for the company led to a downgrade by Moody’s on May 29. On May 29 Moody’s downgraded Alcoa’s debt from Baa3 to Ba1. During the second quarter Standard and Poor’s and Fitch also lowered their outlook for the company. The downgraded outlooks are a result of global concerns for the company regarding aluminum prices and global aluminum demand.

While the company acknowledged the industry’s declining aluminum prices and global demand risks their business production outlooks continue to remain strong. Producing the majority of the industry’s aerospace alloy products, the value-added Engineered Products and Solutions Group and the Global Rolled Products division growth forecasts remain at a strong 5 percent and 15-20 percent, respectively.

William Oplinger, Chief Financial Officer, further iterated his view of the Global Rolled Products segment in his first quarter earnings comments stating, “The aero and auto markets are expected to be strong, with seasonal demand increases in packaging. We’ll continue to experience pricing pressures in North America and China. And lastly, we’ll continue to deliver productivity gains. With that said, the overall view of this segment is for profitability to increase by 15 percent to 20 percent on a sequential quarter basis.”

The strong growth in these two business segments should continue to offset declines in the Alumina and Primary Metals division. While these two divisions face the greatest risks due to price decline and global demand reductions, production efficiencies continue to improve with no major issues causing a slowdown.