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Alcoa Earnings - What to Expect?

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Alcoa Q2 Earnings

Alcoa Earnings - What to Expect?

July 6 2015, 07.35am GMT


The new season of quarterly reports kicks off when Alcoa Inc. releases its second quarter results on 8 July.

Consensus forecasts from Thomson Reuters are for 25 cents earnings per share on the back of $5.95 billion in revenue. Second quarter figures for 2014 were 9 cents in EPS on $5.45 billion in revenue.

According to analysts polled by FactSet, there is a slightly lower expectation, estimating second quarter profits of 23 cents per share on a revenue figure of $5.81 billion. This would represent a decline on the first quarter figures of 28 cents earnings a share on revenue of $5.82 billion.

Over the last few months, Alcoa Inc. (AA, +0.27%) has faced a number of difficulties beyond its control while investors will be looking closely at the report for indications that the world's third largest aluminium producer and light weight metals manufacturer is coming up with the right answers. Areas of uncertainty for Alcoa have centered around finding the right product mix, keeping production in line with a disappointing demand for its products coupled with pressure on product pricing aggravated by a strong U.S. dollar (USD).

During April this year, Alcoa predicted that the global aluminium demand was expected to grow by 6.5% this year, down from the 2014 figure of 9 percent.

Included in the action taken by Alcoa to meet these challenges, high cost commodity operations have been trimmed, lower-value assets sold off and a renewed focus on low cost production to match the demand for lightweight metals has been implemented.

The company also fired the first warning shot this week when it said it will book a one-time charge of 8 or 9 cents per share against the Q2 earnings. This would be to cover the costs involved in the closure of its Pocos de Caldas aluminium smelter in Brazil.

Commenting on the problems encountered as a result of dollar strength, not only by Alcoa, but by all U.S. companies active overseas, Jonathan Glionna, an analyst at Barclays Capital wrote that as a result of the strength of the USD, the “ translation adjustment required in 2Q15 could be the largest ever”.

Meanwhile, John Butters, a senior analyst at FactSet, said that in similarity with the last earnings season, this one is expected to be the worst showing for the S&P 500 index (SPX) since the third quarter of 2009. This would be due mostly to the declines in the energy sector.

The Alcoa share price is down 30% since January and 25% down year to date. This compares very unfavorably with the S&P 500 index which has risen by 5.3% during the past year.

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