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Alcoa 3d qtr. likely weaker: analysts

Keywords: Tags  Alcoa, London Metal Exchange, earnings, Tim Hayes, Davenport, Dahlman Rose, RBC Capital Markets, Credit Agricole aerospace

NEW YORK — Analysts expect Alcoa Inc. to record a weaker third quarter when the company releases its financial results Tuesday.

Despite a recent surge in the price of aluminum on the London Metal Exchange, analysts are forecasting that average per-share earnings will fall in the third quarter.

"Cash hit a bottom in mid-August of around $1,800 a tonne. Since then it’s up. But they’re going to see little of this rebound in the third quarter," Davenport & Co. analyst Tim Hayes told AMM. "Unfortunately, the price was weak for most of the quarter."

"Weaker aluminum prices will have a negative impact," RBC Capital Markets analysts wrote in a research note.

Davenport and Dahlman Rose & Co. both estimate that Alcoa’s third quarter will be breakeven, while Credit Agricole Securities and RBC Capital Markets have forecast a 2-cent-per-share loss.

Alcoa recorded zero earnings per share in the second quarter on a $2-million net loss (, July 9).

Alcoa’s upstream business is expected to be hardest hit as it’s directly linked to commodity prices. Alcoa’s downstream businesses, including its engineering products and solutions segments, could be a bright spot in the third quarter as they supply the booming aerospace and automotive markets, although analysts cautioned about seasonal weakness.

"It could be down slightly from the second quarter for seasonal reasons, like European holidays. But because that segment is so geared towards aerospace, which remains very strong, it should have held up well during the quarter," Hayes said. "The ongoing strength in aerospace should largely offset the typical seasonal decline from the second quarter to the third quarter."

"Those businesses should continue to do quite well," a second analyst said. "There’s some seasonality which you have to take into account, but their mid- and downstream (segments) will be much better (than upstream)."

In addition to seasonality, RBC said that weakness in building and construction and the heavy truck and trailer markets will hit the downstream business. "The downstream business should be down due to deterioration ... in building and construction and heavy trucks, as well as uncertain European markets and slower growth in Russia and China," RBC analysts wrote.

There are other factors that will hit third-quarter earnings, such as Environmental Protection Agency plans for cleaning up some four decades’ worth of pollutants from the Grasse River in upstate New York near Alcoa’s Massena smelters, the analysts said. The Pittsburgh producer estimates that the EPA’s proposal will cost the company some $85 million in the third quarter (, Oct. 4).

"They’re going to take a charge of $85 million. That’s an extraordinary situation, though," the second analyst said.

Hayes agreed. "Those are nonrecurring items (that will impact) the third quarter. They’ll treat it as a one-time charge."

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