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
"Cash hit a bottom in mid-August
of around $1,800 a tonne. Since then its up. But
theyre 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
"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 Alcoas 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
(amm.com, July 9).
Alcoas upstream business
is expected to be hardest hit as its directly linked to
commodity prices. Alcoas 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.
"Theres 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 Alcoas Massena smelters, the analysts said. The
Pittsburgh producer estimates that the EPAs proposal will
cost the company some $85 million in the third quarter
(amm.com, Oct. 4).
"Theyre going to take a
charge of $85 million. Thats an extraordinary situation,
though," the second analyst said.
Hayes agreed. "Those are
nonrecurring items (that will impact) the third quarter.
Theyll treat it as a one-time charge."