Arconic’s Q4 2016 Earnings Review: Productivity Improvement Initiatives Boost Earnings Amid Top Line Headwinds

by Trefis Team
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Arconic Inc., which primarily represents the value-added businesses of the erstwhile undivided Alcoa Inc., released its fourth quarter earnings results on January 31. [1] As expected, headwinds in the company’s key aerospace and commercial transportation end markets translated into flat revenue growth in Q4, with the company’s productivity improvement initiatives boosting the bottom line.

ARNC Q4 2016 Earnings Review

A slowdown in the build rates by Arconic’s aerospace customers led to slowing growth in the company’s revenue from the aerospace segment, the company’s largest single end market. Airline manufacturers have adjusted their delivery schedules as per customer demands, resulting into near term weakness in demand for Arconic. Weakness in demand is expected to continue into at least the early part of 2017, though airline manufacturers have several years worth of production on their order books. [2] In addition, overcapacity in the North American heavy-duty truck market has hampered demand for Arconic’s Transportation & Construction Solutions business segment. With subdued demand conditions from these end markets impacting revenue growth, Arconic’s productivity improvement initiatives have largely been responsible for boosting the company’s bottom line, with all the company’s business segments reporting better margins.

With subdued demand conditions in aerospace and commercial transportation end markets expected to continue in the near term, the company management emphasized continued focus on measures to boost productivity in its conference call. [3] The Q4 earnings release was Arconic’s first as a standalone company. We will be looking out for the company’s 10-K in order to build our model for Arconic’s stock price.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Alcoa

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Notes:
  1. Arconic Reports Fourth Quarter and Full Year 2016 Results, Arconic News Release []
  2. Alcoa’s Q3 2016 Earnings Presentation, Arconic Website []
  3. Arconic’s Q4 2016 Earnings Call Webcast, Arconic Website []
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