Here’s What to Expect from Alcoa’s Fourth Quarter Results

by Trefis Team
+8.22%
Upside
52.90
Market
57.25
Trefis
AA
Alcoa
Rate   |   votes   |   Share

Alcoa Corp (NYSE: AA) is set to report its fourth quarter earnings results on 17 January, 2018 followed by a conference call with analysts on the same day. As Alcoa spun off its value-added businesses into a separate company toward the end of last year with its first reporting period as Q4 2016, we would be comparing the company’s result in Q4 2017 with that in the corresponding period of last year. In this article, we will outline the major factors likely to impact the company’s results in Q4.

Higher Aluminum Prices to Drive Revenue

Alcoa is a primary aluminum producer and its earnings are highly reflective of the movement in the prices of aluminum. Aluminum prices dipped in the final quarter of the year, mainly because the Chinese winter production cuts were not as severe as previously anticipated. However, the price decline was shortly met with a price rally by the end of December which helped to average out the prices at a higher level for the entire quarter. The rally was driven by an expectation of several rounds of inspection by the Chinese government on the country’s industrial activity starting January which would help in ensuring that production levels are well within the initial guidelines.

Additionally, China’s stringent pollution control policies are discouraging aluminum producers to construct new smelters within the country. This limits the potential of increased supply of aluminum in the near future and therefore created an upward pressure on aluminum prices.

Alumina Prices Also to Average Out Higher

Apart from aluminum, higher price realization for alumina, a primary raw material used in aluminum production, would also enable the company to earn higher revenue. Alumina shares similar market dynamics as that of aluminum and hence is expected to see a price rise this quarter. Alcoa in its third quarter earnings release reported that it supplies close to 68% of its alumina production volumes to third parties. Thus, higher alumina price realizations  would enable the company to improve its revenue from this segment. The company revised its 2017 EBITDA outlook upwards to $2.4 billion in its Q3 earnings release, an approximately 11% revision from its previous estimate. This is primarily driven by a higher pricing outlook for both alumina and aluminum.

Going forward, a positive outcome of the Section 232 investigation by the U.S. Department of Commerce, which is due in January,  would have a significant impact on aluminum prices. This would, in turn, enhance Alcoa’s revenue in the upcoming year. We shall keep a close watch as these developments take shape.

We have a $42 price estimate for Alcoa which is currently below the market price.

Have more questions about Alcoa? See the links below.

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such 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

See More at Trefis | View Interactive Institutional Research (Powered by Trefis)

Get Trefis Technology

Rate   |   votes   |   Share

Comments

Name (Required)
Email (Required, but never displayed)
Be the first to comment!