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Alcoa To Release First Quarter Earnings Today

Alcoa To Release First Quarter Earnings Toda
By: Martin Blanc
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Alcoa Inc. (AA), the world’s largest primary and fabricated aluminum maker, as well as the world's biggest miner of bauxite and refiner of alumina, will release first quarter results for its fiscal 2014 (1QFY14) after the market closes today, with a conference call to be held at 5 PM EST.

Analysts expect earnings per share (EPS) for 1QFY14 to come in at five cents, down from 11 cents in the same quarter last year, but one cent up from the expectations last month. The full-year EPS estimate is 37 cents.

The Pittsburgh-based aluminum products manufacturer’s revenues are expected to drop to $5.55 billion for the quarter, a decline of 5% from the previous year’s revenue figure. Revenue expectation for the full year so far is $23 billion, with operating profit expected to be $237 million for 1QFY14, and $1.31 billion for the whole year. Gross margin estimates are 16% for the first quarter, and 17% for full FY14.

The one-year consensus target price for the stock is $10.6.

JPMorgan (JPM) and Barclays (BCS) continue to rate the stock as Overweight and Equalweight respectively, while Deutsche Bank (DB) has changed its February rating from Sell to Hold.

A poll conducted by Bloomberg shows mixed views from 20 analysts. Six have a Buy call on the stock, while 10 gave Hold calls and four gave Sell ratings.

The company last released earnings on January 9, 2014, for 4QFY13. The company reported earnings of four cents per share missing estimates of six cents per share but beating revenue estimates by posting $5.59 billion against analysts’ expectations of $5.43 billion. However, revenues were down 5.3% year-over-year.

As EPS missed estimates and both EPS and sales were lower in comparison to the numbers in 4QFY12, the stock price dropped 5.43% the following day, particularly as the company had been beating analysts’ EPS estimates for the last four quarters and revenue estimates for the last three quarters. However, it was more of a knee-jerk reaction as the stock recovered to return over 8% for the month of January.

Investors will be watching out for updates on developments planned for FY14, which had been announced in the conference call following the 4QFY13 earnings release. Investors will also look for affirmation of the company’s commitment to the 25% stake in the smelting plant in Saudi Arabia, the company’s focus on generating positive cash flows, and the move toward a debt-to-capital ratio of 30-35% as the year progresses.

Moreover, the 125-year-old aluminum maker expects global demand for aluminum to rise by 7% this year. China, the biggest producer and consumer of aluminum products, made 47% of the 46.5 million tons of aluminum produced in the world last year, which was even more than the country could consume. Aluminum production in China rose 12% in 2013, while the rest of the world’s output actually went down 1%. As a result, aluminum makers around the world are now looking to cut production capacities to bolster aluminum demand and in turn aluminum prices.

Alcoa has reduced its production capacity by 551,000 metric tons, or 17%, in recent months. It has also closed down its plants in Australia, a step that will cost the company $270 million, 60% of which will be realized in 1QFY14. United Co. Rusal, a Russia-based aluminum producer, also announced a delay in the construction of a 750,000-ton capacity Siberian smelting plant, the biggest in the world.

However, Alcoa’s recent investment of $575 million in its Iowa and Tennessee plants to produce more aluminum sheets, which will mostly be used in automobiles this year as automakers focus on lighter and stronger vehicles, widens the scope for the company.

Ford Motor Company (F) in January has already announced that its new F-150 truck will have an aluminum exterior. The F-150 has been Ford’s and America’s bestselling vehicle for over three decades, and is among the first to boost the demand for aluminum this year. GM also has a contract of its own, with Alcoa to supply the aluminum body parts for its pickup truck to be released in 2018. Alcoa expects aluminum made auto parts to double in quantity by 2025.

Alcoa stock closed down 1.27% yesterday. The stock is up 0.32% today as of 12:56 PM EST. Year-to-date, the stock has posted gains over 18% thus far, while over the last 12 months, it has gained over 50%. The one-year high and low for the stock is $13.18 and $7.63, respectively.

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