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Early notes are out on Alcoa’s earnings miss yesterday. The company reported revenue grew 21% to $6.42 billion while analysts expected just $6.23 billion. Earnings per share missed by seven cents, however. Income increased 182% to $0.15 per share, mainly on relatively easy comparisons to a difficult 2010.
Guidance was lowered by two bulge brackets:
- Citi: FY11 EPS to $0.86 from $0.99
- Goldman: FY11 EPS to $0.80 from $0.87
What analysts are saying:
Citi Analyst Brian Yu:
- Management noted good aluminium demand trends and maintained their demand growth forecast at 12% for 2011. However, this runs counter to weak pricing signals from the aluminium market vs Alcoa’s smelter cash cost of $1.11/lb. Even assuming a $0.09/lb merchant and product mix premium, AA’s smelters would not be able to generate a profit at the current Al price. Management believes speculators are likely responsible for the depressed pricing and indicated that they are ready to idle potlines if warranted.
Deutsche Bank Analyst Jorge Beristal:
- Key message is Alcoa is “better prepared” for economic turmoil, but disappointingly management did not provide 4Q11E volume guidance for its alumina or aluminium divisions (we assume flat QoQ which implies FY11 growth of -2% and +3%, respectively). At current spot aluminium of $1/lb (tracking down ~7% QoQ) there is downside risk to our 4Q11E EPS and net debt remains high. Re-it Hol.
Goldman Sachs Analyst Sal Tharani:
- We believe that Alcoa’s weak results are reflective of what we believe will be a norm for the quarter for the entire sector. Although there are no near-term catalysts on the horizon, we like Alcoa in the medium to longer term as benefits of its aerospace-levered downstream business and delinking of alumina from the LME aluminium prices drive future earnings. Additionally Ma’aden would bring its positioning on the global alumina and aluminium curves to more favourable levels. We also believe that the price of aluminium, currently below the marginal cost, is close to a bottom.
Morgan Stanley Analyst Paretosh Misra:
- AA’s 3Q revenues and total segment profit beat our expectations; EPS were below our estimate, due to tax and FX translation adjustments. 4Q demand outlook for key end-markets remains a concern, particularly global auto/heavy trucks and packaging in the US and Europe.
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