Alcoa earnings beat estimates as the company posted Q2 earnings of $0.32 on revenue of $6.59 billion after the bell yesterday. Since then however the company’s shares have traded down and then back up.While headlines have all focused on positive earnings news, The Wall Street Journal reported that Alcoa earnings were much lower than initial estimates of $0.36 as of May 31, and $0.35 on June 30.
Citi analyst Brian Yu gives us the pros and cons of this giant stock:
- The company’s engineered products segment posted after tax operating income (ATOI) of $149 million beating estimates.
- The aluminium realised pricing of $1.28/lb was higher than the London Metal Exchange (LME) average.
- Of concern is the fact that despite an increase in shipments the Alumina segment ATOI totaled $186 million, below estimates of $217 million. Unit costs were also higher than expected. The aluminium segment also missed expectations.
Deutsche Bank’s Jorge Beristain also weighed in:
- Alcoa set new records in Alumina production and the company has had success in aerospace business.
- He reiterates growth expectation for 2011 with global aluminium demand at 12% year-over-year with growth guidance boosted for heavy trucks and beverage cans.
- On the downside, auto and construction growth is cut back to 6%, down from 8%; and 2% down from 2.5% growth. High prices of raw materials like coke and caustic, and energy are expected to affect guidance.
- Though aluminium inventories are high, there is physical tightness in the market.
Meanwhile JP Morgan analyst Phil Gresh focused on the beverage cans market:
- Alcoa lowered its market guidance in North America and Europe but raised in China but North America accounts for the majority of demand. This is expected to weigh on packaging companies like Crown Holdings and Ball Corporation. Ball Corporation currently has a 40% share of the North American market and Crown Holdings accounts for 20%.