Alcoa Is About To Kick Off Earnings Season — Here's What You Need To Know

Alcoa aluminium

First-quarter earnings season kicks off today after the closing bell with the release of global aluminium giant Alcoa’s quarterly financial results.

The company is considered a bellwether for the global economy, and given the timing of its earnings announcement as the unofficial beginning to earnings reporting, the release is closely watched by market participants.

The consensus estimate among Wall Street analysts polled by Bloomberg is that Alcoa will report earnings of $0.08 per share, down 19.7 per cent from last year. Sales for the quarter are expected to amount to $5.88 billion, 2 per cent less than the company made in the first quarter of 2012.

Investors have been mostly negative on Alcoa in recent months. Shares are down 9.5 per cent since the company’s last earnings announcement on January 8.

“With base metal prices under pressure, investor focus will be on management’s actions (including possible meaningful reductions to cap-ex, asset sales, and or equity/preferred offering) to fend off a potential Moody’s downgrade,” say Société Générale credit strategists Ken Eigarten and Kevin McCarthy. “Our analyst Jaimin Patel sees a very limited set of options for AA to avoid an eventual one-notch downgrade to Ba1.”

JPMorgan analyst Michael Gambardella was relatively optimistic on Alcoa before lowering his earnings estimate last week from $0.14 per share to $0.08, in line with the consensus estimate.

Gambardella cites the same big issue that the SocGen strategists flag: low aluminium prices.

“We are maintaining our estimates for the remainder of 2013 for now, but note that they are based on aluminium prices meaningfully higher than current levels,” says Gambardella. “We note that aluminium prices currently sit at $0.84/lb, which are meaningfully below our metal strategist’s price forecasts of $1.00/lb, $1.02/lb and $1.04/lb for 2Q13, 3Q13, and 4Q13, respectively. Our current 2Q13-4Q13E EPS estimates for AA assume these aluminium prices.”

Goldman Sachs is slightly more bearish on Alcoa earnings than the consensus. Goldman analysts expect the company to report earnings of $0.07 per share.

“The main focus will be its free cash flow generation in the current depressed aluminium price environment. We estimate it will have negative free cash flow of more than $900mn this year,” writes Goldman analyst Steve Song in a note to clients. “Based on our conversations with some investors, we believe that the market could be expecting some sort of equity dilution during the call; the most likely scenario in our view would be it paying $450 million of pension requirement with stocks, as it did in 2010 and 2011.”

Alcoa is set to report earnings shortly after the closing bell at 4 PM ET. Follow the release LIVE on Business Insider >

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