Alcoa’s key financial metrics
In the first parts of the series, we’ve discussed Alcoa’s business. In this part, we’ll discuss Alcoa’s key financial metrics. We’ll analyze Alcoa’s trends in revenues, earnings per share (or EPS), and cash flow from operations.
Alcoa revenues affected by falling aluminum prices
As you can see in the chart above, Alcoa’s revenues have been on a downward trend for the past three years. In 2014, revenue is expected to be ~1% lower over the revenue in 2013. The aluminum market has been growing. The deceleration in revenues is due to falling aluminum prices. Aluminum prices fell to a four-year low this year, before rebounding slightly.
Earnings per share continue to improve
While the revenues have been falling, the adjusted earnings per share (or EPS) have been increasing. This is mainly because of an increased proportion in value-added products. Alcoa has also rationalized costs at its various operations.
Declining cash flows are a worrying sign
Alcoa’s cash flows from operations have come down since 2011. This is worrying because aluminum companies like Alcoa Inc. (AA), Century Aluminum (CENX), Kaiser Aluminum Corp. (KALU), and Constellium (CSTM) need to continually invest in capital projects. Companies also need free cash for daily operations. The credit ratings are also impacted if the company generates low cash flows. We’ll discuss Alcoa’s ratings in greater depth in the next parts in the series.
It’s important to note that apart from the companies listed above, you can also consider the SPDR S&P metals and mining ETF (XME) to gain exposure to the metals sector.