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Alcoa’s 3Q15 Revenues Fall on Lower Pricing, Divestitures

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Alcoa’s 3Q15 revenues

Revenues of aluminum companies, including Alcoa (AA), are basically a function of shipments and commodity prices. Shipments depend on demand from end consumers as well as any portfolio actions undertaken by the company.

Alcoa has been aggressively cutting down its high-cost smelting capacity to survive in the low aluminum price environment. Currently, Alcoa forms 0.17% of the iShares S&P 500 Value ETF (IVE).

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Why Alcoa’s revenues have fallen

  • Alcoa reported revenues of $5.6 billion in 3Q15, down 11% year-over-year. Alcoa’s 3Q15 revenues were negatively impacted by plant closures and divestitures.
  • Alcoa reported average realized aluminum prices of $1,901 in 3Q15, which were down by $637 per metric ton compared to the corresponding quarter last year. Falling aluminum prices could have a negative impact on 3Q15 earnings of other aluminum producers, including Norsk Hydro (NHYDY).
  • Alcoa’s 3Q15 revenues were aided by strong growth in the aerospace and automotive markets. Alcoa has made several acquisitions in these spaces over the last year. The company also benefited from higher alumina sales in the quarter.

Outlook

Lower aluminum prices are expected to negatively impact Alcoa’s earnings in 4Q15 as well. Base metals, including aluminum and copper, continue to trade near their six-year lows. Any major upside in aluminum prices currently looks dim. If aluminum prices rise, we might see an uptrend in Chinese aluminum exports, again putting pressure on aluminum prices. However, Alcoa could continue to benefit from strong aerospace and automotive demand in the coming quarters.

In the next part, we’ll explore what factors affected Alcoa’s 3Q15 earnings.

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