Alcoa’s 4Q15 revenues
Revenues of aluminum companies are basically a function of shipments and commodity prices. Shipments depend on the demand from end consumers, as well as any portfolio actions undertaken by the company. Alcoa (AA) has been aggressively cutting down its high-cost smelting and refining capacity to survive in the low commodity price environment. Falling aluminum prices have also negatively impacted Alcoa’s revenues.
The dual impact of lower shipments and falling commodity prices has taken a toll on Alcoa’s revenues in the recent quarters.
Alcoa reported revenues of $5.2 billion in 4Q15. This represents a year-over-year (or YoY) fall of almost 18%. The upstream revenues fell 25% YoY while the downstream revenues rose 7% over this period. Please note that while Alcoa’s earnings topped Wall Street expectations, revenues came in lower than consensus estimates.
Alcoa’s downstream segment produces value-added products and has been gaining strength. The segment’s revenues have been growing organically as well as through a series of acquisition that Alcoa completed last year. Alcoa’s downstream segment competes with the likes of Precision Castparts (PCP), Woodward (WWD), and Constellium (CSTM) to capture the aerospace component market.
Nonetheless, the incremental revenues from the downstream segment failed to offset the falling upstream revenues. The result is that Alcoa’s revenues have been sliding for the last few quarters as you can see in the graph above.
Lower commodity prices are expected to dent Alcoa’s revenues in 2016 as well. Any major upside in aluminum prices looks dim currently. Also, Alcoa is curtailing more aluminum and alumina capacity in 2016. This would lead to lower shipments this year.
Investors looking at direct exposure to aluminum can also consider the PowerShares DB Base Metals ETF (DBB). DBB invests a third of its holdings in aluminum.
In the next part, we’ll look at the other key takeaways from Alcoa’s 4Q15 earnings.