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Why Alcoa Missed 1Q16 Consensus Revenues

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Apr. 12 2016, Published 8:13 a.m. ET

1Q16 consensus revenues

Alcoa (AA) posted revenues of $4.9 billion in 1Q16, which represents a year-over-year (or YoY) decline of 15% and a sequential quarterly decline of 5.4%. According to consensus estimates compiled by Bloomberg, analysts expected Alcoa to post revenues of $5.2 billion in 1Q16. In this part of the series, we’ll explore why Alcoa missed revenue estimates.

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Why Alcoa posted lower revenues

  • Alcoa’s 1Q16 revenues were negatively impacted by lower metal prices. The company posted realized aluminum prices of $1,793 per metric ton in 1Q16, a YoY decline of more than 25%.
  • Alcoa’s Alumina segment posted third-party revenues of $545 million in 1Q16, which is 38.5% lower than the corresponding quarter last year. The Alumina segment’s realized third party selling prices fell 27.6% YoY in 1Q16.
  • Furthermore, Alcoa sold less aluminum and less alumina in the quarter as compared to the corresponding quarter last year due to capacity curtailments.
  • Note that while US (DIA) aluminum producers like Alcoa and Century Aluminum (CENX) have announced significant capacity curtailments, we have not seen any major supply-side action from other producers like Rio Tinto (RIO) and Norsk Hydro (NHYDY).

Downstream revenues

Alcoa’s downstream business, which will be split into a new company named Arconic later this year, is seen as Alcoa’s crown jewel. However, the downstream segment’s 1Q16 financial performance and outlook failed to soothe investor nerves as we’ll explore in the next part of this series.

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