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Alcoa’s 2016 Guidance Adds Gloom to 3Q Earnings Disappointment

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2016 guidance

Previously, we looked at Alcoa’s (AA) 3Q16 financial performance. To sum it up, the company’s revenues and profits both missed consensus estimates. Alcoa also spooked investors by lowering its 2016 guidance. Let’s look at its guidance in perspective.

GRP segment

During its 3Q16 earnings call, Alcoa lowered the business targets for all three segments under Arconic. In the Global Rolled Products (or GRP) segment, the company lowered the 2016 revenue target to $4.8 billion–$5.0 billion. Previously, the revenue guidance was $5.0 billion–$5.2 billion. Note that the revenue goal has been adjusted for the transfer of the Warrick rolling mill to Alcoa. Previously, the rolling mill was slated to come under Arconic.

Alcoa expects plateauing US car production and a weakness in other end markets to negatively impact the GRP segment’s revenues. Companies such as Constellium (CSTM), Allegheny Technology (ATI), and Advance Auto Parts (AAP) would also be negatively impacted since US car sales are showing signs of stagnation after years of rapid growth.

Alcoa still expects the GRP segment to generate an adjusted per-ton EBITDA (earnings before interest, tax, depreciation, and amortization) of $344 per metric ton in fiscal 2016, which was its earlier guidance.

TCS segment

In the Transportation and Construction Solutions (or TCS) segment, Alcoa lowered its fiscal 2016 revenue goal to $1.7 billion–$1.8 billion from the previous goal of $2.1 billion. However, the company maintained its goal of a 15% EBITDA margin for the segment. The company attributed the lower revenue goal to faltering heavy-truck-building activity in North America (MDY), coupled with its decision to restructure its extrusion business in Latin America.

Alcoa also lowered the business targets in its Engineered Products and Solutions segment for the second time this year. We’ll look more at this segment in the next part.

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