Can Alcoa Make It Four in a Row with a 3Q16 Earnings Beat?



3Q16 earnings beat

According to consensus estimates compiled by Bloomberg, analysts expect Alcoa (AA) to post adjusted EPS (earnings per share) of $0.11 in 3Q16. To put this in perspective, the company posted adjusted EPS of $0.15 in 2Q16 and $0.07 in 3Q15. Analysts expect Alcoa’s 3Q16 EPS to fall year-over-year and quarter-over-quarter.

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Earnings beat

Notably, Alcoa has posted better-than-expected EPS for three consecutive quarters. Prior to these quarters, Alcoa missed consensus earnings estimates for two straight quarters. In our view, Alcoa could manage to post an EPS beat in 3Q16 on higher aluminum prices and productivity gains.

Are earnings beat enough?

Markets have several expectations from Alcoa’s 3Q16 earnings. Alcoa saw sharp negative price action after its 1Q16 earnings release, despite posting better-than-expected EPS. The company missed consensus revenue estimates in the quarter. Adding to negative sentiments, Alcoa lowered the long-term guidance of its Engineered Products and Services segment during its 1Q16 earnings call.

The segment, which supplies the aerospace sector, will be Arconic’s crown jewel after it spins off from Alcoa. Precision Castparts (BRK-B), Constellium (CSTM), and Woodward (WWD) also supply the aerospace sector (XLI), and they’ll be some of Arconic’s competitors after the split.

In 2Q16, Alcoa managed to post better-than-expected revenues and EPS. The company also tried to calm investor nerves by raising its outlook for demand from the aerospace sector. Alcoa’s 2Q16 earnings were received well by markets and the stock rose after the earnings release. In the next article, we’ll look at what markets might like to hear in Alcoa’s 3Q16 earnings call.


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