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Not Upstream, but Arconic Segments Hit Alcoa’s 3Q16 Earnings

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Alcoa’s 3Q16 earnings

In the previous part of this series, we looked at Alcoa’s (AA) 3Q16 upstream revenues. In this part, we’ll explore Alcoa’s downstream revenues. The downstream business will spin off into Arconic on November 1, 2016. Alcoa’s downstream business consists of three segments: Engineered Products and Solutions (or EPS), Transportation and Construction Solutions (or TCS), and Global Rolled Products (or GRP).

Last year, Arconic’s business segments compensated for the lower performance of Alcoa’s upstream business. However, Arconic’s performance hasn’t matched market expectations this year.

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Arconic’s business segments

In 3Q16, Alcoa’s downstream business generated revenues of $3.4 billion. Revenues fell 1% on a year-over-year (or YoY) basis. Let’s break down these revenues.

  • The GRP segment reported revenues of $1.5 billion in 3Q16, roughly similar to the sequential quarter as well as the corresponding quarter last year. Within the GRP segment, it was another record quarter for Alcoa in terms of auto sheet shipments. However, lower airframe demand and sagging heavy-duty truck building activity in North America were drags on its revenue.
  • The slowdown in the heavy-duty truck market had a negative impact on the TCS segment, and revenues fell to $450 million in 3Q16 from $475 million in the corresponding quarter last year. Revenues also fell from the sequential quarter.
  • Alcoa’s EPS segment, which supplies aerospace companies such as Boeing (BA), reported revenues of $1.4 billion in 3Q16. Although revenues rose slightly on a yearly basis, they fell 4.2% from 2Q16. According to Alcoa, the aerospace market is going through a transition phase that’s negatively impacting the performance of the EPS segment. Constellium (CSTM) and Woodward (WWD) also supply the aerospace sector (ITA).

In the next part of the series, we’ll look at Alcoa’s 3Q16 profitability metrics.

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