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Arconic’s 4Q16 Guidance: What Can Investors Expect?

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Dec. 4 2020, Updated 10:53 a.m. ET

Arconic’s 4Q16 guidance

Previously, we looked at Arconic’s 4Q16 revenue estimates. In this part, we’ll look at the company’s profitability metrics. Note that there are several metrics you can use to measure an enterprise’s profitability. Arconic releases a non-GAAP (generally accepted accounting principles) measure—the ATOI (after tax operating income). In this part, we’ll look at the 4Q16 ATOI guidance provided by Arconic (ARNC).

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Segment-wise breakup

Arconic expects its GRP (Global Rolled Products) segment’s ATOI to be flat on a YoY (year-over-year) basis in 4Q16. The company adjusted the ATOI for the previous period to account for the transfer of Warrick and Saudi Arabia rolling mills to Alcoa (AA). The TCS (Transportation and Construction Solutions) segment’s 4Q16 ATOI is expected to rise 8%–10% YoY. The guidance is based on constant currency rates.

EPS segment

Alcoa’s EPS (Engineered Products & Solutions) segment’s ATOI is also expected to rise 6%–14% YoY in 4Q16. The company expects the EPS segment to post an ATOI between $130 million and $140 million in 4Q16. Although the guidance implies YoY growth, it would mean that the EPS segment’s 4Q16 ATOI would be lower compared to 3Q16. In 3Q16, the segment generated an ATOI of $162 million. Arconic expects “industry ramp-up challenges and higher new product introduction costs” to negatively impact the EPS segment’s 4Q16 ATOI.

We should remember that the EPS segment is the largest contributor to Arconic’s profitability. In 3Q16, the EPS segment accounted for more than 60% of Alcoa’s downstream ATOI. The segment has been negatively impacted due to short-term challenges facing the aerospace component industry (BRK-B) (CSTM) (ITA).

In the next part, we’ll look at key updates that markets are waiting for in Arconic’s 4Q16 earnings call.

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