Alcoa’s 3Q17 Preview: Why Analysts See Higher Revenues

Alcoa’s 3Q17 preview

Alcoa (AA) is scheduled to release its 3Q17 earnings on October 18. In this part, we’ll look at the key drivers of Alcoa’s 3Q17 revenues. For mining companies (XLB) (ACH), revenues are a function of commodity prices and external shipments. Bauxite, alumina, and aluminum are the primary commodities that Alcoa sells. Along with metals, Alcoa derives some sales from its energy operations.

Alcoa’s 3Q17 Preview: Why Analysts See Higher Revenues

Revenue estimates

According to consensus estimates compiled by Thomson Reuters, Alcoa is expected to post revenues of $2.97 billion in 3Q17. The company posted revenues of $2.85 billion in 2Q17 and $2.32 billion in 3Q16. Analysts expect a steep year-over-year spike in Alcoa’s 3Q17 revenues. The revenues are expected to only be slightly higher on a sequential basis.

Key drivers

There’s typically a 15-day pricing lag in Alcoa’s aluminum shipments. Aluminum prices on the London Metal Exchange averaged $1,972 per metric ton on June 15–September 15. To put these numbers in context, consider that aluminum averaged $1,913 per metric ton on March 15–June 15. While aluminum prices were strong during this period, we saw some weakness in physical aluminum premiums (CENX) (NHYDY).

In its alumina operations, Alcoa follows the API (alumina price index) mechanism for most of its alumina sales with a lag of one month. The API averaged $310 per metric ton on May 2017–August 2017 compared to $306 per metric ton between March 2017 and May 2017.

Meanwhile, energy sales could also lift Alcoa’s 3Q17 revenues. During its 1Q17 earnings call, Alcoa said that its energy sales are expected to be backloaded in 2017.

In the next part, we’ll see what analysts project for Alcoa’s 3Q17 profitability.