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Can Alcoa Deliver Higher Profits in 4Q17?

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Aug. 18 2020, Updated 5:14 a.m. ET

Profits

In this article, we’ll see what analysts are projecting for Alcoa’s (AA) 4Q17 adjusted EBITDA (earnings before interest, tax, depreciation, and amortization). Notably, EBITDA is the preferred metric to measure mining companies’ profitability.

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Analysts’ estimates

According to the consensus estimates compiled by Thomson Reuters, Alcoa is expected to post adjusted EBITDA of $798 million in 4Q17. To put this number in context, consider that the company posted adjusted EBITDA of $525 million in 3Q17 and $335 million in 4Q16. Alcoa posted adjusted EBITDA of ~$1.6 billion in the first nine months of 2017. Looking at Alcoa’s guidance, we see that the company expects to post adjusted EBITDA higher than $800 million in 4Q17. Analysts’ EBITDA estimates are lower than Alcoa’s guidance. Let’s see what factors could drive Alcoa’s 4Q17 EBITDA.

Key drivers

As we noted in the previous part of this series, alumina, and aluminum prices were strong in 4Q17, which should support Alcoa’s 4Q17 earnings. However, we’ve also seen cost-push inflation in the aluminum space as energy and carbon prices have risen. Higher raw material prices could drag on Alcoa’s earnings. Other aluminum producers Norsk Hydro (NHY) and South32 (S32) could also report higher unit production costs in 4Q17. Century Aluminum (CENX) could also feel the pressure from higher alumina prices (AWC) along with energy costs.

Alcoa’s energy operations are also expected to report sequentially lower EBITDA in 4Q17. The company expects adjusted EBITDA from its energy operation to fall $50 million compared to 3Q17.

In the next part of this series, we’ll see what details markets might await in Alcoa’s 4Q17 earnings call.

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