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Are Markets Overreacting to Alcoa’s Second-Quarter Earnings?

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Alcoa’s second-quarter earnings

Alcoa (AA), the leading US-based aluminum producer, released its second-quarter earnings on July 18. The company reported revenues of $3.6 billion in the second quarter—compared to $3.1 billion in the sequential quarter. Alcoa’s adjusted EBITDA rose to $904 million in the second quarter—compared to $653 million in the first quarter and $505 million in the second quarter of 2017.

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Key drivers

According to Alcoa, “Higher alumina and aluminum prices, as well as a stronger U.S. dollar, were the primary factors driving this sequential increase. Somewhat offsetting these factors were unfavorable mix and higher costs for energy, raw materials, and maintenance activities.”

2018 guidance

Alcoa’s second-quarter earnings managed to beat consensus top-line and bottom-line estimates. However, the stock was trading down in after-hours trading on July 18. Century Aluminum (CENX) was also down in after-hours trading. Markets’ reaction to Alcoa’s second-quarter earnings is being attributed to lower guidance. During the earnings release, Alcoa lowered its 2018 adjusted EBITDA guidance to $3.0 billion–$3.2 billion from the previous guidance of $3.5 billion–$3.7 billion. According to Alcoa, “The new full-year forecast reflects current market prices, tariffs on imported aluminum, increased energy costs, and some operational impacts.”

However, the cut in Alcoa’s guidance was expected given the correction in aluminum and alumina prices. Analysts polled by Thomson Reuters expected Alcoa to post an adjusted EBITDA of $3.1 billion this year, which is in line with Alcoa’s guidance.

Visit Market Realist’s Basic Materials page for ongoing updates in the aluminum industry.

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