Why Analysts Expect Alcoa’s Earnings to Fall Sharply in Q1

Alcoa’s first-quarter earnings

Alcoa (AA) is scheduled to release its earnings results for the first quarter of 2019 on April 17 after the markets close.

Analysts polled by Thomson Reuters expect the company to post revenue of $2.80 billion in the first quarter. It posted revenues of $3.3 billion in the fourth quarter and $3.1 billion in the first quarter of 2018.

Why Analysts Expect Alcoa’s Earnings to Fall Sharply in Q1

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Alcoa’s adjusted EBITDA is also expected to fall to $398 million in the first quarter compared to $749 million in the fourth quarter and $653 million in the first quarter of 2018. As we can see, analysts expect Alcoa’s first-quarter earnings to fall sharply.

Alcoa regularly provided its annual earnings guidance until last year. Now, the company has discontinued the practice. Let’s see what could be driving analysts’ pessimism toward Alcoa’s earnings.

Metals prices

Metals prices are the key drivers of Alcoa’s earnings. Last year, higher aluminum and alumina prices boosted Alcoa’s earnings, and it posted its highest earnings since being listed as a separate company in 2016. Alumina prices were especially strong as the closure of Norsk Hydro’s Alunorte refinery lifted them, boosting the earnings of integrated aluminum producers such as Alcoa. However, Century Aluminum (CENX), which buys alumina from external sources, posted a net loss last year.

So far in 2019, alumina prices have fallen sharply from their 2018 peak. Aluminum was also weak in the first quarter even as other base metals such as copper recouped some of their losses. In summary, weakness in alumina and aluminum prices is expected to drag on Alcoa’s first-quarter earnings.