Alcoa’s Q3 Results: What to Expect Tomorrow

• Alcoa’s Q3 results are set to be released tomorrow after markets close. The stock is down almost 28% year-to-date.
• Alumina and aluminum prices have been weak this year, hurting Alcoa’s earnings. During the third quarter, the company announced a new operating model.

Aluminum producer Alcoa (AA) is slated to release its Q3 results tomorrow after markets close. Thomson Reuters–polled analysts expect Alcoa to post revenue of $2.59 billion in the third quarter, compared with $2.71 billion in the second quarter and $3.39 billion in last year’s third quarter. Their estimate may be a bit optimistic considering that alumina and aluminum prices weakened in the third quarter. Additionally, the company missed analysts’ second-quarter revenue estimate.

In the third quarter, analysts expect Alcoa’s adjusted EBITDA to be $384 million, down sequentially from $455 million and year-over-year from $795 million. Alcoa’s results could be mixed in the third quarter. Although lower alumina prices would help the company’s aluminum segment as it uses alumina as raw material, they would hurt the company’s third-party alumina sales. The company could see more cost savings because caustic soda prices have also fallen. Furthermore, the removal of Section 232 tariffs on Canada could boost Alcoa’s Q3 earnings by $15 million sequentially.

During the third quarter, Alcoa announced a new operating model and sealed labor contracts for its US employees. Alcoa might provide more insights on these developments during its Q3 earnings call. Other points to watch for include its global aluminum demand forecast, which it lowered during its second-quarter earnings call. Global automotive sales have been weak this year, hurting aluminum demand.

Of the analysts covering Alcoa, seven suggest “buy,” and seven suggest “hold.” Their mean price target of $25.25 implies a 31.7% upside from its closing price yesterday. Alcoa stock has fallen 28% this year amid weakness in broader metals and mining.

At the time of this post’s writing, Mohit Oberoi, CFA, held no position in AA stock.