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Alcoa (AA) to Report Q4 Earnings: What's in the Offing?

Zacks Equity Research

Alcoa Corporation AA is set to release fourth-quarter 2018 results on Jan 16, after the market closes.

The company reported better-than-expected results in three of the last four quarters while it lagged estimates in one. The average four-quarter positive earnings surprise for the company is 44.79%. In the last reported quarter, Alcoa’s earnings of 63 cents per share surpassed the Zacks Consensus Estimate of 25 cents.

In the past three months, the company’s shares have lost 19.2% compared with 12.8% decline recorded by the industry it belongs to.

Let’s see how things are shaping up for this announcement.

Factors to Influence Q4 Results

Alcoa is likely to continue benefiting from its initiatives to reduce complexities of its operations, strengthen its balance sheet and reward shareholders with higher returns. In this regard, over the past couple of years, the company has successfully streamlined its structure and processes and addressed a significant portion of its liabilities. In the third quarter, the company reduced its liability from pensions and other post-employment by $500 million on a sequential basis.Notably, for 2018, the company increased its adjusted earnings before interest, tax, depreciation and amortization projection to $3.1-$3.2 billion from $3-$3.2 billion stated earlier.

Alcoa expects global bauxite market to remain in surplus with increasing stockpile growth. The company projects Chinese stockpiles to grow, with a rise in Chinese demand for seaborne bauxite. In addition, the company’s decision to invest $100 million will allow it to boost operational efficiencies, enable further cost reductions in its flat rolled business and boost growth in bauxite.

For the fourth quarter, the Zacks Consensus Estimate for revenues from Bauxite segment is pegged at $300 million compared with $306 million generated in the year-ago quarter.

In the Alumina segment, Alcoa projects global deficit, primarily induced by disrupted supply in Brazil. The company’s own aluminum smelters use most of the alumina produced while the rest is sold globally. Better production volumes and higher prices realized per metric ton will be a boon for the segment’s top line.In this regard, alumina production in the quarter is anticipated to grow 4.1% sequentially.

For the fourth quarter, the Zacks Consensus Estimate for revenues from Alumina segment stands at $1,736 million, higher than $1,517 million generated in the year-ago quarter.

In the Aluminum segment, the company projects a global deficit as well. Notably, the company has reduced its estimates for Chinese aluminum supply on account of curtailments and delayed expansions. Lower metal prices and higher alumina costs in the company’s aluminum segment might remain hindrance for Alcoa.

Additionally, higher raw material costs and energy costs at several of its smelters might have an adverse impact on the company’s financials.

Earnings Whispers

Our proven model provides some idea on the stocks that are about to release earnings results. Per the model, a stock needs to have a combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

The case with Alcoa is given below.

Earnings ESP: Earnings ESP of Alcoa is currently -34.48% as the Most Accurate Estimate of 29 cents is below the Zacks Consensus Estimate of 44 cents.

Alcoa Corp. Price and EPS Surprise

Alcoa Corp. Price and EPS Surprise | Alcoa Corp. Quote

Zacks Rank: Alcoa currently carries a Zacks Rank #3. This combined with a negative ESP makes earnings surprise prediction difficult.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Key Picks

Here are some companies in the Zacks Industrial Products sector that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Cintas Corporation CTAS has an Earnings ESP of +0.27% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Actuant Corporation ATU has an Earnings ESP of +0.39% and a Zacks Rank #3.

Eaton Corporation plc ETN has an Earnings ESP of +0.70% and a Zacks Rank #3.

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