The Uncertain Road ahead for Alcoa and Arconic in 2Q16
Alcoa versus Arconic
Fiscal 2016 is perhaps the most crucial year for Alcoa since it was incorporated in 1888. Alcoa has been a pioneer in aluminum production technology. Aluminum production has been the primary business of Alcoa for years.
But under its transformation strategy, Alcoa has turned into a diversified metal company. Alcoa now is not only a primary aluminum producer but also well spread across the aluminum value chain. Along with primary aluminum, it also manufactures several alloy products to serve its customers. Alcoa has completed three major acquisitions in the last two years to grow its value-added portfolio.
However, later this year, the two business will separate into two entities. Alcoa will retain the upstream or the commodity (RJI) business. The downstream or the value-added component business will be split into a new company, Arconic. The chart above shows the timeline of Alcoa’s split.
The two companies will have a totally different competitive landscape after the split. Alcoa will compete with primary producers like Century Aluminum and Norsk Hydro (NHYDY). Arconic, on the other hand, will list Precision Castparts (BRK-B), Woodward (WWD), and Constellium (CSTM) as its competitors.
Alcoa (AA) has released its 1Q16 financial results. You can read more about Alcoa’s consolidated 1Q16 earnings in our series Why Alcoa’s 1Q16 Results Were a Mixed Bag for Investors. But since 2016 is mostly about Alcoa’s split, you should also keep track of how the two entities performed in the quarter.
In this series, we’ll see how the two entities, the new Alcoa and Arconic, performed in 1Q16. This should help you understand how these two companies individually performed in the quarter, and what lies ahead for them in this exciting year.
Let’s first focus on Alcoa’s Upstream Performance in 1Q16.
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