Tuesday, October 9, 2012

Alcoa Inc. (NYSE:AA) Q3 earnings expected to be soft

Aluminium make Alcoa Inc.(NYSE:AA), which kicks off the earnings season on Tuesday is expected to report soft earnings due to weak prices prevailing through the third quarter.

With inventory levels of aluminium remaining high while demand is still weak, prices have been mostly sluggish this year and earnings will reflect this trend.

Part of the sluggish demand can be attributed to the slow growth in China, the continuing debt crisis in the Eurozone while the U.S. economy is yet to gain growth momentum.

Global macroeconomic conditions have been unchanged since the second quarter and conditions prevailing in the last quarter are still there. The second quarter saw the company reporting decline in revenues and profits on a both sequential and year-on-year basis.

The third quarter is also expected to be on similar lines. In the second quarter Alcoa had lower realised aluminium and alumina prices and this offset the growth in downstream engineered products and gains due to improvement in productivity.

Forbes has estimated Alcoa's shares prices at $10, a 10 percent premium to the current market price. But this may change if the earnings results are different than expected.

In the second quarter Alcoa had reported revenues of $5.9 billion, down slightly from Q1 2012 as well as Q2 2011.

Operating income declined to $61 million compared to $105 million in the previous quarter. Operating income was significantly down from Q2 2011 as realized prices were significantly down from the prior year’s levels.

Shares of AA are trading flat.

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