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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