Here’s Why Alcoa Reads CAUTION

Analysts are worried Alcoa’s (NYSE:AA) expected decline when the largest U.S. aluminum producer announces earnings on Monday afternoon may set the tone for a disappointing second-quarter earnings season. Alcoa is being predicted to report an 84 percent fall in second-quarter earnings as high global production keeps aluminum prices low.

Don’t Miss: Alcoa Quarterly Earnings ON DECK.

Alcoa is typically the first company in the Dow Jones Industrial Average to report earnings. In addition, its performance also reflects other larger economic trends because aluminum is used to manufacture several products, including airplanes and automobiles, as well as in other industries such as construction.

According to average estimates, Alcoa’s profit, excluding one-time items, will be 5 cents a share. The company’s aluminum-smelting unit is predicted to be the worst performer, while its downstream fabricating business, which supplies components to Ford Motor (NYSE:F) and Boeing (NYSE:BA), among others, has been relatively profitable. The primary metals unit is expected to post an $86 million after-tax operating loss, according to Citigroup. Company chief executive Klaus Kleinfeld had said during an April 10 conference call that global aluminum use will rise 7 percent this year.

Global aluminum production grew 4.1 percent to 14.9 million metric tons in the first four months of the year, exceeding consumption by 623,703 tons, according to Bloomberg. The metal’s average price is expected to at $2,188 a ton in the third quarter, while the fourth-quarter price is likely to be at $2,275.

Rivals have also suffered. The first-quarter profit of Russia’s United Company Rusal, the world’s largest producer, fell 90 percent. Rio Tinto Group (NYSE:RIO), the second-largest producer, said it had cut production output by 15 percent at a smelter in New Zealand. Norsk Hydro also posted a 90 percent fall and announced last month it would shut 120,000 tons of capacity at a smelter in Australia.

Alcoa’s stock has dropped 47 percent over the last year to be the worst performer on the Dow Jones index.

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