Alcoa Earnings Elevated By Robust Aluminum Prices and Declared First Ever Dividend

Aluminum producer Alcoa reported better than expected third quarter earnings on Thursday. $AA profits boosted by aluminum prices rising 64% yr/yr and 13% sequentially with the commodity squeeze and a recovering global economy. AA increased buybacks program and declared its first-ever dividend.

Aluminum producer Alcoa reported better than expected third quarter earnings on Thursday. $AA profits boosted by aluminum prices rising 64% yr/yr and 13% sequentially with the commodity squeeze and a recovering global economy. AA increased buybacks program and declared its first-ever dividend.

Alcoa Smelting

Alcoa Corp NYSE: AA Reported Earnings After Close Thursday

$2.05 Beat $1.80 EPS AND $3.11 Billion Beat $2.9 Billion Forecast in Revenue

Earnings

Alcoa Corporation third quarter earnings and revenue results beat estimates as elevated aluminum prices continued to support performance. Adjusted EPS has risen from $(1.17) in 3Q20 to $2.05 this year, beating consensus by $0.25. Revenue growth jumped 31.5% yr/yr to $3.1 billionand 10.0% sequentially topping analysts’ estimates of $2.9 billion. Alcoa stock has rallied strongly since a strong report in Q2 to prices not seen since 2018 after hitting 2020 lows of around $5 per share.

This was AA’s fourth consecutive quarter beating by double-digits.

Market reaction: Alcoa NYSE $AA $56.56 +$7.90 +16%

Highlights

“It’s a very good time to be in the upstream aluminum business. We have a long position in all three of our segments and the work that we’ve accomplished while continuing has made us more competitive, enabling us to succeed through the commodity cycle, because of this work we are well positioned to capture benefits from improved markets, including the very healthy aluminum prices that we’re currently seeing,” CEO Harvey said.

  • Much of this growth can be attributed to aluminum prices rising 64% yr/yr and 13% sequentially due to tight availability and a recovering global economy that is seeing a ramp-up in manufacturing.
  • Along with solid demand, a continual tightness in supply is also helping push aluminum prices higher.
  • The group also declared a quarterly dividend of 10 cents per share — the first since its ‘downstream’ split in 2016 — and unveiled plans for a $500 million boost to its share repurchase program, taking the total to $650 million. One of China’s highest aluminum-producing provinces was forced to operate only two days a week last month.
  • AA started seeing similar energy shortages and policy enforcement in Europe in Q3, also contributing to tight supply.

Outlook

  • Expects aluminum prices to remain elevated in Q4 as AA’s end-markets are experiencing swift recoveries.
  • A major factor in this stems from China curtailing its capacity in connection with power shortages and the enforcement of energy and environmental policies.
  • Although AA is benefiting from high commodity prices, it is also experiencing headwinds from high commodity prices.
  • Certain raw materials and plenty of energy resources are used to refine and smelt aluminum, and AA expects those input costs to continue climbing in Q4.
  • AA expects Q4 volume to offset rising input costs.
  • Although AA did not provide detailed guidance, the company expects Q4 earnings to come in better than Q3 as aluminum prices remain high and alumina (used often in metallic paints, among many other industrial uses) sees prices continue to recover.

The risk with commodity companies is they are highly exposed to the cyclicality of its end markets. These industries are undergoing a robust recovery, which clearly supports AA while aluminium prices remain elevated. 

Alcoa Q3 21 Earnings

Outlook

Alcoa said it estimates “Global aluminum demand for full-year 2019 is now estimated to be lower year-over-year, ranging between -0.6% and -0.4%, compared to the previous quarter’s estimate of growth between 1.25% and 2.25%. The change is driven by weakening macroeconomic conditions, trade tensions, and contracting manufacturing activity, especially in the global automotive sector,” the company said in a statement.

 

About Alcoa

Alcoa is a global industry leader in the production of bauxite, alumina and aluminum, a position enhanced by a portfolio of value-added cast products and select energy assets. Since developing the aluminum industry more than 130 years ago, Alcoa has built a legacy of breakthrough innovations and best practices that have led to efficiency, safety, sustainability and stronger communities wherever we operate.

Source: Alcoa

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