Alcoa's 1Q16 Earnings: Brace Yourself for Earnings Season
Alcoa’s downstream business
Alcoa (AA) will be split into two publically traded companies later this year. While the upstream company will be called Alcoa, the downstream business will fall under the new company, Arconic. Previously in this series, we noted that lower commodity prices could weigh heavily on Alcoa’s 1Q16 upstream earnings. Now, we’ll explore what you can expect from Alcoa’s downstream business in 1Q16.
Alcoa’s guidance
Alcoa’s downstream business comprises three segments—Engineered Products and Solutions, or EPS; Transportation and Construction Solutions, or TCS; and Global Rolled Products, or GRP. Alcoa expects the ATOI (after-tax operating income) of its GRP segment will be flat in 1Q16 as compared to both 1Q15 and 4Q15, assuming constant-currency rates.
In the EPS and TCS segments, Alcoa expects the ATOI will be flat or marginally higher as compared to 1Q15. However, in the EPS and TCS segments, Alcoa has accounted for currency fluctuations in its 1Q16 guidance.
Note that a stronger US dollar (UUP) has hurt the competitiveness of US-based primary aluminum producers like Alcoa and Century Aluminum (CENX) in the last few quarters. Non-US-based producers including Rio Tinto (RIO) and Norsk Hydro (NHYDY) managed to bring down their unit production costs due to the dollar’s strength.
There are a few other crucial metrics that you should watch for in Alcoa’s 1Q16 earnings. We’ll discuss these in the next part of this series.
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