Courtesy of Benzinga.
Falling aluming prices and rising inventories may hold back Alcoa’s (NYSE: AA) guidance and could overshadow a second-quarter report that, at first blush, might look OK versus fast-sliding expectations.
Alcoa is expected to report earnings of $0.05 per share after the bell.
However, that might be not so impressive. Earnings had been $0.32 per share a year earlier. Earlier in the quarter, Alcoa had been expected to earn as much as $0.15.
Analysts started slashing estimates due to lower aluminum prices that threaten to eat away at the company’s profit margin. Aluminum that fetched around a $1 per pound at the end of March dropped as low as $0.83 toward the end of the quarter – nearly a two-year low.
One of the biggest concerns going forward is how aluminum prices might weigh on future earnings. Lower natural gas prices – one of the main inputs in aluminum production – may not provide much upside to margins if prices continue to fall. Recent productivity gains may not help as much, either.
The company’s outlook is now a far cry from what CEO Klaus Kleinfeld described just three months earlier. Back in April, Kleinfeld saw a strengthening North American business, growth in all segments in China, and a European business that was still “hovering along”.
The company had increased its 2012 growth projection for its aerospce business just three months ago, driven by strong demand for large commercial aircraft. It also continued to see rising demand from automakers that are under pressure to make lighter vehicles to boost MPG.
Yet, it’s Europe’s continued woes, a stronger U.S. dollar and the sliding aluminum price that are all expected to be topics on the company’s conference call – perhaps trumping what the company may say about aerospace and autos.
The $9 price will be worth watching. It’s near-term price resistance, as well as the most active options strike. Call volume out-weighed put volume at more than a 4-to-1 ratio on Monday ahead of Alcoa’s report.
