Alcoa (NYSE:AA) is set to kick off the fall earnings season on Wednesday, October 8. The world’s third largest producer of aluminum will look to reinvigorate its year-long rally by posting a second consecutive quarter with at least 90% year-over-year earnings growth.
Just over 1 year ago Alcoa was dropped from the Dow Jones Industrial Average along with Hewlett-Packard (NYSE:HPQ) and Bank of America (NYSE:BAC). Since being dropped from the index, shares of Alcoa have coincidentally rallied higher, nearly doubling over the past calendar year.
Last quarter Alcoa announced a $2.85 billion deal to acquire Jet-engine components producer Firth Rixson. In the wake of the Firth acquisition, Alcoa has maintained its focus on aerospace by signing several large-scale deals including a contract to sell jet-engine parts to Pratt & Whitney and a $1 billion deal to supply aluminum products to jet builder Boeing (NYSE:BA).
On Wednesday, contributing analysts on Estimize are expecting Alcoa’s earnings to jump to 22 cents per share, up from 11 cents in the same quarter of last year. Although analysts are expecting a large bump on the bottom line, revenues are forecast to come in mostly flat. The Estimize community is predicting that Alcoa will report sales of $5.783 billion, just slightly ahead of the Wall Street consensus of $5.781 billion. Neither the Estimize community nor Wall Street forecast represents much of an improvement from the $5.770 billion in revenue reported in the same quarter of last year.
Over the past several months, the Wall Street revenue consensus has surged while the Estimize consensus has continued to push higher. The timeliness of estimates is highly correlated with accuracy and the directionality of analyst revisions are often a leading indicator. This quarter both the earnings and revenue consensuses from Wall Street and Estimize are climbing going into the report, which is often a bullish signal.
Alcoa has reported floundering profits in several quarters over the past 2 years. As a result of having a few quarters with very low earnings per share, the year-over-year profit growth metric has been relatively high several times. When Alcoa increased its third fiscal quarter EPS from 7 cents per share to 18 cents per share in June, that 9 cent increase amounted to a 157% yoy gain. Likewise this quarter, if Alcoa reports in-line with the Estimize community at 21 cents per share, that would constitute a 91% year over year increase to profits.
Earnings have been starting to perk up at Alcoa, but the revenue landscape is bleak by comparison. Alcoa hasn’t posted a single quarter with at least 1% revenue growth in any of the previous 8 quarters and is not expected to on Wednesday either.
This quarter, buy side and independent analysts on Estimize are taking a conservative approach to Alcoa’s earnings release. The Estimize community is forecasting that Alcoa will report a marginal sales increase in tandem with real earnings growth. Contributing analysts see profits growing by 10 cents per share (91%) compared to last year, but are not banking on quite as much growth as the Street is calling for.